Q2 2025 Rockwool AS Earnings Call
Horst: For the first half and second quarter of 2025, afterwards, we will be ready to answer all your questions. Before I hand over the word to Jens Birgersson, I must remind you on slide number two, on the forward-looking statement, please be aware that this presentation contains uncertainties. Now we can go to the next slide.
Speaker #1: For the first half and second quarter of 2025, afterwards we'll be ready to answer all your questions. Before I hand over the word to Jens, I would like to remind you to look at slide number two regarding the forward-looking statement, and please be aware that this presentation contains uncertainties.
Speaker #1: Now we can go to the next slide, slide number three. As you all are aware, the construction industry is still very much challenged in the macro context.
Jens Birgersson: Slide number three. As you all are aware, the construction industry is still very much challenged in the macro context, owing to an increased uncertainty and geopolitical turmoil. At least from our side, we do not expect that to change for the rest of the year. For us, the revenue in the first half increased by 1%, where the acquisitions we made in October last year contributed with a 2% increase. As expected, the decline in our Russian performance, in our group performance, influenced the group, and without Russia, the organic growth would have been stable. Pricing had a neutral impact in the first half year, where inflation and sales prices, by large, were offsetting each other. As expected, the EBIT margin declined now to a 15.8%.
Speaker #1: Owing to, an increased uncertainty and geopolitical turmoil, and, at least from our side, we do not expect that to change for the rest of the year.
Speaker #1: For us, the revenue in the first half increased by 1%, where the acquisitions we made in October last year contributed with a 2% increase.
Speaker #1: As expected, the decline in our Russian performance in our group performance influenced the group, and without Russia, the organic growth would have been stable.
Speaker #1: Pricing had a neutral impact in the first half of the year, where inflation and sales prices were largely offsetting each other. As expected, the EBIT margin declined to 15.8%. However, we think the result is acceptable as it comes on the back of an unusually high performance in both North America and Russia last year.
Jens Birgersson: However, we think the results are acceptable as it comes on the back of an unusually high performance in both North America and Russia last year. If I go to the Q4 highlights on the next page, you will see that in Q2, sales were affected by fewer working days and a continued decline in Russia. Also, the record high performance in North America last year made the comparisons, so the comparables to last year, very difficult. The construction industry, as I said before, is significantly affected by geographic turmoil and particularly the related trade and tariff issues we are facing, which has led to a row of delays in projects in the pipeline. I can come back to that during Q&A, but it is particularly something we see in the US, where we see strong pipelines and ongoing quotation, but simply not the orders being placed.
Speaker #1: If you go to the Q4 highlights on the next page, you'll see that in Q2, sales were affected by fewer working days and a continued decline in Russia.
Speaker #1: Also, the record high performance in North America last year made the comparisons to last year very difficult. The construction industry, as I said before, is significantly affected by geographic turmoil, particularly related to trade and tariff issues we are facing.
Speaker #1: We have recently experienced a series of delays in projects within the pipeline. I can elaborate on that during the Q&A, but it is particularly something we see in the U.S., where we observe strong pipelines and ongoing quotations, but simply not the orders being placed.
Speaker #1: On the EBIT margin, the Q2 results were affected by three main factors. First of all, provisions for closing down the factory in Trondheim in Norway.
Jens Birgersson: On the EBIT margin, the Q2 results were affected by three main factors. First of all, provisions for closing down the factory in Trondheim in Norway, and three longer-than-planned production stoppages. The stoppages in themselves were planned; they were just taking longer to perform. Secondly, we had higher spending in capacity expansion projects and our ongoing decarbonization than we had last year. Last but not least, the continued decline in Russia business has also affected our margins. In short, we believe we have navigated well during a very challenging quarter, especially when we compare to the very high Q2 last year. I will turn to page number five regarding our first half-year revenue. When I look at the insulation business, the insulation segment, the 1% revenue growth was driven by technical insulation and our acquisition in wall systems, and also from our North American business.
Speaker #1: And three, longer-than-planned production stoppages. The stoppages, in themselves, were planned; they were just taking longer to perform. Secondly, we had higher spending in capacity expansion projects and our ongoing digitalization than we had last year.
Speaker #1: And last but not least, the continued decline in Russia business has also affected our margins. In short, we believe we have navigated well during a very challenging quarter, especially when we compare it to the very high Q2 last year.
Speaker #1: I'll turn to page number five regarding our first half-year revenue. When I look at the installation business, the installation segment, the 1% revenue growth was driven by technical installation, our acquisition in wall systems, and also from our North American business.
Speaker #1: That was on the other side, upset with the slowdown, primarily in Eastern Europe, as I said, particularly in Russia. And here, just to repeat, acquisitions accounted for 2% of the revenue growth.
Jens Birgersson: That was on the other side upset with a slowdown, primarily in Eastern Europe, as I said, particularly in Russia. Here, just to repeat, acquisitions accounted for 2% of the revenue growth. In our systems segment, the 1% revenue decrease was driven by our Grodan business due to lower sales in the legal cannabis market in North America. Our Lapinus and Rockpanel business had single-digit increases, while our acoustic Rockfon Q1 business was flat compared to last year. When I look at the Q2 revenue, it was down 2%, and sales in the beginning of the second quarter of 2025 were particularly impacted by the fact that Easter fell in April, which has actually reduced the quarter by 2% working days, so to say.
Speaker #1: In our systems segment, the one percent revenue decrease was driven by our Gordain business due to lower sales in the legal cannabis market in North America.
Speaker #1: Our lappiness and rock panel business had single-digit increases, while our acoustic rock phone business was flat compared to last year. When I look at Q2 revenue, it was down 2%.
Speaker #1: And sales, in the beginning of the second quarter of 2025, were particularly impacted by the fact that Easter fell in April, which actually reduced the quarter by two percent in working days, so to say.
Speaker #1: Sales were, in general, difficult in April and May, but actually improved towards the end of the quarter in import markets such as France, Spain, and the United Kingdom, and there was actually a little uptick also in the U.S.
Jens Birgersson: Sales were in general difficult in April and May, but actually improved towards the end of the quarter in important markets such as France, Spain, the United Kingdom, and actually a little uptick also in the US. Insulation segment, specifically, the 2% revenue decrease was driven by a slowdown in Eastern Europe, as just mentioned, and here mainly Russia. In the systems segment, the 2% revenue decrease in the quarter was again driven by Grodan, as I just mentioned. When I look at the sales or the revenue by regions, you can see that Western Europe was flattish, and in Western Europe, there were actually also some markets that did well with double-digit growth in the UK, Italy, and Spain, where we had Germany with a small decline and a double-digit decline in the Nordic countries.
Speaker #1: Installation segment, specifically, the two percent revenue decrease was driven by a slowdown in East Europe, as just mentioned, and here mainly Russia. And in system segment, the two percent revenue decrease in the quarter was, again, driven by gordain as I just mentioned.
Speaker #1: When I look at the sales or the revenue by regions, you can see that Western Europe was flattish. However, in Western Europe, there were actually some markets that did well, with double-digit growth in the UK, Italy, and Spain.
Speaker #1: We had Germany with a small decline and a double-digit decline in the Nordic countries. In France, the French government has a renovation support scheme that has been temporarily paused due to overwhelming demand for these funds. Although sales picked up again towards the end of the quarter for us.
