Rockwool A/S

CSE:ROCK B

Good day to everyone, and welcome to ROCKWOOL A/S conference call regarding the results for the full year 2024. My name is Kim Junge Andersen. I'm the CFO of ROCKWOOL A/S. Today, I'm pleased to present the CEO, Jes Munk Hansen.

[Operator Instructions]. As a reminder, this conference call is being recorded. First, yes, I will go through our presentation and give you an update of the results for the full year and the fourth quarter of 2024. Afterwards, we'll be ready to answer all your questions. [Operator Instructions].

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.

Yes, I will now hand over the word to you.

Thank you very much. My name is Jes Munk Hansen. I'm the CEO of ROCKWOOL. Welcome to this conference call. I'll start my presentation on Slide #3. And I'm sure you have all seen our press release, but I'll add some flavor to the various numbers here.

We had a very strong growth this year. It was primarily driven by volume and took our top line up with 6% in local currencies, 7% in reported numbers. Our earnings also were in line with what we told you last time at the latest outlook for the full year ended at 17.5% EBIT.

I do want to highlight the North American performance, which is very strong, but we'll come back to that in more detail in a couple of slides.

Great to notice that net profit is at the highest we have ever achieved, allowing us to declare dividends to our shareholders of DKK 63 per share, which is almost a 50% increase over last year.

The strong cash flow also allows us for a new share buy program of EUR 150 million for the coming periods.

I'll move to Slide #4. If I look at, again, Q4 highlights. The weather was with us. It was much asked and discussed in the last call, but the weather turned out in our favor and we had a normal end to the year with no major disruptions to construction activity.

So in Q4, we grew 4% on the top line, 2% of these are acquired growth, so 2 percentage points of the 2 acquired companies we had; hence, 2% organic growth. We saw a very good growth in the U.K. and again, in the U.S. market, which was partially offset by a decline in France, Poland and in our Russian arena. In the quarter 4, we ended our EBIT at 16.7%.

I'll move to Slide 5. The full year 2024 revenue which was up 6% in local currencies, as I said. If we look at the segments. Insulation segment, revenue was up 8% last year, which we are very satisfied with. One of the drivers of growth was a strong demand for our technical installations.

The Systems segment revenue experienced low growth, mainly due to Grodan and our Rockfon businesses declining, while our smaller units in Rockpanel and Lapinus had positive growth. And the Rockfon business, I can add here, which is our acoustic products, was affected by the -- particularly affected by lower activity level in investments in renovation in offices in Europe.

If we look at Slide #6, our Q4 revenue is up 4% in local currencies, as I said before. And here, the Q4 revenue you can see for the 2 segments. Insulation segment for the quarter, revenue was up 6% compared to the year before, and this includes acquisitions of the 2 companies, which are 2% was added to the growth.

The Systems segment revenue was down 3% in the quarter, particularly with Rockfon North America and Rockpanel showing positive growth trends.

Then I'll move to Slide #7. And maybe one of -- the 2 of you quickly noticed a small change on this slide. We have added North America as a now separate reporting region. And we have done this because the growth that we're encountering right now, particularly in the United States, calls for that we want to increase the transparency on this region's importance to the overall group.

If I just walk us briefly through on the slide, the various regions, you see Western Europe up 2%, and that was mainly driven by the acquisitions in the U.K. where the U.K. in itself and Spain performed well and then we had some declines in our own home market, Denmark and Italy.

Eastern Europe, down 3%, and revenue decreased in the quarter level in Poland, Hungary, and particularly in the Russian arena. However, Romania remains a strong growth for us. And then you have the new reporting region, so to say, we now can see that we have a 15% growth also in reported figures with a very strong performance, both in Canada and the U.S.

Last, but not least, Asia, up 12%. However, 4 percentage points of these are the acquisition of our Vietnamese factory. So I hope you appreciate this increased granularity. And you can also then see on the slide to the right that North America now is 19% of our total reported sales.

I move to the next slide. When I look at Q4 profitability, it improved again year-over-year, and we are very pleased with that, of course. We got a little bit of help, as I mentioned, from a favorable year-end weather condition. However, we performed also well operational. You can see EBITDA up 14% and EBIT up 21% year-over-year. It is, however, just important just to notice that we had a gain of EUR 8 million on the sale of a warehouse in Baltimore in the U.S.

