Rockwool A/S (ROCKB) Earnings Call Transcript

Ladies and gentlemen, welcome to the conference call regarding ROCKWOOL International's results for the first half year of 2021. My name is Thomas Harder. I'm Director of Group Treasury and Investor Relations of ROCKWOOL International. Today, I'm pleased to present CEO, Jens Birgersson; and CFO, Kim Junge Andersen. [Operator Instructions] As a reminder, this conference call is being recorded. First, Jens Birgersson will go through our presentation and give you an update on the results for the first half year and second quarter of 2021. 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 will now hand over the words to you.

Thank you, Thomas. Good morning, everyone. Today, we do this slightly differently. I'm sitting in Aarhus in Denmark. And the reason I do that is that tomorrow, we start racing in the, SailGP Denmark race. I will be on the boat this afternoon myself. And this is a branding exercise we do to become more known. And so far, this effort has worked greatly for us. We have made a couple of videos of the previous event. And for example, the two first videos where we mixed a bit of sustainability message ROCKWOOL with some information about the events, we had 2 million views, and I think up to this point, we never had anything that would have more than 100,000 views. So that's a great step forward. We also noticed that with this, we kind of expand the brand knowledge among future employees, and our own employees do get proud from this. So it's been a very, very interesting branding investment we have done so far with a very nice return, very motivating for us to be engaged in this. So I just -- if you find some time, watch some of this. It will be broadcasted on TV, too. And there is also something on YouTube called Racing on the Edge Episode 3, it's a similar format to the 1 some of you might have seen on Formula 1 with Formula 1 drivers, it's a similar series about this year on Netflix -- on YouTube, sorry. YouTube. Okay. With that, I would like to move to slide 3 and to get into the numbers. we stepped into the year with a little bit of a slow start. And then in Q3, we saw some sort of V plus-shaped recovery. And maybe the surprising element of what happened was that it didn't only recover to pre-pandemic level, but we saw business activity above previous record, which were in 2019. So if you start with the top line half year, 11% up with almost after no growth in Q1 only towards the end, on the EBIT, EUR 201 million year-to-date, underlying, if I take the Rockfon settlement that happened in Q2 2019, thus, 37% above 2019. And of course, it's 46% above 2020 there. 2020 Q2 was the worst most affected corona quarter, so to say. EBIT margin, up. and again, the 2020 reference is not so relevant. If I take the Rockfon settlement up, it's more than 10 percentage points higher than in 2019, and that was a very good quarter Moving into the quarter. You see those growth numbers there, 35% growth, new high quarter for us, good margin, flattish like-for-like versus 2019, 4 percentage points up versus 2020 in Q2. Also I'm on Slide 4 now. But taking the Rockfon's U.S. settlement out, we are more than 1 percentage point up on the EBIT margin. On the top line, what happened in that quarter was that we were quite helped by the Systems division that grew. All the businesses grew, but especially Grodan had a bit of an exceptional quarter. They -- we saw that competing growth substrate like peat and cocoa had difficulties being shipped from Asia, and that led to a substitution effect. And we also saw after some of the harbor challenges that have been, for example, Los Angeles harbor that in the medical cannabis market that the distributors really wanted to restock to add a bit more buffer, and that led to an exceptionally good quarter for Grodan. And when you come to EBIT, that EBIT is maybe surprisingly good because what happened after -- in Q1, we had almost no inflation. We had energy prices that were stable. Our material input costs were stable. Logistics costs on a steady level. And then in Q2, we saw this burst of inflation. And you may recall that we brought about a moderate pricing strategy with the raw material pressures that we experienced there, we got a gap between price and inflation, but due to cost reductions in the factories, some mix element and then fixed cost productivities, the profitability came in quite nicely. Move on to Slide 5. Good growth. If you go down to the bottom right, the diagram there, we see that on Insulation, and again, I go back to 2019 momentum, I give you a column of EUR 1 billion -- about EUR1 billion in -- for the half year in 2019. The Insulation business is up 5%. And I'm quite happy