[ad_1]
Rockwool A/S (OTCPK:RKWBF) Q3 2023 Earnings Name Transcript November 23, 2023 5:00 AM ET
Firm Individuals
Thomas Tougher – Director, Group Treasury & IR
Jens Birgersson – President and CEO
Kim Andersen – CFO
Convention Name Individuals
Brijesh Siya – HSBC
Kristian Tornoe – SEB
George Converse – BNP Paribas Exane
Yuri Serov – Redburn Atlantic
Yves Bromehead – Societe Generale
Claus Almer – Nordea
Yassine Touahri – On Area Analysis
Casper Blom – Danske Financial institution
Zaim Beekawa – J.P. Morgan
Kim Andersen
Good day to all people, and welcome to the Rockwool A/S Convention Name relating to the First 9 Months of 2023.
My title is [Kim Andersen] (ph) and I am the CFO of Rockwool A/S. As we speak, I am happy to current CEO, Jens Birgersson. For the primary a part of this name, all individuals shall be in a listen-only mode. As a reminder, this convention name is being recorded. First, Jens Birgersson will undergo our presentation and provide you with an replace on the outcomes for the primary 9 months and the third quarter of 2023. Afterwards, we shall be able to reply all of your questions.
Earlier than I hand over the phrase to Jens Birgersson, I have to ask you to note Slide quantity two, which is the forward-looking assertion. Please bear in mind that this presentation accommodates uncertainties.
Now we are able to go to Slide 3, which is the subsequent — Jens Birgersson, I’ll now hand over the phrase to you.
Jens Birgersson
Thanks, Kim. Thanks, Kim. Let’s skip the year-to-date slide and transfer to Slide 4. Deal with the quarter. So good morning, everybody. Taking a look at this quarter, we had fairly difficult market circumstances in — particularly in Europe, specifically, just a few large markets. However the quarter got here in fairly nicely. So in the event you begin with the highest line, EUR903 million, down 4%. And that slight discount of the highest line versus final yr, which, in fact, wasn’t tremendous troublesome comparable. However nonetheless, it additionally features a 5 week strike that we had in — we had an extended strike, however 5 weeks of it was in Q3. That has additionally impacted a few of our gross sales in North America. So I am fairly pleased with the highest line and in comparison with the GAAP to the earlier yr Q2 and Q3, actually, it was extra degree than not so dramatically down.
Shifting all the way down to the EBIT. Final yr, we had the power disaster and excessive excessive power costs and likewise a slowdown within the enterprise, and that collectively put us down very — in single-digit margin. And it is good to see that we have now double the EBIT this yr, and we have now reestablished a wholesome Q3 margin.
Happening to free money move. Right here, the spotlight is that we — regardless of flattening capability we did that in final autumn, I’ll come again to that just a little bit extra. I discussed it already, however we decreased capability fairly shortly throughout final autumn in anticipation on this new degree of enterprise. And on the similar time, we have now drawn down stock. So I am glad to see that the money move and the web working capital has come out as high-quality because it did within the quarter.
Let’s transfer to Slide 6. From a progress perspective, we need not say a lot about this slide, roughly 4% decline in each the system enterprise and insulation enterprise. Barely decrease progress in methods, and that’s primarily attributable to that the [Grodan] (ph) enterprise had a delayed order cycle this yr. We now have a giant order consumption and supply — large deliveries to be performed in This autumn. And that is just a little bit later than regular. Aside from that, each companies have grown with roughly the identical charge.
Slide 7. The regional gross sales growth, beginning with Western Europe, down 9%. Right here we — in the event you begin with the highlights, as a result of not every thing was down. Spain, and U.Ok., double-digit up. So fairly wholesome enterprise, have recovered nicely. France, flattish, just a little bit constructive. After which we have now lots of markets in Western Europe which might be down rather a lot. So beginning within the Nordics, Denmark, Sweden, Finland, in some respect, Norway too, just a little bit higher, however large declines, you see a large drop in constructing permits and housing begins.
Shifting south, Germany, down some 30%, 40% on constructing begins and permits. After which if we go east into Poland, that is additionally fairly unfavorable. So Germany, the Nordics and the opposite international locations, just a little bit up and down. And there are additionally some highlights in Jap Europe, [indiscernible] However on — in combination, in the event you take a look at Jap Europe, some markets are down rather a lot like Poland, whereas on common, it really works out a flattish enterprise. So you can say the steep decline on common has stopped just a little bit, nevertheless it’s very scattered. In Croatia, rising. Romania has recovered. Hungary has stopped to shrink so quick. So very scattered image.
Then shifting on to North America and Asia. There, I’d say lots of constructive indicators. China is steady declining, however trying into, say, Thailand, Malaysia, India, good strong progress. North America, Canada and the U.S., each rising. And it must be mentioned that if we would not have had the strike in Canada in one among our factories, North America and Asia altogether would have been double digits. So the enterprise is again and is trying fairly good going ahead additionally. Among the strike will affect This autumn too, it is over now. It is over now, however it can have a restricted affect on This autumn.
We transfer on to Slide 8. After we take a look at that large enchancment, the doubling of the EBIT and the massive enchancment of EBITDA, we have to do not forget that it is a straightforward comparable, as a result of Q3 was actually a nasty quarter final yr with the power disaster. That mentioned, the margin we have now achieved now could be fairly wholesome, and it is really amongst our highest margin we have now had if we glance traditionally, it is not the best margin, nevertheless it’s a excessive margin. And the way might we obtain that available in the market that is shrinking nonetheless? A few facets. Initially, we have now not performed any silly power hedges and the power costs are down. We now have additionally made a few offers on electrical energy, France, Norway, Spain, Romania, the place we’re sort of bought an power offers which might be way more favorable than earlier than.
So power affect, we nonetheless see an underlying inflation. Then on the costs, we have now — outdoors Europe, we have now continued to lift costs. And in Europe, we have now principally balanced costs with market share and value place and performed — handle to sort of hold them comparatively steady. There are segments the place we have now lowered costs in sure markets, however there are additionally segments the place costs have been maintained or barely elevated, relies upon just a little bit what you evaluate with common final yr or year-end, et cetera. It has lots of dynamics. However we have now actually, actually labored quite a bit on worth and quantity and interesting with our prospects.
