Rockwool A/S (ROCKB) Earnings Call Transcript

Ladies and gentlemen, welcome to the ROCKWOOL's Report of the First Half Year 2022. Today, I'm pleased to present CEO, Jens Birgersson; CFO, Kim Junge Andersen; and IR, Thomas Harder. [Operator Instructions]. As a reminder, this conference call is being recorded. I will now turn the presentation over to your host. Please begin.

This conference call regarding the results for the first half year of 2022. My name is Thomas Harder, I'm Director of Group Treasury and Investor Relations of ROCKWOOL A/S. 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 2022. 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 some uncertain...

Thank you, Thomas. Hello, everyone. It's Jens here. So I assume you to see Slide 3 in front of you. So before we start with the numbers on the quarter -- on the half year, to go through an update on our sustainability goals and the progress we do there. Starting in the top, generally, I would say we are progressing quite well. We are implementing the projects and moving forward with our technology development. So starting on the emissions intensity of the CO2 emission per ton produced stone wool. We have obviously a science-based target in absolute values, but we have this metric back from 2016 where we measure per ton produced. We had a goal for 2022 or reducing this to 10%. And we reached a 16% reduction across the board and the group already last year of satisfactory progress. The next goal in the top row, reclaimed material and our goal was to reduce the it by -- this is ROCKCYCLE offering countries that we offer to take back old products. There are many more countries to take back nonverbal material, but it is a matter of taking back and having a comprehensive, especially taking back our own product and put it back into production. We have the goal of achieving 15 countries by the end of this year, we just launched the Romania, Finland. We are now -- We have launched and we announced 17 countries already in 2021. So we are ahead of that goal also. On the right, this is the energy efficiency of our own offices measured in kilowatt hour per square meter. And here, we wanted to drop in by 75% by 2030 and 35% by 2022. And we have just completed a higher [indiscernible] in France. We are 19% before year-end, the net -- reduce the run rate on 35%. I would say these projects go well, they progress well, but we lost a little bit of pace during corona, My crew came up and still going at the meeting of goal that can be marginally -- it's a little bit -- we want to see it a little bit ahead of it, but it's progressing well. I'm very pleasing with the billing renovations we do despite impact and more. So that's good, but it looks like it's a bit of a gap so far. But I'm not too worried about it because we kind of developed the model for us to develop also renovate our offices. So that's good. And we are dominant in a very evolving approach. We actually use our own management team to do quite a bit of the conceptual plan. Water consumption, serving fresh water. We get water very cheaply, I mean for free almost everywhere, but we now said that with so many areas of the work running dry on drinking water, freshwater, we have an obligation to do that. We had a goal of 10% reduction by 2022, and we achieved 50% already in 2021. And we have -- overall goal is 20% by 2030. So we are progressing well on that and trying to do it in a way that it doesn't cost too much. Some of these projects are close to circuits and the factor is one that actually quite expensive to make. But once you've done it, you bet you had better cost systems, so that's good. And also it is also a housekeeping to make sure it's not [indiscernible] generally careful with this at. Landfill waste, goal by 2030, reducing by 85%, and 40% by 2022, we hit 50%, 51% last year, so that's excellent. Safety, health and wellbeing. This is long [indiscernible] plan in frequency ratio. So that's number of days per million of man hours. We have quite a challenging year last year where we started off after corona and started to ramp up. We have some ideas why that happened. It wasn't very bad. It's just sort of didn't improve. This year has started well, and we see good improvements and we hope to hang on to that. And should we say on that safety LTI ratio of 2.2, 3.5 that we have now, it's quite tough to get down, but we are working on this and as progressive as long as we don't have a serious incident and [indiscernible] a little bit better, but more work needed for this on a good level. Thank you, Thomas. Hello, everyone. It's Jens here. So I assume you see Slide 3 in front of you. So before we start with the numbers on the quarter on the half year, go through an update on our sustainability goals and the progress we do there. Starting in the top, generally, I would say we are progressing quite well. We are implementing the projects and moving forward with our technology development. So starting on the emissions intensity of the CO2 emission per ton produced Stone wool. We have obviously a science-based target in absolute values, but we have this metric back from 2016 where we measure per ton produced. We had a goal for 2022 or