If we move to Slide #9, where we look at profitability by business segments. Our Q4 profitability in the insulation side of the business continues to perform at very healthy margins. And we did also see an improvement in our Systems segment's margin development. I do want to highlight though that the variability you see in the system side, also the comparable, is driven by this impact of the sale of the warehouse in Q4 '24, and the comparable in '23 had a negative impact from a Rockfon restructuring in Sweden, just to be aware of that.

I move to Slide #10, which is our Q4 investment activities. And yes, we continue to be very optimistic about the future. And hence, we continue to invest in new capacity and new technologies to meet the demand for our products, of course. And I believe I said this last time, I just want to remind everyone that we, in 2024, committed to building new factories in United States, new factory in Sweden and a new factory in India. And we have also probably committed to additional production lines in Romania and also new production line in the U.S. in our Mississippi factory.

We have bought land for additional factories lately in the U.K. And then, of course, the 2 acquisitions I mentioned a few times are part of the investment activities in Q4. We have also bought land in Washington state, of course, related to this new factory in the U.S.

Last of the big CapEx expenditures in Q4 is the conversion of -- wrapping up the conversion of our e-melter technology in our Swiss factory in Flumroc and you can see up on the graph, the EUR 139 million CapEx spent during the quarter; and also there, you can see the high level of capacity expansion of EUR 81 million.

Importantly, when we look at cash flow on Page 11. The free cash flow was impacted by this role of acquisitions and investments that we made, the 2 acquisitions and the land purchase in U.K., Birmingham, are hitting the quarter there. Nonetheless, we generated a net cash position of EUR 281 million at the end of the year, which we believe is very satisfactory.

Page #12. As already mentioned, the good cash flow and our balance sheet allowed us to start a new program of EUR 150 million share buyback. I should maybe have started by saying that we completed now the buy back program that we started last year.

The last shares were bought in January, bringing it up to almost the EUR 160 million that were announced, and now we're starting a new round of EUR 150 million. So much for the financial numbers. We've decided on this call. On next slide, you will see that we would like to elaborate a little bit on our new reporting requirements here in EU. And the next 3 slides will give you a little bit of a flavor on those parameters.

As you know, this is the first time that we publish an integrated annual and sustainability report. I'm sure some of you have noticed that it also makes the report substantially longer. Nevertheless, we want to give you some more details, looking at our sustainability performance in 2024 and then also a little bit in the past.

I can tell you that we are progressing very well, both on the SDG-related goals where we have a baseline in '15 and then the science-based targets where we have a baseline in '19. So the slide you see in front of you here on the left are the SDG targets. As I said, that's a baseline '15; and on the right is the science-based targets, which have the different baseline year of '19.

Arguably, the most important one is the CO2 emission intensity which is basically how much CO2, we emit per tonne produced. And you can see up in the left corner under the SDG targets that our mission intensity is ahead of target.

It's a great performance, but of course, also something we are committed to continuing to do throughout the period 2030. We're also on track on the other SDG target-related goals. We had a little disappointment in the current year -- just completed here on the landfill side. But overall, we are also on track on that. It was just a little setback for this year.

I do have to unfortunately highlight an unsatisfactory element, and that is, of course, our safety scores, where we very unfortunately had a fatality, a contractor who passed during work in our Thailand factory, which, of course, is unacceptable with any measures and, of course, also impacts this report.

If I move to the next slide, which is specific to the science-based targets, give you a little bit more flavor on that. By the way, that's a picture of the factory in Switzerland that you see there, where we have installed this new e-melter that is performing at a very high level. You can maybe recall that when 2020 set absolute emission reduction targets, that's part of the science-based target setting. We did that in 2020.

And these, I must say, remain absolutely ambitious goals for a company like ROCKWOOL who is a fairly energy-intensive manufacturing company. I do want to say we are well on our way, and we are almost halfway there towards these absolute targets that we have set for 2034; details, I can say it's 47% we have reached of the targets we have set for '34.

Last year, the Scope 1 reduction was mainly driven by the conversation of this electric melter you see on the picture in Switzerland. And just as an example, when we bring in our high-end technologies there, rapid CO2 reduction technologies, we see a reduction of CO2 of 75%, which actually accounts for around 25,000 tonnes of CO2.

