2. ZERO HUNGER

Edited Transcript of ROCK B.CO earnings conference call or presentation 14-May-20 9:00am GMT – Yahoo Finance

Impact team
Edited by Impact team

Edited Transcript of ROCK B.CO earnings conference call or presentation 14-May-20 9:00am GMT  Yahoo Finance

Q1 2020 Rockwool International A/S Earnings Call

Hedehusene May 14, 2020 (Thomson StreetEvents) — Edited Transcript of Rockwool International A/S earnings conference call or presentation Thursday, May 14, 2020 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Jens Birgersson

ROCKWOOL International A/S – President & CEO

* Kim Junge Andersen

ROCKWOOL International A/S – Senior VP & CFO

================================================================================

Conference Call Participants

================================================================================

* Brijesh Kumar Siya

HSBC, Research Division – Analyst

* Cedar Ekblom

Morgan Stanley, Research Division – Executive Director & Equity Analyst

* Claus Almer Nielsen

Nordea Markets, Research Division – Senior Analyst of Capital Goods and IT

* Frans Hoyer

Handelsbanken Capital Markets AB, Research Division – Analyst

* Kristian Tornøe Johansen

Danske Bank A/S, Research Division – Senior Analyst

* Laurits Louis Kjaergaard

ABG Sundal Collier Holding ASA, Research Division – Research Analyst

* Mikael Petersen

SEB, Research Division – Analyst

* Tobias Alfred Woerner

MainFirst Bank AG, Research Division – Research Analyst

* Yves Brian Felix Bromehead

Exane BNP Paribas, Research Division – Analyst of Building Materials

================================================================================

Presentation

——————————————————————————–

Operator [1]

——————————————————————————–

Ladies and gentlemen, welcome to the ROCKWOOL report on the first quarter of 2020. Today, I am pleased to present CEO, Jens Birgersson; and CFO, Kim Junge Andersen. (Operator Instructions) As a reminder, this conference call is being recorded.

I will now turn the presentation over to your host. Please begin.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [2]

——————————————————————————–

Hello. Good morning, everybody. Welcome to the conference call regarding ROCKWOOL International’s results for the first quarter 2020. My name is Kim Junge Andersen, I’m the CFO of [ROCKWOOL International]. And as the presenter said, I’m here with our CEO, Jens Birgersson. Jens will, as usual, go through the presentation and then there’s time afterwards for questions.

Before I hand over the word to Jens, I would like to notice the Slide 2 regarding the forward-looking statement. Please be aware that this presentation contains uncertainties.

Now we can go to the Slide 3 and the presentation. I give over the word to you, Jens.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [3]

——————————————————————————–

Okay. I hope you all see Slide 3 out there. Good morning to everyone.

First, a little bit of an update what happened with COVID-19 in Q1. So we’re a little bit fortunate. We had some people negotiating a deal in China early in the quarter, and obviously, we have our Chinese operations. So we got alerted to this potential situation quite early. And that meant that, already in February, we actually put even a group management team member in quarantine on his way back from China.

We also had people from — 3 or 4 people that were in [I/S Kähler], right in the zone, and they got corona, several of those people. But we quarantined — got quarantined rules in place already when they got home, so 3 or 4 people never brought it back to the office. Probably helped both Germany and certainly ROCKWOOL.

I mean just to sum up where we are today, we have just a couple of handfuls of cases in the whole of the group, although we have more than 12,000 people. So one observation, with disciplined management, distancing, daily follow-up, we have the masks where we need it, sanitizers, we have had all of that all the time. You can run business and you can run factories. But it should also be said that as the crisis spread and governments got into taking action, we also had 4 or 5 plants shut down, not because of demand, but because of governmental intervention. Often, that has settled after a couple of weeks, and we’ve been allowed to restart.

So we saw — obviously, we had China manufacturing shut down for about a month in the quarter. It’s not such a big market for us. We saw good development in the quarter. All the fundamentals in place towards stone wool and maybe a little bit better than we expected. But then towards the 2 last weeks in the quarter, you saw the actual spreading. At this stage, all factories run. We take maintenance stops. But obviously, in most places, we are not up and running as much as last year. You saw the April numbers. I’ll come back to that.

We are pushing — trying to see what’s good with this. Obviously, good to see how great our organization work at managing. Our people do a really good job, and we are focused on customers all the time. And in some markets, we have even seen competitions and everyone home, which has increased demand for us. And so we have this keep safe and deliver to our customers, and that has worked.

In terms of now, opportunity of the crisis, we see talk about EUR 1 trillion or EUR 2 trillion on EU level stimulus packages, and we are pushing and arguing for that. You should put some of this into energy efficiency renovation. And while you restart the economy and make a green restart, that you not only create jobs but to make sure they are CO2-positive jobs, that you put us in a better position. And there, EUR 1 billion invested in energy renovation will give 20,000 jobs. And that’s one of the highest returns. And certainly, for every invested euro, there is nothing that is more CO2 saving or efficient in terms of CO2 reduction than energy renovations. So that’s a potential upside, and we are working on that quite hard.