reducing this to 10%. And we reached a 16% reduction across the board and the group already last year of satisfactory progress. The next goal in the top row, we can material and our goal was to reduce the [indiscernible] There's this rock cycle offering countries that we offer to take back both products. There are many more countries to take back nonverbal but is metal taking back and having a comprehensive peso taking back our own product and put it back into production. We have the goal of achieving 15 countries by the end of this year, we just launched the Romanian Finland. We are now we have launched and we announced 17 countries already in 2021. So we are ahead of that goal also. On the right, this is the energy efficiency of our own offices measured in kilowatt hour per square meter. And here, we wanted to drop in by 30% and 35% for 2022. And we have just completed a higher in France. We are 19% before year-end, the net -- reduce the run rate on 35%. I would say these projects go well, they progress well, but we lost a little bit of pace during corona, My crue came that we build on the meeting that can marketality might be a little bit ahead of it, but it's progressing well. I'm very pleasing the billing renovations we do the side impact and more. So that's good, but it looks like it's a bit of a gap so far. But I'm not too worried about it because we kind of developed the model for us to develop also renovate our offices. So that's good. And we are dominant in a very evolving approach. We actually use our own management to do quite a bit of the conceptual plan. Water consumption serving fresh water. We get water very cheaply, I mean for free almost everywhere, but we now said that with so many areas of the work running dry on drinking water, freshwater. We have an obligation to do that. We had a goal of 10% reduction by 2022, and we achieved 50% already in 2021. And we have our oral is the for 2030. We are progressing well on that, trying to do it in a way that it doesn't cost too much. Some of these projects are close to circuits and the factor is one that actually quite expensive to make. But once you've done it, you bet you had better cost systems that group. And also it is also a housekeeping to make sure it's not can be generally careful with this at. Landfill rate go to 2030, reducing by 85%, and 40% for 2022, we had 50% to 51% last year was reset. Phase 3, we have some welding. This is last time incident frequency ratio of number of days per million man hours. We have quite a challenges year -- last year where we started off of the corona and started to ramp up. We have some ideas why that happened. It wasn't very bad. It's just sort of didn't improve. This year has started well, and we see good improvements and we hope to hang on to that. And should we say on that safety -- to that ratio of 2.2, 3.5 that we have now, it's quite tough to get down, but we are working on this and as progressive as long as we don't have a serious incident and travel fees a little bit better, but more work methanes on a good level. I move to [indiscernible] so Slide 4, H1, first 6 months and top line just below EUR 2 billion -- or EUR 60 million below EUR 2 billion growth in local currencies 31%. And that's the -- majority of that is price, but it's also quite good volume growth in the first 6 months. It's double-digit volume growth, but the majority of the growth is price due to this cost inflation. The EBIT margin reached 12% for the 6 months, and I'll come back to that again when we get to the Q2 results. Free cash flow negative, mainly due to net working capital. With this growth, trade receivables go up, but also the inventory valuation go up. So we see that in a couple of percentage points higher net working capital, financial effect on the durable loss impact that. Yes. And then we also have the non-realized losses on the fact that we have -- we were imposed to have rubles for Russia in a loan structure and around March, not also possible to have anywhere. So we have the corresponding amount at the time in Europe because we put them -- because [indiscernible] anymore, we couldn't have rubles anymore, and that is also quite substantial impact, although it is actually not a real cash impact, but it's the quarter of such. Move to Slide 5, future highlights. EUR 1 billion top line in the quarter, a very big quarter for us, obviously, with the top line, 26% growth in local currencies. And in Q2, we saw a change in the market, and it's the very, very modest volume growth and vast majority of that 26% is price. We are seeing this happen that we had quite a strong start of the new year, and then we have seen the realities of the high energy prices, interest rate, the war in Ukraine, what's happening in the U.S., we start to see that impact volumes. We then move on to EBIT margin. We did raise prices according to our plan. We had quite weak -- weaker EBIT margin in Q1. And here, in Q2, the price increases were [indiscernible] under inflationary pressures [indiscernible] energy increases, which meant that we managed to claw back some of the margins. But compared to Q1, we improved the margin of 1.9 percentage points. We kind of have less dilution. So this