Then you can too see in the event you go into the P&L, however the associated fee management is just not good. We now have not gone tremendous dramatic when it comes to price discount in relation to the quantity discount. However we have now been on prime of prices and lots of the capability reductions we have now decreased virtually and it is not all everlasting workers, however virtually 800 jobs that we did within the manufacturing in final autumn. So we acted early and we have now the flexibleness within the system. In order that has been performed, that does helped, however then we have now usually being fairly restrictive on price. And we have not gone excessive, we’ve not decreased into the muscle of the corporate. Our technique is to regulate price, hold them as little as we are able to, not go overboard after which attempt to navigate by way of additionally subsequent yr after which hopefully, the market shall be again up after that.
If you happen to proceed to Slide 9, profitability per enterprise phase, nothing actually completely different there, each methods and set up has recovered in comparison with final yr, and the reason is identical in each companies. So I’ve already defined the explanations for that.
Let’s flip to Slide 10, investments. We did put money into the quarter, EUR90 million. The largest one within the quarter when it comes to cash is the brand new paint line for our rock panel enterprise. That is within the Netherlands. We’re commissioning that now. And a few of the affect, why that CapEx is just not increased is that, we’ve not actually began the French challenge. So in the event you would have had the French product, that quantity ought to have been just a little bit larger, however nonetheless preserve. And we have not performed — taken lots of motion consciously stopping CapEx. We proceed with the inexperienced CapEx and the capability enlargement and the upkeep CapEx on a smart degree. However in fact, there may very well be some capability expansions now in Europe that we are able to delay just a little bit. That mentioned, the manufacturing unit in France that has been delay attributable to delayed approvals.
Slide 11. We now have had some good progress on that. So we have now now — we had a courtroom order that lifted the suspension on the work — the constructing allow. We nonetheless await a remaining ruling. We now have an okay to start out constructing, nevertheless it’s on our personal threat. So we’ll wait till Q1 when we have now the ultimate ruling, however we have now began some lighter building work on web site, placing up followers and simply doing the fundamental preparations. We in the mean time really feel fairly assured that the ultimate ruling shall be executed in Q1. There’s a problem with the French authorized system that deadlines aren’t so clear or not so outlined, response instances aren’t so outlined. However anyhow, when you’ve got this suspension, this short-term suspension that you would be able to begin, they usually solely give that after they really feel very, very certain that the ultimate ruling would be the similar. And once we take a look at the kind of points which might be left now are smaller issues like the colour of the buildings, the peak of 1 constructing that’s nonetheless decrease than the best constructing and likewise that rely within the variety of bushes on the positioning. And we have now sufficient bushes, however there have been some errors in drawing. So smaller issues, we’re optimistic that, that must be sorted out now throughout Q1, so we actually can begin.
If we transfer to Slide 12. The money move, you see virtually a tripling of the money move. And so, in the event you take a look at that EUR120 million enchancment that’s there, principally EUR80 million of that comes from improved income, improved earnings and the remainder come from web working capital discount and virtually all of it’s from decrease inventories. And I am glad about that as a result of once we drew down capability, we have now been very fast at ensuring that we do not sit on an excessive amount of inventory. In order that’s the best way we love to do it once we cut back output.
Occurring to Slide 14 and the outlook, we have now modified that just a little bit. Now the gross sales for the total yr, perhaps have two months plus to December. I wish to remind you that December is a pink month, and it is also a month. We do not know if it should snow or not. So we’re very — we have now performed a medium forecast in comparison with earlier December in our outlook. However in the event you take a look at that year-to-date gross sales is decrease than this quantity. You additionally see that we really forecast that we will develop in This autumn, which is an effective information. On the EBIT, we have now now guided at 14%. I wish to say that, that steerage with the assumptions we have now is that we — our greatest guess in the mean time is or our forecast is, we will hit 14%. However then there are dangers. We’re at year-to-date 14.3%, however we have now the December on this quarter plus that This autumn usually is a decrease revenue month than Q3. That could be very excessive season. So with December and two good months earlier than that, we should always land on 14%.
And what might make it larger than 14% and what might make it smaller than 14%? Principally, it is the traditional plus/minus heavy snowfall that may shut down constructing websites in December, within the low December. The opposite threat facet all of us obtain when we have now this in a gradual market setting, there may very well be international locations that fully shut down building for 2 or three and even 4 weeks in December. And relying — if that occurs, we have now seen it again in 2014 in Germany, I all the time use that for instance, after which every thing involves a cease. However — in order that — these components we then decide whether or not we’re just a little bit above 14%, spot on 14% or just a little bit under. However the forecast is 14%. So I virtually name this a forecast now. After which the funding, no remark to that.
With that, I wish to hand over to questions.
Query-and-Reply Session
Operator
Women and gents, at the moment we’ll start the question-and-answer session. [Operator Instructions] The primary query comes from the road of Brijesh Siya with HSBC. Please go forward.
Brijesh Siya
Hello, gents. Good morning. I’ve two questions. The primary one is on quantity. Simply — it is two components. The primary is just a little clarification. You talked about quantity being sequentially within the final two quarters and Q3 is been the best. However once I see absolutely the income, it is down versus Q2, are you able to simply clarify if it is a vertical combine affect? And the second, or the complement to it that while you say that the volumes are sort of in your an announcement, you talked about Europe stays weak. So ought to we assume or suppose that at this time limit, it seems like total demand in Europe shall be down subsequent yr?
Then the second query is on pricing. You mentioned that the underlying inflation remains to be there. So what’s the sort of magnitude of inflation you’re seeing at this time limit? And in pertains to that, whether or not you’ve got introduced any worth will increase beginning 1st of January 2024? Thanks.
Jens Birgersson
What was that final bit Brijesh after inflation?
Brijesh Siya
I used to be asking whether or not you’ve got introduced any worth will increase beginning 1st of January.
Jens Birgersson
Okay. So let’s begin with the inflation query. So we principally see the primary driver for inflation is — the core inflation remains to be there. And I feel we have now — and there may be nonetheless an inflation in all our geographies, though power costs are down, however on a excessive degree. However what I anticipate, we’ll see throughout the spring is the wage inflation is the primary one since you nonetheless have this actual wage hole that has occurred in North America and U.S. And a part of the rationale why we had that strike in one among our factories within the U.S. was that the auto employees went for a really large ask. And when one among our factories noticed that, they went for a similar, virtually the identical large ask, which we merely can not afford within the enterprise. So it took some time to agree on a degree that we might stay inside the enterprise.
