Rockwool A S Ser B

Good day to everyone and welcome to Rockwool AS conference call regarding the result for the first quarter of 2024. My name is Kimming Andersen. I'm the CFO of Rockwool AS. Today, I'm pleased to present CEO Jens Bjørsson. For the first part of this call, all participants will be in a listen-only mode. As a reminder, this conference call is being recorded. First, Jens Bjørsson will go through our presentation and give an update on the results for the first quarter of 2024. Afterwards, we'll be ready to answer all your good questions. Before I hand over the word to Jens Bjørsson, I must ask you to notice slide number two, which is the forward-looking statement. Please be aware that this presentation contains uncertainties. Now we can go to next slide, which is slide three. Jens Bjørsson, I'll hand over the word to you.

Good day. With the microphone on this time. Good day, good morning, everyone. Looking at the numbers for this quarter, we started off in January with maybe the first two weeks a little bit slow. You never know what happens in January. But as the quarter progressed, business picked up and... turned quite strong. There was quite a big mix shift. We have very little residential business. We see very little activity still on the residential side. But on the heavy densities, the non-residential, and there we talk flat roofs, sandwich panel, basically everything going in the industrial segment that started to grow. And I'm very happy with that top line. And considering... that last year we kind of held back on resources. We have trimmed a bit of cost, but not too much. When that growth came, together with the price level that was stable, that turned into a nice and profitable quarter. In terms of volume, due to the shift from... overweight on the heavy densities, we actually have a double-digit volume growth in there compared to last year, again, comparing with the relatively easy comparable. Move to slide, take slide four, please. Higher growth in The insulation business, so we have 9%, again bearing in mind that it was quite a hefty winter in some areas, especially Eastern Europe last year, Q1. On the system business side, we see a decline. but that's picking up. We believe that systems will get back into growth territory from now onwards, so it's looking better, especially ROCFON had a very slow start of the year, but it's looking better now. Go to slide five. Regional sales development. Everything pretty slow in Western Europe. It should be said, though, Germany had quite good growth. It has recovered a little bit. It's still on a low level, and it's not a double-digit growth, but it started to grow, but it was so extremely low for us last year. But that's a positive. All the other countries are around the zero. No particular good news anywhere. But there is a solid business and possibly a trend of growth in some of the Western European market. Eastern Europe, then, there is a broad-based growth, volume and top line. And to sum it up, I think there is only one country where we didn't grow. All the others grow. and a lot of countries that grow double digits. So that's good. I think that fits with this. We try to understand why is that happening. It's heavy densities, it's industrial buildings, it's non-residential segments. And I think it has to do with that people that invest in factories and those type of buildings, they now see the end of the downturn and they've started to invest again nearshoring possibly impact this, and planning to be ready by the time the business cycle is improving. So that's what drives the business. In North America and Asia, we have double-digit growth in both places. Japan, where we made the acquisition, I was there in Q1. It's still a very small business, but we had very significant growth, and we're starting to get some volumes into our factory, so that's nice. It's still a small business, but it's encouraging the growth numbers we see. Slide six, profitability. We had slightly... lower prices compared to end of last year and just slightly below Q1 last year. We're talking so basically stable prices. We see logistics, radius, increase slightly, the mix impact our profitability a little bit negative, but materials are lower and energy are lower, so profitability is up, plus the