with that because at this stage, we did not -- we only open up the [ van ] factory at the end of the quarter, and we had a pretty good 2019 on Insulation. And then on the System division, the comparable number in 2017 was [ 317 ] turnover, and we grew 21% above that. And there, you have the Grodan effect but also Rockfon, Rockpanel, all the businesses really had a good quarter and all that when we get into a ramp-up stage in that regard because we are running with a certain number of ships in Q1. We didn't build up that much seasonal stock this year and with the very drastic ramp-up in demand in Q2, we had to ramp up bringing more ships, go higher up on the capacity utilization, it takes a few weeks and months to do that, and we always put priority to System division. They get their product. So very pleased with the System division, but also very pleased with the Insulation step up because it was not low comparable. Move on to slide 6. There in Q2 specifically, you saw roughly 7% growth over -- so the 30% versus 2020 in Insulation is of course, good. But you must remember that, that was a very low quarter, it's about just short of 7% growth for the Insulation division. And the Systems, also compared to 2019, is up 30%, very good, but really good quarter from Grodan, Rockpanel, Rockfon. But all the businesses in the System division have both good and double-digit growth was nice. Going into the regional development on Slide 7. To sum it up, I would say, in Q2, you see the normal a little bit slowness not negative, but we see a bit of slowness in Sweden and Norway due to the vacation season and tradition in the building sector to slow down a bit. So there you have single-digit numbers and not so much growth due to the June, July slowdown in building activity and vacations, but fundamentally all markets in Western Europe, Eastern Europe, Russia, really solid growth. And in North America, everything double digits everywhere and with a particular boom in the U.S. where the residential segment is reaching some sort of all-time high. I think it's really, really growing. Generally, across the businesses, we see the residential segment grow very well. And then as we discussed at the previous call, office buildings and that type of activities, we don't see much growth. Although we've seen now, for example, in France and Germany that, that's starting to grow again after a long period of low activity. And then, of course, things like logistics centers, the Amazon style type of constructions, they are growing very fast, also electrical car factories, anything logistics, big box doing really well. From a segment perspective, in Q2 with such a high demand for stone wool, so I guess all insulation materials and with some constraints still on some of the stone products. A lot came over to stone wool, we took it certain, and we've seen that increasingly as our competitors in stone wool are leaving the lowest margin segment, which is flat roof segment, and we learned 2007, 2008 that, that's not a good idea. So we have -- we are not dropping that from the mix. We see it as our responsibility to make sure the flat roof suppliers get stone wool, we don't want that market [ to fall. ] And therefore, we see quite a big increase on the flat roof and that impacted a little bit Insulation mix, but that's something we want to do and we want to maintain that. We do not see long-term benefits with -- but there is [ no ] stone wool for flat roof before that [indiscernible] after a boom last time in 2007 and 2008, we learnt from it. So we continue with that, a mix slightly skewed towards flat roof on the heavy densities. Profitability. If you move to Slide 8, all good, I would say, going back to Q2 2019, that settlement in North America, that was in the System division in the sealing business, the Rockfon business, that comparable the 20.7% is not quite fair. So there really is an improvement in the System division on margins. There are a couple of factors. So that 1 factor is that they haven't seen the full inflation yet of the raw material increases because we have system is slowed down, we start to adjust their transfer prices. But then generally, the mix and the pricing and the cost position of the business, all of those -- all of that work we have done over the last year has paid off. So all the businesses have improved the margin. Grodan has a bit of a especially good quarter. They have good margin in that business and that helps to kind of improve the System division margin. On the Insulation business, good 14.3% EBIT margin. We are happy with that, especially as the mix is a little bit skewed towards a bit more flat roof than we normally do, because on flat roof, of course, we opt on GBI.