Jens Birgersson: In France, the French government has a renovation support scheme that has been temporarily paused, actually due to an overwhelming demand in these funds, and although sales picked up again towards the end of the quarter for us. In Eastern Europe and Russia, as I said, we saw a decline, and sales in Poland, on the other hand, started picking up at the end of the quarter. In the United States, we compare to a record high and unusual high Q2 last year, although demand remains strong. There is still a lot of this wait and see, as I briefly alluded to before, in the market, and the hesitations are driven and due to the ongoing uncertainties around inflation and around tariffs, with our customers and their customers looking to greater clarity before placing the actual POs or orders on the projects existing in the pipelines.
Speaker #1: In Eastern Europe and Russia, as I said, we saw a decline; however, sales in Poland, on the other hand, started picking up at the end of the quarter.
Speaker #1: In the United States, we compared to a record high and unusually high Q2 last year. Although demand remained strong, there's still a lot of wait-and-see in the market, as I briefly alluded to before.
Speaker #1: And the hesitations are driven, and though due to the ongoing uncertainties around inflation and around tariffs, with our customers and their customers looking to greater clarity before placing the actual POs or orders on the projects existing in the pipelines.
Speaker #1: Page eight is about the quarterly profitability, which decreased. And in short, just to take it from the top, the EBITDA is down ten percent, from two hundred and fifty-three million euro, to two hundred and twenty-seven million euro, which is, resulting in a two point one percentage point lower EBITDA margin, due to lower operational efficiencies in a couple of factories, and unfavorable unfavorable country and product mix.
Jens Birgersson: Page eight is about the quarterly profitability, which decreased. In short, just to take it from the top, the EBITDA is down 10% from €253 million to €227 million, which is resulting in a 2.1% point lower EBITDA margin due to lower operational efficiencies in a couple of factories and unfavorable country and product mix. If we look at the EBIT margin for the quarter, it landed at 15.5%, a larger decrease than the EBITDA, and that is due to a higher depreciation from our larger investment program and write-downs relating to the closure of the factory I mentioned in Norway, in Trondheim. In total, the restructuring provisions and the write-downs related to the factory closure amount to around €5 million. Excluding the acquisitions made last year, EBIT margin would have been 15.7%. All in all, we believe that considering the global uncertainties and macroeconomics, these results are acceptable.
Speaker #1: If we look at the EBIT margin, for the quarter, it landed at fifteen point five percent, at a larger decrease, than the EBITDA, and that is due to a higher depreciation from our larger investment program, and write-downs relating to the closure of the factory I mentioned in Norway.
Speaker #1: In Trondheim. In total, the restructuring provisions and the write-downs related to the factory closure amount to around five million euro. Excluding the acquisition acquisitions made last year, EBIT margin would have been fifteen point seven percent, and all in all, we believe that considering the global uncertainties and macroeconomics, these results are acceptable.
Speaker #1: I'll turn to page number nine, where we look at the segments and profit. Looking at the installation segment, profitability, the EBIT margin in the installation segment was down 2.9 percentage points compared to Q2.
Jens Birgersson: I'll turn to page number nine, where we look at the segments and profit. Looking at the insulation segment profitability, the EBIT margin in the insulation segment was down 2.9% points compared to Q2 last year, and this is largely impacted by what I said before and the negative country mix. In the systems segment, profitability declined compared to last year, and this was driven by lower revenue and decrease of profitability in the Grodan business, as I mentioned. To the next page 10, which is our investment activities, you will notice that we also now outlook hold onto our investment activities, and this is reflected here, as we believe in the long-term demand for our products, and we remain very optimistic about the future. That's why we continue to invest in capacity expansion, our own decarbonization, manufacturing technologies to improve productivity, and importantly, digitalization of our business.
Speaker #1: Last year, and this is largely impacted by what I said before, and the negative country mix. In the segment system segment, profitability declined compared to last year, and this was driven by lower revenue and a decrease of profitability in the Gordain business, as I mentioned.
Jens Birgersson: Our biggest investments here in the last quarter were related to capacity expansions in Romania, where we're currently in a sold-out situation, and in the United States, an electrification of product lines in our large factories in the Netherlands, in Roermond, and in France in Saint-Lois. Then I have a piece of good news I just wanted to share with you, and that is that we have gotten the building permit for our new factory in Soissons in France, something that we have been waiting for for quite a while, but now we have the building permits and can also start the construction there. A quick look at the cash flow on page 11, where we had a free cash flow of €84 million, which generated a net cash position of €86 million. Then, because it's half year, we have one slide just briefly talking to our sustainability goals.
Which is our investment activities. You will notice that the we also in our Outlook holds on to our investment activities. And there's this reflected here as we believe in the long-term demand for our products, and we remain very optimistic about the future. And that's why we continue to invest in capacity expansion, our own decarbonization Manufacturing Technologies to improve productivity and importantly digitalization of our business.
Romania, where we're currently in a sold-out situation, and in the United States, an electrification of product lines in our large factories in the Netherlands and in France is underway.
Then I have a piece of good news I just wanted to share with you, and that is that we have gotten the building permit for our new factory in Swan, France. This is something that we have been waiting for for quite a while. But now we have the building permits and can also start.
the construction there.
A quick look at the cash flow on page 11, um, where we had a free cash flow of...
84 million euro.
Uh, which generated a net cash position of €86 million.
Then, uh, because it's half a year.
Jens Birgersson: All in all, here with the one slide, let me start with safety, which is a top priority in Rockwool A/S, where we did not live up to our own expectations and where we regrettably actually had a fatality and a couple of incidents in the first half year. We, of course, spent quite a lot of resources on investigating what went wrong and share lessons learned among our factories. All in all, the LTI rate has improved over last year, but for the last two quarters, we had these incidents. On the sustainability side, we are progressing as planned, actually ahead of plan, both on the SDG-related goals with the baseline 2050, and you see that on the left of the slide, and the SBTI-related targets, scope one and two, that's, of course, a baseline 19, you see on the right side.
Uh, we have one slide, uh, just briefly talking to our sustainability goals. All in all, uh, here with the one slide. Let me start with safety, which is a top priority at Rockwool. We did not live up to our own expectations, and, uh, regrettably, we actually had a fatality and a couple of incidents in the first half of the year.
We, of course, spent quite a lot of resources on investigating what went wrong and sharing lessons learned among our factories.
All know, all the LTI rate has improved over last year, but for the last two quarters, we had these incidences.
Jens Birgersson: We are quite on track here and keep on investing into these targets. We are also on track with the remaining SDG-related goals, although we used more water during the first half of 2025 due to a lower use of recycled and reused water, as well as some timing differences in cleaning and maintenance activities. All in all, very well on track with our sustainability efforts. Last but not least, page 14, the outlook for the full year, and I'm sure what you noticed yesterday mostly, and just a few comments to that. While adjusting our outlook to reflect the uncertainties that we see in the market, and that is very much also why we did this adjustment, we do stay committed to investing for the long-term value creation.
On the sustainability side, we are progressing, as planned, actually ahead of plan both on the SDG-related goals, uh, with the Baseline 2050, and you see that under the left of the slide. And the SBTi-related targets, Scope 1 and 2, that's of course a baseline uh 2019 you see on the right side.
And we are quite on track here. And we will keep on investing into these targets.
We are also on track with the remaining SG-related goals. Although we used more water during the first half of 2025 due to a lower use of recycled and reused water.
As well as some timing differences in cleaning and maintenance activities.
But all in all, uh, very well on track with our sustainability efforts.