volume growth, the big volume growth that also adds to the profit, and we didn't need to add any much resources to produce that growth, so that goes through nicely to the bottom line. In terms of provisions, we declare provisions, most of the time we don't talk about it, but quarter last year and quarter this year is roughly neutral, so it's a margin improvement without impact of any provision taking or restructuring or anything like that. Slide seven. Nice development in profitability on insulation. You see the margins has improved from a bit above 10% to more than 15%. Nice, and that's driven by the business I mentioned. On the system division, we also had a healthy development. Last year, we were on 10.4 and now 14.2, which is a more normal margin, so we're happy about that. Q4 23, I just want to remind you that we had a 60 million restructuring project that we booked in that quarter, so that's not representative. But the system division has improved also, which is nice. Slide eight, investment activities. We just keep investing. There are a couple of things that have happened. One is that we have started up the flume rock plant. That was probably the main investment there. We also commissioned a new paint line for rock panel. And we keep doing that. So that has continued. And we... We haven't had anything especially notable in this. We just keep executing on the plan and we haven't drawn back. We did also, we see an increase, a couple of factors. Our technical insulation business, part of it due to competitors' exit from the marine business, but also a general increase in technical insulation demand. We have also invested in Bohemian in increased capacity, and that business is growing nicely. Moving on to slide nine, the electrical melter in Flumrock. Okay, not everyone would know that, but it's in Switzerland and it's in Flums. That's a 100 million euro investment. We made this acquisition, and in the business plan, we made it several years back, it has been tremendously successful, but we made a commitment to secure this location in Switzerland, and this factory is in Switzerland for Switzerland, which is quite unusual in our sector. We have now completed that investment of 100 million euro. It started up on the day. It's the largest electrical melter in the world and there are also another couple of extras in that plant that we have never tried before that has worked out and it has been a beautiful project. CO2 reductions will be something like 75% with that and we will have green energy driving that, so that's a really good project. It will also improve our ability to take back old products and do circularity or upcycle them. We were almost at the limit of what we could handle but now with the this electrical matter we can put in a higher content of non-verdian products so that's good just to give you a little bit of feeling for this project the total shutdown i mean we prepared everything and then we did the total shutdown of five weeks and to get through that those weeks and supply the customers you know in many markets we can take in products from neighboring countries in switzerland that is a little bit more difficult due to the nature of the products i they prefer in that country and we had we had built up a strategic stock of 100 000 pallets and it worked out really well and because we kept the customers supplied Slide 10, free cash flow, good. As usual, net working capital is not a big issue for us. It's on a healthy level. Some of the reduction is also caused by the increase in deliveries and that we now have relatively low stocks. We are ramping up capacities. I'm not worried about being able to deliver good growth in Q2. We are ahead of the curve and we should be able to grow more. The share buyback program is progressing as planned and I would say we are surprised, but we don't have debt again, so more than 200 million surplus again, net debt free, so very healthy balance sheet position. Over to the outlook, slide 12. We had already pre-announced the outlook. We didn't change that now. So mid-single-digit growth, 50% margin, and we just maintained CapEx forecasts. So that's the outlook, and you had factored that in already in your estimates, I think, when we did the profit warning a few weeks back. Over to questions.