Jens, just a clarification. You are commenting on slide 9 with the 2 installation system. This is Slide 8, where you have EBITDA and EBIT on the graph just so that...

Sorry. Sorry. Okay, but let's move -- I'm on Slide 9. So we comment on Slide 9. So I think generally, the EBIT improvement on System division is very pleasing, and I'm happy also with the margin on Insulation because the -- with the bigger raw material increase that we have seen that most of it has impacted Insulation business. And in spite of that, thanks to factory improvements, productivity, fixed cost over absorption, some of the personnel reductions we did last year that then adds up to this good margins. We go to the investment activities on slide -- on Page 10. Here, nothing particular has happened. we've basically progressed a little bit lower compared to last year, and that's -- there's a different pace on the North American factory where they have quite heavy investment last year. We did do an acquisition in Japan, the small company north of Tokyo, a small-sized factory and quite a favorable acquisition price, but I should also say that it's not going to be accretive. It's going to take until early next year before we are up and producing a ROCKWOOL product with our quality standards. So we're going to upgrade the factory. And we have started that, and we have people coming on the ground now to start to plan that for now. But this was an opportunity that come up. And we have been active in Japan for quite some years. Importing materials of the brand is not entirely unknown, but it's nice for us to get a small factory on the ground and start to develop that market. But as you know, it's not a small economy. So let's see how that develops. But don't expect an impact that is quick. It takes time in Japan, and we want to do a couple of things on that factory before we really start selling. It should also be said that the governmental subsidies in Japan for this region are high. So it's not going to be a capital-intensive -- capital-intensive upgrade that you will notice in the numbers. It's a very favorable support to upgrading that factory. We will do that. And then the -- we have kicked off the building -- the construction of the new line in France. Obviously, no shovels in the ground yet, but that work has started off. And then the investment in more Rockfon capacity in Poland is ongoing, and target is that we should start that line up end of first quarter 2022. Slide 11, cash flow. Nothing much to say, but that we have a positive effect. Inventory is low. There's a positive effect on cash, but we would have liked to have a bit more inventory if we could, but on the other hand, thanks to very good demand, we sold it all. So that's one. And then on -- due to the ramp up quite high level of trade receivables to this slight increase here from below 10% to above 11%. That's primarily due to the trade receivables. And then the net debt is still negative. So that's good. We did -- Slide 12. We did now discontinue the sustainability calls because we've had to cover a good set of topics. And for that reason, we added it in the half year release, we won't do it in every release. But in the half year, now and then when we do the annual release, where the sustainability reporting will include some slides. And then if something in particular comes up, we might add in an another call. But half yearly pace for this now, so just to give you an update on our SGG aligned sustainability goals. So here, we don't have the science-based targets in. Remember, we had an old goal on CO2 per tonne produced, the CO2 efficiency goal that we set back in 2015/'16. In addition to this, we have the science-based target call that is an absolute reduction goal that we also progressing, and we will report more on that when we issue the sustainability report early next year. But if we just go through the progress of these goals, we start with the CO2 emissions. We are ahead of the plan. The biggest moves here were Norway and also the biogas in Denmark. And that's progressing, and we're going to keep growing that in. But we are ahead of [indiscernible] landfill waste Obviously, a lot of that landfill waste, we want to put into it, it's our own material, put it in and make product out of it. That's also ahead of plan, and we are rolling out the circularity scheme so that we can take external waste material back the recycling scheme, the ROCKCYCLE. So that's ahead of plan. That's good. Reclaimed waste linked to the landfill waste, but also going good water consumption ahead. Water consumption, but that's ahead of the goal is -- needs determination because where we produce water, it's so cheap that you spend money and you spend them and you are saving something that really doesn't cost anything. And the way water is priced that we don't pay more for water in the summer when it's running out to tell you to not use it for the lawn. And that's the way it's priced today with municipal water, but maybe someone should think about that. But then we are doing the work, and good that progresses because we do use water and also being more circular in water is something we do on rainwater. So we are investing in that, and it's not a great payback. Energy efficiency of our buildings, you want to say, okay, how can you be behind on that? We are behind because during Corona, it was difficult to get this with a boom in building activity and not having people in our own offices. But the programs are identified, we have set money aside for it, and we do this in maybe a slightly different way to how you do it. I want the management team of the operational entity to be really, really involved in the project so that we learn how to renovate our own products. So they are fantastically fun projects, but there's also a lot of work to do it because it's not just handing it over to a market and have it done, the whole team needs to be involved and understand how we can apply all of our products. And the picture on the right is our office in Gladbeck. This building, now we haven't included a before picture, but that building was a really, really awful concrete structure. It would probably win the prize as one of the ugliest