Jens Birgersson: It's a very varied macroeconomic environment that we operate in, and with the ongoing geopolitical uncertainty that we keep on seeing and expect the near term to be constraining some of our key markets, particularly in North America, we had to make this small adjustment to our outlook. Assuming no major changes in the current conditions, and based on the first half-year performance in 2025, we expect that our full-year revenue will be at level with last year in local currencies compared to the previous outlook, where we had an outlook of low single-digital revenue growth in local currencies. We, of course, continue to monitor the market condition and assess the possible impact on performance across the organization. We will adjust capacity and activity level if needed.
Last but not least, uh, page 14, the outlook for the full year and I'm sure what you noticed yesterday mostly. Um, and just a few comments to that while adjusting our Outlook to reflect the the uncertainties that we see in the market and that is very much also, why we did this adjustment, we do stay committed to investing for the long term value creation.
It's a very big macroeconomic environment that we operate in, and with the ongoing geopolitical uncertainty.
That we keep on seeing and expect the near term to be constraining. Some of our key markets, particularly in North America, we had to make this small adjustment to our outlook.
So, assuming no major changes in the current conditions, and based on the first half year performance, in 2025, we expect that our full year revenue will be at the level of last year in local currencies, compared to the previous outlook where we had an outlook of low single digits of revenue growth in local currencies.
Jens Birgersson: Based again on the first half-year earnings level and the ongoing efforts, we forecast now an EBIT margin below 16% compared to the previous outlook, where we had an EBIT margin formulated to be around 16%. The large investment projects are on track, and the investment level around 450, excluding acquisition, is a target we maintain also in our outlook. These were the main comments to the slides. We will now open up for questions. I do not know if you can hear me, but there are some technical issues, so just stand by as it gets fixed. It is our understanding that you can hear us. We can unfortunately not hear you, so we keep on working on resolving this technical issue, so stand by.
We, of course, continue to monitor the market conditions and assess the possible impact on performance across the organization, and we will adjust capacity and activity levels if needed.
Based again on the first half year earnings level and the ongoing efforts, we forecast now an EBIT margin below 16, compared to the previous outlook where we had an EBIT margin formulated to be around 16.
The large investment projects are on track, and the investment level is around $450 million. Excluding acquisitions is a target. We maintain, also in our outlook.
These were the main comments on the slides.
And, uh, we will now open up, uh, for questions.
I don't know if you can hear me, but there are some technical issues. So, just stand by as it gets fixed.
Um, it's our understanding that you can hear us. We, unfortunately, cannot hear you, so we keep on working on resolving this technical issue.
Issues. So stand by
Operator: This is the operator speaking. I will join you back into the conference call.
Okay, so this is the operator speaking. I will join you back into the conference call.
Jens Birgersson: We should be ready now.
Um, we should be ready now.
Christian from SEB: Excuse me, this is the operator again. We have the host line back again.
This is the operator. Again, we have the host line back again.
Kim Andersen: We are now ready for questions. I know that Christian from SEB are the first in line. I hope that we can open up your line, Christian.
We are now ready for questions.
And I know that Christian from ACB is the first in line. I hope that we can open up your line question.
Christian from SEB: I can hear you. Can you hear me?
Kim Andersen: Yes, we can.
Is that I can hear you. Can you hear me?
Yes, we can.
Christian from SEB: Excellent. You dropped out just before you were going to talk about your EBIT margin guidance. Fortunately, that is exactly what I was planning to ask you to begin with. Chris, I am a bit puzzled why you have chosen an open-ended guidance. When you say below 16%, what do you actually mean? Do you mean 15% to 16% or 15.5% to 16%? Your growth guidance is fairly specific. Can you just elaborate a bit on what you are trying to communicate by saying below 16%?
Excellent. Well, um, you dropped out just before you were going to talk about your even Martin guidance. So uh, fortunately that is exactly what I was planning to, to ask you to begin with because I, I'm a bit puzzled. Why you have chosen an open-ended guidance? Uh, so when you say below 16%, what do you actually mean? Do you mean 15 to 16 or 15 and a half to 16? Because your growth guidance is, is very specific. So can you just elaborate a bit on on, on, on on what you're trying to communicate by saying below 16%?
Jens Birgersson: What we are trying to say, it is closer to 16% than 15%.
What we're trying to say is that it's closer to 16 than 15.
Christian from SEB: That is quite clear. Then to your comments about North America and the slowdown or delay which you are referring to, maybe trying to dig a bit deeper into this. What segments are primarily impacted, and what is the reason for these customers sort of delaying projects in these given segments? Is it the direct impact of tariffs? Is it consumer sentiment? Do you have any more details exactly what is driving this?
Okay.
That is uh, quite clear.
Um, then to your comments about North America and the slowdown or delay which you are referring to.
Maybe trying to take a bit deeper into this. So, what statements are primarily impacted and?
Sort of.
Billing projects in this segment—is it a direct impact of consumer sentiment due to terrorism? I mean, do you have any more details on exactly what's driving this?
Jens Birgersson: I can elaborate quite a lot on that. That is the most important vector in us changing our outlook, is the market sentiment in Canada. It is very important for me to say Canada and the U.S. Let me elaborate a little bit on that. It is also important for Kim Andersen and I to say that this change has been quicker, and I do not mind saying somewhat dramatic here the last few weeks. That is also why we feel we needed to make these adjustments to the outlook. Let me elaborate. I have just been to Canada and the U.S. to meet with our teams and meet with large customers. When I say customers, then it is distributors that I am talking about, or contractors that we sell to. The following picture is what we see in Canada and what we see in the U.S.
Yeah, I can elaborate quite a lot on that. And, and that is the mo the most important Vector in our changing, our Outlook, is the market sentiment in Canada. It's very important for me to say Canada and the US. So let me elaborate a little bit on that and it's also important for Kim. And I to say that this change has been
Quicker and and and roma is saying somewhat dramatic here, the last few weeks. Um and that's also why we feel we needed to make these adjustments to the Outlook. Let me elaborate and I've just been to Canada and the US, uh, to meet with our teams and meet, uh, with the large customers. And when I say customers, then it's Distributors that I'm talking about all contractors that we sell to
Jens Birgersson: It is that the pipelines of projects are very strong. It is projects we are mainly in industrial commercial segments. The commercial industrial segments have strong pipelines with our customers. There is also still quotation activities going on. If you take some applications, it is warehouses or industrial buildings, where we, for instance, deliver flat roof products to. These many products that are in the pipeline, many of them are affected by the end customer being uncertain about the future and hence delaying them. They are not getting canceled as we see it now. They are just getting delayed. When we ask them why they are getting delayed, it is the uncertainty that they are facing themselves. Tariffs are the big driver, but it is not necessarily the direct tariffs. Sure, steel prices and other things have gone up, also making these projects more expensive.
And the following picture is, uh, what we see in Canada and what we see in the US. It is that, um, the pipeline projects are very strong.
In its projects, we are mainly in the industrial and commercial segments. The commercial and industrial segments have strong pipelines with our customers, and there are also still quotation activities ongoing. If we look at some applications, we have warehouses and industrial buildings where we, for instance, deliver flat roof products.
But these many products that are in the pipeline, many of them are affected by the end customer being uncertain about the future and hence delaying them. They're not getting canceled, as we see it now. They're just getting delayed.
And when we asked in to them why they are and why they're getting delayed, it is the uncertainty that they are facing themselves.
Jens Birgersson: It is also the end customers of, for instance, warehouses that are concerned about how their businesses are going to be affected by tariffs. There are a couple of other macroeconomics, you know, the interest rate in the U.S., which direction is it going? We see particularly Canada being hard hit. I was in Toronto, the Quebec area, that has been a growth driver for much industry, where it is almost a standstill that has happened. Throughout the U.S., we see the same and hear the same across our distributors. These are very, very large distributors that have activities throughout the U.S. and Canada. So it has been fast, and it has been, maybe this is dramatic is not the right word, but significant. That is unusual. I mean, I have been in the building material industry most of my career, 14 years in the U.S.