We will now begin the question and answer session. To ask a question, you may press star and one or your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star and two. At this time, we will pause momentarily to assemble our roster. Our first question Thank you very much.

I have two questions, please. The first goes to pricing. You've successfully more or less maintained pricing throughout 2023 and here in Q1, while we see that competitors like Kingsman and Zagobank have been lowering pricing. Can you talk a little bit to the pricing dynamics in the market and any kind of feedback that you are getting from customers on this topic? And secondly, with margins now at a higher level than we have seen historically, Do you believe that there could be a situation where this could trend even higher if and then volumes bounce back to the level seen a year or two ago? Thank you.

Okay, thank you, Kasper. So let's start with the pricing. First of all, the overall price number is the combination, obviously, of all regions. And we see different things in different regions. And we see different developments in different segments. But underlying, I would like to say, Inflation is still there. Yes, energy prices have come down to more normal levels and this and that, but we still have inflation in North America, we have it in Europe, and we have it in Asia. So going forward, to keep profitability, you will need to do some price increases. That's underlying because the inflation has not disappeared. Net, obviously, we have different pricing climates. So in North America, we have been quite careful on pricing until now. And the reason was that we got completely overwhelmed in orders and ended up with a very long delivery time. So now we have ramped up capacity and we have moved... start to move through the backlog, get back to proper delivery times. And we have also launched a relatively substantial price increase in North America again, because we don't feel we should raise prices and have lousy service to our customers. So US have a positive pricing climate with also high inflation and high demand. So that goes that way. Asia, a little bit spotty, but again, in the big scheme of things, doesn't impact overall numbers yet. In five years, I'm sure Asia will impact our numbers but now it's not a big deal then we look at Europe the tricky segment would be the residential general building installation where we kind of walking a tightrope but we are not dropping a lot but we kind of adjust pricing a bit but there is very competitive and then you have some markets where you have projects like mid-sized projects where we offer stonewall and there is a complete carnage on the EPS side with very low pricing and we lose a bit of projects and we go down a bit so but overall on the heavy densities and With the demand coming now and we're gaining ground, then we increase prices. So the net of that is that I see stable pricing. But there's a lot of work in the different segments. You look at, for example, technical insulation into oil and gas, into marine. Healthy demand, and we pass on the cost increases. So that... That's the way we approach it, and our goal was always to kind of get through here, and we have always told our customers that we don't see the inflation go away, and it's not going away very quickly, and therefore I see continued small price increases. Then on the margins, Kim and I, we have this old 10%, above 10%, and we have never had a problem with... with being 16 or 17 percent, because when we look at the capex and the massive investments and the price of the plants with inflation, I would fundamentally say that we should have a higher margin in the business. Higher margin is a bit of a dangerous concept because if we end up building, say, two jumbo lines and we switch them on, it's several margin points in depreciation. So I think, again, in future calls, I said that last time we should talk a bit about margin. But I think we need a higher margin and we should try to maintain a higher margin because with all these investments that are needed in this business, you are on the one side The greenification with the CO2 take-up, I mentioned 100 million in Switzerland, we need to charge for that. We cannot end up in businesses that don't cover themselves. So I think we need an underlying higher profit margin. Then we also have now the energy performance of buildings directive that was decided on 12th of April in the EU with very ambitious targets. And I don't see an impact in 2024, but you have now goals for 2030. You have goals for 2035. You have aspects in there on solar energy installations, which is a sweet spot for us because of the non-combustibility. You even have some guidance in there on fire safety hazards because when you install more electrification, heat pumps, PVs, batteries, recharging infrastructure. You need to be more fire safe. And then you have all these buildings that are going to be renovated. So with that, we also see that if that starts to realize we need to invest more, and therefore I would like margins to be higher. So nothing against maintaining the margins to make sure that we have a sustainable business. I hope that answered your questions, Kasper.

Yeah, I suppose if I could sneak in one follow-up, it would be if there would be a margin level where you would say, okay, now it's pretty comfortable, let's try and go for more volume hunt instead of further increasing the margin.

Yeah, I think we go for volume, but, you know, volume is... is super important, but if the volume gets restricted by capacity, it's not smart to sell out your volume at too low margins, right? So we need to build factories to cover the volume. I mean, we definitely want to grow the volumes. But now we have just come out of a period where it was just to navigate maintaining market shares and keep profitability of the business. But we have been seeing falling volumes. And now we come into growing volumes. So we have a different scenario. But for sure, we want the volumes to grow.

Thanks a lot.

Thanks a lot, Jens. Our next question comes from Alexander Kramers with Kepler's Row. Please go ahead.

Hi, hello. Good morning. Alexander from Kepler speaking here. Congratulations on the nice set of results. I was just wondering on the capacity, because you were already touching on that. In H2 2022, you did some capacity reversal with unfortunate layoffs. I think one specific item you mentioned there was a deep maintenance in the plant of Germany. Now that you mentioned that volumes are increasing and the demand in Eastern Europe and Germany is increasing, Have you already made some plans to increase capacity again, restaffing, or are you comfortable with the current capacity?

Thank you. Yeah. I mean, the installed capacity is there. And we are, like in the U.S., we added several shifts. And we are ramping up now in line with the capacity increase. And as I said, when we did that big, when was it, 2022? 2022 in the autumn, we did a relatively big capacity take-up. So we struck early and then we set the volume level for the downturn. And that pretty much worked out. And also, I assume you are, are you based in Germany or no? Okay. A lot of Kurzarbeit and all the other schemes. Now we see, for example, in southern Germany, in Neuburg, with the growth that is back from a low level, it's not healthy in Germany. It's nowhere near where it should be. Neuburg, for example, in southern Germany is back up and running again on all lines. So we are putting in more capacity. But again, it's not from the level we are talking about, it's not It's not a big problem, and we are planning that, and we should be able to grow.

Okay, thank you. And then going on on the capacity, my second question would be if you could maybe give just an update in terms of budget capacity and timing of the plants in France, Romania, and now also the U.S. Thank you.