So I feel the inflation will nonetheless be there. And I do not suppose it can come away, though you see perhaps barely decrease to start with of the yr in Europe, after which we catch velocity when the salaries begin to kick in, in March, April, Could, regardless of the cycle is within the corporations. Then on the quantity. I am undecided now in the event you take a look at nominal numbers, whether or not you take a look at the price range numbers as a result of we’re down 4%, and we’re just a little bit extra down in quantity. However really, the volumes are stabilizing on roughly comparable ranges between the quarters. So that is what we see. However then, in fact, we have now this — when Grodan jumps into This autumn, they’re all completely different volumes per income. However on common within the enterprise, you possibly can see that we have now had two comparatively steady quarter with improved volumes and slight progress in Europe in a number of markets. So volumes are bettering. However I — and naturally, in North America and Asia, it is a pattern. It does not look to be interrupted. However right here in Europe, I feel it is too early to conclude.
I nonetheless suppose at this stage, that is my assumption. However once more, we will get to February earlier than we will information for subsequent yr. With what is going on on in Germany, I nonetheless imagine there may be extra components that speaks for Europe worsening than bettering. So we might see a quantity drop into subsequent yr. However I am simply saying that as one pessimistic state of affairs as a result of I’ve no proof that we have now turned the quarter though volumes within the final two months are just a little bit promising. Okay.
Brijesh Siya
Simply on the pricing, might you make clear that whether or not you’ve got introduced any pricing will increase.
Jens Birgersson
We now have performed worth will increase — introduced worth will increase in a number of markets the place we have now progress. So — however then usually, we’ve not gone out with — there are some international locations in Europe the place we have now introduced small worth will increase. However usually, we’ve not performed that but. After which clearly, in North America, Canada, Asia, you’ve got completely different dynamics. So not a lot introduced but. However for certain, there are a number of companies which have introduced, however not a lot in Europe.
Brijesh Siya
All proper. Thanks,
Jens Birgersson
I ought to say that U.Ok. has, for instance, introduced worth will increase to present one instance that we have performed it.
Operator
The following query comes from the road of Kristian Tornoe with SEB. Please go forward.
Kristian Tornoe
Sure. Thanks. A few questions for me. I’ll do them one after the other. So firstly, to your steerage — for the This autumn steerage. So if I take the expansion vary, the decline of 4% to five%. After which I apply the identical gross margin and glued price degree in This autumn estimates, as we simply reported for Q3, I get to a considerably increased EBIT margin than the [4%, 3%] (ph) that you’re guiding for — so is it accurately assumed you’re together with a decrease gross margin and/or the next mounted price base in your This autumn estimates and in that case, why?
Jens Birgersson
Kristian, your logic is ideal for October and November. After which December is a month the place we see every thing between a breakeven and up, and that occurs yearly. So your logic as such holds for 2 months after which we have now December, which is only a complete completely different month in our enterprise.
Kristian Tornoe
And while you say completely completely different, it means doubtlessly a lot decrease gross margin in December?
Jens Birgersson
Sure, sure. We will sit with some years with two weeks with out manufacturing. So while you cease the enterprise as a result of we is not going to — relying on our stock outlook, making stock does not actually assist us that a lot, nevertheless it makes a distinction whether or not we shut down the factories as a result of we really feel we have now the seasonal inventory or whether or not we run it. And that call — we all the time have to navigate that. Some years, you possibly can have the market go down, so we might brief two weeks, however we nonetheless run as a result of we wish to run up some inventory and that is simply extremely erratic, and we have to actually take a look at it and make the choices in December once we see the climate and the market and the outlook and all the remainder.
Kristian Tornoe
Understood. After which simply particularly on the U.Ok. So that you’re kind of highlighting double-digit progress trying on the total building market, that is positively not growing by double digits fairly quite the opposite. So are you able to simply elaborate a bit in your success within the U.Ok. and the way sustainable?
Jens Birgersson
Sure. I feel we have been a bit taken abruptly. We drew down capability within the U.Ok. After which model and the market jumped again up as a result of the U.Ok. is just not as dangerous as basically, as Germany and Poland and another markets. So once we then realized that the market was coming again or stabilizing a lot faster than the others, we had a little bit of a backlog, so we would have liked to ramp up the shifts. And that took us a while. In order that left a little bit of backlog on the gross sales. We needed to work again and produce down the supply objects. And we aren’t fairly by way of that but. In order that has meant we have now principally as a lot as we produce, we might promote. However usually within the U.Ok. I imply, U.Ok. is a giant market. And now there are specific segments the place individuals clearly desire a noncombustible product. There may be alternative initiatives, it is the excessive buildings, hospitals and faculties, the place we see noncombustible being the best way to go.
And likewise in some segments the place individuals say higher protected than sorry, I imply the worth distinction is small to make use of one other materials. So we see a shift in sentiment that has actually occurred and appear now to be extra ingrained. So I’ll say Stone wool has gained in appreciation versus sure different merchandise, the flamable one’s in some phase. And as I see it, it now seems to be everlasting.
Kristian Tornoe
Okay. Fairly fascinating. After which my final query. You have not actually talked about renovation. So simply your ideas on demand inside the Renovation phase and whether or not you’re — any extra optimistic or pessimistic so that appears into 2024 in contrast to some months in the past.
Jens Birgersson
Sure, we take a look at this power efficiency constructing directive that we imagine is now watered down with out largely the obligatory parts, a few of them have now been handed over and you’re empowering the native international locations as an alternative, which implies it is not the identical factor. So I feel within the new yr, we’ll see what actually comes out to that. However what I see throughout Europe, I imply, I learn someplace that the EU is lacking, the CO2 discount objective by 2030 with about 50%. So as an alternative of lowering, it is growing. So what I — and perhaps I am too pessimistic, however what I see with these wars happening and all of the geopolitical stress, for me it just about seems that there are only a few politicians in the mean time that fear about this. And subsequently, sure, we see good progress in some international locations. However total, it appears that evidently it is moved decrease down on the agenda. Now everyone seems to be gearing as much as go to COP28 once more and empty phrases, so nothing will occur. So I am just a little bit sceptical about the entire push and conviction from political degree to place some severe cash into that to make it occur.