buildings in the group. And what we have done here is that we have renovated it all with our own products. We have used Rockpanel, ventilated facade, [indiscernible]. And on the top floor we have added there, you see we have increased the number of workplaces. We have done a RockZero floor on top because the building was so strong that we could add 1 floor by doing RockZero walls. And we actually aimed for German sustainable building council, DGNB silver certification. But when the building was done, we actually got the gold, and that's quite hard to get through the renovation, and we have had many, many politicians and municipal people visited it because with a new 'Fit for 55' new directives or the ambition there with the higher -- the increased focus on energy renovation first and to not tear buildings down, this project has gotten a lot of attention and the project run really smoothly, and the retrospective cost was a lot less than tearing this down, making a new building. So very proud of that. I -- just to give you an example, in Denmark, I think there's only 1 project last year that got this gold in the whole of Denmark. And that was a new build project. So I'm happy with that. So nice progress. And when we look at that energy efficiency of own footprints, so to say, our buildings, we will progress with that. But we need to complete more projects and there's quite a lot of work. We will get better as we [indiscernible] on there. Slide 13. Really, really important slide. It's worth a full hour just to discuss this. But what you see now is that in the years ambition to be carbon-neutral or net-zero, that is a net-zero position by 2050 across the EU, they have put together a program called 'Fit for 55' where they address energy efficiency. It's a directive for that emission trading system and the CO2 profiles, energy taxation directive. And there is also a climate action and social facility package, but there are a whole slate of things. And they all point towards energy efficiency first, increasing the renovation rate of public building, widening the definition of scope of public buildings, raising the efficiency targets per country per year from 0.8% to 1.5%, and increasing the cost of CO2 quotas reducing in the [ 3 ] quarters. So everything, basically speaking, for more work in our area. And I can say with the new IPCC report, all of that work needs to be done. Otherwise, there's no chance to stop the trend. And I would say even if half of it happen, we're going to see a lot of, and there is a lot of money for it. So there's a lot of positive things in that. If you look at the national recovery and resilience spending plan, EU put together EUR 673 billion signed. EUR 36 billion of that is already assigned to energy efficiency renovation in 2021 to 2026. So there are a lot of schemes and initiatives and regulation and directors coming here. They are not decided on yet all of this, but they will come. And I think there is 1 important insight when you look at all of these directives, that is only the energy taxation directive that need a unified decision, that everyone says, yes. The others need a qualified majority vote in the [ EU ]. So it's not enough that if 2 countries, we all know what countries might go against some of these, say no, it doesn't matter because if it's a qualified majority vote, they will go ahead with it. And of course, I might be watered down a bit. But the sheer size of this and the direction is good news for us. And I feel it's moving in the right direction. And this will support our business in Insulation. And we see this big money also in North America, focusing on this in addition to the very buoyant residential market. So the timing of our factory in West Virginia, I mean, we are now moving as fast as we can to ramp up production. And so far, so good, but it comes at a good time. Okay, outlook. Nothing much to say about that really top line 17%. I have put in a small Beware in my outlook. You have strong demand from many materials. So the 1 thing we need to be careful about is we need to get pallets. We need to get [ binder ], we need to get -- stone we can always get. But we need to be active on the incoming side, the materials into the factories. I don't see that threatening the top line. There might be the odd interruption somewhere between now and Christmas, maybe in a factory because of a material short stop. That could happen, but it won't impact the number. A little bit what I warn for us is that potentially in the construction market, if you have other construction materials going to a site doesn't come, and we have a heavy winter might decide to pause a project for a longer period and then wait for the material to arrive, and then we start in the new year. So I see I see a slight risk for that and haven't really experienced the situation before. So I don't know how likely it is, but I don't exclude it. And then on the EBIT margin, we did get through, although we haven't yet priced in the market, so that we fully match the inflation. We don't -- we didn't do that in Q1 with mix and productivity. In other improvements we got to good margin. I foresee that the beginning of the second half year, pricing will improve gradually. And then when we get to Q4, we're going to be in balance between inflation and price. And -- so that's the transition we are doing. We don't have the full price increase in place yet because we -- due to our pricing strategy for the year, which was not doing so much in Q1, and then the inflation came, and then we had to raise our pricing ambition. That's underway, but this all in hand is coming with some timing issues. So it's not full on track. And then on the CapEx, I would think that on the EUR 370 million, the challenge you have when you go up on full capacity, [ 5 ] shift is that some of the CapEx to get the outage to put it in can be difficult because we might rather produce. So it's a bit hard to say. But I would say we shouldn't exceed the CapEx because the machines are running so hard that it's actually hard to get [ access ] and do some of the maintenance CapEx. Okay. I think that's what I had to say about the slides. With that, I would like to hand over for questions.

