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Edited Transcript of ROCK B.CO earnings conference call or presentation 23-Aug-19 9:00am GMT

Q2 2019 Rockwool International A/S Earnings Call

Hedehusene Aug 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Rockwool International A/S earnings conference call or presentation Friday, August 23, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jens Birgersson

ROCKWOOL International A/S - President & CEO

* Kim Junge Andersen

ROCKWOOL International A/S - Senior VP & CFO

* Thomas Harder

ROCKWOOL International A/S - Director of Group Treasury & IR

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Conference Call Participants

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* Brijesh Kumar Siya

HSBC, Research Division - Analyst

* Claus Almer Nielsen

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

* Kristian Tornøe Johansen

Danske Bank Markets Equity Research - Senior Analyst

* Laurits Louis Kjaergaard

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Marcela Klang

Handelsbanken Capital Markets AB, Research Division - Analyst

* Mikael Petersen

SEB, Research Division - Analyst

* Pierre Sylvain Gilbert Rousseau

Barclays Bank PLC, Research Division - Research Analyst

* Tobias Weimann

Morgan Stanley, Research Division - Equity Analyst

* Tobias Alfred Woerner

MainFirst Bank AG, Research Division - Research Analyst

* Yves Brian Felix Bromehead

Exane BNP Paribas, Research Division - Analyst of Building Materials

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Presentation

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Operator [1]

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Hello, ladies and gentlemen, and welcome to the ROCKWOOL Group report for the first half of 2019. Today, I am pleased to present CEO, Jens Birgersson; CFO, Kim Junge Andersen; and from IR, Thomas Harder. (Operator Instructions) And as a reminder, this is being recorded. So I'll now turn the presentation over to your hosts. Please begin.

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Thomas Harder, ROCKWOOL International A/S - Director of Group Treasury & IR [2]

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Welcome to the conference call regarding ROCKWOOL International's results for the first half year of 2019. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of ROCKWOOL International. I'm here together with CEO, Jens Birgersson; and CFO, Kim Junge Andersen.

First, Jens Birgersson will go through our presentation and give you an update on the results for the second quarter and for the first half year of 2019. Afterwards, we will be ready to answer all your good questions. Before I hand over the words to Jens Birgersson, I must ask you to notice Slide #2, 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 #3. Jens Birgersson, I'll now hand over the words to you.

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

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Thank you. Thank you, Thomas. Hello, everyone. And as usual, we'll go through the deck and then we get on with the Q&A. So please turn to the slide called Highlights H1, please, the third slide.

So when we look at this quarter, we came in on 4.4% growth, a little bit better in nominal currencies. And if I were to look at all those numbers, has a relatively strong logic and look into the margins, both on EBIT margin and EBITDA margin, if you isolate the IPC, the profit and inventory, the Armstrong one-off, depreciation reductions, that makes the result more [and] a bit better. And the start-up cost, both the EBITDA margin and the EBIT margin has increased like-for-like. So that's something I look for and I like that, that happened.

And on this slide, you see, we never talked about that before. And I just want to explain a little bit how we reason there. At the end of last year, we had all the machines up and running to build up seasonal stock. And we had a little bit of a slow closing of the year. So that meant we stepped -- when you look into the balance sheet, we stepped into 2019 with almost EUR 40 million more finished goods stock. And that meant that when we then started in the year and we have a targeted stock level, once we saw that some markets had a little bit lower activity, that meant we started already mid of January to take off certain shifts. So for example, the shift in Norway and some in Denmark, those long shipping shifts, we took decisions to take them out.

It takes a while. If you take the shift out to Netherlands, for example, it's a longer deal [add] before we can do it compared to Denmark and some other countries. But then we took those decisions already then. And that has also led to that, we build -- we taken out about EUR 30 million of that finished goods stock during this period to get down closer on the target level where we are now. And that has then costs in profit and inventory. So that's covered in the results you see. I just wanted -- because the impact here was EUR 8 million, that you know about it. In a normal year, if you start on roughly the same net working capital and you just keep up -- work up to your seasonal stock level, you normally don't see that difference. And that's why we never have spoken about it before.

We move on to highlights on quarter 2. And first thing I want to say about Q2 that even if we -- you have the profit and inventory effect and all the rest. But even if we take out the Armstrong one-off, that one alone, this is the best top line and the best bottom line in the history of ROCKWOOL. So it's not a bad quarter. It's, in fact, a very strong quarter. And the workday index, we saw that very much in June. Q2 had a shorter workday index. And it ended up so that June got the impact. So we had a pretty good start of the quarter. And then in June, net result of that was very low activity towards the end of June. But overall, okay, so 3.3% plus 1.5%, around the 5% mark, the first quarter around the 5% mark, so not a big difference.

And then we move on to Slide 5. Here, you can say that something that happened. And here I refer to what the -- I'll come back to that. So in H1, you see the continuing uptick in Systems division. We talked about that end of last year that some of the restructuring within the ROCKFON, some of the work. We also waited for this regulation issue in the retail business with Grodan plus the other businesses have done a good job. Rockpanel has developed nicely, all the businesses, maybe with one exception for the piece of our business going into automotive. That is relatively small business. It has all developed very nicely.

So you have seen an uptick in the growth rate of the Systems division. And both ROCKFON and Grodan has developed well. I don't see -- some of the Grodan growth was a reawakening of the retail business in the U.S. And we will not have a reawakening all the time. So I see that we have kind of made a step-up and that business is up and running again. And I think it will continue to grow. But it will not be a step-up every half year because it was really low for a while and that. And then on the Insulation business, Western Europe has really driven the growth. And I get back to the more regional effects on the other side.

So let's move to quarter 2. So here, you see again that Systems have continued to grow even higher growth rate than in the first quarter of the year, very nice. And then in Insulation, when you look at it, and that goes for the quarter and also the first half year, France, U.K., Western Europe, very good development. At the beginning of the year, we saw China going into negative territory and then Singapore at the time had some macroeconomic problems. We have had that for a while. But when China then and the trade war effect continued, that very quickly spread into the whole South Asia region. So South Asia is negative with the exception of India. It seems that India is not so closely linked to China. But all the other markets, we could see immediately that it's spread. And that's the Asia effect. So the really strong development we have had here is Western Europe, excluding Germany.