That mentioned, there are exceptions. We see France beginning to transfer. Germany have a scheme or a number of schemes. However once we learn it, we simply perhaps conclude. It seems a bit difficult, at the very least if I needed to renovate my home, I would not wish to do with that. So I am pessimistic. I feel Inexperienced has slipped and that we have to wait a bit extra earlier than we see somebody actually get up on the Inexperienced agenda once more. And that is why I do not imagine in the mean time, we see a broad-based Inexperienced push renovation.
That mentioned, if the economic system goes even worse, then it might be fairly good by a few of these governments to seize maintain of it and get to start out it. Italy confirmed the way it’s performed, and it may be performed, however they should do one thing and never simply ignore it.
Kristian Johansen
Nice. Understood. Thanks a lot.
Jens Birgersson
Thanks.
Operator
The following query comes from the road of George Converse with BNP Paribas Exane. Please go forward.
George Converse
Hello, gents. Thanks for taking my query. I am going to simply take two. So we talked a bit about hedging of gasoline and electrical energy, however my understanding is simply nonetheless about 50% of your power publicity to coking coal, which has risen sharply in Q2. So might you simply — since Q2. So might you simply give us a little bit of a sign on how that is impacting your margins and pricing technique into This autumn and into 2024?
After which my second query was simply making an attempt to know your feedback on Jap Europe, your opening remarks, you sounded fairly cautious or fairly barish on the area, however prime line forex progress in — sorry, prime line progress in native forex is simply minus 2%. So are you able to simply assist us sq. that up? What’s offsetting the weak point that you just talked about in Poland. A bit extra colour there could be useful.
Jens Birgersson
Okay. I’ll give the hedging on that to Kim, however I can take the opposite query first. So in the event you go into Poland and Jap Europe, I used to be going to have a look at my sheet. Principally, small international locations doing higher than large international locations in Jap Europe. That is the sample we see. And searching into Poland, it’s extremely typical with Poland. When you’ve got a decline, first, you’ve got — at the very least we have now seen it a number of instances earlier than. When you’ve got a decline available in the market sentiment, it completely stops the exercise stock and all the remainder, they’re overstocked. I feel we are literally already by way of that. After which we have now quarters that bounce just a little bit up and down. And — however now we have now seen Poland for some time bid down on housing begins and likewise within the industrial sector, perhaps the industrial sector with the logistics heart, the manufacturing and all that.
A few of these initiatives have simply been delayed. And I — my assumption in the mean time is that, that may proceed for some time, then sure, Romania are again the insulating once more, Hungary are across the CRO up and down leaping just a little bit between the quarter. However Poland, to me, it seems like these investments going into Poland aren’t there in the mean time, and the constructing begins aren’t there and the uncooked materials costs additionally impacted demand. And subsequently, I feel for now, my assumption is, we keep on this decrease capability utilization and wait to see an enchancment. And if that takes one quarter or 5 quarters, I simply can not inform. The steep decline from the present degree, although, appears to have stopped in the mean time, that I ought to say. Over to Kim on [indiscernible].
Kim Andersen
Sure. Thanks. For the hedging half, as Jens mentioned, we had — this yr, we have now entered into a few of these direct operator contracts that has helped us rather a lot in France, Norway, Spain and Romania on electrical energy. For the opposite international locations, we have now performed kind of a 50% hedging for the second half of the yr, that features This autumn for each electrical energy and gasoline. There we’re lined about half after which we go to the marketplace for the remaining half.
On the coke, which remains to be our main power supply. We now have seen throughout the yr a small declining price, regardless that now coke costs are arising a bit. We did do — these coke costs usually agreed every quarter, however we have now long-term provide agreements in place. However these long-term provide agreements, the truth is, there was time to renegotiate these right here within the second half of this yr.
And we have now been negotiated this. And together with these negotiations, we have now already mounted the Q1 price for coke subsequent yr at a decrease price than what we have now seen in as we speak’s market. So for Q1 subsequent yr, we have now nonetheless these long-term not two or three years long-term contract in France and Norway. We now have hedged 50% of the electrical energy in different international locations and 50% of the gasoline. And now we have now a set worth for our foundry coke for Q1. That is so long as we have now — we have now gone. We haven’t determined but what to do for the remaining a part of the yr on the final consumption of gasoline and electrical energy.
George Converse
Proper. Thanks.
Operator
The following query comes from the road of Yuri Serov with Redburn Atlantic. Please go forward.
Yuri Serov
Sure. Good morning. Two questions, if I could. I am going to ask them one after the other. So the primary one is identical that I requested you final time on the convention name at Q2. We’re going by way of a recession yr large quantity declines and also you’re reaching a margin of 14% now reasonably than 13% that you just guided final time. Your long-term aspiration as acknowledged is 13%, absolutely the outcomes that we’re seeing this yr recommend that you just additional regulate it upwards. Do not you suppose?
Jens Birgersson
It is a good query, Yuri. And I — in fact, we wish — contemplating how costly new factories are to construct, it might not be dangerous to have the next margin, nevertheless it’s — so many facets going ahead. And at any time when we have now a large change in 1 / 4 or in a yr the place we have to regulate capability large up or down or one thing taking place with power costs. After which margins shall be impacted as a result of we won’t do it in a zero time and at zero price. The opposite facet is that, what shall be necessary for subsequent yr and going ahead is that, we’re on a quantity degree now the place we actually have decreased our capability to match our market share.
If the quantity now proceed down, it is all the time laborious to foretell what the aggressive setting shall be, and we have to steadiness this stuff. So I can not — I imply, sure, this quarter comes out good, however we got here into it with out having to restructure, change capability, and we have now performed the worth work. So too early for me to information and say it is a new degree. We now have recovered from final yr’s horror quarter, however we knew why it was a horror quarter. We had all this power prices. So I am not ready at this stage to say what the traditional degree is. We keep on with our previous sort of ambition ranges. After which, in fact, we attempt to enhance on that. However we’ve not guided or dedicated to ship on that degree. Second query?
Yuri Serov
Properly, hear, I suppose I am going to come again to this sooner or later, as a result of we’re speaking about long-term and long-term this business goes to be delivering progress and aggressive state of affairs is a query mark, clearly, however I am not asking about particularly subsequent yr or the yr after. It is extra ongoing, however I can perceive the place you are coming from.
