Rockwool A/S

Good day to everyone and welcome to Rockwell AS's conference calls regarding the results for the first half of 2025. My name is Kim Jung Andersen and I'm the CFO of Rockwell AS. Today I am pleased to present CEO Jes Munch Hansen. For the first part of this call, all participants will be in listening-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 first half and second quarter of 2025. Afterwards, we will be ready to answer all your questions. Before I hand over the word to Jess, I must remind you on slide number two, on the forward-looking statement, and please be aware that this presentation contains uncertainties.

Now we can go to the next slide.

Slide number three. As you all are aware, the construction industry is still very much challenged in the macro context, owing to an increased uncertainty and geopolitical turmoil. And at least from our side, we do not expect that to change for the rest of the year. For us, the revenue in the first half increased by 1%, where the acquisitions we made in October last year contributed with a 2% increase. As expected, the decline in Russian group performance influenced the group, and without Russia, the organic growth would have been stable. Pricing had a neutral impact in the first half year, where inflation and sales prices by large were offsetting each other. As expected, the EBIT margin declined now to 15.8%. However, we think the results are acceptable as it comes on the back of an unusually high performance in both North America and Russia last year. If I go to the Q4 highlights on the next page, you see that in Q2, sales were affected by fewer working days and a continued decline in Russia. Also, the record high performance in North America last year made the comparables to last year very difficult. The construction industry, as I said before, is significantly affected by geographic turmoil, and particularly the related trade and tariff issues we are facing, which has led to a row of delays in projects in the pipeline. And I can come back to that during Q&A, but it's particularly something we see in the USA, where we see strong pipelines and ongoing quotation, but simply not the orders being placed. On the EBIT margin, the Q2 results were affected by three main factors. First of all, provisions for closing down the factory in Trondheim in Norway, and three longer than planned production stoppages. The stoppages in themselves were planned, they were just taking longer to perform. Secondly, we had higher spending in capacity expansion projects and our ongoing digitalization than we had last year. And last but not least, the continued decline in Russia business has also affected our margins. In short, we believe we have navigated well during a very challenging quarter, especially when we compare to the very high Q2 last year. I turn to page number five regarding our first half year revenue. When I look at the insulation business, the insulation segment, the 1% revenue growth was driven by technical insulation and our acquisition in wall systems and also from our North American business. That was on the other side upset with slowdown, primarily in Eastern Europe, as I said, particularly in Russia. And here, just to repeat, acquisitions accounted for 2% of the revenue growth. In our systems segment, the 1% revenue decrease was driven by our Grodan business due to a lower sales in the legal cannabis market in North America. Our Lapinus and rock panel business had single-digit increases, while our acoustic rock phone business was flat compared to last year. When I look at Q2 revenue, it was down 2%, and sales in the beginning of the second quarter of 25 were particularly impacted by the fact that Easter fell in April, which has actually reduced the quarter by 2% working days, so to say. Sales were in general difficult in April and May, but actually improved towards the end of the quarter in important markets such as France, Spain, United Kingdom, and actually a little uptick also in the U.S. In the insulation segment specifically, the 2% revenue decrease was driven by a slowdown in East Europe, as just mentioned, and here mainly Russia. And in the system segment, the 2% revenue decrease in the quarter was again driven by Grodan, as I just mentioned. When I look at the sales or the revenue by regions, you can see that Western Europe was flattish. And in Western Europe, there were actually also some markets that did well with double-digit growth in the UK, Italy and Spain, where we had Germany with a small decline and a double-digit decline in the Nordic countries. In France, the French government has a renovation support scheme that has been temporarily paused, actually due to an overwhelming demand in these funds, although sales picked up again towards the end of the quarter for us. In Eastern Europe and Russia, as I said, we saw a decline, and sales in Poland, on the other hand, started picking up at the end of the quarter. In the United States, we compared to a record high, an unusual high, Q2 last year. Although demands remain strong, there's still a lot of this wait and see, as I briefly alluded to before, in the market. And the hesitations are driven due to the ongoing uncertainties around inflation and around tariffs, with our customers and their customers looking to greater clarity before placing the actual POs or orders on the projects existing in the pipelines. Page 8 is about quarterly profitability, which decreased. And in short, just to take it from the top, the EBITDA