Good. And again, I will highlight that electrification of our footprint is the biggest lever that we have. And that is, of course, what we keep on working on and that we have a very specific road map for. We have a very specific road map in converting our coal driven to low-carbon electricity. And as I have think shown here, we're making very good progress.

The last slide on the sustainability side of our reporting is Slide #15. This is about the EU taxonomy-alignment. I'm not sure that everyone on the call are from Europe. So just 2 sentences the taxonomy really, the EU taxonomy really covers activities that are made -- are making substantial contribution to 6 environmental objectives set out by the EU and we are doing well up against these. And we are eligible for these categories of taxonomy because construction and energy efficiency are part of the overall taxonomy framework.

If I start from the left on the slide, the alignment is highest for revenue, and that is simply because insulation contributes directly to reduction -- sorry, improvement in energy efficiency; and hence, to reduce energy consumption, which, of course, in turn, reduces emission. So that's why we have the highest alignment against the taxonomy framework.

The alignment in CapEx, if you're wondering, is a little bit lower. And it is simply because it's harder to match up CapEx spend to the taxonomy framework because it sometimes can be difficult to identify specific acquisitions of assets, machines or other assets to what degree they contribute directly to reduction of emissions. But overall, we're very pleased with the progress on that.

It was a lot of work to put together this extensive reporting this year, but we're very pleased with not only the reporting, but more importantly, what we have delivered over the period.

Good. I'll take a deep breath and then we look into -- sip of water -- then we look into 2025, the year that, of course, already has started. And again, you have seen in our press releases the key outlook dimensions that we report on. Sales at a low single-digit percentage, EBIT around 16% and investments around EUR 450 million.

If I can offer some flavor to it already before the questioning. I would say, we expect the continuation of the market dynamics that we saw in '24, which is, of course, characterized by the very slow growth in Europe, European construction if growth at all. We see modest growth and pockets of growth in North America and then country by country, some growth in Asia.

Importantly to you also that after a long period of relatively stable prices in aggregate, we have initiated modest price increases for the coming period. We call it our drumbeat that we have instilled here again. And despite the political market and, you could say, economic uncertainties that we see in 2025, we still expect revenue growth in the low single-digit percentages. And that's, of course, also in local currencies.

Also, our 4 businesses under the Systems segments are expected to contribute positively to growth in this calendar year. When I look at the 2 acquisitions we made last year, the Wetherby Building Systems and our Vietnamese insulation business, these will combined contribute around 1 percentage points of growth to the group in 2025.

Two notable developments we would like to highlight that have had significant impact on our 2024 business performance was and is that the U.S. is delivering above group average margins. And we believe that is sustainable also for the outlook into '25.

Secondly, we -- the business in Russia improved our group margins by 1 percentage point in '24 over '23. However, we do not see that as a sustainable contribution to the group. Lastly, I would like to say that we have assumed a higher level of operating expenses for this year and this is driven by very specific decisions to increase our resources in several areas, primarily for the planned investments in capacity and sustainability-related projects as well as a few digital initiatives benefiting both our factories and customers.

So these are basically engineers and IT marketeers that we are hiring here. Based on these assumptions, we hence forecast the EBIT margin around 16% for 2025. And this, I should also say it includes an expected donation of DKK 100 million to the foundation for the Ukrainian reconstruction.

That completes my walk-through and I'd like to open up for the question.

[Operator Instructions]. The first question comes from Ephrem Ravi with Citigroup.

Two questions. Firstly, can you give us a sense on the main moving parts between your margin of 13.5% in 2024 and the outlook for 16% in 2025? Specifically, how much do you see in price and how much in cost given the low single-digit growth in revenue, the delta would be mainly in cost? Would that be a correct thinking?

And secondly, on your investment plan for EUR 450 million, which is almost double what it was 6 to 7 years ago. Can you break that down into how much is maintenance, decarbonization and growth? And in that growth investment, I suppose it's mostly the new factories in U.S., Sweden, India and the new line in Romania?

Thank you, Ephrem. I think I'll allow myself to answer these 2 questions. I think the moving parts between the 2023 margin as I heard that you were asking about, around the 13% and then up to 2025 the guidance of 15%, it is obviously a lot to do with a lowering of input cost in a period that we have been able to keep sales prices stable. That is a main driver.