Jens Birgersson
And Yuri, you’ve got a superb level. I imply if the inexperienced agenda will get going and also you get a little bit of a pull available in the market, in order that you already know that the subsequent 10 years, we will do all this renovation, it’s lower than 1% or no matter. And you must do three or regardless of the objective shall be for CO2, nevertheless it must triple or one thing like that. If that occurs, in fact, and we’re moderately good in that phase, then it’s, in fact, a lot simpler to take actions and optimize and do the remainder when you’ve got an underlying pull available in the market, as a result of historically, in the event you look during the last eight, 9 years, we have now been fairly good at elevating productiveness within the enterprise. We’ve not actually elevated headcount. We now have — we’re engaged on automating our factories. We work on quite a few applied sciences that can — if we get a little bit of progress into the system, we should always be capable of elevate productiveness and since not all of margin enhancements in our world comes from worth. It wants to come back additionally from us changing into extra aggressive.
However it’s a lot simpler to do this. If we do not have these margins leaping up and down 15%, 20% — enterprise markets leaping up 15%, 20%, and we have to optimize the community on a regular basis. So a little bit of peace and quiet and a relaxed progress within the enterprise will make that quite a bit simpler to agency in on the margin goal.
Yuri Serov
Okay. Sounds good. The second query is about volumes and particularly concerning the U.Ok. and the U.S. You already talked concerning the U.Ok. What I am curious to listen to from you is, in the event you may give us your evaluation as to by how a lot you’re outperforming the general market efficiency in insulation in these two international locations in share factors? Within the U.Ok., you mentioned that you’ve got a progress of double digits. I imply, I suppose [indiscernible] and also you mentioned that you’re outperforming the market, however I am simply curious by how a lot and comparable within the U.S.
Jens Birgersson
I imply, I do not wish to touch upon particulars there, and I do not even deliver the main points, however clearly — however in the event you look in North America, in Canada we kind of have the market. So we — progress is simply according to the market. And it is not likely rising as a proportion of the entire market. So it follows the market. After which within the U.S. we have now now one other manufacturing unit that we’re ramping up. We’re not on full capability but. We nonetheless have capability within the U.S., however Stone Wall share is a few share of the full insulation market. And there, there are going to be a conversion in order that we eat into it, however we’re speaking in relation to the general market that’s big when being from 2% to 2.5% to three% to three.5% to 4%, it’s extremely, little or no of the full market. And for the reason that market is rising, it does not translate into much less quantity for the opposite supplies. It is simply that our share of the expansion is proportionately just a little bit larger.
In order that retains happening, and meaning that we’ll want extra capability within the U.S. as a result of I see we have now the basics in play. Now we have now capability, however this may go on, and we might want to put money into. Within the U.Ok., I am unable to actually give a quantity on it, nevertheless it has been, I feel, the final two, three years has been fairly dramatic as a result of there was a whole shift in sure segments. And when U.Ok. transfer in a phase, excessive rises, semi excessive rise, faculty, et cetera, then in fact, we see fairly just a few tons of enterprise. In order that’s happening. And I feel there may be nonetheless refer initiatives, fairly just a few of them, the place we’re the one product. So this isn’t both a traditional market, it’s one thing that occurs now since you’re fixing previous errors. So it’s extremely laborious to say available in the market what — how a lot we’re rising. However I would not anticipate on the finish that U.Ok. could be any completely different to our different markets, perhaps 40%, 50% of the market shall be stone wool and we’ll get there, however now it is a transition into that state. So slight positive factors, I’d name it, however not tremendous dramatic.
Yuri Serov
Thanks.
Operator
The following query comes from the road of Yves Bromehead with Societe Generale. Please go forward.
Yves Bromehead
Hello. Good morning, everybody. Thanks for taking my query. Simply the primary one, I am actually sorry, however I didn’t perceive what you mentioned within the U.S. You talked about 5 weeks of what? Was it upkeep CapEx the place you have been down from 5 weeks? Is that what you mentioned?
Jens Birgersson
Sure. Good morning, Yves. No, we had — when that auto employee strike began in — was in Detroit. We had a manufacturing unit, one among our factories in Canada the place comparable demand was made, and we can not afford that. So we had altogether seven weeks strike and 5 weeks of that hit the quarter. So if it would not have been for that, we’d have had a double-digit progress in the entire remainder of the world phase. So we misplaced — we could not ship. So now our problem in North America is that, we have to work down supply instances as a result of we misplaced capability on that. And that was not 5 weeks manufacturing in the entire enterprise, it was one manufacturing unit and one of many smaller ones. So that is what occurred. So it was a upkeep in any respect. It was a strike.
Yves Bromehead
Okay. And perhaps simply going again on the hedging. So simply so I perceive accurately, this yr, you had solely hedges in H2 for about 50%. However in H1, you weren’t hedged for 2023. Is that appropriate?
Kim Andersen
If we had these direct operator contracts from France and Norway and the opposite nation operating from the start of the yr. In order that was on electrical energy. After which in different markets, we did not hedge on electrical energy for the primary half. We solely did for the second half. However on gasoline, we had a hedge roughly a 50% operating additionally in H1, however we did a view of that in the course of the yr for H2.
Yves Bromehead
Okay. And simply to verify, for subsequent yr on gasoline, particularly. I perceive what you mentioned on coking coal. However on gasoline and coking coal, it is till Q1 not Q2?
Kim Andersen
Till Q1 solely.
Yves Bromehead
Okay. And are you seeking to roll out your hedging technique that you’ve got put in place for nearly the primary time in 2023 for 2024? Or are you contemplating being spot for 2024?
Kim Andersen
We’re evaluating that frequently. So we do not have a set formulation, however we merely sit down and try the market dynamics within the power market. After which we determined that nearly quarter-by-quarter, what to do.
Yves Bromehead
Okay. And final one on price. On the coking coal, clearly, because it was mentioned beforehand, that is growing now, however the delivery prices are additionally growing fairly quick on the minute on sure Baltic Dry indexes. How related are these logistic prices within the phrases of what you purchase ahead one quarter on foundry coke?
Kim Andersen
They aren’t vital. All of our foundry coke suppliers in Europe are European-based. And plenty of of them, we have now 5 main kind of suppliers. So they’re fairly regionally unfold out. So logistic price is just not usually a giant difficulty.
Yves Bromehead
However your suppliers import from Australia?
Kim Andersen
No, no. They’ve queries in Europe.
Yves Bromehead
Okay. Fascinating. Thanks.
Operator
The following query comes from the road of Claus Almer with Nordea. Please go forward.