So let's move into the regional sales development. And more or less, this holds for H1, too. It has just kind of diverged more as the year has progressed. So U.K., France. France, a phenomenal development. And what is very pleasing with France, I think the history of France -- first of all, the Paris Agreement was done there. And we see very good renovation activity and a lot of focus on energy efficiency and getting the value chain to actually do it. So we have had a very good development in France, Q2, very strong. And I think it has to do that they have their nuclear power. They have a lot of electrical heating, quick heating in the houses. And it pays off to insulate because that means all the equipment gets smaller, convert with small radiators.

And really, it's encouraging to see what's happening in there. But we don't see the renovation trend in so many other markets yet. And I don't know if you have read up on it on the renovation of the Energy Efficiency Directive, how the European Investment Bank are pledging something like EUR 100 billion until 2030 for energy efficiency improvement. So I think potentially we have seen the first of energy renovation, energy efficiency improvements in France. And then it will take 2, 3, 4 years before that starts to become serious in the other markets. But I see that's a very encouraging trend.

Germany, high level of building permits, almost record level, high order stock in the construction sector, but they are stuck somehow. Some people talk about labor shortages. Obviously, there are not many car factories built in Germany at the moment. And you could see that into Eastern Europe that quite a few projects with flat roof and facade factory projects got postponed. So we have seen that into Eastern Europe. But Germany basically stuck and not great. And in my guidance now, I have reflected that, yes, we can wait for Germany. But now with the negative GDP, Germany could surprise positively, but we don't count on that. It looks a little bit depressed even though the backlog is very good.

And then we go into Eastern Europe. And I would say the whole of Eastern Europe, Czech Republic leading the way. Poland probably flat but a little bit less confidence in the future from the local distributors and construction companies. So even though the activity is quite good, I think that's been the stock build-down. And we have seen that some of our competitors have panicked on the pricing on projects. And that flat roof, facade bigger projects, we have seen price pressure there. But we have taken the approach that we'd rather cut capacity and we keep our pricing. And we have across ROCKWOOL, with exception of a few segments, kept our price increases and kept up. And then we are monitoring them in the big, heavy segments what's happening. But we see a tougher environment on projects, bigger projects.

Russia had a very good development up into Q2, good price development. Here, we -- and Romania has also been good. Here, in Russia, we had not a question mark but a market activity. But we have the Ukrainian and the supply perspective out of Russia because there are some competitors exporting a lot out of Russia and the market volume will be impacted -- not the market volume, but our success on it depending on how much export volumes will stay in Russia now instead of going out. So I'm a little bit less positive about Russia in the second half, not as a market but the competitive environment. And again, our priority will be to keep the pricing.

North America, Asia and others. Asia, I said is down. And in the U.S., it's slower, some segments extremely buoyant. But you see the same trend, flat roof, big project, logistics center a little bit lower activity, we have noticed. And also competition, a little bit more nervous, so I think because the volume is down. We don't have statistics for that. But fundamentally, yes, we are growing but a little bit lower growth than before. And of course, some presidential concerns about the market. So let's see how that develops.

Profitability. As I said, underlying margins have improved even if you take out the depreciation effect. So we are pleased about that and -- but you should be clear that you have the one-off in Q2 from the Armstrong settlement. But like-for-like, it's still improved in the businesses.

In the segments, we move to Slide 9. You see that 21.2% margin in Systems division. Without with Armstrong settlement, you have 16% growth in profit instead, so about EUR 24-something million, which is a good development because we also have an inflation picture impact in that business. So they have kind of passed on inflation and improved the margin with improved volume and we also have a better mix. And then what you see on the Insulation side is that all -- the lion's share of the inventories that we built on it all impacts the Insulation business as we keep the stock there for most of it. But underlying profitability is good and pricing has improved.

On the investment activities, we are accelerating a little bit. We're keeping the same pace in Q1 and then there are some prioritization issues. And basically, now we are getting ready to start up Neuburg in Germany already in Q1, end of Q1, which is a bit faster than we expected. So that's an acceleration. Our project is going well. And then the Romania plant is now getting ready for hot commissioning. And October, November, we should start shipping product to customers.

Then in the United States, West Virginia, we have progressed with the construction. We lost a bit of time due to weather, not to protest locally, due to weather. But we have had a strong inflationary pressure on steel. It's imported material from Europe and its local civil contractors. So that's also contributed to some of the increase in the CapEx. Generally, the construction market has been very buoyant in North America and therefore expensive to build.

And I would also like to say there that I expect one of you to ask this question. I have expected it a few quarters now and you haven't asked. So I will answer it before one of you asks us. What you see there is that the maintenance has increased, the blue portion of the investment activities. And some of that is -- so the red part is capacity expansion and the blue part is everything else. And so some of the maintenance actions that we wanted to do towards end of last year, we postponed. We ran the machines instead to keep up with the demand. So some of it is a bit of a catch-up. But you also see that it's on average higher there.

And there, we have reported things like, for example, the Moss electrical melter, a new spinning technology, sustainability investment, where we have a program now to meet our sustainability goals. We have ramped up, for example, investments in water improvement, energy efficiency improvement. We are renovating a number of offices to higher energy standards. And that shows up there because it doesn't give capacity. It gives a greener footprint. As I expect that to stay over several years, we should keep investing in that.

Free cash flow, nothing really to say. It's primarily the net working capital percentage is roughly the same. We have EUR 5 million or EUR 10 million higher finished goods stock than the same period last year. Trade receivables up but nothing really drastic. It's the investment that is the difference there.

And then finally, on the guidance, the investment guidance I've talked about. On EBIT, we continue to be confident on our EBIT margin. And then on the sales, obviously disappointed you tremendously there. We have talked about the volatile environment. I keep a wide span. We have had 4%, much shorter time left, so taking it down to 3%. But I see continued volatile environment. If Asia continuing down, is the trade war continuing, we have the Brexit, Germany, Eastern Europe. It's just a lot of factors there. We have factored those things in and we included them in the downside. But some of that continue to get worse, some of them also get a bit of an upside. But we feel now with Germany where it is, Asia where it is, Eastern Europe where it is, it's not possible to get to the 8% anymore.

With that, I would like to hand over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Claus Almer at Nordea.