There is also, however, this mixed country mix, where North America plays a more important role in 2025 as they did in 2023. So those are sort of the 2 main explanations behind that. On the CapEx side, and if I had to do sort of a very rough split, which we do, we are committed to spend about EUR 100 million in sustainability investments annually. So that's one sort of the benchmarks that we have.

We would have anywhere between EUR 120 million to EUR 150 million in maintenance and then the remaining part will then be capacity investment. That means the bulk part of the investment next year, about half of it will be capacity investment related.

The next question comes from Brijesh Siya with HSBC.

Just 2 questions from my side as well. Starting with the low single-digit local currency growth, which sound like flat volume growth assumption in that. So can you just tell us what the kind of -- how should we look at the residential and non-residential end market there? How do you see that or what are the kind of the base assumptions around those end markets.

And within that, if you can just give us as well the pricing. I believe you would have started the discussion already with the customers. How has that been in the last 1, 1.5 months? Because at the end of Q3, you probably would have already communicated to the client. So any early breakthroughs in that? Anything if you can highlight there? Then I'll come to the second one, if you can answer the first.

Thank you for your question. I'll start with the pricing. First of all, as I said before, we have installed, again, pricing drumbeat across our businesses. It is something we've practiced quite a lot the last few years. And I can tell you that I'm personally involved in this because of the importance for the group.

The prices are quite nuanced from country to country and application to application. But when we look at it in aggregate, we see opportunity to raise the price just 1% to 2%. So in the early part.

If I should elaborate a little bit on the growth next year. Again, also there, you really need to segment it at least by continents. Europe is in a very low activity level and nobody expects a significant increase in activity level, neither in residential or in nonresidential activity. Our benefit is that we are mainly in nonresidential and we're mainly in renovation, and that gives us like it did last year, an opportunity to find growth in subsegments.

In the U.S., yes, and residential is not super important to us in Europe and that's why you, of course, see the low housing starts. A little bit same with housing starts in U.S., not a big driver of growth for us also there. We are mainly in commercial arena and mainly, both in renovation, but also in some new start commercially.

Great. And the second one is on the margin, the 16% margin guidance. Two things here. One, what are the key risks to that margin -- downside risk to that 16% margin? And the second part of the question is about -- you talked about system division, you're trying to kind of revive that margin again, I guess, in Q3, we're talking about it.

In Q4, we haven't seen much of an improvement. Is that something which you are kind of planning to do over 2025? And if so, what kind of the magnitude of improvement we should expect in Systems division margin?

The risk side on the margin is mainly a volume. I feel more comfortable on the pricing that we're instilling now. And then you have to consider Russia where it's impossible for us to guess what's going on there. Then they have contributed historically with good numbers. So those are the risks that we see right now. The System division, we are constantly working with, of course, actively with our portfolio of strengthening that margin profile there. But they are, as I said before, mainly in markets in Europe that are subdued right now. So there's less opportunity for short-term gains in margin there.

The next question comes from Alexander Craeymeersch with Kepler Cheuvreux.

Two questions from my side. So last year, you put forward an EBIT margin of 13%, ended up with 17.5%. This year, you put forward a 16% margin target. So probably I sound like a broken record from my previous analyst here. But considering that's one of the highest margins you ever guided, I was just wondering, do we still need to see this as a conservative guidance as it was in the past or do you think this is a reasonable guidance?

And then maybe the second question would be on gas prices. I think last time we discussed gas prices, you stated that you hedged the early part of 2025, did this change in a way for 2025 that you are so confident on the 2025 EBIT margins?

Yes. Thank you, Alex, and I will allow myself to answer these 2 questions. First of all, I think we have done a fair assessment of the outlook for the year as we did last year. Based on the assumptions that we know at hand.

As you know, we are a business that doesn't have a lot of data points moving forward. Coming out of a period of '22,'23 with the energy crisis, we were a bit hesitant to put forward a more optimistic margin. At the same time, it's no secret that we got surprised by an unexpected upturn in Russia and also the very strong performance in North America.

For this year, we don't see as high a risk on neither our possibility to get this -- the pricing in place modest pricing in place nor for that matter, on the energy side, energy cost side. And we also know that North America has already a good start of the year. So we have less uncertainty. So I think it is a fair assessment.

