Rockwool A/S
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Rockwool A/S
CSE:ROCK B
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Ladies and gentlemen, welcome to the ROCKWOOL reports on the first 9 months of 2020. Today, I'm pleased to present CEO, Jens Birgersson; CFO, Kim Junge Andersen; and Director of Group Treasury, Thomas Harder. [Operator Instructions] Just as a reminder, this conference call is being recorded. I'll now present over to your host. Please begin.
Thank you. Welcome to the conference call regarding ROCKWOOL International's results for the full year of 2020. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of ROCKWOOL International. I'm here together with CEO, Jens Birgersson; and CFO, Kim Junge Andersen. First, Jens Birgersson will go through our presentation and give you an update on the results for the full year and fourth quarter of 2020. Afterwards, we'll be ready to answer all your good questions. Before I hand over the word to Jens Birgersson, 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. Jens Birgersson, I will now hand over the word to you.
Okay. Good morning, everyone. While we look at the numbers for the year, I was going to try to frame how we entered the crisis and where we are now and how I look at the year.So we start with the top line for the year. We saw COVID-19 start to impact us at the end of Q1 in 2020. We landed on a 1% growth in Q1. And then in the second quarter, we were at, like-for-like currencies, minus 16%; in Q3, minus 2%; and then with the announcement that we did yesterday in Q4, we came in at about 2% growth like-for-like. We saw from somewhere around end of Q2, Q3 that the dollar started to weaken and also the ruble, and we had a bigger difference between reported currency and like-for-like. But in like-for-like, the kind of worst of it was in Q2. Moving through the year, we took the approach with -- we paid an all-time high dividend. We did a share buyback. We also did a normal salary increase to our people, and we took an approach of not panicking, but to adapt capacities. Obviously, we reduced travel. We did some restructuring because we saw a crisis that impacted the markets very, very differently. We only had some factory shutdowns basically in Q2. And after that, the world had pretty much realized that you could keep the building industry and the construction projects going.So I'm very happy with how our focus on keeping the employees safe, adapting capacity to the demand and at all times delivering to our customers was honored. We honored that. And I could also see that during the years, when we did a customer survey, that our NPS score increased again for the sixth -- or fifth year in a row. So that's all good. In the business, we had some ups and downs, big variance, but I guess the biggest highlight was the system division or Systems segment, where we kept improving during the year. And the last quarter, we were up 50 -- almost 50% on EBIT. If we then look at the balance sheet, we went into the year net debt-free. And we came out to it in spite of all what we did during the year, also net debt-free. So we have shown, I think, both resilience and agility. If we then go back and -- so was there something positive in the crisis? There have been a number of positive things. We obviously had to shift people to home office. That, in some respect, I'm convinced it reduces productivity. It makes collaboration and creativity less, it reduces that. But we could use the time to do things. For example, we did a lot of investment in preparing e-commerce and rolling that out. So we have upped our percentage of e-commerce business. The PIM system, product information modeling, we have really, really done a lot of work. And we have, for example, provided a lot of customer training during the year. And all of that are things that maybe normally we wouldn't have time to do it all. But from a sales perspective, we did okay because we had already prepared inside sales. So we had the functionality in the business, and that has helped us a lot in terms of selling and answering to quotations. And at no times in any business did we focus on government subsidies. Even if there was a remote chance that the customer needed an order, we didn't shut down to go after subsidies. And there were some cases, for example, in the U.K. where we saw business drop with 98%, and one would have thought it's a good thing to go after subsidy and shut down the factory. We didn't do that. And the week after, we had quite good business. And we kept delivering, kept the quote and we never went into furlough. So that's the way we approached it. If we then look at the wider macro perspective, I had said or I have said several times that the financial crisis or crash or something like that could be good for us because it might increase the focus on the need to change something in the world, to deliver on the climate goals or some of the Paris climate goals. And I, of course, never envisioned that it would be a virus pandemic. But -- so instead of a financial crisis or adjustment, we got the situation where before COVID-19, we have been preaching energy efficiency is a necessity to deliver on the Paris goal and any below 1.5 or 2-degree C scenario, that's kind of proven.But when we now look where we stand after the crisis or towards the end of it, it's not over yet, is that the awareness that the EU has put, and let's talk mostly about the EU, EUR 1 trillion or EUR 2 trillion in green restart or stimulus or call it what you want, but unheard-of numbers, EUR 1 trillion to EUR 2 trillion. I think the number is EUR 1.8 trillion. And the awareness now that you need to go after energy renovation, there is a backlog of energy renovation that is needed and is also something that generates the highest number of local jobs per euro spent, that insight and the amount of press and messaging and understanding of that has certainly increased. And when we look into the -- going forward, obviously, that's a positive thing.So even though we would have loved not to have the year as we had, very happy with the way we operate, keeping people safe, not rocking the boat too much. And I think the crisis is -- has and is helping to reinforce what we believe very much in energy efficiency, renovation, using less is an absolutely necessity to deliver on the climate goals. If we then move on to the quarter, nothing much to comment on it. We have had, if we just look at -- we ended up with a growth which we are very pleased with. Obviously, the System division pulling most of that. Insulation didn't grow. But on a -- from a profitability perspective, both EBIT margin and EBITDA margin increased. And on the cash side, we were very active on reducing inventories, never sit on extra inventories. That caused a little bit of EBIT at the beginning of the year, where we took the [ monthly ] down, but we paid back on cash. And we have also seen that we have been very good at paying sub-suppliers throughout, really been strict on what we pay. We don't want to cause problems. But I should also say that our customers have paid us, and we haven't seen an increase in defaults or anything like that. So good, sane business without panic. Let's move on to the sales. If we look at the sales, I guess the highlight is the System business. And there, you saw some segments. Obviously, in Rockfon, for example, office renovations of acoustic ceilings maybe didn't go up, but then hospitals and schools increased. The Grodan business have been doing good. Automotive started to come back towards the end of the year for Lapinus. Generally, we have seen good developments, and we have also seen some growth in some of our other innovations in the System division. So that was quite pleasing. On the Insulation, there isn't anything that has surprised us, what has happened. And we come back a little bit to the regions and the countries later in this presentation. Move to the next. In Q4, obviously, the growth in Systems continued, and the recovery of Insulation was maybe a little bit slower than we expected. And when we run kind of down the country list, and I don't want to go into too many countries, it's clear that, for example, France started up after Q2, and then Q4, the market stumbled a little bit. The white certificate process didn't seem to have real momentum. It didn't really come up as quick as we expected. Grodan also, which recovered, was still in negative territory; and Germany also, to give a few examples. So just a little bit slower to restart maybe than we expected. Parafon in Sweden, we've done the integration. It's complete. It has gone really, really well. It's not a huge one, but it's a very good addition to our footprint in the Nordics, and we are super happy to have this very competent group of people in the group. Move to the next slide. I guess highlights here would be that Russia, after a bit of initial COVID-19 challenges, then recovered quickly. And we have had a really good year there. And then North America, all-time high. And in the U.S., we see residential segment that is booming. Flat roof, facade installation, the non-Amazon and logistics center business, sure, we don't see a lot happening there, not much change, but the residential side of things is going really, really well. When we move over to Asia, I will say, South Asia has been suppressed and haven't really gotten out of it, and China has jumped a little bit up and down. And now I think they are more on the up. But they came out of it, started to go, then they went south during the year and then up again. But now I suspect China is now in the growth territory all the time. Yes. So if we could move on to Slide 8, the profitability. I hear the -- nothing much has happened. I think it's worth to note that the EBITDA margin has held up absolutely well. And on the EBIT, we had, if you look at the full year, in 2019, we had the legal settlement in the U.S. If you add that back, we have actually almost the same EBIT margins everywhere. And in Q4, with the growth of 3.7%, increased EBIT with 6%. So it was a very good quarter. And like-for-like currencies, I actually don't think we have had a bigger quarter than Q4. And that's not normal for us that we have a Q4 that is among the biggest quarters in the year. And our Q4 this year was really, really strong. Profit was probably the biggest one we recorded in a quarter, and the top line in like-for-like currencies also really big, if not the best. Move on to Slide 9. Considering if we go into Systems, I mean almost 50% profit improvement. Nice mix growth, productivity, costs down, it all plays together. We all saw price is up there a little bit, not dramatic, but good healthy price increases. And then on Insulation, when you look at the EBIT, considering the top line development and moving there from 11.5% to 11%, EBIT margin is -- we are happy with that. We have managed to reduce cost. And when you look over the year, our operational efficiency improvement, in spite of taking out shifts, adding shifts and doing all these reductions during the year, we have delivered on our plan on operational efficiency and cost savings improvement in spite of lower volumes. And that's good work by our operational teams. And Slide 10, quite frankly, it has been quite difficult to execute on some of these projects. In Norway, we started up the Moss -- the Oslo, the Moss melter, new technology, probably the biggest electrical melter for stone wool in the world. We started that up towards the end of December, and we had people in quarantine from across Europe sitting several weeks in small hotels with a special governmental approval. And then we got it up and running, and it's already running full speed. And a lot of extra procedures. It cost a bit more to do it, but I'm super happy and super proud of what our teams achieved there between Christmas and New Year's and how that plant runs. On North America -- Norway, we have kept going. We have a lot of other investment. But fundamentally, in North America, even though site activities never stopped, we lost a bit of time in North America on the project. And now the start-up is in around midyear. So it cost us more, and that means some of the CapEx we wanted to spend this year in North America went over to -- or we wanted to spend in 2020, it has gone over to 2021. I should say also the new factory that we really wanted to start because we are under supply constraints now in the U.S. because it's a phenomenal market. Slide 11, nothing really to comment. You can read what it says. Careful net working capital management, but at no time have we taken out too much inventory. We have always focused on deliveries. But during Q2, we will want to sit on too much cash. On the share buyback program, we did that during the year. We completed it, and it worked out nice. The return on it, by closure, was something like 46%, and we kept buying straight through corona. And I've heard that we were the only company that did a share buyback. And I think it was good timing, that share buyback program, and it was also very well executed. We never hesitated to go through with the whole thing. If we then go to the outlook, start with the sales, we have had said now 3% to 5% growth. But the reason there, I mentioned the plus 1, minus 16, minus 2 and plus 2 percentages by quarter. We have obviously a bit of a tough winter now, but underlying demand is good. So for H1, first half year, with the visibility we have, we certainly -- even though we have more corona probably in this period and also more cases of corona in this period than we had last year, the world has gotten more used to it. So we are optimistic that we would get out of the year with H1 