I hand that over to Kevin.

Yeah, thank you very much. We still have a plan to go ahead to construct the factories in France and Romania to be online in the second half of 2026, cross fingers. And then, of course, the factory in Washington State in the U.S. has just been approved by the board here lately. And we are in the planning there. We have a piece of land. We're doing due diligence on that. But that will only come online in 2027. So that's the plan, right? So for us, the next new capacity will be most likely France and Romania here in Europe, and then in 27 in Washington state.

And then India?

And then India is also approved, and there will also be a three-year period. So maybe, yeah, it's because it's a, yeah, but let's say late 26 into 27 in India.

Okay, thank you very much. Jens and Kim, you may hand it over to my colleagues. Bye.

Our next question comes from Arnold Lehman with Bank of America. Please go ahead.

Thank you very much. I have two questions, please. My first question is on the margin. Is there any reason why you are a bit less optimistic for the margin in the second half? Are you just... being a bit cautious maybe on pricing, or is it possible that your 16%, 17% margin in the first quarter might be sustainable into Q2 and H2? That's my first question. And staying on the resi and non-resi diverging trends, clearly quite positive trends in non-residential demand. Could you be a bit more specific about which countries and which verticals where you are seeing this strong demand? Thank you very much.

Okay, thanks. Thanks, Arnaud. So on the margin, when we did the outlook, We don't have backlog. So Kim and I, what we do, we factor in what we see into the next quarter, and then we see how the sales forecast builds. But we don't have a long backlog, and therefore we traditionally get this question often when we do a forecast because we factor in what we see and guess a couple of months out, and for the rest... we take an assumption so that we don't come back and disappoint and don't deliver on it. Q, you know, the summer, we have August, for example, where France is down and we have some other things that the margin in that period would be a bit lower, normally is. On the other hand, you have September that normally is a super strong month. So sometimes that waves are there. But I will say the following, rather than trying, and I don't see that there would be a dramatic thing on pricing. I haven't factored in anything like that. My intention is to keep pricing and keep working it and do price increases where we can and defend market share where we should. So I'm not too worried about that. So I wouldn't put more into it. other than to say that we don't have quantitative visibility into those quarters yet. We are getting deeper and deeper into it. But we know, for example, in Q2, we know pretty much that the business continues, it's growing, it's looking good. Then we come on those segments. I would say... Overall, the business is driven by the heavy business. For example, solar PV is pretty broad-based. It's broad-based. And then you have, for example, North America. It's all types of business, residential, non-residential. And there we have, I would say, less of a... For example, the flat roof business in North America is not very big for us. So there you have a broad-based uptick. Eastern Europe is exactly what you would expect. Manufacturing, logistics, data centers, all-type battery factories, you name it. Some electric vehicles factories, etc. It's all those, nearshoring or just expansion, the industrial base. That drives it, and that happens in the whole of Eastern Europe. And then in Western Europe, I will say there is a bit of that coming, but I will say the fastest-growing segment is solar PV flat roofs.

That's very helpful. Thank you very much.

Our next question. comes from Brijesh Kumar with HSBC. Please go ahead.

Hi. Hi, Jens. Hello, Kim. I have two as well. So starting with the first one is on the... Sorry, I lost it. But yeah, I'll start with the cost one then. On cost side, what are you kind of seeing in terms of the dynamics? If you could just give us what you have hedged in Petco in terms of pricing versus Q2 versus Q1. And I guess previously we were talking about cash you hedged for Q1 as well as electricity to an extent. So if you can just give us a little more update about it where we are. And the second question is on the margin. I guess many questions have already been asked for it. But if I recollect from history, you make a very good margin in your normal residential business versus flat roof. Given the mix that shifted to flat roof in Q1 versus the pre-historical numbers, When the residential business picks up, would you say that that market has legs to go up as the mix improves positively?

Thanks, Brijesh. Before I start, do you remember that question you asked about the CO2 intensity in the last call? I checked that a little bit and I just want to look back and comment because we didn't answer it when you answered it. So basically what happened is that we did improve the intensity but what what we had not done and that was an omission we should link that up there were grid factors changing in germany and france those were the main contributors so and also china where where we did we put in electrical melting we did all the work But then we had not linked up the RECs. So those countries, especially France and Germany, had a worsening grid factor mathematically that made the CO2 look worse. But when we go back and calculated it again and we match it with the RECs, actually we did improve. So that will not happen this year because... It was a mistake from our side because we did not predict that Germany would move so much to coal as it did.