[Operator Instructions] Our first question comes from the line of Yves Bromehead from Exane BNP Paribas.

Good luck for the exciting boat race this afternoon. Three questions, if I could. Number 1 is on the price cost. Can you maybe help us to understand what are your expectations regarding the cost inflation in H2 and what magnitude of price hike you've introduced in the summer? That would be helpful. My second question is on the shortages that you're mentioning. Can you just give a bit more specific? Are there any countries where you anticipate higher risk than other countries? And also have you included the risk of those guidance -- of those shortages in your top line and margin guidance? And my final question is looking more medium term, you seem to be excited by the renovation wave and the stimulus with what that can bring as a tailwind for the insulation industry, I think it's quite clear. The money seems to be here. But on the ground, can the craftsman actually increase the amount of jobs that they can do from current levels? Or are they just running completely flat out, and it all depends on the hiring potential, which also looks quite difficult given where unemployment rate is today, which is quite low already. So what's your view on that? Is it feasible or not?

Yes. So I'll do 2 and 3 and then Kim will do 1. So I'll start with the short to this. And what I put into my forecast, I have not put into the forecast that we would have an early closure of projects because of shortages of other building materials on the site. Some of it is in. We see some of it today. But I haven't put in my forecast a broad-based Germany decides to shut down 1st of December, all the projects and go home for a month, I haven't put that in. But normal ups and down. We have a little bit of risk up and down, that's normal. So it needs to be something quite big. I just want to flag it. And those short -- and then shortages on the incoming materials side, I think more or less, we are able to manage that across all countries. We run it weekly, every material green, red, yellow. We are very used to doing that, and we find a solution. And sometimes if you have a particular, let's assume you have customers saying I want a certain type of pallet, and we don't have the pallet and after we can just produce another product they use -- we can work around it, working a bit with the mix and the portfolio. So I don't see that be a big thing. But when -- that then leads into your third question, I think that's a very good question you asked there. And it's very hard to find data on that. I think the car industry is booming. It's a bit slower to get people blue collars in, the factory workers, but that's still a manageable amount. We got them in. And by the way, I should have commented that I'm missing the safety target. I missed the safety target, I should have said that. They have this target where we improve every year. What we see now when we bring people in is that with this flexibility we have, trips, falls, fingers, bringing new people in and getting used to moving shifts up and down more. We also have a little bit more challenges to not have these slips and falls and that is reflected in the safety target. So it might be that the -- the rate of 3 lost time accident is a very ambitious level with this flexibility we have. But just as a comment on that goal, and that's 1 of the reasons we missed it. But I think exactly what you say evidently, the construction industry is able to install these levels of -- is able to build and do what we are now. Will the installers and builders, will they able to create additional ones to have the whole industry drive -- grow more? And what happens if it moves away with a focus on also now embedded carbon with 75% of the carbon in the building system embedded in the material when you build it, the EU will probably -- many countries will probably steer energy efficiency to renovating and try to get it away from new build, and then the efficiency might be reduced, even though there are not clear numbers on that, but that most of us believe. And then you sit dependent on construction workers. And there, it's very hard for me to foresee whether countries would be capable of getting more construction workers. I'm cautious about that. I worried about that for years. And I think that's going to be a constraint. We're going to run a hit at some stage. And I can't say how much more we can grow. I mean, the construction market can grow before it hits that constraint. Are we already there? Or is there another 10%? Or are there ways of adding more people to the industry? We will have to see how that goes. Over to you, Kim, on price and costs.