Whether it's conservative or not, I think the market -- the market performance will show us. But for the time being, I think it's the best and most fair assessment we can make of the market.

Returns to the gas and, for that matter, electricity purchases, we have done forward coverage of about 40% for the first half and a little less for the second half of the year. And as you know, we cannot buy forward our foundry coke which is still our main energy source. But here, we have fixed the purchase price for the first quarter already, and that was lower than what we saw last year. I hope that was a good answer to your questions.

The next question comes from Claus Almer with Nordea.

Also, a few questions from my side. The first is around factories and building new factories. And I know the ones you have mentioned already, but you've been out in local press release talking about a comprehensive CapEx program ahead of us. So do you have more factories in the making, so to speak? That will be the first question.

Yes. I listed the ones before, and you also heard that I told you about land that we have purchased that should give a good idea of the next 5, 6 factories that we are building, which is quite a lot also for ROCKWOOL to build 5, 6 factories over a time period of 6, 7 years. I cannot announce small factories at this point in time, simply also for competitive reasons. But we are modeling, of course, where even additional factories should be both in North America, in Europe and in Asia. So that's something we're doing already.

So does that mean we should think 1 factory per year or it takes 2 or 3 years to build a new factory. So you going along will have 3 projects ongoing all the time? And a flip side on that, I think over a longer time period, you have been investing, I think it's 11% of revenue in average. Is that the way we should think about CapEx going forward?

You're right about this assumption of the overlapping factories. So I think that that's a good way to put it and the CapEx numbers are probably a tick higher than what you said probably more in the 13% to 14% ratio.

So rest of the decade, maybe even longer into the future. So that's the new normal?

That I simply don't have the vision for yet.

Fair enough. Fair enough. Then my second question goes to Russia. First of all, as I understood, it was a plus 1 percentage point to the group margin in '24, and that is expected to go away in '25. That must mean that the profitability in Russia must be really, really high in '24. That's pure math. Is that correct? Or is it rounded numbers, so maybe you shouldn't put too much into this 1%?

Yes, what you just said, you shouldn't put too much into it. It's rounded numbers. It was satisfactory, it was not more than that, and then there was this unusual situation with inflation and a fairly stable ruble that makes it all quite unusual.

So this profit you're doing in Russia actually possible to get the money out of the country?

We have gotten dividends out on an ongoing basis, but it's always a big delay. So you apply for dividend payouts and we have lately been waiting for the next round of dividend payouts, but it is a very delayed process. So you're typically 1.5 years behind from the application to pay out.

Okay. But you still -- even with the delay, you are expecting to get the money out. So that's, of course, the most important part.

Correct. Correct. We see no change from that.

The next question comes from Axel Stasse with Morgan Stanley.

Actually, a follow-up on this Russian division. Can you give us an idea what is the sense how much sales Russia was out of group in 2019 versus what it is today and same for profitability to have a better idea on the impact of the Russian business on group in 2024? That's my first question.

No, I cannot give you that because it is so small that it's not part of our reporting structure. So we don't report on individual countries that are that size.

Okay. Then on M&A, what is the idea going into 2025? Is your goal to get more exposure to specific end markets such as renovation that you mentioned previously or specific countries like North America or is it just to increase your wallet share? Trying to understand a bit more what the goal here is for 2025 and where we're heading to.

Both, we constantly look, of course, for acquisition opportunities. And I think it's right to divide them up into 2 categories. One is capacity acquisitions like we've done in Vietnam. But there's not a lot of those around because we are a pure player in stone wool. And the other one is acquiring within exactly what you said, more value-added products or subsegments. So of course, we are constantly looking for relevant acquisitions that match our strategic intent but I don't have anything more to say that for the reasons you know very well.

Okay. And if I can follow up on the energy prices. Is it fair to assume that this 50% is still electricity going to 2025 and the remaining is 15% gas and 35% coking coal?

Yes, the composition of our energy purchases is still that foundry coke is by far the most important power source that we have and then comes electricity and gas, an increasing amount of electricity, though. And it is, if you take it roughly, and I know that I've given that sort of if you take raw material and energy combined is around half of our input cost.

The next question comes from Peter Sehested with ABG.