It was a bit of an oversight with China, where we did do the investment in the conversion, but didn't secure the RECs.

So, for example, China, we put in an electrical melter, and then we didn't do the conversion to green energy, and that actually made it worse. But in effect, we dropped the CO2 emissions with 70% or something. So that would be corrected. Then if we go back to your questions, you know, we haven't seen... residential come up. But I guess theoretically, if you keep the margin on the other business and the volume and there's more residential scope, margin would go up, mix. And the mix effect, is relatively significant in Q1, but it compensated for with other factors. So that's a point. I will hand over to Kim soon on energy, but if you look, when I look at it, generally we see A better material and cost input side, but there are some categories going in up. And that's logistics, it's wages, and there's certain individual materials that creep up. But on average, it's going down. Maybe, Kim, you can throw some light on that. Yeah.

I think we have told you before, Bries, that we had this favourable deal on the coke for the first quarter, and that for sure is one of the energy costs that is going up. I think gas prices, electricity prices will be more stable for the remaining part of the year, but coke prices, for us at least, compared to Q1, is going up. And then you have also oil-related prices like binders, plastic wrappings are also expected to go up in price. And then with Jens also said logistic and wages.

Okay. Fair enough. Thanks. Thanks, Jens, for asking, remembering the answer in that question.

Okay. Thanks.

Our next question comes from with JP Morgan. Please go ahead.

Morning, Ian Jenkins. Thank you for taking my question. Two for me, please. Just one on the strength of the balance sheet. Can you speak about kind of the intention in the midterm between sort of CapEx growing the business and the buybacks? Do you think buybacks could be a norm going forward? And then secondly, just to dive in a little bit on France, what was kind of driving the decline there? And do you see that trend remaining for the full year? Thank you very much.

Yeah. France, I take France, and then I hand over the balance sheet to Kim. So in France, we talk a very small, single-digit small decline. So I would say France has been quite resilient and done much better than Germany's. I think there could be some of the schemes for energy renovation, there could be individual projects, but it's nothing dramatic. We are Slightly, slightly down. So I would give it another quarter to see how the quarter is coming out now. And my prediction would be when France revs up that we're going to have growth in France also coming. A little bit like we saw in the system division. a gradual a bit of a decline in q1 but we see they're coming back to growth so so that would be my prediction so i would just defer that one more quarter out and see if it was a bit of a blip

Yeah, thank you. And we also had in France, we did the price increase in Q4. So I think there was a little bit of pre-buying into anyway. On the balance sheet, the board has decided this year to propose this 160 million euro share buyback. And they did that, obviously, looking at our own investment needs and it's not something they will do on a regular basis but it's for sure that now is the second time this the board is doing it in an ocean our time so it's definitely something that we will propose going forward in case that we can see there is excess cash in the business to do this mixed of a continued sort of stable progressive dividend and then supplement that with one of share buyback

Thanks, guys. Our next question comes from Christian Torno with SAB. Please go ahead.

Yes, thank you. Two questions from me. Firstly, just on price action. So in the announcement, when you upgrade your guidance, you sort of reflect that due to inflation, you will take price actions. You've already mentioned that you've raised prices in North America. So I just want to Check where else you have recently done price increases.

Yeah. Thanks, Christian. So we have... There are segments also in some countries. You know, if you take technical insulation, sandwich panel, there we have raised prices. But if you... In addition to the countries you mentioned, in the Nordics and the UK, for example, we have launched price increases recently. And then we have been a little bit careful in some other markets. But it depends a little bit how it develops now with volumes and what happens with inflation. But I'm not talking big price increases in Europe. We're talking inflationary, a couple of percent, one percent, and that's the outlook. but also segments where we need to defend the market share and therefore the net at this stage. We don't factor in a price effect this year, basically.

Great, understood. And then my second question goes to this investment in Plumrock, which you are highlighting. So obviously 100 million euros, It's quite a large investment. Can you just speak a bit about the financial return? So how much can you then lift the predicted earnings in the Flumrock business as a consequence of this investment?