Claus Almer
Thanks. Additionally just a few questions from my aspect. I’ll do them one after the other. So Kim, sorry about coming again to this power price, however is it just a little bit troublesome to determine what’s the web impact each for This autumn and, for instance, 2024, given what you see in the mean time. So will power price in This autumn be up or down? And the identical query goes for subsequent yr. That would be the first.
Kim Andersen
Our power spend for This autumn will kind of be unchanged on the worth degree as Q3.
Claus Almer
Okay. After which primarily based on sourcing and your contracts subsequent yr, how does that appear to be?
Kim Andersen
And Q1 will comparable be fairly much like Q3. So there hasn’t been lots of dramatic transfer within the ahead shopping for prices the previous couple of quarters. However in the event you go a lot additional than only a quarter forward, then the premium begins to turn into a bit costlier. And so we don’t entertain that.
Claus Almer
However that is — if you are going to hedge — so in the event you simply — in the event you do not hedge and simply do the spot then subsequent yr seems to be flattish year-over-year. Is that the best way to consider it?
Kim Andersen
That I have no idea. I can not foresee how the power price develop. I am simply telling you that we have now solely lined Q1 after which we simply needed to maneuver that quarter-by-quarter.
Claus Almer
Sure, sorry, I imply, if issues are unchanged as it’s as we speak, remainder of 2024. So all through 2024, we’ll see the identical ranges as we see as we speak. Will there be any affect?
Kim Andersen
Then there’ll — as a result of the power prices have gone down barely this yr. So in fact, if it continues at this time degree, at the very least originally of the yr, there shall be a small profit.
Claus Almer
Okay. Thanks. After which my second query goes to the margins. Jens, you talked about that you just instructed, I assume, the unions in Canada, you can not afford a worth hike in hourly charges, however on the similar time, you are operating at the perfect EBIT margin since 2007. And so, it looks like you can afford a barely increased hourly charge. And if I simply might add. After which second, final yr, while you have been discussing along with your prospects, while you’re introducing worth hikes, then an necessary argument was that it might see Rockwool additionally going through lots of headwind, however I assume your numbers, that is not the case anymore. So extra about each on the wage, but additionally in your negotiations along with your prospects, how a lot beneath strain are you to cross by way of a few of these margins?
Jens Birgersson
I feel for instance, to U.S. case. I imply the ask from our workers on this manufacturing unit in Canada was impressed by the auto employees, and that was a large, large, large quantity. I imply that may have been a giant downside for the manufacturing unit. So we have now made an settlement that will increase to salaries over three years. And that’s — that is what we see within the U.S. We see U.S. changing into in comparison with the remainder of the world a really costly place to fabricate. However okay, it is native for native, it must be translated into pricing. In order that occur. However the first ask was so large that we could not take within the enterprise in that manufacturing unit, it might have been noncompetitive even with an elevated worth degree.
In order that was the case there on [indiscernible] settlement. Then you definately take a look at the place does the EBIT come from. What the story does not say is that, for instance, final yr, we have been extraordinarily challenged in North America. We began up a manufacturing unit. It price us some huge cash. We now have had ongoing large problem to get our Mississippi manufacturing unit up and operating within the south, it hasn’t carried out. We now have been dropping cash on it. So lots of the enhancements right here that you just see, for instance, in North America, is a giant, large enchancment, however lots of that’s as a result of we model the operations higher and gotten our arms round manufacturing. We now have managed to shift over some enterprise to the brand new manufacturing unit. That one is operating and we’re being profitable in all factories. And that is not simply the pricing. So this — that we have now higher margin is now could be, for instance, that we have by no means been so profitable within the U.S.
And so once we — and once we then take a look at wage enhance. Sure, if we improved the enterprise virtually double the profitability within the U.S. as a result of we do not lose cash in a manufacturing unit that does not run. That has nothing to do with the worth and the associated fee right here. If we then take a look at the dialogue with prospects right here, the completely different segments, there are distributors that do not thoughts that costs go up 1%, 2%, 3%. So the opposite, in fact, on the finish degree that home building corporations which might be beneath lots of strain as a result of they sit between the contract and there may be most likely additionally [indiscernible] affect on demand. And there, we simply have to have a mature dialogue with them and focus on it, and it’s the regular dialogue the place we — nevertheless it’s not that what we earn extra within the U.S. affect how we worth in Europe, that is not how we hyperlink it, and it is not the associated fee to price.
And sure, we have now lowered lots of costs the place we have now to — for instance, we bought a giant order now the North Volt challenge in Germany, 300,000 sq. meter roof and 80,000 sq. meters of partitions. That challenge we gotten — it was fairly a troublesome competitors to get it, and we bought it. We get it at the next worth than competitors, as a result of we have now just-in-time deliveries, we are able to execute that nicely. However they’re additionally powerful pricing discussions, however that is simply regular within the enterprise and it occurs on a regular basis. However the inflation is there and the power worth degree remains to be excessive in comparison with what it was just a few years. However the good margin in Q3 is just not solely due to Europe, there’s superb efficiency in Asia and North America.
Claus Almer
Okay. That is sensible. If I could only a follow-up on the feedback you made earlier on who is aware of what rivals will do if volumes will proceed to say no? And simply curious, does — do you suppose that you’ve got a sure variety of rivals the place volumes are beginning to get to a extra, let’s name it, crucial level or degree of their factories. So if it continues to say no, then it can actually damage the profitability and effectivity of the factories?
Jens Birgersson
I imply with the kind of declines we have now seen in Germany, the place 30%, 40% down on new constructing begins and they’re operating out of backlog within the housing sector. We’re used to all the time having some rivals that miss a challenge as a result of the smaller you’re, the much less stability you’ve got due to the low or massive numbers, you both over move or empty a challenge can decide. And lots of our rivals are solely lively within the heavy phase. We even have the sunshine extra distribution enterprise. So we do each distribution and initiatives. And our challenge portion might be smaller than lots of the smaller ones. So we see this on a regular basis, however there are additionally — I feel while you take a look at a few of these large initiatives we have now secured, we have now gotten a number of initiatives this yr round 300,000 sq. meters.