that is growing because Q2 will not be a repeat to what it was last year. And then for the second half year, we have not speculated on whether more countries would manage to do what the Italians have done that put the scheme in place, that is world-class, that just absolutely created a boom in the business and got stimuli money on the ground, creating a tremendous buoyant market. We are not counting on that anyone else will manage to do that. That could be something that happens. And we haven't tried to speculate by what time the level of vaccination will be so high that we can all step out of our cages and behave normally again. We don't speculate on that. So we have done a forecast of between 3% to 5%. That's really the most realistic of what we know today and when we move through the year. On that level, though, we, of course, have healthy productivities and a much easier situation to manage and having one quarter down with 16%. On the EBIT margin, we have 11% as the guidance. And I've seen a lot of comments on that. And probably the reason here is that on the fundamental contribution margin and cash generation margin, we have one one-off. We see business will continue, too. We don't see massive changes. Yes, we have some segments with higher price pressure, but we have other segments where we are increasing prices. We have a situation that is roughly stable. What we have factored in is that with the new jumbo line in Norberg and also with now the last half year of the Ranson factory completion where we hire all the people, we obviously don't produce anything in it, we add all the costs. And when these lines will not be full, so that we'll be running on very low output this year, I mean, especially Ranson, which starts midyear, testing of products, getting them in the market, you have a lot of costs, you have manning. So that gives about 0.5 percentage margin impact on a run rate basis for the full year, the calendar year.And that, again, if you take EBITDA margin plus/minus 0.3% or down 0.5%, it's marginal. It's just part of building 2 big factories. And then when we move down to EBIT, you see this with the 1.5%, where we have the 0.5% that I just explained, we have another percentage point of revenue. And that is purely noncash depreciation. It's depreciation of assets we build or have built. Moss is in there. Obviously, Ranson will start to go down, and the plant in Southern Germany is in there. It's there, and that's the percentage points. So the underlying cash generation of the business is roughly where it was, and we're talking 0.5 percentage point there. Then we get into the investments, what -- how do we reason about the investments. And if you look at that, what that covers, we have -- we are building, due to the development in Rockfon, and that has been planned, we are planning for a relatively large investment in Rockfon this year. So I think in the last 3 years, we haven't had any investment of that magnitude in Rockfon. We need that because we need more capacity, and we need to invest now.We also see that the forecast for the CapEx this year, around EUR 400 million, we landed on EUR 360 million. So there is about a EUR 40 million CapEx that kind of goes into next year because we simply were not able to execute. U.S. is the main factor in there. But some projects, we just had to drop, and that's why we got down to EUR 360 million. We never set an ambition because of corona to reduce the EUR 400 million. Nothing of the assumptions of those investments that we had in that forecast have changed due to corona. So this is just a move. And then we have another aspect on the EUR 370 million CapEx, and that is in China, we have a governmental grant to move our factory. We really build a new factory, but there's a big ramp of almost EUR 40 million. And there is -- most of the CapEx that we're going to spend on that factory will fall into 2021, but then is mismatched with the grant because we get more than 50% of the grant the year after, and that does inflate a little bit the CapEx. So that's the story on CapEx. So we have had some increases in CapEx due to corona. It was more expensive with some of these things because we didn't want to stop during corona. And when the market now comes back, we will need this capacity, especially in the U.S. where our delivery times, at the moment, are longer than we want them to be. Okay? With that, I hand over for questions.
[Operator Instructions] Our first question comes from Kristian Johansen from Danske Bank.
A couple of questions from me. So first is on Systems where your Q4 results is pretty amazing. So first of all, is there any one-offs in these results? And if not, is there then any reason why we shouldn't expect a similar margin level to continue in the coming quarters?
I think we had -- it's not one-offs in terms of making a gain or anything like that. We don't have that. So it's not legal case or windfall. But you had -- I would say that margin is a bit artificially high. It all sound business that is in there. But after corona, it just happened in Q4 that all the high-margin business when they kickstart, they all came at the same time. So the most profitable part of the portfolio in almost every type of System division, that business came. So it was a mix shift with just a rich mix in several of the System division units.So I don't want to -- we have a new manager coming in, running this business here from maybe second quarter. I'm still involved in that for a bit. But I don't want to set the expectation that you're going to be up on that Q4 EBIT margin. That's not what I see. I don't see those businesses go away, but it was kind of a -- the business was not quite there in some segment, then it just flooded in, in the same quarter, and we delivered it. So...
Okay. So is this based on what you can see in the beginning of Q1, that the margin is nominal?
No, I haven't sit on -- sat and looked. I don't sit in the [ annual and drew ]. We looked at the overall business. So I don't make a prediction, but let's say, Q4 was a 50% jump in profitability. That doesn't happen every quarter. It's just not that way. We had low travel. We had high level of productivity because we have restructured a little bit. We had also hired some new salespeople and built up some things that gave volumes at that time. We have hired them because there were many, many things that play together, and we had a rich mix. So I think we can explain where it goes, and no surprises, but I don't predict that rich mix in every quarter. No, I don't.
Understood. Then second question is on these start-up costs on your new factories. So can you just maybe remind us how much do you have in start-up costs in 2020? And just to clarify, when you say that it dilutes margin by 0.5 percentage point, that it's the net difference of having higher start-up costs in 2021 versus 2020?