Yeah, without going into numbers, so first of all, to keep it a going concern, and you look how long we have run it without a lot of investments, you need to look at it as an industrialist, and it's a profitable business, and yes, we will improve margins, but the case we have for that is that we make something like eight-year payback on that investment. And we accept a longer period for sustainability investment, and therefore the eight years.

Okay, and just from my understanding, so how are you then improving profitability? Is it lower cost, or can you charge a premium for the product?

It's all of that. We can take more non-vergine material back in, which gives us an advantage. We price. We get more capacity out of this. We can sell more than we could before. And we also get lower cost, actually. The variable production cost goes down with the setup.

Okay. Excellent.

And maybe a final point, the maintenance cost, of course, on the new plant is less also.

Our next question comes from Yasin Tuariq. with on-field investment research. Please go ahead.

Yes, good morning. I would have three questions. My first question is for you, Jens. Over the past 10 years, Roku has done quite well. You nearly doubled the margin. The revenue has doubled. I can imagine that the culture has changed. Could you give us a bit of an overview of what do you think has changed most over the past decade under your leadership? And what were the key challenges?

Yeah. Okay. Yeah. So when I came in, you actually had a business that grew a little bit, but the costs were increasing faster than the top line. If you look at the headcount today, we have roughly the same headcount, and we are 65%, 70% bigger, with 6% CAGR. So getting that fundamentally industrialization of the whole business with this massive productivity improvements uh that's that's that's one and then on the margin you know when i came it was seven percent now we are clocking 16 and a half or 15 so that's more more than twice i think the profitability was was was too low uh to sustain the business um we have also know the whole u.s uh u.s was a loss maker small or not america we were break even and now it's a very substantial value driver that can run um culturally and technically i think on the technology we now have an edge on almost every aspect of of stonewall making but but i think the most most important thing and maybe we felt that but culturally we are We are a hands-on organization, a very agile organization, and we have a winning team. You know, I'm not so important anymore. The culture now is a team that wins, that believe they can do things, and that will carry this forward. And it's really nice to see that, for example, this project in Flumrock, it's not... you know it's not a low risk investment we did there and take a shutdown where you're the only supplier in the market and you take a five-week shut down and you do a number of new technologies that we have never done before and we pull it off you know that confidence is really nice on the tech side so i think those are the main ones and going forward i think productivity, we work a lot on AI, machine learning. I think now the productivity improvement will have to come from automation and AI and these things. And we already have a number of technologies developed and we are rolling out a program where we have significant productivity improvements coming. So I think that's winning culture in the company and the belief that really we are a tech company that can achieve a lot. That's really fantastic.

And then a second question on the strategy. We see a lot of your peers and competitors like Saint-Gobain, Etex, Kingspan, or Knauf, focusing on the building of a lock and adding a lot of different products to satisfy the needs of their customer. And even Kingspan, I think, is investing in Stonewall. How do you see the strategy of Rockhole? Do you think this is something that could make sense for you in the medium term? How would you feel that those companies could have an edge? in the future if they are able to provide a wider array of solutions. Yeah.

So just a correction, five-week shutdown, five-month shutdown in Flumrock. That's why we needed 100,000 pallets. We don't sell 100,000 pallets in five weeks, just to correct that. Yeah. The building envelope, you know, we have ventilated facade. We have played with kind of add-on products on ethics. And so we have been in extreme pure play. I think that consolidation of the market and having, you know, we call it solutions, but several different product technologies to solve the facade challenge. I think that this is a sound strategy. I'm not going to be here now, but I think it's absolutely a very valid point for Rockwall to look into that. We have had so much work to do. If I were to run Rockwall another 10 years, it definitely would be an area that I would look at very, very carefully. And we are looking at it in different forms. But it is an important trend, you point out. And I think it is a profitable trend and a good trend to hook onto.

And the last question, you're commenting on those capex. I think a new plant is maybe like 100 million, 160 million euros. What kind of revenue can you generate when you're investing 100 million euros I have in mind that it's approximately that when you're investing 100 million euros, you can generate 100 million sales. But maybe I'm mistaken. If you can give us a bit of color on that, that would be very helpful.