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Claus Almer Nielsen, Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT [2]

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Yes. A few, yes, two questions from my side. The first question goes to your new revenue guidance. How should we think about second half split between the Systems and Insulation division? Would it be Insulation being in a decline and Systems growing? Or will both be in growth pace? That will be the first question.

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

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It's a volatility forecast. And depending on how you calculate that, you can get the combination. We have the December effect also. So generally, we -- I see volatility in the market, so there could be flat Insulation businesses. But due to that it's volatile -- so I foresee that the Systems business will continue to grow. And I don't give a specific percentage, but it will be a good and healthy growth. That's what we see. And then we see most of the volatility happening on the Insulation businesses. And exactly how that spreads, there are many scenarios. We just see continued slow growth on the Insulation businesses. But again, the volatility of the whole story, so we don't de facto knows what will happen in Germany and Eastern Europe, was it the stock adjustment? We'll see, so -- and that will be factored in the...

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Claus Almer Nielsen, Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT [4]

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That obviously I can understand. But Q3 so far has Insulation start out in a decline. Is that a fair assumption?

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

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I don't make a comment on Q3.

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Claus Almer Nielsen, Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT [6]

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Okay. Fair enough. Then my second question that's coming back to your EUR 8 million inventory adjustment. Can you try to put a bit some more color -- or can put some more color to this? Is it a boost to 2018, you're now correcting it? Or how should we think? One thing is a Q2 impact. But there will also be -- there must be some timing between the different quarters as the cost has been spent.

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

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Yes. Okay. So let me explain it first. So we have a target stock level at -- before the high season. And the high season starts here. We are getting into the high season now. So we have a target value. And then what happened last year was that with all markets basically developing positively, when we had -- but we had a bit of a blip towards the end of Q4 and December could be like that. And the machines were running extremely well. So we were kind of going on max in all machines. And then it just went a little bit better than we expected. And when so many machines run a little bit than expected, we accumulate tonnes quickly. So that meant that the EUR 40 million higher than the previous year stock level, that's how we start out January.

And then when we get into mid of January, we see that some regions did not develop as we expect and the other regions were well, then we start to take out the peak shifts in those, but it takes a while, and then we start to cut it. And then we steer our production by taking out the work shifts and also the shifts in the areas we see slower activity and we sell off the stock. And that's what we've done. And then those EUR 30 million with the overhead absorption on that gives the profit effect. And as I said, the majority of the decisions were made end of January and then it takes 3, 4 months to get the shifts out. In some places, very quick, the temporary work, but most of it is temporary. But you need to do it, plan it, reset the business. And so the bigger effect is in Q2. Okay?

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Claus Almer Nielsen, Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT [8]

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Yes. So as I understand, this EUR 8 million, that is IPC costs. So you just produce to inventory, i.e., your unit cost has been helped when you produce a lot of units, so to speak, and you produced less in Q2. Is that correctly understood? So it's not about...

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

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Yes. Exactly because we take the stock.

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

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It's just it's a different pattern this year compared to the previous years. That's the only reason for mentioning it.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [11]

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Normally, we don't mention it because it's the same pattern every year, every quarter.

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Claus Almer Nielsen, Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT [12]

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Yes. That, I understand. Just trying to figure out, this EUR 8 million that you want to correct in Q2, those costs should come in a different -- you should be making equal...

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [13]

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Not in Q2, in H1.

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

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So that would be in -- that would be in Q1. So i.e., if you want to correct in Q2, you need to add it in another quarter. Would that be in last year or in Q1 or Q3 or...

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Kim Junge Andersen, ROCKWOOL International A/S - Senior VP & CFO [15]

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I don't think you should correct anything.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [16]

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No. You shouldn't do that. This is just the difference between the 2 years that was big in this case. And therefore, we're giving you the numbers, so you can see. But you should not be doing that between the years because we run the business. Seasonality is pretty much the same. And if we are just growing 4%, 5%, 6%, you don't need to worry about that. Here, it was the December combination to our stock and then some places where the market activity went down, where we expected it to go up, for example, Germany where we had to correct it. Because we don't want to sit with stock that we don't sell, we want to have a relatively quick stock. That's why we are on just 11% net working capital.

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Claus Almer Nielsen, Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT [17]

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Okay. But maybe just to be 100% sure. So this EUR 8 million, that is a normal, ordinary production cost that we split out to units in your production, right? There's no extraordinary redundancy or one-off costs or...

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Kim Junge Andersen, ROCKWOOL International A/S - Senior VP & CFO [18]

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No, nothing. Quite ordinary for us.

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Operator [19]

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We are now over to the line of Yves Bromehead of Exane BNP Paribas.

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Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [20]

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Just coming back to actually to costs, I'm very sorry about that. But just out of -- to get more granularity. So you mentioned that you've had an unusual development of this IPC. But you also mentioned that you had some capitalized overhead costs. Now I don't see any mention to the amount of those capitalized overhead costs. So I'll be curious to know how much does that represent and if we can extrapolate that amount to the next quarters.

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Kim Junge Andersen, ROCKWOOL International A/S - Senior VP & CFO [21]

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Again, this is an information, we are not going to start to report on IPC going forward. This is an explanation because it's an unusual development in a quarter or in a half year compared to our normal seasonal buildup of stock.

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Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [22]

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Okay. But the capitalized overhead costs doesn't mean that you're actually capitalizing some of the extra fixed costs that you're spending on (inaudible) engineers and technical engineers. It has nothing to do with that?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [23]

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No. This is just absorption per unit produced and it ends up in stock, in a stock value. And since we have produced it and then suddenly we stopped producing in a quarter to sell off the stock, we just show the impact of that. Yes. So no, we haven't changed any rules. And you know one thing, we write off -- we are very tough on ourselves on stock. If we keep it too long, we write it off at a very specific time. So we don't want to sit with too much stock in the business.

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Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [24]

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Okay. So then if I just jump to the other questions. Yes, can I continue with the question? So just second one, you mentioned that you are doing some more investments on Systems. Could you maybe tell us exactly what you're doing there? Are you adding some lines? And what are you thinking there?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [25]

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Yes. So the main investment -- and this, we have planned. At the beginning of the year, we started up a Grodan investment in Russia. And that's part of the growth that you see here now. And what we have done now is that even though there was a downturn in the Grodan business in the U.S., we pushed a button on an investment. When did we decide?