That additionally issues that you would be able to’t throw the product after a provider, it is not after a builder, it is not credible as a result of additionally they have to belief that you’ll be there and ship all of that. So we see the entire spectrum however this, in fact, if the market from this degree takes one other 5%, 10% dip subsequent yr, then we get into a really severe state of affairs for European building. And I simply have not lived by way of that on this business. I noticed what occurred in 2007, 2008. The quantity drop this yr has been similar magnitude, proper? And we have now managed it. However what occurs if there may be one other drop of 10%, we’ll do our greatest in that state of affairs, and let’s hope it does not occur, however I by no means stay it. So I have to sort of — we have to navigate that and take it on, however our spirit could be in an inflationary setting that when it is on this degree, you can’t keep sustainable making an attempt to battle for excessive volumes and clear up the issues and the basic difficulty is that there’s inflation nonetheless there.
Claus Almer
Okay. That makes lots of sense. Thanks a lot. Sure, nicely performed up to now in a really troublesome yr.
Jens Birgersson
Thanks, Claus.
Operator
The following query comes from the road of Yassine Touahri with On Area Analysis. Please go forward.
Yassine Touahri
Sure. Good morning. Just a few questions. Firstly, on the pricing dynamics and the competitors. Whenever you take a look at what occurred in 2009, 2010, we noticed some pricing strain. As you mentioned, the quantity decline is comparable as we speak, however pricing is holding. What has modified? Is it as a result of there may be extra consolidation? Is it since you’ve bought [indiscernible] which might be a giant a part of the market. Is it a realization that you must actually deal with pricing? That might be my first query. .
The second query is, we see lots of your rivals specializing in options. Like not solely promoting mineral wool, however promoting or insulation, however promoting insulation mixed with equipment, insulation mixed with plasterboard or with roofing membrane and to shift away from the dialogue about commodity insulation and to have a look at promoting a system and fixing the issues of their purchasers. The place do you stand on that? The place do you see Rockwool shifting within the subsequent 5 to 10 years? Might you add another equipment, another complementary merchandise?
After which my third query is on the nonresidential exercise. So what we have seen there may be we have seen a giant drop in housing, however nonresidential is holding just a little bit higher. However do you’re feeling a threat or do you see a threat that nonresidential may very well be a bit tougher subsequent yr in context the place a few of the initiatives that have been constructed this yr aren’t renewed?
Jens Birgersson
Okay. See, you remind me of the questions. I’ve the realm on the worth. We now have the answer after which you’ve got nonresidential, proper? Yassine. Sure. So on the pricing, 2009, 2010, I wasn’t right here. I labored in distribution in different industries. I can solely say what we did on this firm. Once I got here right here, there wasn’t pricing buildings. There wasn’t a pricing drumbeat. There weren’t clear guidelines. There weren’t clear gaps between the most important buyer and the smaller. So from day one, we began to work by way of and have a structured method to pricing. They’re very, very disciplined as we speak in how we do pricing and the way typically we do worth adjustments and the way the contracts seems, the bonus schemes and all the remainder.
So I can at the very least say, and I do not know what has modified with the opposite corporations. However in our firm between 2009 and 2010, there was a perception that you just had to decide on between worth and quantity. And that was the selection you had. And I do not imagine in that. And I do not imagine that stone wool is a commodity. I do not imagine that. I feel you possibly can have a top quality product and that you would be able to have a [indiscernible] market chief. And the opposite factor in comparison with 2009, 2010 is that, in the event you look from 2014 to, say, 2022, the final semi regular yr, full yr, now 2023 is just not performed but. We now have kind of grown the corporate from, what, EUR2.2 billion to now EUR3.6 billion, EUR3.7 billion, a bit extra final yr.
With out added headcount, we have now carry productiveness and improved competitiveness. So it is not that every one the development in margin comes from costs, large effort in price discount and productiveness enhancements. And we have to proceed that. So not solely worth, individuals — some prospects say it is solely worth. However while you take a look at the productive, we do 40%, 50% extra per worker as we speak than we did eight, 9 years again. So that may be a issue. Then we go into options. And I’ve in earlier companies on this a few years now as a result of I have been right here a very long time. However I have been in options. I have been in merchandise. I have been in providers. I have been in software program. I have been in these completely different companies. And I feel options is a phrase that individuals use in a really sloppy means, as a result of no person ever bothers to outline it, they are saying answer and answer sounds difficult so we earn cash. My commentary is, if you wish to do options the place you are taking a system assure and also you coordinate lots of issues, and you find yourself with a efficiency assure for the mix and the work to place the completely different items collectively, I feel you must be extremely expert to earn cash constantly.
It is one factor to earn cash one or two years, however in the event you look — the larger the initiatives on the options get when you’ve got a system assure, the extra the chance that you just blow the entire fairness in a single yr or one answer does not work. So with regards to answer, now we keep very near the core, the [indiscernible] and we focus on that. That has been our technique. However I feel options is usually a good factor when you’ve got a group of merchandise that match collectively like we do, first of HVAC in Germany, we have now the hangers, the clips, that is high-quality. However we’ll, as an organization not be tremendous eager to imagine that we will be tremendous good at doing sort of extra turnkey or system assure merchandise the place we mix every thing and that can have, then we might reasonably keep very near have all of the small merchandise actually productive, however sure, it may well match into the identical utility. In order that’s the place I stand on that.
Then on nonresidential I feel that there are some sectors, like within the U.S., we see the nearshoring manufacturing, the manufacturing sector, I imply, large bins to place factories or no matter rising with 20%. We would have seen a few of that in Europe, however I feel you are going to see extra challenge delays if the recession deepened. So it is again to that and perhaps not truthful to place all of that in Germany, nevertheless it’s extra the underlying, the financial cycle. If Germany goes into deep recession and the others observe then, I feel the nonresidential phase shall be extra threatened, as a result of I see extra near-shoring happening within the U.S. than I see right here in Europe.
Yassine Touahri
And I feel my query on nonresidential was extra concerning the size of the challenge. Normally it takes like 18 months to construct a manufacturing unit places of work. And my concern is that, perhaps in 2023 you have been engaged on nonresidential initiatives that have been began earlier than the bounce within the west price and the drop in building prices is a threat that we see quite a few slowdown as a result of there isn’t any new order in exercise as a result of rates of interest are too excessive and building prices are too excessive and that we might see the majority of the decline in nonresidential subsequent yr? That is my query.