Tariffs are is the Big Driver, but it's not necessary, the direct tariffs. Um, sure, steel prices and other things have gone up. Also making these projects more expensive. But also the end customers of, for instance, warehouses that are concerned about how their businesses are going to be affected by tariffs.
Then there's a couple of other macroeconomics, you know, the interest rate in the U.S.? Which direction is it going?
We see particular Canada being hard hit. Uh I was in Toronto the Quebec area that has been a growth driver for much industry where it's almost a standstill that has happened. But also throughout the the us we we see the same and here the same across our Distributors and these are very, very large Distributors, that had a activities throughout the US and Canada.
So, it has been a fast, and it has been...
Jens Birgersson: I have only seen once or twice in financial crises and COVID such quick change of sentiment. Again, I do want to stress that it is not that there are not projects available. There are in the pipeline. They have been quoted, and quotation continues. They are just not being put, you know, they do not put in the POs, as we call it. They do not cut the POs, so it does not lead to sales. When that will become, you know, released, when that uncertainty gets released, I simply do not know. That is, of course, the challenge we have now. How long will this last, and to what degree will it continue? I hope that was helpful.
Maybe this dramatic is not the right word, but significant. Um, that is unusual. I mean, I've been in the building material industry for most of my career; the 14 years in the U.S., I've only seen this once or twice in a financial crisis and such quick, uh, change of sentiment. Um, and again, I do want to stress that it's not that there are not projects available; they are in the pipeline, they have been quoted, and quotation continues. They're just not being, you know, they don't put in the pose, as we call it; they don't cut the pose.
So, it doesn't lead to sales when that will become, you know, released. When that uncertainty gets released, I simply don't know. And that, of course, is the challenge we have now: how long will this last and to what degree will it continue?
Christian from SEB: Okay. Thank you. Yes, definitely helpful. If I may just ask a last adjacent question, because we have previously been talking about you actually running out of capacity in North America and having to look at importing products. This slowdown in sales and demand, how is that impacting your capacity plans?
Jens Birgersson: Well, we still assess this to be a temporary situation. The big question is, of course, how long they will last. The good news for us, and that is where we are focusing on, is that we still have a small market share in the US, and we hence have a lot of opportunities in developing additional customers, additional applications, and additional geographies. That is what the teams are doing now. Because it has happened fairly fast, and because we came from this sold-out situation, it takes a little bit of time then to move into these other channels. One area that is actually strong in the US still, that is the, we call it the big box. That is the Lowe's and the Home Depots. They would grow simply because our product is still gaining market share.
I hope that was helpful. Okay, uh, thank you. So yes, it definitely helpful. Um, if if I may just ask a last situation question, because we previously been talking about you actually running out of capacity in North America, and having to look at the at importing products. So, so this slow down in, in in sales and demand how is that impacting Your Capacity? But
Geographies. And that's what the teams are doing now. But because it has happened fairly fast, and because we came from this sold-out situation, it takes a little bit of time then to move into these other channels.
Jens Birgersson: It is hard for me to say whether or not big box is doing well. It is simply because we are growing shelf space in the retail arena.
1 area that is actually strong in the US still. Um, that is the, we call it the big box. Uh, so that's the lows and the Home Depots. Um, and there it grows simply because, uh, our product is still gaining market share. Um, so it's hard for me to say whether or not Big Box is doing well. Uh, it's simply because we're growing uh, shelf space in in, in the retail Arena.
Christian from SEB: Excellent. That was all for me. Thank you so much.
Excellent. Uh, that was all for me. Thank you so much.
Operator: The next question is from Klaus Almer of Nordea. Please go ahead.
Jen is from cloud.
Christian from SEB: Thank you. Also, a few questions from my side as to the guidance. I am a little bit unsure what your assumption behind the guidance is. You were saying in the report that you do not see any major changes to the current trading environment. Is that compared to what you saw in Q2? Is it what you see in Q3? That would be the first question.
Customer of Nora, please go ahead.
Thank you. Yeah, also a few questions from my side regarding the guidance. I'm a little bit, you know, unsure what your assumptions are behind the guidance. So you are saying in the reports that you don't see any major changes to the current trading environment. Is that compared to what you saw in Q2, or is it what you see in Q3? That would be the first question.
Jens Birgersson: is what we see now. I mean, we simply do not know when this situation will improve. I am here talking particularly about the U.S.
It, it's what we see now. I mean, we simply don't know when this situation will improve. And I'm here talking particularly about the US.
Christian from SEB: So that should mean that you are assuming a very difficult North American rest of the year, which is a little bit difficult to get that to match up with slightly down revenue in the second half versus first half.
Jens Birgersson: No, that is our outlook. That is what made us make the adjustment to the outlooks.
The rest of the year is that we can look at physical to get that to match up with a slightly down revenue in the second half versus the first half.
No, but that is the, that is uh that is our Outlook and that is what made us made the the, the adjustments to the the outlooks.
Christian from SEB: Okay. Then about the profitability, it seems like you are also assuming it is still a stable pricing environment. Is that correct?
Okay.
Jens Birgersson: That's what we've seen so far. We, I think I told you in one of the previous calls that we have instilled a pricing drumbeat of a couple of percent. It varies by market, and we still see that the prices are holding. They're sticking, as we call it. We've had a little bit more than 1% points pricing. This is an average number. It's quite different when you look country by country, and we see sticking.
It seems like you are also assuming a still stable pricing environment. Is that correct?
That's what we've seen so far. Uh, that we, uh, I think I told you in the 1 of the previous, uh, calls that we have instilled, uh, uh, a pricing drum beat of a couple of percent and it varies by market, uh, uh, and that we still see that the prices are holding the sticking as we call it. And we've had the a little bit more than a 1 percentage points, uh, pricing is and this is an average number. It's quite different when you look country by country. Um, and that, that we
You see sticking.
Christian from SEB: Oh, yeah. I know. It seems like pricing is still keeping up pretty healthy. The reason, you know, a high single-digit price increase you did in the US, I guess that has nothing to do with the very short, strong decline you have observed within a few months.
Jens Birgersson: This also takes into account what the competitors are doing. We see prices go up in the US on building materials. So, yes.
Oh yeah, I know it seems like, you know, pricing is still keeping up pretty healthy. So the reason, you know, a high single-digit price increase you did in the U.S. I guess that has nothing to do with a very short, a strong decline you have observed in the last few months.
I did this, which also takes into account what the competitors are doing, and we see prices go up in the U.S. on building materials.
So yes.
Christian from SEB: Okay. My final question, staying in the US, as you said, you are going to try to penetrate new channels. Would that be possible to do at the current pricing level, given how low the activity level you in general are seeing in the US?
New, new channels, so to speak. Would that be possible to do at the current, you know, pricing level?
Giving how how low?
Jens Birgersson: Yes, in general, yes. It is really, we have a very low single-digit market share in the US, where in Canada, we are around 12%. There is a lot of space to maneuver on. The challenge operationally has been that we have been in a sold-out situation, so we did not want to open up too many new customers and disappoint too many customers. Now we are in a different situation, so we are opening up new customers and also new geographies, including the West Coast, where we get our new factory in Walula, a jumbo line. We use this period also to develop the West Coast, not least the Californian market, which is very promising to us. A market that is not only looking at energy efficiency, but you can imagine that fire and fire protection is something that is of great concern in California.