In terms of starting up offices in the business, I’ll give you an example. In Denmark, we talk now from 2-meter social distance to 1 meter. We don’t do that because at ROCKWOOL because we worry that if you have one meter, it very easily slips down to 0 meters because people want to be together now. So that means we maintain. There is not an award for being the quickest here. We rather stay safe. So we keep 2 meters.

We also run the business — I mean, I obviously want to have everyone back in the office as soon as we can, but I don’t want to risk the business. So we have run it in — we have 3 principal ways of running our offices. Gear one, everyone at home. That has worked great, but it’s not as efficient for people collaborating. Gear 2, that’s what we are in now in some places, where half the crew is at home, half in the office, and everyone that either a high-risk person are at home. And that means that we offload the public transport system and we get a lot of space in the office so that we can make sure people keep the 2 meters. And we will stay in Gear 2 also in Denmark for a while until we see there is a recoil from the restart. So that’s working well and our people doing good.

Next slide. If you then look into Q1, in spite of China in the last 2 weeks, the numbers are the best numbers we’ve had in Q1, both the top line and the bottom line and the market. So that’s pleasing. And it doesn’t matter now, we are in a different situation, but I thought many of the cards were in place to have a really, really good year if we wouldn’t have gotten the pandemic now.

And I should also say that we have seen a deflationary environment. We score a bit from that, we have seen it in the margins. And many of you make this comment all the prices has gone sour, they haven’t. We have increased prices, not so much. But overall, prices are up. And then in Q4 last year, we discussed the price development in Eastern Europe. We are working hard to cut capacity and getting prices back up there. But overall, across the business, prices are slightly up.

And when you look at the corona impact, the COVID-19 impact, we see that the main area where we pay attention on the top line is to get the money at all. So we are guarding very carefully overdue payments. And that has increased a little bit, but we have it in hand and we take action on that if it’s slipping away too much. But nothing to worry about.

Cash flow, normal seasonality. We always go negative in Q1 when we bid the seasonal stock. We don’t change our stock curves, because of this year we run it up to second stock curve. So you see that seasonality, plus, on top you have the CapEx. So actually, this cash flow is pretty good, a little bit due to [grant we got].

And okay, so Q1.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [4]

——————————————————————————–

Slide 5.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [5]

——————————————————————————–

Next slide. Q1, if we look in the businesses, small Parafon effect. We have 2 months — Kim, 2 months? 2 months of that. Obviously, not a high season for that business, but we had 2 months of that. And you saw that the System division grew — were flat to Installation, but System division grew. That’s pretty much spread across all the businesses. Good development, but it should be said that Grodan has grown the most in there. And that effect, we’ll probably see strengthen because food, food production, that market doesn’t go down when people stay at home more.

Regional sales development, and in Q1 not so many markets — what’s that?

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [6]

——————————————————————————–

The statement you’ve (inaudible)

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [7]

——————————————————————————–

Yes. In Q1, not so many markets were dramatically impacted. You saw — Italy obviously was early into this, and they have a solid negative number. They started off earlier and shut down earlier. Spain and France had slight declines, but — so from very positive development into negative territory. And the U.K., Netherlands and Denmark, all really good development. And I will say that Denmark has accelerated throughout, yes? North America, patchy in the U.S., Canada going up, a bit split in Asia. We are below last year in China, but it’s kind of recovering and is already on a good level. But — so North America had a good quarter in terms of top line.

We then move on to April. As we don’t have — you shouldn’t expect us to give monthly numbers. But since we have suspended year-end, we felt it in — it was in place to give you the minus 20% number there because you hope that benefits your thinking about the business. And we have seen a whole array of actions. I’ll give an example. France was in a very high strong growth mode. And the approach to the lockdown and the corona situation was to shut down, at first, building sites. It might not even have been the intention, but that happened. And also the outlets, the big box outlets of building material. So that went into very strong negative, is starting to open up now.

While, for example, in Denmark, the effect was absolutely opposite. Building sites were kept open. I think municipalities accelerated projects and all the home office work, some corners were turned into home office improvement projects. So we see solid double-digit growth in Denmark. Canada had a similar pattern also. So it’s interesting to see that it’s very, very variant.

And then U.K., after very strong growth, went into quite a severe lockdown, where they also put a subsidy scheme in place that almost rewarded people from shutting down the business and sending people home permanently. I don’t think that scheme was ideal if you want to keep the economy going. So that’s the situation there. I’m sure I’ll get some questions on what we think about the coming months.

EBITDA, good EBITDA development, good EBIT development, margin improvement on both accounts. And as I said, prices are higher compared to last year, but not so much, and costs are down.

#9. If you look at the segments, good profitability in both. And part of the improvement in Insulation was due to a mix from — you saw some heavy segments like flat roof maybe slow down a little bit, and then the GBI light mix, higher contribution margin mix, may be shifting up and that contributed some also apart from the cost situation. The bump on Q2 ’19 or the hill there on Systems, that is the EUR 10 million North American settlement, legal settlement. So it has improved in both businesses. Good to see.