Yes. Thank you very much. Even I think it's fair to say that the pricing impact in the first half has not been anything to speak of. We also didn't mention this as 1 of our, you can say, drivers for profitability in the first half. But clearly, in the second half, with the price adjustments we have made in the market, we do expect, as Jens said, a growing impact from pricing leading into, hopefully, an expected balance between impact of -- from sales price and cost inflation of input material in the fourth quarter. We are still talking single-digit price increases in aggregate. So it is something that is not outrageously in the market. So I think that -- so my expectation is that you will hopefully see an improved slightly improved insulation market in leading into at least in Q4.

Our next question comes from the line of Brijesh Siya of HSBC.

Congratulations on a good set of numbers. And I have 2 questions, if I may. The first 1 is on the capacity constraints you talked about in the press release, having many countries at full capacity. So could you please talk us a little more about what are those countries' capacity constraints? And in that regard, if you can give us what's the current utilization at the group level? Obviously, that will be slightly lower in the U.S.

Okay. So I don't give the utilization level, sorry, we never do that. But I can just say 1 thing. We have free capacity, we can grow next year. What I'm more worried about is labor capacity on the construction side, I will be able to grow next year substantially. But we need to start the year with building seasonal start. We can't have a quarter where we're running on 3 shifts and things like that. We need to run at a higher level, but we have more capacity. And we started up a machine in Norberg. We have [ spin ] shifts to put on and run the whole year in freeze less capacity, and we have the Ranson line coming up. So we can grow. But the growth worry I have for next year would be if the labor is not there to install and keep the construction market growing.

Yes. And, Jens, the constraint that we talk about in our report is sort of the general constraint in the construction market because there are other materials, of course, that are -- that the construction market is depending upon, and thereby, we also become sort of constrained and that is if you have a shortage of wood, for instance.

Understood. Okay. So when you say substantial, would it be fair to assume that as you see right now, it's looking like at least that 10% growth is possible next year?

I cannot say what the market is. I'm not forecasting, but we -- I'm not forecasting for next year, 10% growth. We will come with the forecast later. But what I want to say is if the market grows 10%, I can deliver 10% growth. But I'm not making a forecast for next year, but it's not going to be my capacity preventing me from delivering the market next year.

Understood. And now coming to the guidance on the 17% like-for-like sales growth or local currency growth, how much of that you think is driven by this market share shift both in Insulation and in the Grodan business. Any kind of ballpark you think is kind of driving that interest all our underlying market improvement?

Yes. Come again on that question. I didn't quite get it.

Sure. So this 17% light local currency growth for 2021. In that, how much do you think is being driven by markets that shift from plastic foam as well as Grodan market share you got it in Q2. So I mean any -- is that a quarter that you think is coming from those 2 shifts and rest of all underlying market improvement?