compensated price more than inflationary pressures we have in Q2. So we were pleased with that, and I will come back to the whole inflation or energy cost outlook on the pricing in a bit. If you then look at sales going down, Slide 6, again, about the majority is price, say 2/3 price, 1/3 volume in H1. And here you see, in the information business, we saw strong business across the board. But you can see in the second quarter, some markets that slowed down or stopped because of too much inventory or changes in the market. But if you sum up the 6 months, its strong almost everywhere in the insulation business. Since [indiscernible] going to 6 months. Here, you see a business like Rockpanel where it's building relation having tremendously strong development. We also see how our vegetable business is doing good, but growth on -- beside North America, there is big comparable last year and quite a big downturn of that business where there's not much going on at the moment, and that has a big impact. [indiscernible] to cars, it was growing. We're seeing some constraints on that business. So that's down. But basically, you see the several of those businesses outside building that happened on for great. Rockfon has flattish development in Europe and had a negative development in the U.S. So that's the picture. So not to get the top line. If you then go into Q2, so on Slide 7, here, the volume growth [indiscernible], the price element of the top line is almost all of it. And you'll see in particular systems that have a negative development in several businesses, although some of the business performed really well. Overall, again, insulation doing well, majority of the top line is price. We move on to Slide 8. Western Europe generally strong. Germany, U.K., Italy and Norway did well, but -- which doubled digit growth almost everywhere. Eastern Europe and Russia, tremendously strong Eastern Europe. In Russia, we see -- had inflation there, too. We are running that now as we are the owners. So we are not allowed to operational control if you are a owner. We do that to make sure our IT and technology space to drop for and doesn't end up in the wrong hands. And obviously, there, you see a volume slowdown as expected, is double-digit volume slowdown, but is still a value growth due to inflation and price increases. But I would say Eastern Europe is really flying up here. Moving on to North America, Asia and others. U.S. took a tumble in Q2, still to see before the interest rate increases, we saw quite high levels of stocks among the distributors. So that went double-digit negative. And then Canada had a fantastic quarter with really high growth numbers. So that kind of evened out. Asia, double-digit growth, very low development and China still negative. And our view on the U.S., we need to see another couple of quarters, we have had these stop and go quarters before. But the thing is quite drastic increases in interest rates and also some of the inflationary pressures of cash of residential new built win really getting impacted in the U.S. And on to Slide 9. And this -- I took the rest of backdrop to our change in guidance. Basically, we have a price plan somewhere towards the end of June -- this has a stabilized a bit, and we went out with our price increases for Q3 and Q4. We have done most of Q3 already communicated, but we upped the targets a bit and then we launched our Q4 increases. So that was put into play and it seems to be progressing well, both price increases like it was before. But then towards the end of June, especially into July, we've done for natural gas basically increased to an off fund and the electricity almost targeted. And that had a massive impact on our cost base. And when I look at that, I then concluded a [indiscernible] to we do now because we still have lead times and pricing, it basically run 1.5 quarters, 2 quarters ahead, we want to communicate, we can change some prices for short-term notes, but they haven't listened to them. And that rate increased in previous years, but it's not a commodity. We don't try to price a few months out with 6 weeks [indiscernible] prices. So I came to the conclusion that we have development start to see no gas and electrical prices all over the place, I felt that now that there's quite substantial increases we have in the market, we -- because I don't really have a base for where this is going, must it works, must get better, must stay on this level. I came to the conclusion that I cannot start to shift the prices again. And therefore, we -- more or less stick to still have some price increases to get in progress. But on the overall, the notice too small to compensate another EUR 100 million to 150 million of inflationary or any of the cost that's came in. So therefore, the adjusted EBIT margin is 10% to 12%. It should be said, for example, gas in Q4, 50% hedged. On the cost, we have coverage 3, 4 months out to go quarter-by-quarter. But it's what it is. And the balance between being experience about business and having a base-to-base pricing on and now so drastic on the part I don't feel that there's not this, but we can do so much more on price and still be credible with our customers. Then