Kristian, Kim here. It is -- we had start-up costs in 2020 as well from the German factory, but not as much as we expect in 2021 with the German and the U.S. factory combined. So the net difference is the 0.5% we're talking about.
Understood. And then my last question, you state that you saw low positive price increases in Q4 in most markets and businesses. But what was the average then? Because then, I guess, there are also markets and businesses where prices are not going up. So what's the overall impact from prices in Q4? And where is it that you see this pricing?
Yes. We saw very small effect, very small effect of prices. And it depends what you compare with, really, Q4 against Q4, Q4 against average. But in both cases, a very minor effect.
Understood. And then on the second part, where does the price dilution come from?
Yes. So what you can see is that it depends what part of it. But if you look at North America, for example, shortage of product, good price development. Then the System division, normal drumbeat pricing. Most of the Insulation business, normal drumbeat pricing. And then the project businesses, flat roof, attics, sandwich panels, more price pressure because those projects, it's not the type of business that have been growing now. That businesses are under the industrial segment on that side. I would say, attics has gone quite well. The market seems to be developing now, starting up due to, I guess, efficiency or delayed projects. But that is the area. So that's the same as we said at the last call, exactly the same area. And then on top of that, if you look at the raw material side of things, we have seen raw materials go down. And therefore, when we had done the price increase, we have done a price increase in 2020, we felt during corona that -- to go over the second increase, rather cover our market shares, do a sensible small increase in the business that motivates it and go -- and not increase a lot when we see raw materials go down.
Okay. If I just may follow up. So it sounds like you're seeing a demand-driven pressure on prices in sort of the commercial and industrial segments. I mean what's your sense on how much this is driven by companies holding back on investments due to COVID-19 uncertainty? And obviously, if COVID-19 hopefully goes away, should we expect this to ease then?
It's all supply- and demand-driven pricing. So you have -- you could have competitors that shut down and suddenly starts up and then they want to have projects and they go over after projects. And then you have demand where, obviously, the Tesla factory that's going ahead, Amazon and such things, I don't know if you noticed, but when you order in our e-commerce over the web, at least where I live, the delivery is now near instant.I mean the whole -- so I think there are investments there. I think public buildings, schools, hospitals, we see good. But then on the office side and in other industrial side, it's quite hard to see where it's going. And we predict offices will continue to be slow for a while. But it's very hard to see a clear, clear pattern other than the common sense view that other businesses, other than the one I mentioned, they don't really invest now.
Our next question comes from Yves Bromehead from Exane.
A few questions on my side. Just reading through your annual reports, you provided some nice information on 2021. As far as I can sort of come to my conclusions, it seems that you're confident on Russia, the U.K. and the U.S., probably also on Grodan and some new development in the Systems. Add a bit of pricing, and it does seem that maybe for Western Europe and Eastern Europe, you're a bit more cautious. So if you could just provide a bit of color on that, that would be great. I'll jump to my next questions one by one, if that's okay with you.
Yes. Yes. So I think that's exactly it. I mean, while we see Italy come up very quickly, we mentioned in the deck, France, Germany, Poland as a little bit slower in the start. I think, fundamentally, for example, in France, the demand is really good. But the white certificate scheme, after the shutdown, have kind of not come up fully. So I think it's exactly that, that we still need to see a full recovery in those markets in Insulation. The Nordics, as you know, U.K. is all good. And then it can be very different, I won't tell you what, but in Benelux, we have seen the countries jump around, and one country doing really, really well and another country in the Benelux battling to distribute. But in those big countries, France, Germany and Poland, still think we have a bit before with -- through the stack up again.
Okay. And in Eastern Europe? Sorry, I just need...
Sorry, I'm with you. It was a bad connection there. It's a mixed picture. I mean some of the markets were absolutely sold out; and others, you see declines. So it's -- I don't want to go through, but, for example, Romania, we're doing really, really well with a new factory. And then it's like every second country there, you see a mixed picture.
Okay. Maybe just jumping on to my second question regarding competitive dynamics. I think the last time you spoke to the market, there was a bit of a change in the strategy from trying to always go after price increases to maybe covering your market share and protecting those market shares. Have you seen anything different? What is your sense as you start 2021? How do you think about the competitive dynamics in Europe playing out for ROCKWOOL? It would be really interesting to understand.
I think the story still fits, and it's going to be dependent. Fundamentally, I think that the capacity increases, it's a 3% CAGR in Insulation. I think that's needed for the market. And then it's a matter of the quickness of the restart. So I think we can count on competitive dynamics that is similar to what we saw. I wouldn't say it has been dramatic in any way.But certainly, in the project business segments where you have that mix of industrial buildings that might not invest the number of projects, so -- and there, we have seen some segment like attics where business has been running really, really well because somehow, in the energy efficiency order book, that started up, but flat roof has been more up and down. So it's the same story. And I think we need to see what happens in France, Germany and the other markets how that progresses, how the markets recover.
And my final question, just a last one on the insulation industry dynamics. When we look at what the governments are saying, although I understand that we don't have the industrial scale for now, it does look like wood insulation, hemp insulation, cotton and whatever, is remaking a strong story with a lot of governments trying to push industrials to invest in this sphere. And a lot of your competitors are actually doubling capacity, for example, in wood insulation. Do you fear that the overall insulation market is going to become more competitive in the next few years and the market shares will change?