Which level are you seeing in the U.S.?
Yeah. In in general yes it is. Um it is really we have a way you know, slow single digit market share in the US um where in Canada, we are around 12%. So there's a lot of space to maneuver on but the challenge operational has been that we have been in a sold out situation. So we didn't want to open up too many new customers and disappoint. Too many customers.
Jens Birgersson: We simply have so many opportunities in the US that we now can keep on developing.
But now in a different situation. So we're opening up new customers and also new geographies including the West Coast where we get our new Factory in vilula uh a jumbo line. And and then we use this uh period also to develop the West Coast, not least uh the Californian Market, which is very promising to us a market. That is not only looking at Energy Efficiency, but you can imagine that Fire and Fire Protection is is something that is of great concern in California. So we simply have so many opportunities in the US that that we now that that we can keep on developing
Christian from SEB: That sounds great. So that was all for me. Thank you so much.
That sounds great. That was all me. Thank you so much.
Operator: The next question is from Pujarini Ghosh of Bernstein. Please go ahead.
The next question is from Pujarini, Gosh of Burning Team. Please go ahead.
Pujarini Ghosh: Hi. Thanks for taking my questions. One question on Eastern Europe. Can you say that the decline is exclusively driven by Russia, or have some of the other European countries also seen some declines? You mentioned Romania, Slovenia, these have been growing, and Poland also returned to growth by the end of the quarter. My second question, coming back to the EBIT margin guidance, could you talk us through the different moving parts on pricing, which you mentioned was slightly positive, and then raw material costs, wages, energy, and then what led you to this slight decrease in the margin guidance from around 16% to just under 16%? Thank you.
Questions. So 1 question on Eastern Europe uh so can we say that the decline is exclusively driven by Russia or some of the other European countries have also seen some decline because you mentioned Romania Slovenia, these have been growing and and Poland also returned to growth by the end of the quarter.
And my second question. Uh, coming back to the ebit margin. Guidance, could you talk us through the different moving Parts on on pricing which you mentioned was was, uh, you know, slightly positive, and then raw material cost wages energy um and then you know what led you to this slight decrease in the margin guidance, from around 16 to just under 16%
Thank you.
Jens Birgersson: The decline in Eastern Europe is Russia that has moved that. Other important markets is Poland, where we so far have had a flattish development. We see an uptick in Poland, by the way, also a little bit stronger prices there. Then we have a couple of countries, but not so large, that they can fully cater for the Russian decline, actually having good growth. I think Romania is one of the ones we have mentioned several times, where we actually are growing double-digit, and actually are in a sold-out situation. So we have to bring in products from other regions to cater for that. Then your second question.
The decline in Eastern Europe is, uh, it is Russia that has moved that. Um, another important market is Poland, where we so far have had a flattish development.
We see an uptick in Poland, by the way. Uh, also a little bit stronger prices there, and then we have a couple of countries, but not so large that they can fully cater for the Russian decline. Actually, having good growth, I think Romania is one of the ones we've mentioned several times where we actually have growing double digits and are actually in a sold out situation, so we have to bring in products from other.
Regions to cater for that.
Um,
Kim Andersen: We were just trying to keep track of your question, Pujarini. I think it was about pricing. As you just said here, we have managed to go with the pricing drumbeat in most places. In aggregate, for the first half, we have between 1% and 1.5% positive pricing for the group. What was your third question?
and then your second question.
Yeah, we were just trying to keep track of your question, which I need. I think it was about pricing, and yes, just a...
Set here that we have managed to go with the pricing drum, beat most places, and in aggregate for the first half, we have between 1% and 1.5% positive pricing for the group.
And what was your third question? Um,
Pujarini Ghosh: No, no. I was actually trying to get to your margin guidance assumption. I wanted to talk about the different moving parts. Pricing has increased, but maybe some of your costs have decreased, which has led you to decrease the EBIT margin guidance slightly. Can you talk about the cost part?
No, no. So I
Was actually trying to get.
I wanted to talk about uh you to talk about the different moving parts. So pricing has increased but maybe you know some of your costs have decreased which has led you to uh
Decrease the EBIT margin guidance slightly. So, can you talk about the cost part?
Kim Andersen: As I also mentioned here for the first half, pricing and increased input costs more or less offset each other. We have had a higher fixed cost base, or OPEX base, as we are recruiting in more engineers and digital people to help us to build more capacity in the coming years. There is nothing here in the second half of the year, neither on pricing or on inflation on our input cost, that has any material impact on the guidance on the EBIT margin. That is, as again, Jens Birgersson said, primarily the uncertainties we have in North America, which today is a higher profitability region than it used to be. So it is a bit of a negative country mix or regional mix, if you want to.
As as we as also, yes, mentioned here for the first half pricing and um, increased input cost more or less offset each other. We have had um a higher fixed cost base uh Opex base. As we are recruiting in more engineers and digital people uh to help us to um to build more capacity in the coming years. Um, there's nothing here in the second half of the Year, neither on pricing or on inflation.
Noah, input cost. That has any material impact on the guidance, on the, um, on the IIT Martin. That is, as again, yes, said, primarily the uncertainties we have in North America with today, is a.
A a higher probability, um, region than than than it used to be. So that it is a bit of a negative country mix of regional mix. If you if you want to
Pujarini Ghosh: Okay. Thank you.
Okay, thank you.
Operator: The next question is from Chase Covland of Kepler Cheuvreux. Please go ahead.
The next question is from Chase Kavan of Campaign. Please go ahead.
Alexander Kremerch: Thank you. Good morning all, and thank you for taking my questions. I have two. To start off, regarding maintenance CapEx. Over the last few years, of course, we have seen your maintenance CapEx grow, both in absolute terms, but also as a percentage of sales. I think you mentioned in the press release that your factory maintenance costs were higher than usual in Q2. Can you elaborate a bit on what is driving that exactly? Is that a structural change that we could expect to continue going forward, or is this really a one-off?
Thank you. Uh, good morning, all, and thank you for taking my questions. I have 2. Um, to start off.
Yeah, regarding maintenance capex. So, actually, over the last few years, of course, we've seen your maintenance capex grow both in absolute terms and also as a percentage of sales. I think you mentioned in the press release that your factory maintenance costs were higher than usual in the second quarter. Can you elaborate a bit on what is driving that exactly? And is that a sort of structural change that we could expect to continue going forward, or is it really a one-off?
Jens Birgersson: will let Kim Andersen also give you more detail, but it is also an operational issue, therefore I am jumping in. When you have situations where the factories are not running at 100% capacity, then we are also trying to squeeze in more maintenance. So it becomes a timing issue, if you understand what I mean. You do not want to do maintenance on factories that are at full capacity. So because we have areas that are not utilizing our capacity at full, then we have chosen to make some upgrades and cleaning, whatever it takes. So there is a special effect coming in there.
I'll let Kim also give you more detail, but it's also an operational issue there. Therefore, I'm jumping in. When, um, you have a situations where where the factories are not running at 100% capacity. Then we're also trying to squeeze in more maintenance, so it becomes a timing issue. If you understand what I mean, you don't want to do my maintenance on factories that are the full capacity. So, because we have areas that are not utilizing, our capacity is full. Then we have, uh, shows and to, to make some, uh, you know, upgrades, uh, and, you know, cleaning whatever it takes. So, there's a special effect coming in there.