move to Slide 10. You see, I guess, the number that is interesting there is the increase of 18% in the quarter and the 25%, 26% top line always ideally, if you have a 26% top line, it would be 26% or more bottom line improvement. But the fact that we see 18% there is because we managed to increase prices more than the absolute inflationary increase. And not a good progress, still a bit to go. But even with these margins in absolute terms, a good profit in the profitable EBITDA. If we then move over to the margins, where you run half the dilution effects, I would say that last year and in future, we have an incredibly difficult comparable or high comparable due to the growth ambitions exceptional quarter. The 12.9% recovery from the 11% is quite a good one, is a good track, but [indiscernible] the conditions change very quickly as in -- I will say in July, reducing cost [indiscernible]. So compare to what the level in Q2 is not too bad. So quite satisfied with our focus. Moving on to Slide 11. We then go into the businesses. You see again, when you look at the Systems' ratio, the comparable eras an extraordinary strong quarter, maybe EUR 30 million would have been a more average comparable if you average out the quarters last year. So that's what we say a mixed effect. But very pleasing on the Insulation business, how the energy price increases and the rest have been actually passed on quite rate we have improved EBIT margin compared to a year back. And a year back, we had also quite high margins because we have -- we had a very low cost base after the corona. And now it's more volume and price of Brexit. And then on the Systems division, lower volume cost absorption effect and also mix effect, the biggest effect on the comparable. So the 20.1% a year before is abnormally high under 10% meaning to work off because of too low for that business. Moving on to Slide 12. We had postponed some things, for example, the growth online because now the demand is not as high. In North America, we have some investments in Canada. But apart from that, most of the investment that hasn't happened is because new projects are a little bit stuck in approvals. For example, the launch in France and the general low capacity utilization of the factories, but we are very high orders. So we have to choose between delivering and doing some sustainability projects and other projects. But still, in Q2 almost EUR 30 million into sustainability investments, we are progressing. It's not like we sit around the table and say less CapEx. That's not what we do, it's more a natural outcome of the business. Move on to Slide 13. The operating cash flow is not on here. It is down. And the story is basically the net working capital is up a bit, but then also this -- on the loss -- exchange rate loss is impacting on this cash flow. So that's the majority of the decline due to that noncash item impact. Moving on to guidance. Sales compared to first half year, we see lower activity. Personally, I believe that the risk of recession both in North America and Europe is high enough. The U.S. have had 2 quarters with negative GDP growth, although employment numbers were good. [indiscernible] index is declining. You see all these signs, but we are still shooting for 20%, 25% top line growth, but we expect lower business activity are going to [indiscernible] the slower deteriorating. That said, [indiscernible] or the energy efficiency initiatives, loss targets, et cetera, to meet the time of goals that is there. The [indiscernible] is behind this flow, see the decline of temporary and then you get capacity to be shipped over to energy deficiency action, and there is a lot of money put to that [indiscernible] for example, there is [ human play ] in order to EUR 11 billion, EUR 12 billion a year. Italy is still going strong and the targets, the binding targets are out and demand is there. So I think we see relatively short [indiscernible] . On the EBIT, the EUR 100 million is substantial. Obviously, your price inflationary kind of step on energy cost, electricity -- mainly electricity and gas is considerably north of 150 -- EUR 100 million in the remainder of the year, that impact our margins. And we are increasing prices compared to, say, the half of market to 10%. So at the end of the year, we do another 10% of what you pay for the average product. It continues to decline the rest of the year so plans up to another 10%, which should progress through the year. But if this level of gas and electricity prices are even less, we cannot adjust our pricing. We don't want to adjust our pricing up and down and every month with our contract of not [indiscernible]. Then we look at the investment level. It's not that we are slowing down investment except for this one row down where we hold back a bit because we have repositioned more. The rest is more natural reasons proof of challenges to secure the normal type of things. And I will say a little bit exaggerated or these challenges have increased with the supply chain challenges, people bargaining about if they can produce future gas, approval success where things just go a little bit slower. Yes, I think that's it. So with that, I hand over for questions.