Investment activities, high. And the 2 main draws here are obviously Ranson in West Virginia and Neuburg German factory. So that has been progressive, been progressing. And then on the sustainability part, it’s mainly the Moss project. Both Neuburg and Moss we have to shut down due to governmental rules, and we are now busy starting those projects up again. So we see some delays, but not dramatic. In North America, we have been able to keep the site running. Okay. And the cash flow also includes the deduction — the payment for Parafon.

And on the cash flow side, we reduced — or we improved from a cash perspective the change in net working capital, so that contributed. And then we also got how much, Kim, EUR 20 million? EUR 19 million from the Chinese deal to move or rebuild the factory on the different site. That’s not the whole deal, but that was the first installment and that came in the quarter, so that contributed.

And update on the share buyback program. We said up to a maximum of EUR 80 million, and we have kept going with that. And possibly, the constraint will not be the EUR 80 million but the number of shares if the share price stay like this. But it’s progressing. And I should also say that I get from journalists, why don’t you cancel the dividend? Why do the share buyback? And my argument on this is we have a very solid balance sheet still. It’s super solid. The dividend is — we have paid taxes for the profit and the dividend already belong to the shareholders.

And I see it as quite serious to not pay out the dividend, a, because I think pension funds and also private people — that the shareholders expect that they have the money and spend in society, but it’s also quite a serious matter to not have the ROCKWOOL [foundation] that is roughly 1/4, they get roughly 1/4 of our dividend, and that they don’t have a budget because they do important things. So it’s not only economic reasons, but we like to keep a steady policy and do that. And since our balance sheets can do it, we are committed to do the share buyback. Sometimes, it’s a benefit to have a good balance sheet. And here, we show to you that we just stick to our plan. We don’t change so easy.

With that, I would like to — yes, on the outlook, then not much to say about that. We gave you April. And due to the turbulence in the market, very difficult to predict. Kim and I feel that we can’t really make a sensible forecast, it is not dependent on hundreds of assumptions, so we suspended the forecast. And we’ll — as soon as we feel we can make a forecast, we’ll make it. But at this stage, it’s just too many variables and equation that we cannot predict.

Over to — for questions then.

================================================================================

Questions and Answers

——————————————————————————–

Operator [1]

——————————————————————————–

(Operator Instructions) And our first question is from Yves Bromehead from Exane BNP Paribas.

——————————————————————————–

Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division – Analyst of Building Materials [2]

——————————————————————————–

I hope you’re well and safe. I’ll keep it to 2 to follow the instruction. So first question is on the EBIT margins. Q1 ’20 was another very strong performance in what is normally a seasonally low quarter. So I’m kind of keen to understand what were the drivers behind this and whether or not there’s any timing impacts of maybe lower maintenance in there.

And also, how should we think about the D&A charges going forward with the new capacity? Any colors on price versus costs as well as ramp-up costs, and therefore, the kind of employee hiring that you did in the last few quarters. So how should we think about margins for the rest of the year? And then my second question is on the raw materials. Coking coal and gas have now…

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [3]

——————————————————————————–

What was — Yves, was that the first question?

——————————————————————————–

Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division – Analyst of Building Materials [4]

——————————————————————————–

Yes.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [5]

——————————————————————————–

Okay. But so it’s a margin question, the first one?

——————————————————————————–

Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division – Analyst of Building Materials [6]

——————————————————————————–

Yes. Do you want to go one by one maybe, if that’s better for you?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [7]

——————————————————————————–

No, no, no. Take the other question. Take the other question.

——————————————————————————–

Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division – Analyst of Building Materials [8]

——————————————————————————–

All right. So yes, the second question is on the raw materials. Just trying to understand on the coking coal and gas inflation which is quite substantial now. Can you help us to understand how much of your EUR 1 billion production cost is energy in percentage terms? That would be really helpful.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [9]

——————————————————————————–

So the second question, I will hand to Kim, and I do the first. So on the EBIT margin, what you saw in Q1, I don’t think we highlighted that, but it’s actually the best Q1 we ever have, top line, bottom line. So you’re right in that, and the margin is high. And I think what — and that’s not only the most favorable conditions. But fundamentally, what we saw, yes, logistics might have become a little bit too troublesome towards the end of the quarter, but raw material costs were down. So we had a bit of a deflation, and we still managed to get the price slightly up, and that’s the main reason. It wasn’t really maintenance.

Then the question is where — a shutdown like in China, where would that show up? But it’s relatively small. It’s one [voluntary] factory. So well, fundamentally, what we did, we kept — we had good productivity in the plants. We had good efficiency, not much waste. We did all scheduled maintenance. It was not less maintenance. And then price minus cost, that was a net positive. So that’s the reason.

Then we look at the margins over the quarter going forward. You’ll end up short term with — obviously, a bit of a mix effect of it because what goes down here might be, for example, projects into [sea or] cruise ship applications. Oil and gas might go down. Some of that business is low, margins on high, so we need to look at it. But fundamentally, it seems to be going towards the lighter spectrum. GBI business, of course, would be higher margin. So you will have some mix effects, but I’m not going to try to predict them.