Kim Andersen: On the maintenance OPEX part, the one that is impacting the Q2 results, we have already mentioned that we had three longer than planned factory stoppages that did cost us some money in the second quarter. I can also quantify that for you. It was about €5-6 million more than a normal maintenance period. That happened in Q2. It amongst others included a fire in a small transformer station in the UK, but also a lining shift in one of our cupolas. There are major breakdowns that we didn't anticipate in Q2.
On the maintenance Optics part. Uh, I the 1 that is impacting the Q2 results. Um, we have already mentioned that we had, uh, 3 longer than planned, um, uh, Factory stoppages. Uh, that did cost us some money in the second quarter. And I can also quantify that for you. It was about 5 6 million euro.
More than a normal maintenance period, so that happened in Q2. It, amongst others, included a fire in a small transformer station in the UK, but also a lining shift in one of our couplers. So they are major sort of breakdowns that we didn't anticipate in Q2.
Alexander Kremerch: Okay. That is very clear. Thank you. My second question just regarding working capital. I think you mentioned it was a bit less favorable in Q2. I see as a percentage of sales, it also increased, I think, almost 1% point. Can you just talk about the expectations for the second half here? What should we expect by year-end 2024? Is there some unwinding, or what is your internal view there?
Kim Andersen: Yeah, it is quite a natural seasonal flow. As I said, we normally build up in the second quarter capacity, or you can say inventory capacity. Then we use that here in the autumn period. So our expectation is that it is going to come down again in the second half, the inventory levels. That is the primary driver behind the working capital increase.
Okay, that's uh, very clear. Thank you. And then my second question just regarding working capital. Um, I think you mentioned there was a bit less favorable. Um, the second quarter, I see as a percentage of sales but also increase, I think almost 1 percentage points. So, can you just talk about the expectations for second half here? What should we expect by by year? End 24? Is there. Some unwinding, or what's your, uh, what's your internal view there? Yeah, it is quite a natural, seasonal flow. Um, we as I said, we we normally build up in the in the second quarter. Um, capacity or you can say inventory capacity, and then we use that here in the, in the Autumn period. So, our expectation, is that it is going to come down again in the second half the inventory levels, and that's the primary driver behind the, the working capsule increase.
Alexander Kremerch: Okay. Perfect. Thank you very much, gentlemen.
Okay, perfect. Thank you very much, gentlemen.
Operator: The next question is from Alexander Kremerch of Kepler Cheuvreux. Please go ahead.
The next question.
Of the, please go ahead.
Alexander Kremerch: Hello. Alexander Kremerch from Kepler Cheuvreux here. I am just wondering, with the Russo-Ukraine conflict approaching a possible end, what the total capacity is that you have in Russia currently. If the export restrictions would be lifted, how much of that capacity would be possible to direct to export markets? My second question would also be on capacity. Congratulations on the French building permit. That is nice to hear. I was just wondering if that is the original plans and capacity you were talking about. Thank you.
Hey, hello, Alexander from Capture. Um, yeah, I'm just wondering, with the Russo-Ukrainian conflict approaching a possible end, I was just wondering what the total capacity is that you have in Russia currently. And if the export restrictions were lifted, how much of that capacity could be directed to export markets? The second question would also be on capacity. I mean, congratulations on the French building permit; that's nice to hear. I was just wondering if this aligns with the original plans and the capacity we were talking about. Thank you.
Jens Birgersson: We really hope for peace in Ukraine as quick as possible. What it then means for sanctions or access to assets in Russia, I simply don't want to speculate. I don't know it better than you. I simply don't want to go out and speculate in that. The French factory is going to be one of our modern setups with an electric melter, a so-called jumbo line. It's 110, about north of 100,000 tons, so one of the bigger factories.
I really hope for peace in Ukraine as quickly as possible.
What it then means for sanctions or access to assets in Russia. And I simply don't want to speculate. I don't know it better than you. As I, I simply don't want to go out and speculate in that.
Um, the French um factory is uh going to be one of our modern setups, with the electric melter, a so-called jumbo line. Um, it's 110, uh, north of 100, uh, uh, uh, thousand tons or one of the big, bigger factories.
Operator: The next question is from Zain Bikawi, sorry, from JP Morgan. Please go ahead.
The next question is from Kiawah Bajwa. Sorry. Uh, from JP Morgan. Please go ahead.
Kim Andersen: Morning. Thanks for taking my questions. The first would just be on Europe. Appreciate there has been a lot of commentary on the hesitation in North America, but what are you seeing in the recent trends in Western Europe? Second, as you grow out your capacity expansion projects into next year, can we see CapEx being materially higher? How can we think of leverage, any chance you will be in a net debt position in the coming years? If I can squeeze one last one in, obviously, margins have been quite volatile in recent years. What do you think the normalized margins for Rockwool A/S should be? Do you think there is scope to grow these further with a volume recovery? Thank you.
Morning, thanks for taking my question. Um, the first was just to be on your appreciation. There's been a lot of commentary on the hesitation in North America. But what are you seeing in the recent trends in Western Europe? Um, and then second, you know, as you grow your capacity expansion projects into next year, can we see CapEx being materially higher? And how can we think of leverage? Um, any chance you'll be in a net debt position in the coming years? And maybe if I can squeeze one last one in, obviously margins have been quite volatile in recent years. Um, what do you think the normalized margins for Rockwool should be? Um, and do you think there's scope to grow these further with the volume recovery? Thank you.
Jens Birgersson: Let me take the first one. Let us talk a little bit about Europe. Europe is, like in our last call, a very mixed bag of market situations and performance. However, at large, we can say the more south we look, the better it goes. The more north we go, the tougher the market is. I do not think there is a built-in logic in that other than that is just how it is. If we take it from the good news first, we are doing really well in Spain, in Italy, Croatia, Romania, where we actually are in sold-out situations and need to bring in material from our large feeder factories in Germany.
That we take the first 1, let's talk a little bit about Europe um and Europe is like in our last call, a very mixed bag of of Market situations and and performance. However, uh, at large, we can say the more south uh we look the better it goes. And the more North we go the, the top of the market is. Uh, I don't think there's a built-in logic and that other than that, just how it is.
Jens Birgersson: Our very important French market is after a difficult period picking up a little bit again, a place where we did have to be a little bit tactical on some pricing in some projects, but it is starting picking up again. As I said before, Poland has been flat, but we also see a better outlook in Poland. Then we have Germany as our, of course, super important market for us. That is very sluggish, flat, a little bit down at times. There in Germany, I do think I said before, there is a lot of wait and see around the large stimulus packages that Germany has announced, but we have not seen effects of yet. Quite a lot of those funds are directed towards energy efficiency and upgrading infrastructure.
Um so if we take it from the the good news first, um we we are doing really well in in in Spain in Italy, Croatia Romania. Um where we actually are in sold out situations and and need to bring in a material from our large feeder factories in in, uh, in in Germany.
Also, our very important market, the French Market, uh,
Had to be a little bit tactical on some pricing in some projects, but starting to pick up again.
As I said before, Poland has been flat, but we also see a better outlook in Poland.
And then we have Germany as our of course, super important market for us that is is very sluggish, flat a little bit down in at times. Um, and and there in Germany is um, I I do think I said before. There's a lot of wait and see around, uh, the large stimulus packages that Germany has announced, but we have not seen effects of yet.
Jens Birgersson: I must say we have not seen it yet and also do not expect to see any effect of this calendar year. I have no reason to think that it is not going to be activated. It is just not having an effect in the market this year. The UK is doing really well, which is we were in Cardiff yesterday. As you know, we are planning for a new factory in Birmingham. That market is doing really well, very robust, driven by not only energy efficiency discussions, but at large also fire. Then the last but also least attractive market right now is the Nordics, where we see countries like Denmark and Sweden being extremely subdued, particularly in the industrial commercial arena. The flat roof business that is one of our strongholds is down dramatically. The market is simply, there are no big projects right now.