I think if you look at what we have great appreciation from, we are just working on circularity. We are the only ones being able to offer that. I think fire resilience is really, really there. And maybe wood insulation is another type of insulation that might take some share from the plastic forms. But you still have this longevity and the chemicals in it to keep it long term and the moisture and pro and cons.So I think you will see a drift from plastic form because as soon as you take Scope 3 emissions, end of life, then plastic form is not a good thing. And while wood insulation, you could say, is embedded captured carbon in it that you put into a wall, but you still need that insulation to last for a long time, so I don't see dramatic shifts. But I think you can expect cellulose and wood insulation to be immaterial because at face value, when you listen to the story, it sounds very credible and a good thing, but I think really the main winner here is stone wool.
Would you ever consider investing in wood wool if it became a bigger topic?
I say like this, I never say never. So don't write now that we are looking at acquisitions. But we, of course, study and look at this. I can tell you one thing, I would never ever invest in plastic foam insulation. That I guarantee you. But wood wool, we still need to learn more about it and understand how it works and the long-term effects. At the moment, we are very busy with our stone wool.
[Operator Instructions] Our next question comes from Brijesh Siya from HSBC.
I have 2 as well. So the first one is on your guidance. You helpfully provided that you have a little more visibility in H1 or H1 compared to H2. So can you please help us split that 3% to 5% like-for-like sales into how you look in for H1 and what it implies for H2? And within that, if you can give us what's your price expectation for this year?
Okay. So Brijesh, I'll take that. So I don't want to go into quarterly guidance. It's very hard. As you know, we don't sit with the backlog. But I'm just -- maybe with our guidance, I just want to signal that I don't see a Q2 that is minus 16%. I think the world has learned. That was a shock reaction to the COVID-19. So that's gone. So my visibility is such that I believe that we get into good business down to the summer with corona still there. And then I have not been able to -- I see no reason to quantify a corona-free and what the implication is of all the factors for the autumn.So Kim and I have reflected that and put in like a 3% to 5% growth perspective. And when you run your spreadsheets, if you -- Q1 is often a smaller quarter than of our third quarter. So that almost whatever you put there and then you neutralize or do something in Q2, you end up in a range where 3% to 5%, depending whether some growth is coming back in the second half year, and that's what we try to reflect, the base on what we know. And then it could be better, but I think it's a very realistic forecast we have put now. Then on the price expectations, we have a bit of inflation coming. So we definitely want to have a price increase to cover inflation. And there are many segments where the price increases are out. And then we have a question mark on those segments where we applied it. So we have been moderate about our price expectations in the outlook we have this year. So we have risk on inflation, and we haven't put a big pass here. But I should say we have launched price increases in the majority of the business already. So -- but the percentage, what we land on, I would predict a slight price increases here, depending on how quick the market develops.
Okay. My second question is -- sorry, I thought I'll ask the second question as well.
Brijesh, your -- is this still Brijesh?
Yes.
Okay, your third question then, Brijesh.
Okay. Apologies if that was...
It's okay. We give you one extra today, okay?
Appreciate it. So the second one is on the U.K. market. We have seen quite a bit news flow around it. Obviously, the Grenfell Tower inquiry is going on. So there's a lot more noise about cladding, which has been put in the historical buildings. So the government is in the process of putting a system in place. So really, I want to see -- I mean you have historically talked about a real shift and a significant rise in your products. But have you seen any further change in that trend in the last couple of months, probably when the Grenfell Tower inquiry started? Have you seen people really sit down and stone wool it? Yes.
I mean in terms -- yes, yes. I mean I think we have had a very good business. We had a month where the furlough and all the rest, but we had a really good year in the U.K. again. And the debate and the discussion and this whole liability perspective between people that have apartments that you can't even insure and who pays the bill and does it go back to -- that whole discussion reinforces the trend. You have quite a bit of work, I predict, to replace plastic form insulation in high rises. And then the question is, who pays it? You have all sorts of punishment being discussed. The way we see it, we think that our growth for noncombustible, that will continue, but I doubt that the market can cope with much more growth than you have. We see the continued growth, but the extra measures and the discussion is adding at the end of it. So we can see it for a long time because I think just a matter of executing more the growth and the pace that is being done now is pretty good pace, and we are quite happy with it.So I don't expect in the year that then suddenly the growth doubles because I suspect that there are labor constraints and installation constraints and also to figure out who pays. But we have seen it in the mid and high rises now, even mid-rises and multi-unit housing that, for lack of certainty, people go the noncombustible route. So if there is a doubt, they say, okay, let's go safe because there's a couple of percentage higher cost maybe to go walk through, and they do. Is that okay answer, Brijesh?
Yes, that's great.
Our next question comes from Claus Almer from Nordea.
Sorry about going back to this pricing or demand/supply situation, Jens and Kim. But we have talked in past calls regarding these added capacity from Knauf and others. How do you see their behavior in the current market situation? That will be the first question.
Yes. Claus, Kim here. Their behavior hasn't really changed. I think the ability to deliver to the market has maybe not been as fast as expected. We still do not see any meaningful volume coming out of Knauf's factory in France. But of course, they will eventually get a better situation there. And we do expect that in 2021, they will be more active seeking the volume into the new factory. But it has been -- we thought also that the autumn period would have been affected by this additional capacity by Knauf, but it wasn't really. But we'll be -- again, we expect every high season. Now we have the next, it's the spring season, and we expect them to be ready for the spring season.