But I think over the coming quarters, you get into more of a volume. You get less top line that hits your margin, and then we are working on adapting the cost situation to more the steady-state run rate in the markets where we then start tuning the margins. And then, of course, we use subsidy schemes or short-term week schemes in — we aim to do that in some countries in Q2. Not Denmark, for example, but in some other places. And there, again, there will be some effects of that to bolster the fact that we are not quick enough, and we don’t have the intention to cost, overhead and fixed cost, without knowing what number we should be for.

So a little bit of a under-absorption that we may or may not count — compensate with subsidiary schemes, so we will not. So you will see kind of a margin deterioration due to that reduced top line. Kim, number two?

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [10]

——————————————————————————–

No, but in the raw materials, there’s no big signs of this. We do spent quite a considerable amount on our cooking coal still and we do also buy electricity. And so, yes, we will have a benefit as long as the prices are as they are compared to last year. But as you know, we’ve also said we will simply buy forward only 1/4 at a time, so we are just following the market trends.

——————————————————————————–

Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division – Analyst of Building Materials [11]

——————————————————————————–

Okay. But sorry, how much is the overall energy — the proportion of the production cost in presentation, just so we can get a rough idea.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [12]

——————————————————————————–

No, but we — yes, we will not disclose that. But it is — if you combine both coking coal and the energy, it is a substantial part of our input cost.

——————————————————————————–

Operator [13]

——————————————————————————–

And our next question is from Claus Almer from Nordea.

——————————————————————————–

Claus Almer Nielsen, Nordea Markets, Research Division – Senior Analyst of Capital Goods and IT [14]

——————————————————————————–

I will only do 2 questions. The first question goes to the performance in April. Just maybe you could give some flavor on how April went, excluding the markets that were in a total standstill, like Southern Europe. Would that be possible to get that number? That would be the first question.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [15]

——————————————————————————–

We haven’t given a bottom line number.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [16]

——————————————————————————–

How — also sales. But I think, Claus, you have a little bit of flavor of it because we did mention North America and Northern Europe, that was growing. And then we mentioned also where we are seeing a higher sort of negative development in…

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [17]

——————————————————————————–

Yes. So basically, if I could comment on the top line, not the bottom line. North America, still doing okay. Canada doing better, and the U.S., patchy. And that in some places growing, in some places not. By state, by city, high variability. And the question there is, and this is incredibly hard to predict, will Trump manage to restart the economy, but it will be slower, and we are waiting for a worse quarter, the worst is ahead? Or manage to restore it or kind of rescue it before it goes down? Don’t know. This is — my personal bet might be that it looks like U.S. is in for quite some challenges. But I don’t know. But we haven’t seen anything.

Then we look in Europe, you see that some countries are doing pretty okay. I mentioned Denmark, Denmark very fine, actually. Sweden is doing good. Russia done pretty okay, too, yes? I must say even though we cut in some shift, but doing fine. France, really, really down. They stopped everything. And that we hope now that, that should reopen. Italy, obviously, the extreme of the extremest, they really shut everything. That’s the only country where I had — I think we had a truck we couldn’t get in on the day we wanted. But Italy — so Italy can’t get any worse, I would say. But that really was extreme.

Spain, somewhere in between, better than France but still down. Germany, not catastrophic. And in Asia, I think China kind of keep this. And if we’re going to discuss about the outlook forward, you could say China had this really deep dip, and then from that, steady up, but not up in 100% yet. But it’s kind of just progressing up towards that point. So I hope that is a bit of a flavor of how the markets [have behaved].

——————————————————————————–

Claus Almer Nielsen, Nordea Markets, Research Division – Senior Analyst of Capital Goods and IT [18]

——————————————————————————–

Yes. Sure. Then maybe the impossible question, but I will try anyway. When do you think you will hit the trough quarter or trough month? Would that be in May, June when the backlog has been delivered? Or is there any view on that one?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [19]

——————————————————————————–

I can just give an array of thoughts on it, and I’m not committing to any of them. If — I could say like this. If the rest of the world behaved like China, then that model will be Q2 is the worst and then it gradually improve. And then there would be a provision in that, that during the downturn, there is a lack of building approvals, maybe commercial project uncertainty, and more pipeline impact, but also general commercial confidence issue that would come in. But that would be kind of a dip down. That’s the Chinese model. Is that going to happen in Europe? Not sure. Is that going to happen in U.S.? Not sure. But that’s one way of looking at it.

So basically, we would have believed the whole world was a Chinese model, I probably think we would have been able to make some sort of forecast, plus/minus 5%, because that looks very steady. But then you saw even a country like Singapore went down, up and then a little bit down again. And they are super skilled at these type of things. So that’s one aspect. But then you have the other, if you have the potential pipeline vacuum and a shift, but then you have this the green restart.

We saw after the finance crisis at France and Germany, they’re just 12 months, and then they were back in growth territory for us, because they went in with action into renovation, housing, et cetera, to create jobs. And EUR 1 billion into energy renovation gives 20,000 jobs, and it gives them quite quickly. And it goes into SMEs, 90% in companies with less than 10 employees. So great for jobs and the best investment to save CO2. And the EU are talking about EUR 2 trillion into stimulus, 2 annual budgets. And even if that’s only one annual budget, it’s still a whole lot of money if some of it goes into energy renovation.