I don't have a percentage for it. But when I look at the organic growth numbers, I think that the a bit comes from that side and that glass wool and stone wool benefits a bit from that. But the percentage number, I can't say. And then our experience with Grodan, I don't expect all cocoa and peat substitution to go back because what we found before is that the farmer, some would go back because they are cheaper products. But when you look at the total productivity output in relation to the cost, our substrate is better. That's what we are. You would expect that from me. But -- so we tend to see that when quite a few farmers that go from cocoa peat try our material, also seen that many of them will stay. So I think you have some of that element, but it's a permanent substitution, but not all. But it's very hard to judge how much that will be that will remain. And the same -- at the same time, the substitution, we do benefit from the substitution from EPS with the high pricing, they have increased prices quite high and shorter. So we have benefited. But to get numbers on that versus the total market size in the middle of the year, it's very hard, very hard. I can say 1 thing, though, that the -- some of our growth we have had, some of it is that they are growing well in flat roof because we have competition that decide, okay, flat roof is too low margin, we've gone (inaudible), so we go on some other heavy segment. And we don't go so hard on the flat roof. So there, we have had to step in and take more, so to say, an unfavorable mix to prevent segments from that can substitute it into plastic foam. So you have a little bit of effect, both ways, I would say that where we have an internal substitution with others on our supply. Okay?

Can I ask 1 more question on capacity? You announced this transplant, which is obviously a large sized electrical melter, which is probably first 1 for you. But we haven't got the kind of investment you are doing. Is there any government subsidy involved in that? So if you can give a little more details on it? And how you see the success about I think a large electric melter in place by 2024? And how does that kind of evolve your platform?

Before you answer Jen, just jumping in here, analysts, please respect that we have 2 questions only. We have quite a long queue list today. I will let this 1 go, but next, please stick to 2 questions only. Thank you.

So the large-scale melter, I was up in Norway yesterday and the day before, and I looked at our melter. It runs really well. I think we understand the parameters, fantastic here. So this step to do the French one, I'd say the big step was to make the 1 in Norway, this step here with design parameters. We know [indiscernible] quite well [indiscernible]. So I see that with no risk I could be wrong, but that's what I see. And we are producing really well up in Norway, and that's gone well. So that's on the melter. And then normally, in these times, when you do that, when you put electrical melter in, you get some subsidy, but every year, we normally don't talk about how much, but in our project, we might have EUR 5 million to EUR 10 million, [ EUR 15 million ] subsidy. The Norway case was exceptional that we get EUR 10 million. So it's not the size of where we go with the melter. It doesn't impact the calculation that much. But of course, we appreciate it, and we go after it, but we don't declare how much that is. And we don't give the CapEx value per plant. And the reason we don't do that, I'm just going to give you some parameters that are good to know that if you make, for example, the stone wool plant and you go heavy density, the whole cold end of such a plant can be small. It's easy to pack, a heavy density product. If you go build a plant that is designed for residential and light densities, the downstream end of the plant looks entirely different with much, much more equipment. And therefore, we are -- we have come to the conclusion that we should not reveal how much we invest CapEx in each plant, but you would see the total numbers. And you will see how much are capacity investments, what is sustainability investments and what are maintenance.

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

So 2 questions from my side. Firstly, on pricing in Systems. So you said as a general remark that there's very little impact from pricing in the first half. Does that cover Systems as well? Or have you actually managed to get through pricing?

There, you have slightly different because they haven't seen much inflation. We do price increases, but the inflation really took off -- inflation might be the wrong word. Raw material cost increase and logistic increases. So the Systems division has benefited more from the moderate price increases that we already had in full swing because they made those and they didn't have so much material cost increases. And -- but -- so they should be basically balanced the whole year inflation versus price.