Yes. Most questions have been asked, but I have actually a follow-up on Russia. So we have looked at the figures historically, I mean this is typically a sort of boom-bust market with margins jumping between minus 2% to plus 20%. And since sales are down right now, so where are we right now? And what is the risk going forward?

The observation is correct, but we have close to 0 visibility on Russia because we have no dialogue with the local management or no market insight. We lead it as in this passive ownership form and then you know the sanctions are in place. So I really don't have any visibility into it.

Okay. All right. Perfect. Then just one more, just to fill up my quota. When commenting on the guidance assumption previously you stated EU that's probably flat, U.S. modest growth and there's some country growth in Asia. All in all, that suggests at least some kind of volume growth embedded in your guidance. Adding to that, let's say, 2% volume -- sorry price. You're sort of in the 4 percentage range, and that would call out for, let's say, mid-single-digit guidance isn't that more appropriate?

Yes, then you forgot to deduct some elements, including Russia and Eastern Europe, where we see it down. So...

I just wanted to get...

But I cannot break it down further than that, again, Kim said before, our visibility and our data points for it only allows us at this point in time to guide on this level.

And I just wanted to put it from another side, but sort of the U.S. off to a good start. Is that at least better than what you have put in your assumptions?

The U.S. is off to a good start, but this is baked into the assumptions.

The next question comes from Yassine Touahri with On Field Investment Research.

I would have 3 questions. The first question on strategy. So you've been heading ROCKWOOL for nearly half a year. When you look at the business in the next 5 to 10 years, what would you like the ideal asset portfolio of ROCKWOOL be in the midterm?

And I think I'm asking this question because I see a lot of the insulation company, Kingspan, Saint-Gobain and your other competitors, they are increasingly focusing on developing a system on not only selling insulation but selling accessories such as plasterboard, roofing membrane to offer solution to the clients and to the contractors. What's your view on that?

I appreciate your -- the small acquisition that you've done, where do you see the group in a world where the situation is challenging for your clients because you've got a lot of insulation to do, you've got skilled labor shortages. And I really feel like a change in the competitive landscape. I'd like to understand what it means for ROCKWOOL and what do you think for the midterm strategy of the group?

Yes, that's a dangerous question to ask a CEO on an earnings call because I can talk about that for great length. But let me try to boil it down to a reasonable amount of headlines here.

First of all, I think it's extremely important to say that we with stone wool and we are pure play in stone wool have fantastic growth opportunity for the foreseeable future. So we are focused on stone wool, that is what we do and continuing playing as a pure player also enables us to continue investing in technologies and resources around stone wool.

Others, as you know, can make stone wool, but I would claim that no -- none or a few can make it as productive and as high quality as we do. So we're very focused on stone wool. And then you're right, stone wool can both be used for insulation, but also for higher value-added products, including systems. Let me get back to that.

But the big drivers of growth in the next few years is -- and that's also, our first priority is the implementation of the European EPBD regime. The European energy performance building directives. I almost got that wrong, that you know Brussels has passed here in May and where all countries by December this year, they have to come back with specific plans. We see that as a major growth driver for our business and also why we invest so much in capacity in Europe, which is still our home market, so to say. So that is a major driver and major driver for investments for the foreseeable future.

Then we also see some opportunities on a global scale. I think I've highlighted the U.S. a few times to you. And there, what is really is happening is that the growth is very much driven by a category shift from plastics foam types and glass into stone wool because of the benefits that, that provides. Today, stone wool only makes around 3% of the U.S. market. But of course, the total market is very, very large. So just some small category shifts gives us significant growth. And just to complete the global outlook, we see Asia on a smaller scale, but we see countries like India where you see our investments happening right now as an interesting play for us with our products.

So you will see the group become more global in nature than the very European-centric approach that we've had maybe historically you'll see more happening in the U.S. and in Asia. And I'll try to wrap this up because I -- this is something, of course, that occupies me a lot but investments in technologies are the key driver for our competitiveness.

We have specific programs that -- where we envision the future factories and logistics systems in our arena, and that's where we spend our CapEx. We also see outside of the manufacturing footprint investment opportunities in the digital customer journey. And that speaks a lot to what you said before. It's all about productivity and being the most competitive player in this arena, both on manufacturing, logistics and go-to-market. So that was the highlights.