And I think that’s really the big question. You have the business cycle, recession threat. And then you have the underlying trends for stone wool is there, but will some of that stimulus go into energy renovation. And I think that’s single big — the biggest single factor we are dealing with, and I simply can’t predict. And as always, some countries will do it well. No matter what, we will pull that off, but not every country. And then the EU will that happen broad based and actually get up? Don’t know. But we are working on solutions for it and the [form of it].

——————————————————————————–

Claus Almer Nielsen, Nordea Markets, Research Division – Senior Analyst of Capital Goods and IT [20]

——————————————————————————–

Sure. But you mentioned something like 5% to 10%. I missed — what was that? What was the reference to the 5% to 10%?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [21]

——————————————————————————–

No, I’m saying that if the whole world behaved like China, what we have seen in China, then we have — we probably had something that was reasonably predictable. But these countries all do it differently. So me and Kim, we don’t feel we can make a forecast that this 5% to 10% accurate at this stage. That was my point.

——————————————————————————–

Operator [22]

——————————————————————————–

And our next question is from Laurits Kjaergaard from ABG.

——————————————————————————–

Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [23]

——————————————————————————–

Jens and Kim, I’ll take one question at a time for the 2 questions. First of all, I heard on the first question that you mentioned, Jens, that prices were slightly up during the quarter. I see on Page 3 in the Q1 report that they were under pressure. Could you give some details in regards to these price pressures that you were facing? And perhaps also, any flavor on sort of product competition which their prices — their raw material prices, being plastic, might be lower? Could you give some details there?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [24]

——————————————————————————–

Yes. So prices were under pressure, which means that we didn’t — when — in some markets, people reacted with reduced prices. And we have Poland as an example, that started already last year. So we had pockets of that. But — and that meant that we have launched price increases and we have stocked, but we have gone a little bit less. And we are working, as we do, cut capacity, keep the price, et cetera, and focus on payments. And the real battleground has been that. But in this environment with the raw material going down, we kind of lowered our ambition for price increase a little bit to match the fact that we see, on aggregate, probably a deflationary environment due to the crisis. So there’s a pressure. But so far, so good.

——————————————————————————–

Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [25]

——————————————————————————–

So to confirm, you’re not losing market share to other product competition? And then my second question is for the Systems division. You mentioned that Grodan performed very well, exposed to especially in North America and Russia, and continues to do so. Could you give some details on Rockfon in Europe, which got this new management in ’18, and then how that is being projected into April also?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [26]

——————————————————————————–

Yes. I — we serve our customers all the time and not everyone was able to do that. We — as far as I know, we were the only tile suppliers, a Rockfon tile supplier that can deliver to every country all the time. And I don’t think we should talk about gaining market share because we have the delivery capability. But I know, for example, in one very big country, one supplier just went for a subsidy scheme and we didn’t see much of them, and we delivered the market. We have seen some small cases like that. So I’m pretty sure that in Q1 and also April, we haven’t lost market share. Okay?

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [27]

——————————————————————————–

But also, you can just look low at our competitors, there’s nobody who’s — who has any sort of significant growth in Q1.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [28]

——————————————————————————–

Yes, yes. So that’s on the market share. What was the other question, Laurits?

——————————————————————————–

Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [29]

——————————————————————————–

Second question was on Grodan and Systems obviously performed very well, and (inaudible). For Rockfon, could you give some details on Rockfon for that segment?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [30]

——————————————————————————–

Grodan, yes. So yes, just to say that the European performance has been very good.

——————————————————————————–

Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [31]

——————————————————————————–

For Rockfon?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [32]

——————————————————————————–

Yes. Yes.

——————————————————————————–

Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division – Research Analyst [33]

——————————————————————————–

Also in April?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [34]

——————————————————————————–

Good growth. Good development. Good pricing. It’s all relative. But typically, when you have a downturn like this, the Rockfon businesses, they can deliver off stock, and those products come at the very end of a project. So I will not go into the segment, but I can say, the Rockfon business, together with the Grodan business. Grodan, obviously, have very special drivers, but Rockfon has done fine. Very good.

——————————————————————————–

Operator [35]

——————————————————————————–

And our next question is from Kristian Johansen from Danske Bank.

——————————————————————————–

Kristian Tornøe Johansen, Danske Bank A/S, Research Division – Senior Analyst [36]

——————————————————————————–

So first question is regarding the competitive dynamics in the markets where capacity is expanding. I mean you have a competitor who has expanded in both Poland and France, as I recall it, and you’re also expanding in some markets. So can you just — I mean, obviously, in the light of the volume decline, does that impact pricing? Or what is the reaction in these markets?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [37]

——————————————————————————–

I’m not quite sure. I don’t think this crisis here hasn’t — people are worried about keeping their people safe, and I don’t think the main worry of — and get deliveries through, get the PPE equipment in. And some people haven’t pulled that off, they had to shut because they couldn’t. And so I haven’t seen this yet turn into something capacity-driven price or anything like that. People have reduced capacity, multiple plants and that’s the way we have seen until now.