Quite a lot of those funds are directed towards, um, energy efficiency and upgrading infrastructure.
But I must say we haven't seen it yet and also don't expect to see any effect of this, uh, this calendar year.
I have no reason to think that it's not going to be activated; it's just not having an effect, uh, in the market, uh, this year.
UK is doing really well, um, which is the we're in Cardiff yesterday. Um, and as you know, we are we are planning for a new Factory in in, in the Birmingham. Um, and that market is is doing really well. Very robust driven by not only Energy Efficiency discussions. But we're at large also fire.
And then the last, but, uh, also least, uh, attractive market right now is the Nordics.
Uh, where we see countries like Denmark and Sweden being extremely, uh, subdued, uh, particularly in the industrial commercial arena, the flat roof business. Uh, that is one of our strongholds.
Jens Birgersson: The volume in those markets are down 30-40%. Not our numbers, but the market is down. I hope that gave you a little bit of flavor. We have talked to Russia about Russia and Russia's impact on our numbers. That was a little bit tour de force through Europe.
Uh, down dramatically. Um, the market is simply, there are no big projects right now. Um, and the volume in those markets is down 30-40%.
Uh, so not our numbers, but the market is down.
So that I hope that gave you a little bit. Um a flavor and then we have talked to Raj about Russia and Russia's impact on our numbers. So that was a little bit too of the force through Europe.
Kim Andersen: On the CapEx and the size of the CapEx, it is clear that we have started construction in more factories, and that, of course, costs money. We are operating within the boundaries that I think we have previously talked about, that the board is quite conscious about having a very solid balance sheet, and they do not want to see an equity ratio below 60%. We can operate with debt today, but of course, we have been in a fortunate situation where we have been able to generate more cash in the last three or four years than we have spent, and thereby having a net cash position. We have also, that is stipulated also in our dividend policies and you can say capital structure policies in the annual report that the board set sort of a limit that we will operate on a leverage to EBITDA below 1.
On the capex, um, uh, and the capital. The size of the capital is clear that we have started construction, um, more factories. And that, of course, uh, costs money. Uh, we are operating within the boundaries that I think we have previously talked about, that the board is quite conscious about, uh, having a very solid balance sheet and they do not want to see an equity ratio below 60.
Kim Andersen: But that, of course, means that in a period, we could think about a situation where we are taking in debt to finance the necessary capacity investments.
Uh, that we can't. We operate with that today. Uh, but of course we have been an unfortunate situation where we have been able to, to generate more cash in the last 3 or 4 years than than we have spent and that by having a net cash position, we have also an that is stipulated also in our um, uh, dividend policies, and you can say structure policies in the annual report that, uh, that the board, uh, will set sort of a limit that we will operate, uh, on a leverage to below 1. Uh, but that, of course, means that in a period, we could think about a situation where we are taking in depth to finance the necessary capacity Investments,
Operator: The next question is from Cedar Eglon of Morgan Stanley. Please go ahead.
Pujarini Ghosh: Thank you very much, gentlemen. I have got two questions, one on the US and one on Russia. Firstly, on the US, can you talk about where you expect margins for this region to develop to once assets are fully ramped up? Appreciating that that is a few years away, it would just be helpful to understand how expansion in the US might change group margins. Do you expect those assets to have a similar level of profitability to your European business, or do you think it might be higher or lower, and for what reasons? That would be helpful for a bit of color. Secondly, on your Russia business, it really does seem that a lot of the miss in the quarter and the downgrade to the outlook is around Russia.
The next question is from Sedar, Egg Bloom of Morgan Stanley. Please go ahead.
Thank you very much, gentlemen. I've got two questions: one on the U.S. and one on Russia.
Um, firstly on the U.S., can you talk about where you expect margins for this region?
To develop to 1's assets are fully ramped up, appreciating that that's a few years away. It would just be helpful to understand how expansion in the U.S. might change group margins. Um, do you expect those assets to have a similar level of profitability to your European business? Or do you think it might be higher or lower? And for what reasons? That would be helpful for a bit of color.
And then secondly, on your Russia business, it really does seem that a lot of the myths in the quarter and the downgrade to the outlook is around Russia.
Pujarini Ghosh: I understand that you do not have much visibility on this asset, but considering how material this is to earnings and to the stock price, it would be helpful to get a little bit of color on how you see the margin of your business threshold, how you see the margin in Russia developing at the start of the third quarter, if you have any visibility on that. I am not sure how often you get reports from the local team there. Maybe you could give us some color just around how much of the EBIT margin cut is Russia linked. I know in the past you have not been willing to give a lot of color on this asset, but to be honest, it is really material for your stock price and your earnings at the moment.
um,
I understand that you don't have much visibility on this asset, but considering how material this is to earnings and to the stock price.
It would be helpful to get a little bit of color on how you see the margin of your business, Thrasher.
The third quarter, if you have any visibility on that, I'm not sure how often you get reports from the local team.
Pujarini Ghosh: So a little bit more help would be very much, very, very well taken. Thank you.
Um, and then maybe you could give us some color just around how much of the EBITDA margin cut is Russia linked. Um, and I know in the past you haven't been willing to give a lot of detail on this asset. But to be honest, it's really material for your stock price and your earnings at the moment. So a little bit more help would be very much, um, very, very well taken. Thank you.
Jens Birgersson: Let me start with thank you for the questions, Cedar. Let me start with the U.S. And yes, you are asking to predict something in two, three years from now. But we have above group level profitability on margins in the U.S. and expect to maintain that, also with the new capacities coming in. So I do not see why a reason that would change.
Let me start with, um, thank you for the questions, Z. Um, let me start with the U.S.
Um, yes, you're asking me to predict something in 2 to 3 years from now, but, um, we have an above group level profitability on margins in the U.S. and expect to maintain that, um, also with the new capacities coming in. So I don't see why, uh, there is a reason.
uh,
Pujarini Ghosh: Can you put some numbers around the gap? Is it a 200 basis point improvement relative to group average? Is it 100 basis points?
Jens Birgersson: No, no, no. For competitive reasons, we do not do that. You can do some desk research by looking at material prices in the US versus Europe. I think you get a fairly good idea of the price points Europe versus North America across product categories.
That would change. Can you can you put some numbers around what they can? Can you put some numbers around the Gap? Like is it, a 200 basis? Point Improvement relative to group average, is it 100% points? I mean, no, no. We we, for competitive reasons we don't do that. But, um, you you, you can do some, uh, desk research by looking at material prices, in, in the US versus, uh, Europe. And I think you get a fairly good idea of, uh, the price points in Europe versus, uh,
Versus North America, cross-product categories.
Pujarini Ghosh: Okay.
Jens Birgersson: About Russia, let me start it, and then Kim Andersen can help me. I have to explain to this group that it is a passive health asset. We have no interaction with the group over there. We only get a couple of numbers on a regular basis. I have no insight into the market. I do not talk to our leadership over there. I have no idea how the Russian market is developing. That is very, very unusual, but that is just the situation. As you know, they are fully cut off from our IT systems. They do not use our brand. They do not share our IPs. I have no insight in the Russian market. The decline was expected and has no impact on our outlook. That is not why we made the adjustments.