And the second question, I'm sorry to ask again about Russia, but I think it's a question in the mind of a lot of your shareholder. When we look at the federal tax services in Russia, I think that publishing the number for your subsidiaries and it looks like Russia might have generated an EBIT of nearly 100 million in 2023, which would mean that it would be between more than 15% of ROCKWOOL operating income. So it might be wrong because I might be -- I might have done the wrong calculation on consolidation or Russian accounting.

It would be great to at least get a sense of whether this number is -- the ballpark number is accurate. I think that in the past, you mentioned that Russia was 5% to 10% of sales. Is it fair to assume that it could be more than 15% of EBIT or it's too sensitive and you cannot communicate on it?

I'm simply not willing to comment on it because what I said before.

Okay. And the second question -- and the third question, which is the -- I think historically, the guidance...

I think, it seems we have to move on the list because it's quite a long list after you.

The next question comes from Kristian Tornøe with SEB.

Two questions from me. So first one on the Q4 cash flow. There is EUR 18 million in adjustment of noncash operating items. Is this reversal of provisions or could you please elaborate on that number?

You got me out. I didn't bring my detailed cash flow. I have to revert to you, Kristian. I don't have the details here.

All right. It's a sizable number, so if you reverse provisions of EUR 18 million, that also makes a big difference on earnings. But let's catch up on that. Then my second question is on your U.S. business. So obviously, let's see what happens to tariffs, but can you maybe elaborate on the level of imports you are doing from Canada to the U.S. and what flexibility you have should there be imposed tariffs?

Yes, I can give you a flavor for it because we have 3 factories in the U.S. and 2 in Canada. Our exposure is manageable and baked into our outlook. We have a very granular understanding, of course, of what gets produced in Canada and what could be produced in the U.S. going forward. And also what the countermeasures we will instill in case of a tariff. So it is already baked into our forecast.

So when you say it's baked in, so the forecast assumes that there will be some level of tariff payments from Canadian imports?

We have -- our counter measures allow us, for instance, for the -- to do the obvious, which is price increases. Again, we are -- we're basically in a sold-out situation in the U.S. So there, we are very firm about our ability to both navigate in subsegments, but also to raise prices. So I'm not super concerned that we cannot handle it. But now we are already I don't like speculating about what tariffs are coming when because unless you know something I don't know. We simply don't know what is coming. But we are prepared.

I'm not sure anyone knows.

The next question comes from Arnaud Lehmann with Bank of America.

My first question is about Western Europe. I think you're guiding to, let's say, relatively stable trend in the region going forward. Can you give us a bit of color on the different geographies within Western Europe, are you seeing some improvements in some countries and maybe incremental deterioration in some others.

Yes. The countries start that are doing well, if I may just stay with them for a moment. But you're right, in general, it's flat. But the countries we see quite a few activities in and also an uplift is U.K. and Spain. And the U.K. is also driven by the renovation, but also we can see the first interest -- increasing interest, I would say, around noncombustible insulation material.

I'm sure you know about the Grenfell incident. And more and more of these medium size, I think we call them low-rise buildings need to be renovated. So U.K. is definitely a growth area, Spain also doing very well.

And then last, but not least, just to take -- I know you asked for West Europe, but just to throw in another European country, Romania, we truly see some growth in.

So you're implying that places like France or Germany or the Nordics are still soft?

They are flattish. They are.

Okay. And my second question, I mean, it's not about Russia, it's but Ukraine. There are talks about potential ceasefire, peace agreement and eventually some reconstruction effort. Do you see ROCKWOOL having a chance of taking part of future reconstruction efforts? You've made some donations to Ukraine over the last few years, you were also at one point, I think, on sort of list in Ukraine. So what's your position on Ukraine reconstruction, please?

Yes. But first of all, I like you hope for peace soon. I think we can contribute greatly in many aspects mainly, of course, on the reconstruction side of residential and nonresidential buildings. And we can serve that in the short term from factories we have nearby that means mainly from Romania, which is a good driving distance and 2 significant-sized factories in Poland.

And then we're in really good dialogue with Ukrainian authorities also for the little bit more long run. But there, of course, we need to see a completely different change in the security situation.

The next question comes from Zaim Beekawa with JPMorgan.

Just to come back on hedging, I understand less so in H2. So kind of what assumption is baked in your guidance for those key energy inputs in the second part of the year?