——————————————————————————–

Kristian Tornøe Johansen, Danske Bank A/S, Research Division – Senior Analyst [38]

——————————————————————————–

Okay. Fair enough. And then on these potential energy efficiency renovation stimulus, have you seen anything concrete yet? Or do you have any examples from markets which have already acted? Or is it still more of a hope that something will happen?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [39]

——————————————————————————–

Yes. Yes, I would say best-in-class so far is probably Italy. Italy give 110%.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [40]

——————————————————————————–

Just now.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [41]

——————————————————————————–

Tax.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [42]

——————————————————————————–

Eco…

——————————————————————————–

Unidentified Company Representative, [43]

——————————————————————————–

It could be the (inaudible).

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [44]

——————————————————————————–

Okay.

——————————————————————————–

Unidentified Company Representative, [45]

——————————————————————————–

110% tax credit.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [46]

——————————————————————————–

110% tax credit in Italy. So Italy have been quick on it. They had already good framework and they’re expanding it. And I think that will help to restart Italy. And then I don’t know if you noticed on Monday, we were in a call with the energy minister and the foreign minister, but Denmark is pushing the thought of this and helping to make a green restart, and then we know also in the EU. But in terms of countries, I would say, Italy is the earliest one out of the box.

——————————————————————————–

Operator [47]

——————————————————————————–

And our next question is from Cedar Ekblom from Morgan Stanley.

——————————————————————————–

Cedar Ekblom, Morgan Stanley, Research Division – Executive Director & Equity Analyst [48]

——————————————————————————–

I’ve got 2 questions. Can you give us a high-level breakdown on how we think about your costs from a fixed versus variable percentage? And secondly, can you give us a bit of color on how we think about ramp-up costs for new assets, and how these are phased over the next 2 quarters?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [49]

——————————————————————————–

Thanks.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [50]

——————————————————————————–

Let me just take the ramp-up cost, which we have dealt with before. We had already mentioned last year that, that ramp-up cost both of our factory in Romania and also our factory in Germany. And of course, Romania went live last year, so they are just part of normal operating cost. And in Germany, we had — we still have — it’s also included in the Q1 data, we still have ramp-up costs in the first 3 months and have a bit here in the second quarter. And then, of course, it will go live and this just becomes part of normal operating cost. So that was…

——————————————————————————–

Cedar Ekblom, Morgan Stanley, Research Division – Executive Director & Equity Analyst [51]

——————————————————————————–

Can you give us a number?

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [52]

——————————————————————————–

Part of the…

——————————————————————————–

Cedar Ekblom, Morgan Stanley, Research Division – Executive Director & Equity Analyst [53]

——————————————————————————–

Could you quantify what the ramp-up costs are in Germany out of interest?

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [54]

——————————————————————————–

We have said last year, it was about EUR 12 million last year. That means EUR 1 million per month, and it’s more less the same level this year.

——————————————————————————–

Cedar Ekblom, Morgan Stanley, Research Division – Executive Director & Equity Analyst [55]

——————————————————————————–

Okay. And then high-level fixed versus variable costs? I don’t know if you would share how you see your cost mix.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [56]

——————————————————————————–

But — sorry, it’s — I didn’t have the number here, but it’s part of our — and I can do — you can also do your calculation just looking at our numbers. But it’s — we are disclosing the numbers — I think if you don’t mind, I’ll look at it afterwards because I don’t have a calculator here to sit and do the calculation.

——————————————————————————–

Operator [57]

——————————————————————————–

And our next question is from Mikael Petersen from SEB.

——————————————————————————–

Mikael Petersen, SEB, Research Division – Analyst [58]

——————————————————————————–

I have a question regarding your logistic costs, you say these are up. Is the reason for this that due to the lockdown of some factories, you have to produce somewhere else and then transport it along the distance? Or why is this?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [59]

——————————————————————————–

Yes. It’s a good question, Mikael. So we had the case when we had one plant in Malaysia shut down and then we took product from Thailand into the market. But then when you end up in that, the market kind of semi or into a lockdown and you have under-absorption basically because you get to quit the logistic cost for that distant grounds in the under-absorption effect of the 2 [weeks]. So you have a few of those, but it’s not with…

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [60]

——————————————————————————–

Well, I always had to say the delivery cost was at the same amount as last year. So of course, there is a little bit of extraordinary cost. We also had a bit of extra warehousing in Norway in connection to that, too. But the underlying cost, the actual cost, the reported cost is the same as last year.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [61]

——————————————————————————–

I also to give you a number, we manage the business to a stock curve, and we have 2 areas where we’ve added stock. And we’re talking about 6% extra stock globally because of that. And that’s to meet — to have the product ready during the [changeover] in Norway. So we have prepared the products so that when we start to change the electrical melter that we will start here in the summer and that goes until probably Q4, sometime, we have extra there. And then the same in Germany for the factory there. We also built a little bit of extra stock. And that together, we’re talking a couple of percent. And that will draw some extra logistic costs. But in a way, that’s part of the startup cost thinking, yes. But again, relatively marginal effects.