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Kim Junge Andersen, ROCKWOOL International A/S - Senior VP & CFO [26]

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August of last year.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [27]

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Last year. So in the middle of the deepest downturn on the retail business, we concluded that when it's coming back, it will be up on a high level. So we have investors, so that, that investment is rolling in now during the autumn and just to meet Grodan growth in North America so that we can cope with what we are doing next year. So we have enough now to carry us through. And this extra addition we are doing will be very well-timed to keep growing.

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Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [28]

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And sorry, but actually it's quite interesting what's happening with Grodan. And part of it is due to the cannabis industry. So I just want to get an understanding. In Russia, are you building capacity because there's a change in medical cannabis, for example? And also just as a follow-up to that...

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [29]

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No, no, no. In Russia, there is no medical cannabis business. They don't have that. In Russia, you have a food security issue, self-sufficiency issue. So Russia wants to have their own vegetables. They have a very rough climate. And they have concluded that precision growing in hothouses rather than importing tomatoes is a better way. So we -- so it's a very, very strategic decision from Russia. And we knew about it and we reported we have been importing product there. And when we saw stability in the business, we put the plant locally and we inaugurated that. And that is absolutely timed with the Russian strategy to be more self-sufficient on food and have tomatoes all year round, and cucumbers, peppers and the rest of it. So it's just normal vegetable business.

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Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [30]

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And so how does the European medicinal cannabis kind of industry looks like to date? Do you see an evolution towards higher use of this? And would you...

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [31]

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It's not -- I mean a little bit simplified. You see Canada and the U.S., you see very strong development, legalized, all the rest. And then you see Europe countries have done it and more experimental business. Yes, there are probably some customers that use our products. But the main business is the vegetable business. And then when you go to Russia, it's also only vegetable business. But people can buy our substrate and grow many things. I mean there are orchard growers, there are all sorts of -- there are many segments that the product can be used for. And we don't -- we can't -- we don't know exactly what they grow on every substrate.

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Operator [32]

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The next question is from the line of Kristian Johansen at Danske Bank.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [33]

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First, on pricing, can you quantify what impact on growth prices had in Q2? And also in terms of your new growth guidance, what does that reflect in terms of price increases?

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

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Yes. So I don't give a precise number. But we are satisfied with the pricing and on -- and we have reached our targeted level of a couple of percentage points, around the level. The number, I always give, so -- and then it varies by product and segments and all the rest. And as I said, price pressure on project business.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [35]

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But you've previously said you're aiming for 1% to 3%. So what is -- you're saying now is that you expect to have 2% to 3% for the full year?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [36]

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Yes. But still aim for 1% to 3%.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [37]

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So if I look at the 2% to 5% you are guiding, I mean in the 2%, it's included 1% from pricing and in the 5%, you have 3% from pricing. Is that how we should look it?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [38]

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1% to 3%. So it's a range. It's a dynamic environment.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [39]

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Okay. You can't give any flavor on whether you are more optimistic on reaching the 3% than the 1%?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [40]

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I can tell you, it's tougher because what we have now is an important moment in this industry. We have gotten regular price increases. We have structured price list. And we have worked in a very disciplined way now. It's the fifth year we do it or maybe the fourth year. And now we have regions with lower segments with lower activity. And then our approach is generally to be very smart about pricing, keep passing on the inflation. And then in the segments where we see people go too deep on prices that we cut capacity and we don't drive it to the bottom. So that's our approach. So we will have to navigate price in the rest of the year and it's a very good test year. But then we have distribution business, we have many segments, where -- so it's a very mixed pattern. But there certainly are areas and geographies where it's tough with new capacity coming onboard. But I see that we should be able to deliver 1% to 3% on the year.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [41]

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Okay. Then my second question, now that you sort of flagged this increased volatility. And with your imply H2 guidance -- you opened a scenario with no growth at all. If we then look at the markets where you opened new capacity, I mean, specifically Romania and Germany, in a hypothetical scenario where you do not grow revenue, how will the EBIT margin develop? Because you must obviously be adding some fixed cost in these markets, but also you should save on transportation. So can you just help me a bit on the balance sort of a no-growth scenario?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [42]

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Just a second. Okay. So let's say like this, Romania is -- we have a lot of business in that neighborhood. And obviously, we don't put in a factory to have it full from the beginning. We want to fill it in 3, 4 years. So the factory in itself, the new factory is a negative impact on margin to start with. So that's the case. But these are factoring the portfolio where some factories are rolling off on depreciation and others coming onboard. So typically, a start to that factory has a lower margin. And then we guide on the average of the whole thing. And we haven't given a guidance yet. But for example, in Romania, yes, we get shorter shipping. We get also some extra business opportunities because we become very competitive also across Romania. So there are ups and downs. So it's almost a case for all.

And then if you look at the German factory, we have had a regional import into southern Germany for many, many years, 10, 20 years now. That factory has always round full. So here again, we put more capacity in a place where economic activity is centered. But again, the goal is not to have the factory full in the first year. But it could mean, of course, that if we can ship in less from the north of Germany into southern Germany, then we take out the capacity maybe in Netherlands. So it could be that we come to a relatively healthy loading in that asset and we take a shift off or a couple of shifts off somewhere else. But we want some extra capacity. That's why we do it, of course. And we don't want to be full when we start the factory up. So every factory build at the beginning will have first during the startup, the buildup and once a negative impact on the margin. But in the overall picture, we bring all of this together and we would give a guidance on the margin. For the next year, we haven't given yet.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [43]

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Okay. But you do confirm there should be savings on the cost from transportation in both markets?

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

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There are obviously savings in logistics. And then there's also fixed cost and then you add the depreciation but other depreciation rolling off. So it's many factors. But fundamentally, of course, the factory, from a cash perspective, to sit with the factory in the middle of a sweet spot, the cash margin immediately once it's filled has improved. But then the profit margin is a different thing.

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Kristian Tornøe Johansen, Danske Bank Markets Equity Research - Senior Analyst [45]

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Okay. Maybe if I can just sort of follow up on this because obviously you mentioned depreciations and the balance of all the factories coming off. What should we expect for depreciations next year? Is that going to increase? Or is it going to stay at the same level as this year?

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

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So too early to guide, Kristian. So we come back to that into next year. We know, of course. I mean we can calculate it, but we don't do that now.

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Operator [47]

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So we now go to the line of Brijesh Siya at HSBC.

