Rockwool A/S

Good day to everyone. Welcome to Rockwool AS' conference call regarding the result for the full year 2024. My name is Kim Jung Andersen. I'm the CFO of Rockwool AS. Today, I'm pleased to present CEO Jes Munch Hansen. 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, Jes will go through our presentation and give you an update of the results for the full year and the fourth quarter of 2024. Afterwards, we'll be ready to answer all your questions. For time restrictions, please allow yourself two questions at a time. Thank you. Before I hand over the word to Jes, 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 the next slide, which is slide number three. Jes, I will now hand over the word to you.

Thank you very much. My name is Jes Munch Hansen. I'm the CEO of Rockwool. Welcome to this conference call. I'll start my presentation on slide number three. And I'm sure you have all seen our press release, but I'll add some flavor to the various numbers here. We had a very strong growth this year. It was primarily driven by volume and took our top line up with 6% in local currencies, 7% in reported numbers. Our earnings also were in line with what we told you last time at the latest outlook. for the full year ended at 17.5% EBIT. I do want to highlight the North American performance, which is very strong, but we'll come back to that in more detail in a couple of slides. Great to notice that net profit is at the highest we have ever achieved, allowing us to declare a dividend to our shareholders of 63 Danish kroner per share, which is almost a 50% increase over last year. The strong cash flow also allows us for a new share buy program of 150 million euro for the coming periods. I move to slide number four. If I look at Q4 highlights, the weather was with us. There was much asked and discussed in the last call, but the weather turned out in our favor, and we had a normal end to the year with no major disruptions to construction activity. So in Q4, we grew 4% on the top line. 2% of these are acquired growth, so 2 percentage points of the two acquired companies we had. Hence, 2% organic growth. We saw a very good growth in the U.K. and again in the U.S. markets, which was partly offset by decline in France, Poland, and in our Russian arena. In the quarter four, we ended our EBIT at 16.7. I'll move to slide five. the full year 2024 revenue, which was up 6% in local currencies, as I said. If we look at the segments, insulation segment revenue was up 8% last year, which we are very satisfied with. One of the drivers of growth was a strong demand for our technical insulations. The system segment revenue experienced low growth, mainly due to Grodan and our ROG Phone businesses declining, while our smaller units in ROG Panel and Lapinus had positive growth. And the ROG Phone business I can add here, which is our acoustic products, was particularly affected by low activity level, investments in renovation in offices in Europe. a look at slide number six our q4 revenue is up four percent in local currencies as i said before and here the q4 revenue view you can see for the two segments insulation segment for the quarter revenue was up six percent compared to the year before and this includes acquisitions of the two companies, which 2% was added to the growth. The system segment revenue was down 3% in the quarter, particularly with ROC4 North America and ROC Panel showing positive growth trends. Then I'll move to slide number seven. And maybe two of you quickly noticed a small change on this slide. We have added North America as a now separate reporting region. And we have done this because the growth that we're encountering right now, particularly in the United States, calls for that we want to increase the transparency on this region's importance to the overall group. If I just walk us briefly through on the slide the various regions, you see Western Europe up 2%, and that was mainly driven by the acquisitions in the UK, where the UK itself and Spain performed well, and then we had some declines in our own home market, Denmark and Italy. Eastern Europe down 3 percent, and revenue decreased in the quarter level in Poland, Hungary, and particularly in the Russian arena. However, Romania remains a strong growth for us. And then you have the new reporting region, so to say. We now can see that we have 15 percent growth, also in reported figures. with a very strong performance both in Canada and the U.S. Last but not least, Asia, up 12 percent. However, four percentage points of these are the acquisition of our Vietnamese factory. So I hope you appreciate this increased granularity, and you can also then see on the slide to the right that North America now is 19 percent of our total reported sales. I move to the next slide. When I look at Q4 profitability, it improved again year over year, and we are very pleased with that, of course. We got a little bit of help, as I mentioned, from a favorable year-end weather condition. However, we performed also well operational. You can see EBITDA up 14% and EBIT up 21% year over year. It is, however, just important just to notice that we had a gain of 8 million euro on the sale of a warehouse in Baltimore in the U.S. If I move to slide number nine, where we look at profitability by business segments, our Q4 profitability in the insulation side of the business continues to perform at very healthy margins, and we did also see an improvement in our system segments margin development. I do want to highlight, though, that the variability you see in the system side, also the comparable, is driven by this impact of the sale of the warehouse in Q4 24, and the comparable in 23 had a negative impact from a ROC phone restructuring in Sweden, just to be aware of that. I move to slide number 10, which is our Q4 investment activities. Yeah, we continue to be very optimistic about the future. And hence, we continue to invest in new capacity and new technologies to meet the demand for products, of course. And I believe I said this last time, I just want to remind everyone that we, in 2024, committed to building new factories in the United States, a new factory in Sweden, and a new factory in India. And we have also probably committed to additional production lines in Romania and also new production line in the US in our Mississippi factory. We have brought land for additional factories lately in the UK and then of course the two acquisitions I mentioned a few times are part of the investment activities in Q4. We have also bought land in Washington state, of course related to this new factory in the US. Last of the big capex expenditures in Q4 is the conversion, wrapping up the conversion of our email technology in our Swiss factory in Flumrock. And you can see up on the graph the 139 million capex spent during the quarter. And also there you can see the high level of capacity expansion of 81. Importantly, when we look at cash flow on page 11, the free cash flow was impacted by this row of acquisitions and investments that were made. The two acquisitions and the land purchase in UK Birmingham are hitting the quarter there. Nonetheless, we generated a net cash possession of 281 million euro at the end of the year, which we believe is very satisfactory. Page number 12, as already mentioned, the good cash flow and our balance sheets allowed us to start a new program of 150 million euro share buyback. I should maybe have started by saying that we completed now the buyback program that we started last year. The last shares were bought in January, bringing it