Okay. Then the second question, I really couldn't hear what you said about Q1. But my question goes to, if you look at the inventory, end of 2020, I guess that's around down by something like 10% year-over-year. Does that reflect your thoughts about Q1? Or it's more a stronger Q4? Or how should we think about the trend in the inventory?
We have set -- and remember, last year with the inventory, there was a couple of special effects. The year before, we had this extra -- 2019, we had the extra storage building. So -- and we did away with that, and we have worked a bit on our replenishment flow to be able to run with a bit less inventory. So those are taken away, some of them.
And in North America, quite low one.
In North America, we simply ran out or resolved it. And now we need a new factory. And in the meantime, we need to keep selling what we have. And then you have the effect of Norway, where we had 2 or 3 football fields of inventory to cover the shutdown where we did the transition to the new electrical melter. And that's what took us through to year-end. So you saw that inventory disappear by truckloads every hour, and that also impacts. So I would say, with the exception of that we look forward to get to new factory in North America, inventory levels are okay everywhere, okay?
Sure. Okay. And then about the CapEx, I understand what you're saying about the CapEx for 2021. And I know you're not giving guidance for 2022. But should we expect guidance to normalize, if you can use that word, beyond 2021? Or should we expect this, let's call it, high level also to continue after '21?
There is no guidance for beyond '21. And -- but the thing is, if you look at the split between maintenance and capacity investments this year, you'll see there's still quite a high level of capacity investment. And of course, that will continue in 2021 with the factory in Ranson. But after that, when we announce something differently, then that will reduce quite significantly.
Our next question comes from Laurits Kjaergaard from ABG.
Maybe a question here on the prices again. In your outlook for '21 on Page 15 in your report, you say that higher input costs, which you expect to go through, can be compensated by operational efficiency and cost savings. At the same time, you mentioned Q4, low positive sales price impact in Q4. Are you saying here that prices are a little bit more difficult to get through in these current markets?
Yes, Laurits, exactly that, that System division, many of the segments, the distribution businesses, all of that's going, Russia, you have many, many normal markets, I would say, yes, the vast majority of the market are normal. But then, as I said, with the project business into the industrial segment, there, we have said that we're going to put priority on market share preservation. And we have not projected in our outlook, we are ready to kind of preserve our market share. And there, you're talking flat roof, attics, but -- yes. And it's a limited geography. It's a limited geography.So that's in our thinking, and it's the same story that we've talked about, Laurits. There's no change to that. So the answer is, for the majority of the business, there is actually no change if you look at the top line, but there are segments where we're going to be on high alert for until we see that the market has recovered.
And another thing to follow up, that's also what we put here, these operational excellence programs. We have talked about these cost-saving programs that we've been running. And we did see last year some good benefit, as Jens said earlier, despite the disruption in manufacturing. And we also expect this year to have good cost-saving programs.
And these improvements are bigger than -- these are big numbers that we don't disclose them, but we have been very successful with that. And that means that as a business, we are successful in becoming more competitive.
That's very clear. Then my second question, I think, particular to you, Jens, it's in regards to how you weigh the new capacity and your sustainable CapEx because you once again say in your report that there's 100x you assume multiple benefit in using stone wool versus CO2 and producing it. And the EU target is 3% renovation rates by 2030, currently at 0.3%, and maintaining that to 2050. So that requires a lot of capacity. What you say instead of using your CapEx within sustainable issues, Scope 1, Scope 2, wouldn't it be much better to, let's say, for the world's CO2 reduction for you actually to produce as much volume as possible until 2030?
Yes. I think it is -- if you look into -- there are 2 sides of the story. So our footprint on how much CO2 we meet when we produce a ton, and we're talking big CO2 emissions, but then a fantastic payback. But in the way the world has developed, we can't just be a fossil fuel-based business and so we save the world so we can behave in any way. So we have announced the SBTs, and we are one of the early companies that committed on Science Based Targets where we say that our Scope 1 and 2 would go down with 38%, and then we said 20% on Scope 3. That means 1/3 of our absolute emissions. And you could imagine, if you take 1/3 of our absolute emissions in 2019, we're going to take away, that means that we need to take a lot more emissions because we have growth also. These are absolute targets, and we are growing the business. And then one would say, okay, as a short-term capital list, the best would be to just build new factories, capacity investment, don't care about that because the fact of 1 to 100, who cares? And so we have validated our targets. We have committed them. And if you look into my RSU, our 5-year RSU, we even put in the CO2 target there to just show that we are serious about it.And we need to balance this. So what we do know, we did the biogas. We were already the only company in the world that could match stone with gas. Now we do it with biogas in Denmark. We started up the melter in Norway. It's the biggest electrical melter for stone in the world, and it works great. So there are 2 things. On the one hand, we need to have the new technologies, and there are other areas you can act on in the plant. So that when we build a new plant, it can be clean from the beginning, I mean, with a lower CO2. You can never be perfectly clean because we are melting stone.But so we be -- on the one hand, we need to have the technologies ready and work on that. But we see it as a risk for the business if we don't make a long-term commitment to put some serious money into making this transition. And yes, in the short term, if you look at the year, we could have kept doing business in Norway with the plant we had. Now we dropped our CO2 emissions with more than 80%. But the combination of Norway, we're talking [ Dawn, Svendrup ] and Moss, we have lowered our CO2. We have improved our EPD for our product in the Nordic region. We dropped it in more than 70% CO2 across the Nordic region.We also see it as our duty as the leader in the industry to lead the way on that. And we think we can balance this with really good returns and the growth and improving the footprint. And that's the balance. And that's the art of what we are doing going forward. And we're still working on some quite heavy R&D. We haven't reduced our R&D person here. We are increasing our R&D efforts, not dramatically, but we keep working because we believe that's the future of stone wool. It needs to be a circular product. We offer that scheme already in Europe, and it needs to have an even better CO2 footprint, Scope 1, 2 and 3. So we balance this. But you're right, the short term, if you just were in stone wool business for 3 years, even in 2034, is that -- if you make the forecast for the CO2 price, let's assume, today, it's EUR 30, EUR 40, let's assume it's EUR 90, compare that to fuel transition project, that's peanuts. Yes, it improves the payback to not pay that, but we are talking quite big investment. Building a new melter with all the hardware around it is expensive. And we need to balance these 2 dimensions. But I'm convinced that we, as a leader in the industry, need to have the best emission footprint in the industry. That's our goal.