Jens Birgersson
My pessimistic with out doing an outlook is that I feel perhaps the market subsequent yr has some potential to worsen, however that is not what I’ve seen now, however — and I keep on the pessimistic aspect. However in principle, we have to do a deeper evaluation of the product. However bear in mind, not all of our enterprise is challenge enterprise. That is one portion of it. So the renovation have been to start out just a little bit, that may shortly override that enterprise. So sure, I can not remark whether or not that shall be up or down, however the potential is there for certain. We’re operating out of time, proper? We now have two extra. We’ll — I perceive that some individuals have to go away, however we have now two extra individuals with questions, we’ll take these. So attempt to hold it a bit temporary, and I attempt to be a bit faster.
Operator
The following query comes from the road of Casper Blom with Danske Financial institution. Please go forward.
Casper Blom
Thanks a lot. Sure, in fact, lots of questions have been raised already. However once more, I used to be simply hoping in the event you may give an replace to your place in your Russian enterprise, per week or two in the past, you have been placed on this record being referred to as a battle sponsor. And I do not wish to go right into a dialogue of whether or not or not that is proper or fallacious. However merely in the event you might elaborate just a little bit on potential industrial affect that would have had on your online business? I seen on one of many slides, you highlighted Ukraine really as a superb marketplace for you right here in Q3. Is there a threat of this having a industrial affect on you? Thanks.
Jens Birgersson
Sure. To date, we’ve not had the industrial affect on any of this. And in the event you return to the Russian state of affairs, there have been some examples in Denmark, the place leaving or staying the choice does not actually exist of leaving anymore. So — however we have now been clear, defend the IP, hold management of our factories in a passive possession and obtain our regular dividends reasonably than leaving 4 instances to five instances extra behind. In order that technique stays. And I hope you notice that we’re fairly satisfied that we’re prepared to take numerous critics doing what we imagine is the proper factor to do reasonably than taking a straightforward resolution and do what we imagine is the fallacious factor at hand over all property and go away more cash on our IP and know-how and all of the experience we have now constructed up of those superb factories in Russia. So we’re very dedicated to that, and we take it.
Then if we glance into that state of affairs, I noticed now that simply as we speak, one other large constructing materials firm got here on the record as we speak. They’re record in lots of locations. And this one — Ukraine, sure, we’re rising. We’re rising, and we have now a humanitarian effort there. We wish to proceed that in Ukraine. This record does not have a authorized implication, however one thing might occur in Ukraine. However — so we have now requested these inquiries to that NACP division there. So we have now requested your questions, however clearly, all contemporary. We have to see what occurs, whether or not we shall be allowed to proceed with the humanitarian effort. We now have been instructed that the enterprise can proceed, however once more, we have to examine it. We’ve not seen any indicators.
However I ought to say that, up to now, we have now not seen an affect. After which lots of this dialogue has been a Danish one. It has been right here in Denmark. We’ve not seen something outdoors Denmark. So in the mean time, I do not wish to sound overconfident, I additionally mentioned that we do the perfect of the state of affairs, and that is the place we’re, however we’ve not seen an affect. And I feel the quarter, once more, perhaps underlines that the enterprise is operating fairly nicely.
Casper Blom
Okay. Thanks for that replace. My second query is simply perhaps in the event you might elaborate just a little bit on the Europe state of affairs. Proper now, we see that markets are powerful in Northern and Jap Europe basically and higher in Southern Europe or at the very least extra resilient. Do you see a threat of the problems within the North buying and selling in direction of the South?
Jens Birgersson
I feel you heard that, I talked about France, [indiscernible] and Spain. After which in the event you transfer east, Romania, Croatia, doing fairly nicely. After which the Nordics and Germany after which East have been the massive Jap European international locations do nicely. So I feel it comes all the way down to this basic very unfavorable sentiment with the PMI round 40 in Germany. The place our previous rule, and I do not know if it is true, however in the event you learn the economist, they may save if Germany stops, Europe will cease ultimately. Is that the case? That is as a lot intelligence I’ve to that, go away it on the market as a threat. And you’re proper. Southern Europe is doing higher. The med is doing higher. That is what we see. The additional north come, the more serious it’s the additional east you come on common, it is getting worse. Okay.
Casper Blom
Okay. Thanks quite a bit. And simply to repeat, Claus, nicely performed up to now, fairly spectacular.
Jens Birgersson
Thanks quite a bit. Thanks. Final query.
Operator
Final query for as we speak comes from the road of Zaim Beekawa with JPMorgan.
Zaim Beekawa
Good morning and thanks for taking my query. Simply coming again to pricing. You talked about [indiscernible] relating to market share within the press launch. What must occur to ensure that you to consider worth decreases. After which secondly, I respect the extra pessimistic view on Europe for subsequent yr. Are you able to discuss a bit extra about your early expectations on North America, please. Thanks.
Jens Birgersson
Sorry. Sorry, I went offline right here. So Zaim, we have now decreased costs in some segments, and we have now elevated them in different segments. So it is a complete assortment. We now have many, many purposes. And so it is a mixture of issues. So I’d say the web, you see the full that has been comparatively steady. However there are fairly just a few segments when the worth is down a bit and there is some phase up. So it is an lively worth administration throughout the completely different utility and international locations. So for instance, in the event you take a look at that large order I discussed, the worth degree of that order is decrease than it was if we’d have tried to take that two years again, however we have now a special state of affairs. So there was a few of that. Costs on initiatives in Poland are down, okay? They’re down in flood-roof enterprise it’s decrease pricing, different segments not. So it is a combine. Then we go to the emotions for Europe. We cowl that — for the U.S. and Canada in the mean time, the one concern we’d have within the U.S. in the mean time is, this entire debt story, one thing occurs, the entire place is crash, and that is it. However we’ve not seen any of that. We noticed the dip that took out stock. After which we have now had an excellent enterprise. Our problem now is definitely to work again to backlog supply time as a result of as a result of strike, we have now too lengthy supply instances. So we see reverse. So in the mean time, our outlook for subsequent yr is a single-digit progress in North America or one thing like that. And that is the bottom assumption. And we do not see something aside from some macro story are available in once more and alter it in a single day. And that would occur, nevertheless it’s not in our plan.
Zaim Beekawa
Nice. Thanks.
Jens Birgersson
Thanks, Zaim.
Operator
Women and gents, this concludes the Q&A session. I am going to hand again to the host for any closing feedback.
Kim Andersen
Thanks very a lot, and thanks very a lot, all people for the superb and fascinating questions. I do know that there are just a few of you who’re nonetheless on the questionees, in fact, you are welcome to present me a name afterwards.
And with this, we shut the session for as we speak and want you a pleasing day.
[ad_2]
Source link