——————————————————————————–

Mikael Petersen, SEB, Research Division – Analyst [62]

——————————————————————————–

Okay. And then my next question is related to your current utilization level since you’re ramping up capacity and you’re seeing flat sales in Q1, and I expect Q2 to be down. What kind of like mitigating actions are you doing to handle this low utilization? And is it simply just reducing shifts, like from working 6 days a week to only 5 days a week? Or what examples can you give?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [63]

——————————————————————————–

So what — I mean, obviously, you’re going to be in a better situation if it will have just continued without re-adding capacity. The location of that capacity is still fine midterm. But then you have this and you lose top line. So that’s, of course, not ideal. But you never know that. And we need the assets. We’re going to need the assets if we’re going to fill those factories.

So typically, what we do in that situation, that we analyze the demand and then we just fill up optimum, and we do this — it’s a quite sophisticated calculation done. And then we fill up the shifts in the best, best total competitiveness manner, and then we switch off other assets or draw down shifts. So let’s assume 5 shifts is just running 24/7, and then 4, 3, 2. And our plants are quite flexible. Down to 2, 3 shifts, you can still have a very profitable — after that, you might choose to not pull the whole line and load up another line next door instead. And that’s how we operate with that.

And even if we have to go down quite a lot on volume and capacity in the factory, on the blue collar side, the direct labor side, we typically can keep productivity high on the same level even when we produce at a lower level. And depreciation stays, it is where it is. But — so that we can do. And the challenge and the work that needs to be done then is, of course, when you know the level, you then need to adapt the fixed costs, the overhead personnel expenses and the rest. Because our ambition — we don’t believe subsidies will help us. We don’t count on that. We want to have a competitive business.

So it means that if I have a market with one factory and a run rate that is 10% down, we will look into fixed cost, obviously, external cost consultants and the labor side. And the labor side comes first because if we don’t produce, then we have — we take actions on that. And there’s a whole array of ways of doing it and it varies by country. But fixed cost needs to be adapted, too, if you sit in a market with a permanently lower top line. Well, permanently, my language is 12 months or something like that.

——————————————————————————–

Operator [64]

——————————————————————————–

And our next question is from Brijesh Siya from HSBC.

——————————————————————————–

Brijesh Kumar Siya, HSBC, Research Division – Analyst [65]

——————————————————————————–

I have 2 questions, if I may. The first one is on April, 20% volume decline. If you could give a little more flavor by end markets or like residential, nonresidential and renovation. So a little more flavor on that would be appreciated. And the second one is on — given that you have a very good balance sheet strength, would you — I mean, have you seen any further opportunity in the market? Are you looking at it? If you can give a little more flavor of how you see the competitor dynamics setting out.

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [66]

——————————————————————————–

So obviously, we — you saw Parafon, we paid that now and that was just before. And we keep looking. I mean there’s great opportunity for us, and we have a couple of smaller things we look at. And if they come out now, we don’t hesitate. So yes, we are looking, but nothing significant, okay?

And then on the segments, there hasn’t been a segment shift yet in the market, because what has happened was Q1 was normal and then happened the lockdown, where kind of most things stopped. But there are a couple of trends worth noticing that could just be factors that we will see how they crystallize going forward. One is, for example, Technical Insulation into oil and gas. With this oil price, what will the oil and gas guys do? One could assume that, that might lead to less maintenance and less new plants. It could be a possible trend.

Cruise lines, it’s not a huge segment, but it is a segment. Will people build cruise lines now? Between the compartments in a cruise line ship, stone wool is a very popular product. I’m not saying we are dominant in that. We have a very good market share there. There are other materials, too. But — so there are segments that’s going to be impacted. And then newbuild and GBI and renovation, there, I think the big factor is that if energy renovation comes, that’s the sweet spot for stone wool. That’s the sweet spot for it. So if you shift over more from newbuild residential to renovation of renovation, there is more stone wool in that shift.

On the other hand, in the commercial segment, Amazon centers, lot of stone wool in that. Car factories, a lot of stone wool. But then you have all the rest of the commercial business where if the commercial and the office buildings go down, there are some segments there that have quite a lot of stone wool that we like to go after and that might decline. But — so I don’t think — I think the overriding aspect here would be that if you see renovation come up, it’s a good thing for stone wool, yes?

Another trend, maybe one more trend. Energy renovation and external wall insulation, there you see — we see, especially in Germany, an increasing shift from plastic forms to stone wool in the facade insulation from the outside. That’s also another trend. But that trend has been there for 4, 5 years, and it seems to keep going. Okay? Did I answer? Yes? Good. Thank you.

——————————————————————————–

Operator [67]

——————————————————————————–

And our next question is from Frans Hoyer from Handelsbanken.

——————————————————————————–

Frans Hoyer, Handelsbanken Capital Markets AB, Research Division – Analyst [68]

——————————————————————————–

I’ve got one question and it relates to — you mentioned that April was down 20%. And could you — how do you see the next few months on — in that — on that metric? And how does that play relative to your pricing strategy of raising prices and so on? I guess you mentioned there were some in Q1, but the bigger quarters for that, as I understand it, is Q2 and 3. So how will that unfold, those 2 together?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [69]

——————————————————————————–

Yes. So on the price, we have launched the price increases and they’re out there, and we are executing on them. But in some markets, we have had the traditional 2 price increases in a year. And now we focus on getting the price increases we have already launched and stay to that in Q2 and Q3, okay? So that’s on the prices. And then on the volumes, I’m not going to give a forecast on May and June. But my observation is that many countries come out of the lockdown. If they were to behave like China, you would expect a Q2 that is the worst and then it will start to climb.