So let's follow up on that conversation another day. Have a great day, and congratulations on your results.
Our next question comes from Xintong from On Field. Apologies, it appears that Xintong is disconnected.Our next question is from Manish Beria from Societe Generale.
So I'm very sorry to ask you again on the pricing side. But can you just quantify, I mean, what is the pricing pressure that you have seen in some of your project business? I mean is it like low single-digit, mid-single-digit or sort of like double-digit decline in pricing that you expect there? So I will take one by one, maybe.
Yes. So Manish, as all the other players in mineral wool that we compete with are not disclosing any of this. We see it as competitive information. And therefore, we are very poor at quantifying this, very, very poor. But our goal is still, and we still have it with the services and the products and the quality we have, we still have a premium in those segments. We are not talking about ROCKWOOL being cheaper than the other stone wool competitors. We have a premium product and a premium offering, and that's what -- but sometimes we need to adjust it so that we are not quite as much more. But if you look at the building side, when you start up a site, for example, if a customer wants to have many small deliveries of the right product at the right hour when they start a building site, we are very happy to do that. We are very happy to do it with 17 products instead of just 1. And so we are in -- even though the bid is made on a project in some of these segments, it's the project bidding we are talking about, not so much the distribution segment and with the fuel segment. And we do that. So it's not a matter of us undercutting a lot of people, but it's reducing the gap a bit and making sure we defend our market share. But I don't want to sit and say it's double digit there, and I, quite frankly, don't have -- we don't look at the business that way. But we see certain projects, and we have an ambition to absolutely maintain market share, okay?
And just to confirm, like you said, okay, project business, there is some pressure. You want to protect market share. But in the other part of the business, I mean, the pricing is up. But I heard in the call that you expect 2021 pricing should be slightly up -- still slightly up, right? So I got it right, correct?
My point is that normally, we do to a couple of percentage here. I'm not a believer in 5% and 10% price increases. I believe in drumbeat pricing. I still do that. And I say that we are going for something very low. And then in the project business, our priority is the market share, yet we want a premium for our product. So that's as much, Manish, as I can say.
And on to...
And then on the margin -- Manish, one more thing, on the margin, we have actually given quite a bit of information because we have said that underlyingly, the net of all these effects, we have 2 factors, 0.5% and 1%. So we have, in a way -- we believe with all the tools we have, that the underlying profitability of the business is preserved.
Yes, yes. So that's good. Also, on the CapEx side, I mean, so you have laid out why the CapEx is increasing in 2021. But you haven't talked yet, I think, about -- because you've talked there quite a bit of detail on the CO2 reduction, the long-term target. But you haven't talked about the CapEx associated with that. So if you can quantify, in 2021, how much is also due to sustainability? Maybe -- yes.
We have never guided for CapEx multiple years. It's an aspect we need to take with us, Kim and I, because I see you, you ask us all the time. And we need to think about that. But at the moment, we don't guide. We have given some guidance on to cover certain growth, how much do you need to invest per year. And there is -- I don't know if you have read it, I think in the 2019 report...
'18, '18.
'18 report, there were some percentages of revenues and there were some linked to growth, how much CapEx -- sustainable CapEx you need, 11% to 12% of the revenue. And with that, you can fuel a certain amount of growth. And then on top, you have an increased portion of sustainability investment where most, strictly speaking, we didn't need it for that reason, but we needed it because we didn't feel right about that old melter and we needed a new technology. So we have given some clues, but I see your request for the CapEx guidance. And maybe in a couple of years when we have figured out this transition in more detail that we could provide some better information there. But at the moment, we have decided not to do that, okay?
So if I can add just one more. So you are now back to 11% in 2021. But I mean -- yes, around 11%, yes.
Yes, I'm not saying that. I'm not saying that because this was a long cycle average, and then we're talking sustainability investments. We're talking a changing world. And then, of course, when you have EUR 1 trillion to EUR 2 trillion going into maybe energy efficiency, plants come in big investments. It's not like we can expand capacity in very simple, small incremental steps. And therefore, a year for a CapEx project that takes 3 years or 2 years to build, it's just not the right window. It's very hard to say how much it is. Today, what we do is that we keep investing and we keep adding capacity and doing sustainability investment. And we haven't reduced engineering resources. And then we balance the resources between CapEx projects and R&D. And we kind of sit steady of the engineers because we are, as I said many times, a tech company. Some of the work goes into CapEx, some goes into R&D, and we don't have a more accurate forecast on that at this stage for you. Obviously, we have one ourselves.