Understood. And then, I mean, second question along the same lines here on this trend of pricing. So correct me if I'm wrong, but as I understand it, systems is buying the stone from installation at, you can say, prices, which doesn't reflect the increase you have seen in raw materials. How much that boosts earnings in Systems?

I hand that 1 over soon to Kim. But these are things we adjust, but we don't adjust in the system in the ERP system every month. We like to keep it steady. So we prefer to have comparable numbers for a little bit longer, and still we need to do it from a tax perspective and all the right -- in the right way. So it means that we prefer to let volatility move out of it. but to have the direction right. And of course, you should be right over time. It's just that when things happen so swiftly, what we worry when we see that type of inflation, it's not that we put the controllers on doing -- cancel pricing changes internally. We put the salespeople on getting the prices in the market to compensate. So Kim can put some more accurate words on that. But Kim?

Yes, it is correct, Kristian, we normally try to keep enterprises stable. System division also, you can say, buy some of their own raw materials like steel, [fleece,] et cetera. So they have a direct say, impact there on market prices. We have decided this year because of the cost increases to do a midyear price adjustment on our transfer prices between Insulation and System. The impact in the first half has been very small in overall scheme of things, less than a percentage point impact on installation margin.

So we should expect all things equal sort of 1 percentage point lower margin in Systems in the same.

Less than a percentage point.

Our next question comes from the line of [indiscernible] of from On Field Research.

I would have 2 questions. One question on Grodan. Do you see the strong trends continuing in July and August? And also Grodan is very strong first quarter usually. And the question is that is the market share gain that you get in Q2 sustainable? Or do you see you could give it back later this year if the shipping situation out of Asia is normalizing? And then a second question is just on the energy efficiency of buildings. You're saying that you are late on improving your building. Do you see that happening with your clients as well? Do you see a good backlog because a lot of your clients could were not able to improve their buildings because of the COVID restriction?

Yes. Good question. So I don't comment on Grodan, but I think Q2 was a lot of growth and also versus 2019 and also those 3 factors I mentioned, or 2 factors, but 2 different other substrates. And so that -- and the stock [indiscernible], and that's 1 exception. But the underlying sustainable food production, increased productivity, vegetable growing and medical cannabis is all growing. And I see that will continue. But what happened in Q2 was a bit exceptional. But I don't see that Grodan will not continue to grow, and we keep investing in capacity. They are a bit below the radar investments, but we do it all the time and we improve investments, more slabs, more blocks because it just keeps growing. And we have seen this growth now for, what is it, 5 years. And then you have a regulatory impact in the U.S. for a while when they regulate them and legalize more, that actually slow the market down because it became a bit confused how these new growers would act. So I think Grodan will continue, but then not quite the same pace, but it's a positive outlook. Then on the renovation slowdown. I think generally, renovation from the nature of that, you see Italy, they really boosted it. You see it picking up. But in a heated construction market on residential, it is a challenge. But it's hard to say what do you compare with because it's not like we had it planned down to the quarter when we would do it. It's a conceptual phase, we do it, and we are doing enough projects to meet our goal 2030, and we know we are on track for that. And then the midyear point, we are a little bit behind the straight curve. But I think generally, renovations are that way that take a bit longer time and the conceptual stage is harder. And in a labor-constrained construction market, it's even harder to do it because you need a certain quality to the work you do, it's actually easier to do a new bid. So I think you could have seen more renovation if it wasn't COVID and all the rest, but there's still a good level. So we are happy.

Is it fair to say that you've got a good backlog when you're looking at your project business?

We don't really have much of a backlog. We don't like to have a backlog. We like to -- we have some frame agreements and then there are some customers, Skanska, Amazon, others that 1 we did directly we quote, we win an order, Tesla, a huge project for us, and then you have the backlog. But it's still a relatively small segment of our. The normal business we have is you bid for project to win it, plus the project segment, and the vast, vast majority of businesses, the other business, just bread and butter day to day to day, no backlog.

Our next question comes from the line of Claus Almer of Nordea.