is down 10% from €253 million to €227 million, which is resulting in a 2.1 percentage point lower EBITDA margin due to lower operational efficiencies in a couple of factories. and unfavorable country and product mix. If we look at the EBIT margin for the quarter, it landed at 15.5%, a larger decrease than the EBITDA, and that is due to a higher depreciation from our larger investment program and write-downs relating to the closure of the factory I mentioned in Norway, in Trondheim. In total, the restructuring provisions and the write-downs related to the fracture closure amount to around €5 million. Excluding the acquisitions made last year, EBIT margin would have been 15.7%. And all in all, we believe that considering the global uncertainties and macroeconomics, these results are acceptable. I turn to page number 9, where we look at the segments and profit, and looking at the insulation segment, profitability, the EBIT margin in the insulation segment was down 2.9 percentage points compared to Q2 last year, and this is largely impacted by what I said before and the negative country mix. In the system segment, profitability declined compared to last year, and this was driven by lower revenue and decrease of profitability in the Grodan business, as I mentioned. To the next page, 10. which is our investment activities, you will notice that we also now outlook hold onto our investment activities, and this is reflected here, as we believe in the long-term demand for our products, and we remain very optimistic about the future. And that's why we continue to invest in capacity expansion, our own decarbonization, manufacturing technologies to improve productivity, and importantly, digitalization of our business. And our biggest investments here in the last quarter were related to capacity expansions in Romania, where we're currently in a sold-out situation, and in the United States, and electrification of product lines in our large factories in the Netherlands, in Rouman, and in France, in Saint-Gloire. Then I have a piece of good news I just wanted to share with you, and that is that we have gotten the building permit for our new factory in Soissons in France, something that we have been waiting for for quite a while. But now we have the building permits and can also start the construction there. A quick look at the cash flow on page 11, where we had a free cash flow of 84 million euro, which generated a net cash position of 86 million euro. Then, because it's half year, we have one slide just briefly talking to our sustainability goals, all in all here with one slide. Let me start with safety, which is a top priority in Rockwool, where we did not live up to our own expectations and where we regrettably actually had a fatality and a couple of incidences in the first half year. We of course spent quite a lot of resources on investigating what went wrong and share lessons learned among our factories. All in all, the LTI rate has improved over last year, but for the last two quarters we had these incidences. On the sustainability side, we are progressing as planned, actually ahead of plan, both on the SDG-related goals with the baseline 2015, and you see that on the left of the slide, and the SBTI-related targets, Scope 1 and 2, that's of course a baseline 2019, you see on the right side. And we are quite on track here and keep on investing into these targets. We are also on track with the remaining SDG-related goals, although we used more water during the first half of 2025 due to a lower use of recycled and reused water, as well as some timing differences. in cleaning and maintenance activities. But all in all, very well on track with our sustainability efforts. Last but not least, page 14, the outlook for the full year, and I'm sure what you noticed yesterday mostly, and just a few comments to that. While adjusting our outlook to reflect the uncertainties that we see in the market, and that is very much also why we did this adjustment, we do stay committed to investing for the long-term value creation. It's a very varied macroeconomic environment that we operate in, and with the ongoing geopolitical uncertainty that we keep on seeing and expect the near term to be constraining some of our key markets, particularly in North America, we had to make this small adjustment to our outlook. So assuming no major changes in the current conditions and based on the first half year performance in 2025, we expect that our full year revenue will be at level with last year in local currencies compared to the previous outlook where we had an outlook of low single digital revenue growth in local currencies. We of course continue to monitor the market condition and assess the possible impact on performance across our organization and we will adjust capacity and activity level if needed. Based again on the first half year earnings level and the ongoing efforts, we forecast now an EBIT margin below 16 compared to the previous outlook where we had an EBIT margin formulated to be around 16. The large investment projects are on track and the investment level around 450, excluding acquisition, is a target we maintain also in our outlook. These were the main comments to the slides and we will now open up for questions. I don't know if you can hear me, but there's some technical issues, so just stand by as it gets fixed. It's our understanding that you can hear us. We can unfortunately not hear you. So we'll keep on working on resolving this technical issue. So stand by.