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Brijesh Kumar Siya, HSBC, Research Division - Analyst [48]

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I have two questions. So first one is on pricing. So you talk about there's a pricing pressure in the market, in particular some markets. So can you just kind of elaborate that? Is it only -- I mean is it product issue? Or I mean who are the main kind of players who are kind of -- is it happening just because there's a less demand or kind of intentionally people are kind of driving down the price growth there? So what exactly is happening on those front, if you can just elaborate a bit?

And possibly coming to the second one is on cost side. Cost side, I just wanted to kind of get a little more detail about how the cost inflation is evolving. So the foundry core prices kind of are flattish to down. And the power prices across Europe are kind of moving up a bit. So maybe if you can talk us through how you see in second half things are going to evolve. And relates to that probably on carbon, you made us -- let us know -- I mean you are a net carbon-positive if we look at the products you produce. But if you can just tell us how much carbon certificates available with you and how much shortfall or surplus you have right now on a yearly basis, so that would be helpful.

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

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The last question, I don't have in my head. We -- on that topic, on the 10th of September, we start every quarter, because we get a lot of these questions, and so what we do is to put together some themes, ESG themes. And then on the 10th of September, we'll have an ESG call. And we do that every quarter and we'll pick a couple of topics and then we can have a more deep discussion on those strategies. I don't have it in my head now to reflect on it. But for example, it's very close to our strategy, we are now investing in this change of a melter in Norway near Oslo for an electrical melter. And we're putting a lot of R&D effort into that and we have a very clear strategy for where we do it and when. But that topic, I would like to refer to the 10th of September.

Then when we get to maybe the more easy question on the cost side, cost inflation. With the kind of volatile economic environment, we see compared to at the beginning of the year when we have an inflation on logistic increased outlook, we saw certain numbers. And as we progress through the year, we still see inflation. So we still need price increases to cover that. But you are right in your assumption, I assume that's your assumption you hinted at, is that we see a lower increase than before. So relative said, compared with H1 to H2, we will be better off in H2 from an inflation perspective. Okay? Then on the pricing, basically -- okay, so Systems division is Systems division, and we are passing on the regular price increases and there is a little bit between the businesses. Whatever goes to automotive is a bite, but it's a small, small business, but we normally succeed.

Then when you get into the Insulation business, there are a couple of drivers. First of all, we have certain competitors opening up factories. We have that in Poland and that area. We have one coming on in France and they want volume for those. It's capacity-driven and the fact that the market is a bit lower. And when we look at where the market is lower, the project business, logistics centers, car factories, all of those commercial factory products, big buildings, they are the ones that we have seen start to slow down first. And they are also the projects where the smallest suppliers can access a bid, they can make a bid and the price competition is tougher, so flat roof and attics.

And then the whole attics market now, quite German-centered big companies in Europe. And now with the situation you have in -- with increasing capacity of supplies that can give stone wool to that. You also have the big system integrators. So we're talking STAHL and (inaudible) and such companies. They also are under pressure in the market because they fight very hard with each other on price to get to the projects. So those are the 2 main segments where you see increasing pressures. So that means that when we then -- we have certain customers that really want us. We keep a reasonable price, we keep the business. And then we have project business where the people undercut or some would rather cut capacity and we stick to lower prices, and of course, certain projects we really want. But that's the picture. And that means you see a mix improvement because the big project business generally have lower margins.

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Brijesh Kumar Siya, HSBC, Research Division - Analyst [50]

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Okay. If I may just follow up on the pricing front, so I understand it's a mix picture. And as we move to second half and next year, I mean assuming the cost inflation moves as it is right now with a slight growth but still with the carbon things happening across Europe, now you are opening new plants as well. And you will be under pressure to boost the volume to the market. So I mean even though you cut the imports from other plant, still how do you see your price costs evolving late this year or early next year?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [51]

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I can just say that my strategy for the distribution business has been the same for 4 years, 5 years. And that is regular small price increases for stone wool to cover inflationary pressures.

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Brijesh Kumar Siya, HSBC, Research Division - Analyst [52]

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Okay. Sorry. Does that mean that you are ready to give away some market share to keep your pricing intact?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [53]

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We do that in certain segments. We want to be a responsible player in the market. And then -- but then again, the market is not absolutely uniform. But our priority is to keep prices stable.

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Operator [54]

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Our next question is from the line of Laurits Kjaergaard of ABG Sundal Collier.

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Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [55]

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Two questions from me, like my former peers here. The first one is sort of on the price discipline in the retail business that we've just been discussing here. What we also heard from Kingspan this morning that especially in sort of Poland, Czech Republic and -- is experiencing worse results here. And just to get an idea of what your price discipline that you see in the market here, because what I understand is that you're actually trying to keep your prices, even increasing them in some areas. But then you may be in the risk of delivering less volume. Just to get some idea on that dynamic there could be very helpful.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [56]

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Yes. The dynamic is that you have players in the market that believe that the total volume in the pot will increase because you lower prices. You have small guys that believe that will happen. And exactly what the private company you mentioned see, we know that if we start to play this game and just drive it, it just spins out because we are just too big. So it's right. In those segments, we -- there are certain projects that are ours. We obviously -- we take those. But we're not going to sell high-quality service stone wool to a project where we sort out the startup, the supply, just in time and just lower the price with 20% to get an order, we don't do that. And that's the dynamic we see. And from almost any industry I've been to, and I've been to a few, and you follow many industries. For some reason, Eastern Europe is a part of the world where that commercial approach where the market starts to become weak very quickly turn into a volume craze. And I've seen -- so we see some companies behave like that now. And then we do our sit steady in the boat and we see what happens.

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Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [57]

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Just a follow-up there. We've heard in the market from some participants that especially June was very volatile, but then they've already seen maybe some -- a little bit of positive drivers going on after that. Can you give some specification on the months of Q2 when it was especially bad? Or was it sort of okay across the market?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [58]

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Yes. Yield demand, we have just too many countries for me to keep track of it. But I think what you say, and if it's June or July or whatever, what you normally see in such a business -- so I'm not making a comment about the case. But what I've seen in this type of business in our business, that is whenever a market slows down a little bit, there is an inventory drawdown, which means that to be -- there is an extra effect in the market, that even though the market activity might not be shrinking, it might just be that people realize, so okay, it's not growing so much. And now they draw down the inventories and then they're going to be suppliers that believe that now the market is minus 20% in a month or 4 weeks or 6 weeks, and they react to that and panic. And if you have been through it, if you're psyched because you know that in the beginning when the market tapers off, the inventory effect will be hitting you because the dispute with someone has hit them too much, they sell the inventory and go a bit lower then they have a lower expectation. And I think in certain months, you're going to see that more than in other months, especially early in the phase. So that's all I say. But I don't look into months like that, even though we have a monthly follow-up of every price and we see it, but -- it's plausible, but I can't confirm.