Let's come again. So, you wonder about the capex for a plant, right?

If you're investing 100 million in a new plant, what kind of revenue can you generate? Is it one-to-one or is it different?

Kim here, with the current price levels, we are getting a bit more than 100 million euro. I would say closer to 150 million euro for a 100 million euro investment.

That's very important.

Thank you so much. Our next question comes from Marcus Cole with UBS. Please go ahead.

Hi, morning, guys. Thanks for taking my questions. The first one is just to be clear, what level of incremental price increases do you think you'll need to hold Q1 margins for the rest of the year? And the second one is just on fire safety. How much share do you think you're gaining as a result of fire safety regulation? Thanks.

Yeah, so on the price, we don't forecast the price, right? We always said that With the current outlook, we need to do price increases to maintain the margin. If costs go down, we need less. But I've said we need... you know, 1-2% or something this year, but the cost situation can develop differently. And then also the volume, of course, if we keep growing like this, that will help us also. So I don't give any more. On the fire regulation, observation is that it keeps... You have the Valencia fire now. You remember the Grenfell one. We see now that it's kind of increasingly coming in more and more. The whole PV segment, for example, it shifted quite quickly in our favor. And I think we're going to see more and more regulation. But then to say how much of that is... quantitatively how much is Stonewall going to gain share in the overall picture. I think it is like this. I think Stonewall will gain share overall. You had also the fire in Poland in the shopping mall. Stonewall will keep gaining share due to that safety issue. And the threat for that, if the market keeps growing, is that there isn't capacity for Stonewall, because Stonewall is probably one of the most difficult products to add capacity. That's how I see it. But it keeps increasing the regulation in almost every market we are in.

Can I sneak in a supplementary on that? I just wonder what that does to pricing power. It seems your pricing has been very strong relative to other insulation types. Do you think that's largely driven by fire safety regulation?

I think it's two different markets. You know, if you are in a market where it has to be Stonewall, we are up against Stonewall competition and we need to win it because we are competitive and we provide the best service. So if you take the Tesla factory, we won it because it was big, it was logistics, it was service, it was also the nature of the product. So we have, of course, a premium to other Stonewall companies But regulation, when we compete with other stormwater suppliers, they also have fire-safe products. And then when you have these borderline products, it could help because immediately the plastic foam are not involved. It goes into a more... Stonewall pricing segment where we compete, but it's a different type of competition. And they also have high cost level. And we are competitive as a company. We have very high productivity. So their cost level is such that they also need to price high and we have a premium. So it doesn't play directly super clearly in our hands, but it definitely helps with more fire regulation for our pricing power.

Okay, thank you very much.

Our next question comes from Peter Sechstedt with ABG. Please go ahead.

Yes, thank you for taking my questions and pardon my voice here. I have two, if I may, maybe three on the margin side. I think that historically you needed a 13% margin in order to sort of keep the business model going and keep sort of depth out of the picture. The 16% that you are now aiming... which you justify in terms of growth ambitions, is that due to mainly a higher need for capacity or that the cost of building has increased? This 100 million for 100 million tons has been around for quite some time, but we also know that some of the building costs in the U.S. have gone up pretty dramatically. So that's the first question. Thank you.

I don't think we ever said that 13%. My view on it is that you should have a healthy margin when you build the expensive plants we have. And this 100 million for 100 capacity, that metric hasn't been in place for many years because we see obviously the relation to revenue is different because of the inflation, but to the tons, that metric was many, many years back. You cannot match that. And in the U.S., you are nowhere near it with the construction inflation you have had. So I think one should be careful with saying yeah because we are building those many plants we need that price i i think this type of product business with this type of growth we need to be up here and and the more inflation you have and the more inflation you have on plants the more we need but we don't sit and calculate the one and the other we want to be on the healthy side of that so that there is some room also for things going against us and and on top another argument and and that's what we tell customers is that This whole greenification and offering this low CO2 in many places, now we mentioned a case in Flumrock where we get more capacity, but in many cases we just replace the melting, we put filters, we do all sorts of things. It doesn't give us more capacity. It's just pure cost to meet demand. to make a greener product, and that needs to be covered with pricing. So, yes, we need higher margins, but we don't calculate. It's not a cost-plus approach. We want to know, Kim and I, that we have a very healthy business model so that also if we get into a hyper-investment phase, that we know that we have the firing power to do it.