Yes. What we normally do we tend to go in and look at the forward rates that is prevailed -- I mean, that is available now. So that's kind of a guidance that you can use.

Sure. And maybe just to come back on the previous question on the potential Ukraine rebuild. I think do you see any risk to benefiting from that rebuild given some of your assets have been -- in Russia has been screened less positively? I think there were some negative headlines in '23 with the Danish authority?

No, I don't see that. I don't.

The next question comes from Marcus Cole with UBS.

Most of them have already been asked. But in terms of the first one, can you call out any geographies where you see any pricing risk? I think you called out Eastern Europe on the Q3 call with some technical insulation price deflation? And then in terms of the shift to more electricity powered plants, can you talk about the cost differential between electricity and sort of the foundry coal power plants.

Let me start with the last one. So don't forget, it's fairly cost-neutral on the VPCs on -- when we electrified. And that's also I highlighted as one of our strengths going long term that we have these technologies. On the pricing side, I mean, first of all, there is modest price increases that were coming or it's more normalized pricing.

And I don't see any -- I mean, of course, that's differentiated, but they're now really down on country-by-country level and application by application level. And it's not something I can talk into. But we are -- we have become really, really good at adjusting our prices on a tactical level, so really meaning application by country. But that is really a granular level, I don't want to walk into, but not very concerned overall.

The next question comes from Pujarini Ghosh with Bernstein.

I have one broader question on your capital allocation. So we've seen that you've always been heavily investing in organic CapEx and also returning a lot of cash to shareholders with dividends and buybacks. But recently, we saw a slight uptick in your M&A activity. So how should we think of inorganic CapEx going forward?

And I mean, if at all you have an M&A pipeline that you're looking at, could you share some more details on that? And my second question is on the price cost. So if we look at your operating cost as percentage of sales, it improved almost 3% between '23 and '24. And you've been saying that for '24 price, the price impact was relatively flat. This year, you're increasing prices again by around 2%. So how sustainable do you think this is? I mean, at some point, don't you have to pass on the cost decrease to customers?

Let me answer both of them. To your first point, I think I elaborated on that before that there is sometimes opportunities to make acquisitions. However, ROCKWOOL is a company that is mainly organic oriented. That's also why you see our many factory openings and investments in infrastructure, whether or not it's production, logistics or go to market.

So the nonorganic acquisitions are a few and far between. The drumbeat price increases I see in the markets a fairly -- the prices are sticking, and we can hold the prices. And that's also why we guided like we did in the 16%. We see that, that is firm.

And what happens in 2 or 3 years from now, I don't want to speculate in. But I think it's healthy to have a drumbeat price consideration every single year. It's hard for me to get closer than that.

The last question comes from Pierre Rousseau with Barclays.

I'll be quick. You mentioned in the past some contribution from productivity and you've reassessed the need to remain the most competitive in stone wool production, could you give us some clarity on the kind of contribution you had in 2024? And if the productivity improvement plans that you have should deliver further benefits going forward? That would be question one.

In general, we have a 5% productivity target that we set ourselves every year. So that's the closest I can get to that. And again, it is driven by constant investments in technologies and of course, process improvement. And these days, of course, also digitalization. But 5% is our, you can say, frame we work around.

Understood. And just a quick follow-up on the organic growth plan with all the capacity coming online in the coming years. What's the rule of thumb for the revenue potential? Can we use one for one? Any color on this would be useful.

Thank you, Pierre. I'll try to give you a little bit of rough numbers. I mean one very large factory is saying 100,000 tonnes would give you anywhere between -- depending on the location between EUR 140 million to EUR 160 million equivalent in revenue potential.

Okay. And maybe a very quick follow-up on the situation in France. Do you have news and hopes that you could finally start building that factory?

Yesterday, we learned that the French Supreme Court has accepted our case for their consideration, which, of course, gives us hope that we are in the right on that.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Yes, and I thank you for your participation today in our earnings calls and also for the many questions. That said, I know that there was a list still of people on the question list. But as always, you're welcome to call the excellent investor relationship service we have. After this call, I will rush up to my office and be ready for your call.

And please be informed also on March 6, we will have our ESG investor call dedicated to the ROCKWOOL sustainability statement of 2024, where Mirella Vitale will be the host for the call together with myself. With that, I bid you a very good day. Thank you.