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Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [59]

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Fair enough. That's a very good analysis. Then on my second question, can we talk on sort of the costs side here? Because in the position of other costs, that was quite healthy here in the second quarter. And you have previously discussed that you would rather protect the top line of your guidance rather than your earnings. And here, you've mentioned in previous quarters that because we've been on sort of a peak cycle, yes, you have, on a peak cycle, you've invested quite heavily and perhaps in non-directed revenue growth short-term solutions, but more long term solutions for revenue growth. Yes. I wouldn't be able to sort of take out costs if you saw sort of these volume situation.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [60]

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Yes. Okay. I just want to clarify, I think, a statement I made on I want to protect the top line. So I believe, that what we see in France is not easy to get it in action, but 1/3 of the Paris accord needs to be achieved with energy efficiency, 1/3 of it, improve the energy efficiency. And that's renovation. And what I say, I need to protect the top line of any price in terms of capacity, because if I, as the biggest player when the market grows, people can't get the product, we kill the market for stone wool, and we have this increase. So yes, what you see on my EUR 390 million CapEx, I put priority on the top line. I rather take a bit of time in the penalty box for having invested a bit too much at the wrong time. That will happen according to the short-term view. But it's critical that we have the capacity for a market that underlying over 30 as we've grown 5.3%. And if renovation starts, that number could be higher. But in between, there could -- volatile periods, there could be a recession, there could be all sorts of things. But underlying, we believe in the market, and I put priority to that. And that's why we have the CapEx. You see the point? It's not my priority -- and my priority in a quarter is not to defend volumes. My priority, as I said for 4 years, is to get the market where at least the distribution portion of it and ideally also the project business every year, we can pass on a small portions, reasonable portions to inflation. So 1% to 3% every year. So that's my thinking. So I think I did -- I might have expressed myself unclear, but that's how I think about it.

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Laurits Louis Kjaergaard, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [61]

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I may have expressed myself unclear, but that's also what I heard. But just to get an idea. You're obviously investing into long-term and top line here, that was sort of the case here. But now we see that you might be able to save some costs in your underlying structure to protect your short-term margins also, and if volumes start going down. Just to get an idea if you see volume deterioration, how well can you protect, sort of, your short-term margin in the current cost structure that you do have?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [62]

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So we have taken out quite a few shifts. When you take a shift out, as you see we have no restructuring manner or anything in here, but we've taken out quite a few shift. Then of course, we take the worse shifts out. So -- and then the exact correlation between these, it depends, the magnitude. And if we have a decline, that they spread out on the 1 region, it -- we all need to look at the case. But we always try to take the shifts out that are the least profitable.

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Operator [63]

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Okay. We now go to the line of Tobias Weimann at Morgan Stanley.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [64]

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The first one, on Western Europe, I would say the performance was quite strong. Can you elaborate a little bit what were the key drivers there, because if I look at the individual markets, clearly, you said Germany was weak and U.K. I guess, overall, the market was not too strong, but you probably have gained some market share there due to the regulatory changes. So maybe you can elaborate a little bit on that. And then could you also remind us, roughly, the sales split in terms of countries? How big is Germany, France and U.K. within your Western Europe division?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [65]

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Okay. So in U.K., we have had strong double-digit growth for a while and regular, for a change, is a small portion of it. But the perception change is a big portion of it. So that's happening. It's a good double-digit growth. And there we have investment going that we complete this year that increases the capacity there and very effective investments. So that keeps going. Our guess about the U.K. market is I came -- I was in the U.K. yesterday. Some people say it's flat in our segments, some people say it's declining. But since it's a transition array and also renovation of all the buildings that got the wrong materials, like a new market also to some extent that is devoted to stone wool. So that's the U.K.

Then France, the driver is that France is really the country, and I think they have 20 years practice for this, to understand how to renovate, how to give the tax credits and how to sort out the supply chain. And I think it has to go -- it goes back all the way to the nuclear strategy once upon a time. And the fact that they are heavily dependent on electricity, which means that since they have electric heating in their houses, they get a bigger incentive to do something about it. So France is going really, really well. And even though the French economy is not running well, I think there is also a recognition by renovating all these houses and going for energy efficiency apart from the climate aspect it supports the economy. So we see that -- we see Spain doing good. Not on France level, but it's good business. We grow in Italy. And that whole area where, obviously, France and Germany are among our biggest entities in Western Europe, just to be clear. They are the biggest now. But you also see Sweden, Norway doing absolutely okay.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [66]

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Okay. And then in Germany, just a quick follow-up there as well. Because I believe in France, you talked a lot about the subsidies for energy efficiency. Are you seeing similar trends in Germany? Because I know that the government -- or there have been talks about increased fiscal spending. Could we see this in the field of energy efficiency?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [67]

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No, no. No, I don't -- I could not see it, and I think the reason that Germany doesn't seem to have a government at the moment. It's not -- who leads Germany now? Really? And this requires, I think, a conviction behind the scene is there. The men -- very good understanding of it, but I think the market has stalled there for other reasons here. The whole of Germany with the car industry and a bit of hesitation, maybe labor shortages, it's a combination of things that just have put a bit of hold on the German market. And then I can't say whether all of these building permits will be realized. There are many, many Germans that believe that. But I can say one thing, I think the building sector will do much better than the economy in general. I think the automotive will do -- that they're in for tough time. There are already some companies that are bankrupt. But I think the construction industry, there is a fundamental need. And if they get their act together on the renovation, that can take off. But I'm not seeing it.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [68]

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Are you still seeing a negative impact from the slowdown in automotive? Because I think you mentioned earlier that you have seen a bit of big projects being canceled which were related to the automotive sector.