[Operator Instructions] We will start with a few questions for participants. Our first question will come from Cedar Ekblom with Morgan Stanley.

Two questions from me. So obviously, we have been -- or you've been surprised by the level of energy cost inflation as we roll into the second half of the year. Is there anything that you're doing on your pricing or sourcing of energy costs? I know that some peers out there in the industry came to look to secure energy under longer-term contracts to have a little bit more visibility on that cost line. I know that that's not really been something that you guys have done in the past, but are you changing your thought process around that? And then the second is on the top line -- Sorry, go ahead, and then I'll ask the second question.

No, no, go ahead. Next question.

So on the top line guidance, you maintained that, but you are talking about incremental price increases coming through in the second half. So would it be fair to say that your outlook on volumes has actually deteriorated? And so while you've seen an increase in your pricing outcome, you're actually expecting to give that back in lower volumes? And if that's the case, can you talk about which regions you've seen the greatest change in the volume trends as we move into the second half?

Yes. I would -- okay, let's start with the first one. We have had, I don't know, 40 years, 50 years, whatever, forever, there's quite short hedging. If we hedge, we hedge a quarter when it makes sense, pre-buy -- so Coke, for example, we have a frame agreement and then we negotiated quarter-by-quarter according to some rules. So generally, they're short. And here, sometimes we've taken hedge, yes, when it's really obvious that is a good one. We haven't had any of the strategy that we try to disconnect from the market forces with power purchasing agreement or anything like that. So the spirit since the last June has been when we can find a sensible hedge. We have done it. But quite frankly, even during the spring in Q2, we benefited by not hedging because the spot market was better. So we haven't got a rebound. So I don't think we can solve this with hedging, that's not possible. So we need to take a bigger grip around that and have a look at the way we source in particular electricity and gas. And that's the homework we have to look into a different strategy on that, and we are not done with that work, but we are working on it to see how we can be get a bit less exposed from this when you have volatile plans. So that's the whole market, yes, we are looking at it. They're not on top line. Yes, we predicted actually from the beginning of the year, quite low top line growth. We have never been -- seen this year of double-digit top line growth, but no single-digit volume growth. But it's correct. We keep raising the prices, and we expect volumes to go down. But I am not saying that volumes going down only because of price. I think we see a real impact into the market due to what's going on in this recession, getting certain using materials generally have from us. The projects are canceled, postponed, and there is a lot of uncertainty in the market, and you also see lower activity. And I think we could see that progress as we move through the year.

Our next question will come from Kristian Johansen with SEB.

Yes. I have 2 questions as well. So first one, just some clarification on pricing if I understand correctly. So it sounds like you sort of reached a point where you feel you cannot continue to increase prices, is that how we should interpret this? So I mean, if inflation stays at this level, are you not going to be able to raise prices further next year?

No, I'm not saying that. I'm not saying that. I mean, compared to the beginning of the year, so Q4 to where we going to land at the end of the year, we're going to be up about 35% topline. But what I see is that within the scope where we -- we were a bit on the back foot from Q1 into Q2 because inflation happens. To be honest, in the lag with our energy policy or the way we buy any, we also a lag on this slide when it's that so. But here, what is happening is -- we have already launched our price increases. I mean, we are into Q3 now. And we had already launched the increase for Q4. And I don't feel well the increase we have launched that we cannot come back 2 weeks after that or 3 weeks after that and do another one for the same period. So that's forecast. Yes. I hope it answers your question.

No. It does. So I guess my follow-up would be so even in a market where it's increasingly likely volumes will go down. You still see possibility to continue to increase pricing when you do your pricing.

I think it would be very granular, but very granular has to be -- if the volume goes down in the market overall, and we had interest in sort of recession, and then the renovation would kick in, I don't know how many months after, but it was -- you have fairly big demand that needs to be fulfilled. I properly was fed up. My strategy would be to try to keep the margins whole and try to protect that and then take a bit of the beating on volume, because really with this cost level, you need the price level to stay up because the cost level is extremely inflative. And it's not that it's our cost in the company or things we can control, it's really these energy costs.

That's very clear. And my second question, given the margin pressure you're seeing, have you considered to take any actions on your fixed costs?