About Russia, let me start it and then can help me. Um, I I have to explain to this group that it is a it's a passive Health Asset. We we have no interaction with the group over there. We only get a couple of numbers, uh, on on a regular basis. I have no insight into the market. I don't talk to our leadership over there. I have no idea how the Russian Market is developing. Um, that is way very unusual but that's just the situation. As you know, they are fully caught off from our it systems. They don't use our brand, they don't share our IPS. Um, so I have, I have no Insight in the Russian Market. Um, the, the decline has was expected, uh, and has no impact on our Outlook. That's not why we made the adjustments.
Operator: The last question comes from Pierre Rousseau with Barclays. Please go ahead.
The last question comes from Pierre Rousseau with Barclays. Please go ahead.
Alexander Kremerch: Hello, gentlemen. Thank you for taking my question. On your different capacity additions, there is a lot in the pipeline. Opportunities in Sweden, in the US, in the UK, and then France, Baden-Württemberg, and also India. Could you frame a little bit the timing and CapEx around all of these? They are super material. For the time being, we do not have very precise guidance. The second question would be a small one about systems margins. What are your expectations going forward? Do you have reasonable hopes that margins could start recovering anytime soon? Thank you.
Hello, gentlemen. Thank you for taking my question. Um, on your different capacity additions, there's a lot in the pipeline, so there's opportunity in Sweden and in the U.S.
UK, and then unlock, and also India.
Could you frame a little bit? Um, the timing and capex around all of these, um, because they are super material. Um, and, um, for the time being we don't have very precise guidance. Um,
The second question would be a small one about systems and margins. Um, what are your expectations going forward? Do you?
Have a reasonable hope that margins could start recovering any time. So, thank you.
Jens Birgersson: Yeah, for competitive reasons, we do not give very great detail about exactly which factories open when, also not with which product types and at what cost. But the next ones I can say that are going online is Romania, where we are far with the, and it is India, importantly, where we are also very far with the construction work. We do not give long-term guidances, so I cannot answer that. I only got half of your questions on systems, but I think you asked about the margin improvement in systems. We have a row of activities going on in the systems divisions. It is a very, you know, it is a portfolio of products. So the numbers you see are averages across. Some of them are performing really well. Some need an uplift in performance.
Um, yeah, for competitive reasons, we don't give very great detail about exactly which factories open when also, not with which product types and and and at what cost. But the the next 1's, uh, I can say that that are going on online, um, is, uh, Romania, um, where we're far uh, with the. And it's India importantly, where we're also very far, uh, with the the con construction, uh, work. Um, so we we don't keep long term guidances. Uh, so I I, I can't, uh, answer that. I I only got half of your questions on systems, but I think you are asked about the margin Improvement in systems. We
Jens Birgersson: And we have a performance improvement catalog of activities going with the usual suspects, everything from price to cost outs and other efficiency measures. So we are actively looking at how to improve the system business margins.
We have a a a a row of activities going on in the systems divisions. Uh, it is a bay, you know? It's it's a portfolio of products. So the numbers you see are are averages across some of them are performing really well. Some need an uplift in performance and we have a performance Improvement, catalog of activities, going with with The Usual Suspects, everything from price to uh, cost outs and and other efficiency measures. So we are actively looking at how to improve the the system business, uh, margins.
Alexander Kremerch: Okay. Maybe just one follow-up, if I may, on the recruitment and OPEX investment in IT and engineering capacity. Do you think that should continue in the second half, or are you happy with your current capacity now?
Recruitment and and all that investment in in, in it and Engineering capacity. Um, do you think that should continue in, in the second half, or are you happy with your current capacity now?
Jens Birgersson: No, we are continuing the hiring of engineers and digital personnel. So it will take a tick up.
No, we are continuing the hiring of engineers and digital personnel, so it will take a tick up.
Kim Andersen: Obviously, right now, Piers, as we are recruiting these new people in, they are right now not assigned to a specific project, so they are expensed off in OPEX. But we do, of course, plan to use some of these resources on some of the CapEx projects, and then they will go into a capitalization of cost instead.
obviously right now, PS as we are recruiting, these new people in, they are right now. Um, uh, not assigned to a specific project, so they are expensive in Opex. Uh, but we do of course uh plan to uh use some of these resources and some of the the capex projects and then they will go into a, a capitalization of cost instead.
Alexander Kremerch: Understood. Thank you.
Understood, thank you.
Operator: The next question is a follow-up from Cedar Eglon of Morgan Stanley. Please go ahead.
Pujarini Ghosh: Thanks very much, guys. I had a follow-up there. Apologies. Would you consider guiding excluding your Russian business, considering you have no real influence or oversight on that region? If not, what is the rationale for keeping it as part of the group guidance? Thank you.
The next question is a follow-up from Cedar at Bloom of Mark and Stanley. Please go ahead.
Thanks very much guys. I had a follow-up, the apologies um would you consider guiding excluding your Russian business? Considering you have no real in influence or oversight um on that on that region and um if not what is the rationale for keeping it? As part of as part of the the group guidance, thank you.
Jens Birgersson: We will not guide on Russia alone. We do still get the dividends, although we have this passive ownership. We do get dividends from them, and that is why we keep them in the total numbers.
We will not guide, uh, on on Russia alone. We do still get the dividends, uh, although we have this passive ownership, we do get dividends from them and that's why we keep them in the, in the total numbers.
Operator: The next question is from Anders Christian Pritzmann of Danske Bank. Please go ahead.
The next question.
This is from Anders Christian Fritzmann of Dance Bank. Please, go ahead.
Alexander Kremerch: Thank you very much. Hi. Just one question from my side. You mentioned that the sales have been challenged in the months of April and May, but improved towards the end here in Q2 in important markets such as France and the US. I was just wondering if this positive trend has continued into Q3 so far, and what you currently see in particular for the US. Thank you.
Thank you very much. Uh, hi. I just have one question from my side. You mentioned that the sales have been challenged in the month of April and May, but improved towards the end here in Q2 in important markets, such as France and the United States. I was just wondering if this positive trend has continued into Q3 so far, and what you currently see, in particular for the U.S. Thank you.
Jens Birgersson: Thank you. That gives me an opportunity to clarify that because, yes, the trend has improved for France and a couple of other countries in Europe. It has not in the US. We did see an uptick in the end of Q2, but here the last few weeks, we have seen this dramatic stop and slowdown. No, the US has not improved. That was temporary in Q2.
Thank you. That gives me an opportunity to clarify that because, um, yes, the trend has improved for France, um, and a couple of other countries, um, in in Europe, it has not in the US, so we did see it uptick in the end of Q2. But here, the last few weeks we have seen this dramatic. Uh, stop uh, and slow down. Uh, so no, the US has not improved. That was temporary uh, in Q2.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Horst for any closing remarks.
Question and answer session. I would like to turn the conference back over to the host.
Kim Andersen: Thank you very much. First of all, of course, I must apologize for the technical blip that we had in the call today. First time in my time that we have had this, but I hope you all survived this. We would like to thank you for the earning call today and all the good questions. I appreciate your interest in Rockwool A/S. If you have further questions, you are free to call me. You can also find the contact details in the Rockwool Investor Relations website. Thank you very much. Have a nice day.
For any closing remarks.
Yeah, thank you very much. And first of all, of course, I must apologize for the technical, uh, blip that we had in the, in the call today. First time, in my time that we have at this but, uh, I hope you all, um, sort of survive. This, we like to thank you for the earning call today. Um, and all the, the good questions and um, appreciate your interest in, okay, and if you have further questions, you are, uh, free to call me. Uh, and you can also find the uh contact details in The Helpful investor relationship. Websites. Thank you very much. Have a nice day.