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

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Yes, yes, yes. We see that in Eastern Europe, yes.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [70]

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That's in Eastern Europe only, not in Germany?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [71]

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No, not in Germany, because the other business we have, we're selling stone wool fibers to brake pads, for example. But that's a relatively limited business, lot of OEM business. There, you see exactly how the car industry is doing. So we can see that. But again, in the big scheme of things, it's not a huge business.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [72]

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Okay. Fair enough. And then my second question is in relation to your margins. I remember earlier this year when you gave the first outlook on 2019, which obviously implied a bit of slowdown versus last year's margins. And I think I remember you said the slowdown, the sort of 80 bps decline was, for some reason, due to the effect of the higher transportation costs, which I think was linked to your high utilization rates. Now I'm just wondering, given that volumes seem to be a bit lower than what you have expected at the beginning of the year, could this actually be a positive for margins or could lower volumes translate into higher margins for you?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [73]

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Let's say like this. If you look at the margins they had underlying, when I clean away all the effects, like-for-like the margins are up. So we have seen a bit of inflation. Obviously, the price was impacted. But we are having less of the long-distance logistics cost, that's for sure with the other footprint. But then it's such small money if you take -- if you end up having to take out the shift and then pay money for it, then that can compensate that quickly. So within the quarter, it's not always sure you'll see it. But yes, we are shipping shorter distances now.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [74]

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Okay. That makes sense. So just as a last follow-up on this. So if you say like-for-like margins are up, and I think your new guidance for the full year implies that we are remaining flat for the full year including the one-off gain. Actually, if you see similar trends in the second half and we have more, I would say, raw material tailwinds, shouldn't we expect the positive margin development and shouldn't we be able then to be up for the full year even excluding the one-off gain versus last year margins?

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

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We kept the guidance around. And then you have to restructure somewhere or something happens around, and then we follow it every month. But how it looks now, with the current price development of that, we are comfortable with that guidance.

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Tobias Weimann, Morgan Stanley, Research Division - Equity Analyst [76]

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Okay. But there is no reason why we should expect lower margins in H2 year-on-year?

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Kim Junge Andersen, ROCKWOOL International A/S - Senior VP & CFO [77]

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No, there's nothing structurally that will lead to a lower margin.

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Operator [78]

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Okay. We are now over to the line of Mikael Petersen at SEB.

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Mikael Petersen, SEB, Research Division - Analyst [79]

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I wanted to quite touch the same subject that was just asked in relation to cross-border shipments. As you see volumes coming down in Germany, can we expect no cross-border shipments in the second half of the year, or will there still be some?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [80]

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Yes. I mean some businesses, you look at the ROCKFON business, obviously, we produce a lot in Netherlands and Poland and we cross-border shipped almost all of it. So that business will continue. And also on technical installation, core solutions, many of these businesses we ship because we have OEM products, one product that goes to an OEM that are 5 production places. So that shipping will continue. And then the extra support shipments, say Norway into Germany, Denmark into Germany, U.K. into France will continue. So there will be places where it's continuous, but it will be on a lower level. But, for example, we -- depending on the product and the portfolio there, there are some [problems], but it's not on that high level that we had before.

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Mikael Petersen, SEB, Research Division - Analyst [81]

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Okay. Then my last question, in terms of quota in the U.S. market. It seems that the growth opportunities are quite well progressing. What actions have you been doing in order to increase the sale in North America? Have you done anything actively? Or is it simply just coming from larger market demand?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [82]

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It's back to the regulation. A big portion of the market was regulated, and so that these people in this segment could -- you have the elections and then they legalize it, confusion between federal and state law. There's been all sorts of turns. But most of all, it was regulated. The market was regulated and legalized. And that put a confusion on the whole market. So the medical players up in Canada, they kept going strong. But in the U.S., the confusion started everywhere, how to get these licenses and which one had to get it, and that was stopped. So I think the fundamental underlying growth of the segment is there. It's not as explosive as you see now, because now you see the fact that the business is coming back up again.

But the -- I see a long runway to grow that business, otherwise we wouldn't be able to expand our capacity. And I should also say our business in the U.S., we talked about this business. The other business is growing too, the vegetable business, because that's solving a lot of sustainability problems. And it -- so that's also growing in the U.S. So the capacity expanding is not only for the medical and the recreational, it's for the rest of our business too, of course.

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Operator [83]

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Okay. We now go to the line of Marcela Klang at Handelsbanken. Sorry. Marcela, you're very, very quiet. Can you please...

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Marcela Klang, Handelsbanken Capital Markets AB, Research Division - Analyst [84]

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(inaudible) in the second half, but you also saw backlog for Germany. How long is your backlog? (inaudible) weeks (inaudible) or months?

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Operator [85]

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(technical difficulty)

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Marcela Klang, Handelsbanken Capital Markets AB, Research Division - Analyst [86]

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Sorry. I'm going to repeat. You mentioned Germany getting worse in the second half, but you also said that the backlog in Germany looks good. How long is your backlog in Germany? Is it a couple of weeks or months?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [87]

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Our backlog, Marcela, a couple of days. We are very short on backlog. We basically get orders and we ship within 24 hours. That's how we run the business. So -- and then you have certain bigger projects where you have a backlog, and we are not so many of those projects. But you then plan it out with the building site and we pre-produce some of that. But the majority of the business is a very quick turn business.

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Marcela Klang, Handelsbanken Capital Markets AB, Research Division - Analyst [88]

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And speaking of backlog being good, does this mean...

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [89]

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No, this is the construction industry backlog.

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Marcela Klang, Handelsbanken Capital Markets AB, Research Division - Analyst [90]

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Okay. So it's not your backlog now at the end of August, which should basically mean that July and August are fine.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [91]

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No. Yes, no. We more or less, as you know, with our net working capital, inventory is single-digit, finished goods and income in material. So we are single-digit. We are very low in that we produce and then we have some seasonal stock. But what I was talking about is the order backlog of the construction industry...

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Kim Junge Andersen, ROCKWOOL International A/S - Senior VP & CFO [92]

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In Germany.

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [93]

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In Germany.