And then you can say, would it start to climb in May or June already or in June? Hard to predict. But some sort of V or U scenario there or not. But then again, you have a lot of dark horses in this. So I don’t have a forecast for May or June. But you saw how dramatic impact from the first quarter average through April, how that was how sudden. And I think in some markets, you will see also a sudden uptick when they open up if they had, like France, shut down the building material outlets and all the rest. When you open them, you’re going to get to deliver again.

So I don’t give a forecast. And I can’t promise that that’s the worst month because you also had effects this year of working days, holidays. And you also have countries that might say, okay, we have one holiday week this week, we shut the business for 6 days here because demand is low, and this can happen. And as you know, in May and June, you have a whole lot of these weekends, that lends themselves for if you need to take capacity out on the building site or anywhere, you — lends themselves to add a few extra working days, and we are dependent on working days to get deliveries here.

——————————————————————————–

Operator [70]

——————————————————————————–

And our next question is from Tobias Woerner from MainFirst.

——————————————————————————–

Tobias Alfred Woerner, MainFirst Bank AG, Research Division – Research Analyst [71]

——————————————————————————–

Number one, you talked about the relative strength in the Scandinavian markets. You mentioned Denmark here, and it’s for obvious reasons. I’d just try to get a little bit better understanding of what your exact exposure is to the Nordics at this point in time in terms of revenues. I mean in terms of plans, it seems it’s like a bit around 10% of your total group plans. Maybe you can give us a better indication here, and the same for Germany.

The second question relates to the U.S. It seems to me that the downward trend for the overall category mineral, thermal insulation pricing has started to come — the decline in pricing has started to come to an end. And as a matter of fact, the last months have seen they were up 3% to 4%. Is that something you see as well?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [72]

——————————————————————————–

Yes. So let’s just start with the first one with Germany, Scandinavia and the Nordics. So Finland, doing fine in spite of a very substantial lockdown, but not super growth. Sweden and Denmark, growing. Norway went into not a good situation. They’ve stopped building sites and all sorts of things. So it varies. But then I keep my commenting on those — Germany’s — on that level. And the reason is that I don’t have a single competitor that give country data. We are the only ones, basically. But — and therefore, I — for competitive reasons, I don’t want to go into the percentage of the regions and this and that.

The Nordics is an important market. We take it serious. It’s home market, but it’s obviously not our biggest market. And we always said that Germany and France are heavyweight, together with the U.K., but especially the first 2, and we keep it at that level. Then on the pricing in the U.S. and Canada, we have never declined — gone down on prices. We have improved pricing quality straight through last year, the year before and also Q1, okay?

Yes. So there could be something maybe on glass wool, but I shouldn’t comment. I mean I obviously read what there is on that. But I think, generally, the pricing climate in the insulation categories, glass and stone wool, has been — or the mineral wool as we call it, has been quite positive. And then there are many other building materials where you have seen other patterns.

——————————————————————————–

Operator [73]

——————————————————————————–

And our last question is from Mikael Petersen from SEB.

——————————————————————————–

Mikael Petersen, SEB, Research Division – Analyst [74]

——————————————————————————–

I have a follow-up question. Jens, previously, you mentioned that in some markets, your competitors were shutting down due to subsidies, and you being the only supplier of products. Can you maybe clarify what market that was? And then maybe also if — would your growth have been at the same level in Q1 if your competitors have not would have been taking the subsidies and shutting down the…

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [75]

——————————————————————————–

There’s — nothing of this has — first of all, I won’t — I mean these are anecdotes. These are just small examples of the approach. We have an approach. We don’t put priority on subsidies and meeting requirements. We put a focus on keeping our people safe and delivering to the customers, and I want every customer to know that. And that goes back to our purpose and our style of running business. And therefore, I say it here, it doesn’t have a material impact. But if you compare to competitors that have announced, you will see that we do pretty well on profitability and top line, yes? So that was more a message about our culture and our approach to running business, okay? Does that answer your question?

——————————————————————————–

Mikael Petersen, SEB, Research Division – Analyst [76]

——————————————————————————–

Yes, kind of. And you can’t say what markets that you saw competitors were shutting down and received subsidies?

——————————————————————————–

Jens Birgersson, ROCKWOOL International A/S – President & CEO [77]

——————————————————————————–

No, no.

——————————————————————————–

Operator [78]

——————————————————————————–

And there are no further audio questions. I will hand back to the speakers for any final comments.

——————————————————————————–

Kim Junge Andersen, ROCKWOOL International A/S – Senior VP & CFO [79]

——————————————————————————–

Thank you very much, and thank you for participating today. Please be informed that on the 29th of May, we will have our next investor conference call with the topic on ESG, so you’re welcome to participate. Thank you for joining the conference call today.

Source: finance.yahoo.com

Leave a Comment