We are -- I mean, obviously, on the one hand, we need to keep expanding the business. We need more capacity. Even if there is a dip now, we need more capacity because we have been so incredibly low the last 1.5 years. So we need more capacity and we need engineers. So we need our staff. On the fixed cost, we had a very good team. In most markets, we have our arms around attrition quite well even though it's after dip. So how we look at it is, I guess, the really core thing is we keep adding excellent resources. But generally, over the company, they are more restrictive. I mean it's much more restrictive on hiring and you have attrition in the company. So that if you're working on fixed cost and things like [indiscernible] and other things they are 25% or more below the year before corona and there it has forgone to the new travel pattern. So -- yes, we're starting to manage fixed costs already and preparing so that we can have a [ clarity ] that is a little bit tougher. So we don't want to inflate that to inflation part.

Our next question will come from Brijesh Kumar Siya with HSBC.

The first one is on gas situation. You have -- when the prices have kind of, obviously, moved up since July as well, and as we look at the overall European energy prices are upwards of 20%, does that mean that gives additional risk to your 10% to 12% EBIT margin guidance for this year? And a supplementary [indiscernible] -- Yes. Sorry, carry on.

So we have shown that [indiscernible] -- sorry, I've answered that. Just repeat the question to make sure I understand.

No. See, the question is the energy prices since the end of July, on an average, has moved up 20% in August. Now considering that you are saying that you are not going to raise for the prices for Q4, which you have already communicated in end of June, so that means are we looking at a margin more like for the full year at 10% rather than the upper end of the range?

I see it like this, I'm just -- this like -- we have been reasonably good at pricing and executing them, reasonably good at running the business in difficult circumstances and also ramp up capacity. What I see is that when you have these super erratic processes where geopolitical -- geopolitics come in and can change just between 1 month to the next, one energy type, it's EUR 20 million run rate. And -- yes, we have a little bit more hedging. So therefore, increased this bound to 10% to 12% to reflect that there is -- the biggest element in what's happening now, obviously, become -- have some volume impact in this, but the big issue why we have that variance, that's because the energy prices have jumped up, factor 2, factor 1.5, factor 1, this is the variability. This is -- and therefore, I want to -- said to you that it could be 10%, it could be 11%, it could be a 12%. It depends how these energy prices move.

Okay. Understood. And my second question is slightly on the longer-term basis. And now the energy prices are in a different league altogether, including cash. And as I understand, with your SBTI based target to 2034, you were more banking on shifting your coal-based plants to gas. But with these kind of prices, it's -- certainly it's not viable now to move to gas. And with your electric melter technology still evolving, and -- are you finding a way to count -- how to move to electric or fast track or any other kind of strategy which you are kind of going to adopt to...

I mean, the main strategy, Brijesh, is to move to electricity. Yes. So the gas solution is a selective one. So to the really important question is the electrical market. Yes. And I will see the world goes kind of back to black fuels, and people ignoring -- I mean we talked about starting up coal fire plants in Germany now. For reasons I don't understand Germany, they stick on shutting down the 3 nuclear plants at the end of the year instead of sitting down and say, "Let's extend them for a year." So we're going to -- it can be very important electrical price for that strategy. On the gas I am -- I mean, I've been in gas [indiscernible] businesses before. The mining basis are around multiple at time. My experience with gas is that gas prices normally sort themselves out. They are volatile for a bit but at the end, the gas is there. But now our main strategy is not gas, our main strategy is electricity. So that's the key question. And that we need to work on. And there you have our purchasing agreement, trying to move away from market more long-term deals because what we actually know quite well where we want to do it, and we know, roughly, our demand plus/minus quite well. So this is the key strategy. I will still say we haven't [indiscernible] energy crisis in electricity for some of it is very elastic. Some of it is found in [indiscernible] said that, "Okay, we're not going to do the electrical transition. We're going to stay off coke." That's not what we are saying. We're still holding on to our strategy. But of course, we need to make a check that we can somehow if we can find a way to get out to these pipes -- but electricity prices doesn't become reasonable, I would say, the whole climate action, again, that is not working in all of Europe. So somehow that needs to be fixed.

Okay. Sorry. My question was more around whether you have the technology now to kind of retrofit your existing melters with electrical connections.