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Marcela Klang, Handelsbanken Capital Markets AB, Research Division - Analyst [94]

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Yes. And then maybe a clarification. The increase in guidance when it comes to investments, you mentioned that it's both -- that you are pushing, was that the German factory earlier and that the project is going well, but also the U.S. got a little bit more expensive. Is that the major part of the EUR 60 million increase is because you are pushing your investments earlier, and the smaller part is because it basically got more expensive than you expected? Or approximately how big is the share?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [95]

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So we have a history of -- so Marcela, we have a history of having had tough factory projects. And we are working very much on improving our approach how to execute the projects. And it will take another 2, 3 years, I think, before I'm happy with it. But we have a very serious approach to improve how we execute projects. So what you have here is we have new leadership in our CapEx organization. We have also very high load. So you see smaller projects going better. But for example, we are not pushing for Neuburg going better. We have a way of scheduling projects. And this project goes well, and it's accelerating and when we see that opportunity, we do it because, [abnormally], it's a good thing to just keep with the pace if the team can handle it. And Romania is going fine, too. But they are also many smaller projects. So you have that acceleration happening, and then you have -- and it's not the majority of the portion in the second half that has cost increases. No. But it is worth mentioning, reporting one of these plants cost a lot and still our savings on that is more expensive, but it's not a majority of it, but it's big portion. Also it's significant and therefore we mention it. It's not 50% of that, well. Okay. I understand we have how many questions in the queue, 3 or 4?

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Operator [96]

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Two questions left in the queue. Do you wish to take them?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [97]

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Okay. So we close the incoming queue now and we finish these 2 -- last 2 questions.

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Operator [98]

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So in that case, the penultimate question is over to the line of Tobias Woerner at MainFirst.

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Tobias Alfred Woerner, MainFirst Bank AG, Research Division - Research Analyst [99]

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Three, if I may. Number one, just looking at some data here in front of me, which I get on a monthly basis in Germany. And if I --- if you could maybe share with us what the market share development is in Germany between glass and stone wool since that period, that's question number one. Number two is, the pricing development I see here in Germany in front of me sort of indicates a 8% increase since the end of 2015 in stone wool and on the glass wool side, a 4% decrease. Does that tie in with the trends you see, or is that data not sort of applicable?

And then just lastly, Germany. You're talking about a slowdown here. I'm not quite sure whether this is related to market movements between you and other participants or whether this is the underlying market. Other participants in the market -- in the construction market have talked about a rainy May and June having an impact as well. So I just like to get a little bit of clarity what the weather had in terms of imprint on you?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [100]

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So okay. So let's take those. And I can't be precise because these reports and market share and all the rest are very inaccurate. But let's look at the market share development of stone wool. We are convinced that stone wool, over those years, have increased its share. And probably last year we increased extra much because there was a shortage and we could deliver, and we are really the leading brand in Germany. So I think that trend has been going on. I also believe that, on the price development, you have had a long-standing battle between a couple of glass wool players and we keep track of it. And I think you're right that they have not raised prices. And I don't think that is because they see a very different inflationary picture. I think it's because they have been fighting and they keep fighting. And I think the same thing has been going on in France for, I don't know how many years. So I think it's the right magnitude. Because one thing is for sure: Since I came to ROCKWOOL, we have increased prices a couple of percent every year and those are the years you talk about. So I don't have the statistics here. But rough magnitude, inflation increases every year. So I think -- and we are one of the big player or the biggest player in stone wool. So I agree with that. Then in Germany, the same with the rainy May and June. It is right that when you meet, for example, your (inaudible) or any of these people, they all say Germany will not be a problem. Look at the backlog, look at the building permissions, look at this and that. So I agree. They say that. They have maybe lost a bit of confidence compared to what they said in June. But they say it will be fine. It's right, but it was very hot, which makes the roofing business difficult when it's too hot. You have these heat records. The rain, I can't remember, but maybe it rain. But generally, I'm not too keen on using weather excuses in the business, because what I look at it is, every week, what we are shipping out and I see how competitors react. So there are fundamentals that could mean a Germany is better, but from my dig through over it, my conclusion is my best expectation is that we continue [sharply] where it is, but it could happen. But I don't know what the weather effect is, I don't have -- I haven't quantified it and I haven't used it as a reason. Last question?

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Operator [101]

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The last question for today is over to the line of Pierre Rousseau at Barclays.

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Pierre Sylvain Gilbert Rousseau, Barclays Bank PLC, Research Division - Research Analyst [102]

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I'll be very quick, I promise. The first one is a follow-up on CapEx guidance. You said that the minority of the guidance increase was relating to inflation and the costs, so I guess it's mainly phasing. What would be implication for your CapEx expectations in 2020? Second question is on capacity additions in the industry. Could you remind us when the timing of the capacity additions of your bank competitor is? And have you already seen some downward pressure on pricings from these, or do you expect it to get worse in the second half of the year?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [103]

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So CapEx guidance for next year, we haven't made one and we don't say that now. But we have said that the desires of the company right now, we do these investments to create some room. And we will keep with the maintenance investment, and we also will need some additional factory projects as we always do, and then in what year we announce than this one. So we'll -- we have said that we need to catch up on capacity and we do a big step now, and we come back to the guidance for next year. Then on the capacity that was coming online, what we see now that we have one competitor in Poland that have come online and they push volume and they lower prices. And then we have, in France, the German competitor coming on with the stone wool factory. And I don't quite know what reality will be, but I would expect in Q4, we'll start to see something. But again, I -- we wait until we see it.

And then one more capacity, one I forgot. In Ukraine, there is also a new line unknown player probably to you that has come along. So you have a terrible price competition in Ukraine between a Russian local manufacturer and this Ukrainian manufacturer. So we have just concluded that we cannot -- we are not interested in playing on that level. And it's a very big overcapacity. Ukraine is not our biggest market. But there, you see overcapacity and you see a tough situation between these two. Yes. Did I miss something? No. Those are the main ones.

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Operator [104]

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Okay. As that was the final question for today, can I please pass it back to yourselves for any closing comments at this stage?

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Jens Birgersson, ROCKWOOL International A/S - President & CEO [105]

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Yes. Okay. So thank you for your time today. I just want to remind you of the call on the 10th of September where we dig in solely into ESG, the ESG aspect of the business. Not so much the governance part, but more of the sustainability and environmental part, and the social -- no, environmental. And then so you're all welcome there, and we will do that every quarter. And then I look forward to see some of you on Monday in Copenhagen. So have a good weekend until then.

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Operator [106]

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This now concludes today's call. So thank you all very much for attending and you can now disconnect.