So I have just one more on the margins maybe like -- so basically, you are back to 11% margin in 2021. So I just wanted to see because North plant had not yet started. So all the competition is not yet coming, I mean. So maybe like 2022 could also be a tough year for you in terms of margin, like the competition continues maybe in 2022? Yes.
Yes. Manish, just to that, I don't see the 11% as a tough year. I don't want the 1% depreciation to not be there. I want the North American plant to start-up so that I can sell more. The EBITDA margin is impacted by 0.5% for the start-up. Let's work on that during the year. Let's do the best of that, and that's because we invested. But the depreciation, because we added capacity in Central Europe -- Central, Western Europe and North America, that's a good thing.
Yes, I agree that -- yes.
Because we're entering -- it's growth. We need to take care of growth. And we need -- it's not small additions we do when we build one of those plants. It's an addition that should take 3, 4 years to fill.
Our next question comes from Xintong from On Field.
So I have one concerning the input costs. So you said that you expect underlying profitability to be relatively stable for 2021. I appreciate the comment. But if we look at the coking coal prices, I'm just wondering, what level of coking coal prices you factor in for your underlying profitability comment? Because the market seems to think that it can go up by another 20% to around $170 to $180 or even higher if the Chinese demand comes back later this year. So I'm just wondering what is your -- what are your assumptions and scenario there to achieve the stable underlying profitability comment?
We do expect that there will be inflation, and we had that in our guidance as well. We are not sourcing from Australia as such. And as I think we explained many times, Xintong, that we do make price agreements a quarter in advance. So we have already fixed prices for Q1 from our regular suppliers. And that is supporting our view on the assumption that we have in the outlook. Then of course, we just have to wait for the negotiation for the second quarter to see whether this situation between China and Australia has normalized a bit. There is abundant supply of coking coal in the world. So it is just hopefully a matter of the imbalance between China's decision to import and then Australia's ability to deliver that -- put price up in a short time. Like we saw back in '16, it was a spike that lasted not too long.
Okay. Great. That's helpful. So let's say, if in Q2, we see another, say, 20%, 30% coking coal price increase, you're still confident that you can pass it through via pricing -- via your pricing negotiations in Q2?
We will not go into those assumptions. We have our own sourcing assumption, and that will include inflation, but it's not anything you can correlate to the spike in prices between Australia and China.
I see. Okay. Great. That's helpful. And then another thing is the cost-saving projects that you've been doing, I think, starting from 2015, 2016, because it's been a couple of years. So I'm just wondering, for this year or even going forward, how much more cost savings can you still do? Can you maintain like a relatively stable pace? Or you can actually accelerate or decelerate because you've been doing that for years?
No, the cost saving and operational excellence program we talked about was initiated 2 years ago only. We did do a special, you can say, restructuring project back in '15, but that was targeted at the indirect workers. Now the operational excellence program has been running for 2, 3 years only, and that's the benefit we are seeing now from that. We have not quantified it as such. It is quite significant.
So the level of cost savings should be sustainable for the next, say, 1 or 2 years?
Yes. Yes, that is true.
Our next question comes from Mikael Petersen from SEB.
This is regarding the Systems division. You mentioned the rich mix previously. Can you maybe try to specify what type of products is this and maybe what the underlying trend is for these type of products?
Yes. So we saw it, we have growth on this well. We saw Rockpanel going well. We saw the right portions of the friction business and the same in -- we have been able to shift the mix up also in Rockfon. So it's basically both.
Okay. And then maybe a second question regarding your capacity expansion. In Sweden, we clearly have a property there that you're able to invest in going forward. Is that something that's in the near horizon? The Nordics have performed quite well in the recent years. And I would argue that the production cost is higher in both Norway and Denmark where you currently supply Sweden from. So is it within the next year or 2 you'll announce your factory in Sweden? Or when can we expect that?
So I can't say because the way we operate it is, we bought the land, and we are proceeding with permits and all the rest. And that's kind of our new philosophy, how to do it. And then we push the buttons on investments when we feel the timing is right, and that's a good reason. So we wait until if it is the right time. But I can confirm that we are progressing with permit applications and all the rest, but we have not taken a final decision. Now we start to shovel, but that has not been done because we have this with the CapEx that there are several places in Europe and rest of the world where one would think we need more capacity. But we need also to be a bit careful.If we would have had an assembly business, we might have been building 3 or 4 factories or maybe if you could shift between. But our policy is local, and that makes it very tricky when you decide in the market to go with it because when you put -- when you start building a plant, it's also limit where you can build another plant because we don't have infinite construction resources. So no time line that I want to announce on that at this stage. But we are not -- we are doing permits. We're doing permits in France. That's the way we approach things. Okay, I think we have a question -- that's the last questions for today. We are a little bit late now. But...
Operator, could you please pass through me. Otherwise, you can give us a call afterwards.
Yes. Okay. We lasted -- it's listed here. But anyhow, you take over.
Yes. Please be informed that on 19th March, the ROCKWOOL will hold the next investor conference call dedicated to industry topics. Thank you for joining today's session, and thank you for your good questions as well. Thank you.
Thank you. Bye.