up to... almost these 160 that were announced, and now we're starting a new round of 150. So much for the financial numbers we've decided on this call and on next slide you will see that we would like to elaborate a little bit on our new reporting requirements here in EU and the next three slides will give you a little bit of a flavor on those parameters. As you know this is the first time that we publish an integrated annual and sustainability report I'm sure some of you have noticed that it also makes the report substantially longer. Nevertheless, we want to give you some more details looking at our sustainability performance in 2024 and also a little bit in the past. I can tell you that we are progressing very well, both on the SDG-related goals, where we have a baseline in 15, and then the science-based targets, where we have a baseline in 19. So this slide you see in front of you here, on the left are the SDG targets. As I said, that's a baseline 15. And on the right is... the science-based targets which have the different baseline year of 19. Arguably the most important one is the CO2 emission intensity, which is basically how much CO2 we emit per ton produced. And you can see up in the left corner under this SDG target that our emission intensity is ahead of target. It's a great performance, but of course also something we're committed to continuing to do throughout the period 2030. We're also on track on the other SDG-related goals. We had a little disappointment in the just completed year on the landfill side, but overall we're also on track on that. It was just a little setback for the year. I do have to unfortunately highlight an unsatisfactory element, and that is of course our safety scores, where we very unfortunately had a fatality, a contractor who passed during work in our Thailand factory, which of course is unacceptable. with any measures, and of course also impacts this report. If I move to the next slide, which is specific to design space targets, give you a little bit more flavor on that. By the way, that's a picture of the factory in Switzerland that you see there, where we have installed this new e-melter that is performing on a very high level. You can maybe recall that we in 2020 set absolute emission reduction targets. That's part of the science-based target setting. We did that in 2020. And these, I must say, remain absolutely ambitious goals for a company like Rockwell, who is a fairly energy-intensive manufacturing company. I do want to say we are well on our way, and we are almost halfway there towards these absolute targets that we have set for 2034. Very detailed, I can say it's 47% we have reached of the targets we have set for 2034. Last year, the scope one reduction was mainly driven by the conversation of this electric melter you see in the picture in Switzerland. And just as an example, when we bring in our high-end technologies there, our rapid CO2 reduction technologies, we see a reduction of CO2 of 75%, which actually accounts for around 25,000 tons of CO2. Good. And again, I will highlight that electrification of our footprint is the biggest lever that we have. And that is, of course, what we keep on working on and that we have a very specific roadmap for. We have a very specific roadmap in converting our coal-driven to low-carbon electricity. And as I said, shown here, we're making very good progress. The last slide on the sustainability side of our reporting is slide number 15. This is about the EU taxonomy alignment. I'm not sure that everyone on the call are from Europe, so just two sentences. The taxonomy, really, the EU taxonomy really covers activities that are making substantial contribution to six environmental objectives set out by the EU. And we are doing well up against these. And we are... eligible for these categories of taxonomy, because construction and energy efficiency are part of the overall taxonomy framework. If I start from the left on the slide, the alignment is highest for revenue, and that is simply because insulation contributes directly to improvement in energy efficiency. and hence to reduce energy consumption, which of course in turn reduces emission. So that's why we have the highest alignment against the taxonomy framework. The alignment in CAPEX, if you're wondering, is a little bit lower. And it is simply because it's harder to match up capex spent to the taxonomy framework, because it sometimes can be difficult to identify specific acquisitions of assets, you know, machines or other assets, to what degree they contribute directly to reduction of emissions. But overall, we're very pleased with the progress on that. It was a lot of work to put together this extensive reporting this year, but we're very pleased with not only the reporting, but more importantly, what we have delivered over the period. Good. I'll take a deep breath, and then we'll look into a sip of water. Then we look into 2025, the year that of course already has started. And again, you have seen in our press releases the key outlook dimensions that we report on. Sales at a low single-digit percentage, EBIT around 16, and investments around 450. If I can offer some flavor to it already before the questioning, I will say we expect the continuation of the market dynamics that we saw in 24, which is of course characterized by a very slow growth in European construction, if growth at all. We see modest growth and pockets of growth in North America, and then country by country some growth in Asia. Importantly to you also that after a long period of relatively stable prices in aggregate, we have initiated modest price increases for the coming period. We call it our drumbeat that we have instilled here again. And despite the political market and you can say economic uncertainties that we see in 2025, we still expect revenue growth in the low single digit percentages. And that's of course also in local currencies. Also, our four businesses under the system segments are expected to contribute positively to growth in this calendar year. When I look at the two acquisitions we made last year, the Weatherby Building Systems and our Vietnamese insulation business, these will combined contribute around one percentage points of growth to the group in 2025. Two notable developments we would like to highlight that have had significant impact on our 2024 business performance was and is that the U.S. is delivering above group average margins, and we believe that is sustainable also for the outlook into 2025. Secondly, the business in Russia improved our group margins by one percentage point in 2004 over 2023. However, we do not see that as a sustainable contribution to the group. Lastly, I would like to say that we have assumed a higher level of operating expenses for this year, and this is driven by a very specific decision to increase our resources in several areas, primarily for the planned investments in capacity and sustainability-related projects, as well as a few digital initiatives benefiting both our factories and customers. So these are basically engineers and IT and marketeers that we are hiring here. Based on these assumptions, we hence forecast the EBIT margin around 16% for 2025. And this, I should also say, includes an expected donation of 100 million Danish kroner to the foundation for the Ukrainian reconstruction. That completes my walkthrough and I'd like to open up for the questioning.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keyboard. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Efrem Ravi with Citigroup. Please go ahead.