Okay, thank you. It was also just to get a sense of whether your plant capacity for the next five years, would that be higher than what you've seen for the previous five years? But we can take that another time. My second question is on these heavy density products. Do you have a figure for how much, what percentage does Stonewall comprise of the total building cost for a typical whatever?

You mean for a normal building, how much is the Stonewall? Yeah, exactly. Like near, almost invisible. I mean, you're talking... I think 1.1%. 1% plus minus, you know, very little. Unfortunately.

I guess that also helps in terms of price. Yeah. increases, etc. That is sort of a relatively small part of the overall building cost.

Yeah. But again, I wouldn't mind if it was 10% of the cost, but it's not. It's a small portion. I mean, all the rest of the house costs more and the labor and all the rest. But around the percent, maybe a fraction above.

Perfect. Thank you. And then you made a decision to invest on the West Coast. Last time we spoke, I think we had a discussion between the East and West Coast. So is that sort of the strategy that we're going for here? Less populated area, but potential to have a larger market share as a potential first mover?

I would say it like this. When we sat, you know, we have the Toronto factories supplying south, obviously up in Canada too, supplying south to New York. Then we had the factory in the south, in Mississippi. There was a hole on the eastern seaboard, so I didn't enjoy this at all, to sit with such a sweet spot open. I like to have overlap between the factories, so if we sell out on one, the optimal, we can still put in product from another one. So I like that footprint. On the Canadian side, we already have a West Coast factory and Washington state is a huge economy with a lot of growth. So yes, the factory is in a non-urban area. Yeah, but Seattle and Vancouver and down, there's a lot of economic activity, enough over time to fill that factory. But from there, it's much cheaper to ship south than shipping north. There's the return freights of all the goods going to Canada. So actually, it's quite logistically clever to put the factory there also to work into California. And then later on, one good question, should we then put one further south to cover California? But California is not a super big market for us yet. We need to develop it. Remember, we are down on this 1-2 percentage. of all insulation share for Stonewall. So there is a bit of work to do. But my thinking is always create overlapping service areas between factories. It's a bit like an elevator model. Certain times, you know, the elevator companies don't earn so much money on the elevator itself, but they need to have a density so they have excellent service. And that sustains the business. And that's how I like to see it. We love working with quick delivery times and having the capacity in the zone so that we are really, really easy to work with. I think that answered your question, Peter. Mr. Schechter, your line is open.

Can you hear me?

Yeah, we can. Is that Manish? No, this is Peter. This is Peter.

No, I just confirmed. Thank you for the... You answered my questions. I am... I'm okay. Thank you.

Okay, thank you, Peter.

Bye. We have one more question from the line of Manish Beria with Bernstein. Please go ahead.

So you have mentioned that the capex to build the plant has gone up. So I think in my model, I had to build 100,000 ton plant. It cost like 130, 120 million euros previously. So going forward, because of the inflation, how much does it cost to build a 100,000 plant today? So how much more, like 20%, 30% or 40% more? That's the question. I just have one question.

Manish, this is a super good question. And I would...

love to answer it but i don't want to fiddle in kim's spreadsheet and we have never answered that so i hand over that to kim kim what do you answer on yeah thank you there is there is of course also an inflation on on on our side on the the the cost of building a mega factory and i see it ranges depending on where in the world you build it between 150 to 300 million euro So that's maybe a more updated figure for humanists to work with.

So basically it's fair to say like in US it will be the higher side and Europe maybe on the lower side of the range that you provided, right?

Eastern Europe will be on the lower side. And then of course the more Western Europe you get is also higher. And for sure the US is the highest.

Okay, thank you. Thank you so much.

Ladies and gentlemen, this was our last question. Back over to the management for any closing remarks.

Thank you very much, Jens and I. Thank you very much for the call today and all your questions. And we appreciate your interest in Rockwell. If you have further questions, you, of course, are always welcome to reach out to the top professional investor relationship department we have. That is me. Have a very nice day.