It's a little bit -- we are working on it. I hinted that we're making good progress, so I would say we have done some really good trials to that. And I want to prove it a little bit more, but I want to have several technologies. As much as I would say today. But we have a plan, but we still have some more proof points. So I keep repeating what I said [indiscernible] the last quarter. But my ambition is to find to simple solutions. Yes.

Our next question will come from Claus Almer with Nordea.

Also a few questions from my side, and we'll do them one by one. Yes, in the past, you've been really good in optimizing or timing your CapEx spend and you said you need to add new capacity given the very high utilization rate you have at the moment. But what about the maintenance and sustainability-linked CapEx, would you be more cautious on those investments in the possible recession scenario? That will be the first one.

Yes. I would probably say that if you analyze the CapEx downturn, you also see now signs for steel prices maybe easing a bit if you get a little bit more on employment. And if you look at the financial crisis, we had a decline for 18 months and then it started to grow. And then you have the fall from housing that triggered it all -- earlier kind of downturn have been shorter for us. So I would talk of this that good management will be to keep doing it so that we can keep an even a smooth run rate so maybe to get already some of them a bit cheaper.

Okay. Then the second question goes to the pricing, and I know there's been a lot of questions already about this. But one thing maybe that stands out is the expanding margin in Q2 in the Insulation business, i.e., as you also said, you are raising prices more than cost inflation. As I recall in the past, you said not to repeat the financial crisis, and I know the price increases at that time was significantly more than this year. But nevertheless, you have raised prices more than cost inflation in maybe slightly difficult starting environment. So isn't you -- isn't it dangerous journey you have started by this?

No. That's so not this. If you go into this and you raise -- let's say inflation is 10% and you've raised prices with 10%, the margins will stay the same, right? Well, we haven't managed to do that. So we have raised as a percentage prices less than the cost inflation we have seen. But due to the way the P&L is structured, our goal is, of course, if you have steady inflation, we would like to maintain our profit margin. Now we haven't managed yet, we got it 10% to 12%, that's a short stream and it's the timing. But -- so I would say we are somewhere in between. But to be honest, the percentage increase of our price is less from the percentage increase of the cost.

Okay. And then so this hedging you mentioned you have started to do. When was that? Was that in July or at the very high level in August?

Come again, Claus?

Yes, sorry. So you said at the start that...

[indiscernible] It started in June and then we used that as a basis for our Q3 and Q4 pricing, then it looked stable, it even started to decline a bit. And then it started to spike again according to that chart. So you have this tightening there and then it eased off and it looks like the assumptions would hold, and then it just runs crazy. In July, primarily end of June and July, just skyrocketed.

Our next question will come from Yuri Serov with Redburn.

Yes. I have one quick question if you branches from it, I suppose. So looking at your prices and your pricing strategy, you're trying to be kind to your customers. You're trying not to jerk their prices up too much and make their life more difficult. So the customers are supposed to pay you back somehow. So I'm thinking is [indiscernible] how will you [indiscernible] strategy. Let me just speak and give you 2 illustrations that I'm thinking about. And one possibility is that next year, let's suppose costs go down, but your customers will not push you to reduce the prices because you were good to them this year, and you will be able to get a better margin or alternatively, because you're behaving this way, you will be able to get more volume from your competitors and your volumes will perform better than the market because the customers are willing to give you more volume [indiscernible]. What do you think?

Yes. I mean, first of all, we have been able to deliver and we have shorter delivery time, so we really force to make sure we don't stop projects. And that -- we have been good to them. But obviously, when you raise prices 35% in the year, there's very few purchasing managers who say I have been good. So I don't think we have plus points in that. What we do here is -- but we've been very clear that it's well founded. We are not exploiting the situation. And this announcement we do here, which shows us, and it also -- it's not that -- the issue is that we have launched the prices for Q3 and Q4. And -- That's what we said. This is the price you're going to have and then to step back from your word and then come back again, 2, 3 weeks after so now it's this, it's just not the way we work with our customers. So I would say [indiscernible]. And then in Q1 next year, we haven't commented that first, we need to understand what is the basis for this. So probably what we try to do with our customers like, look, it's probably better for everyone that we wait and see how crazy will this get before we get into pricing for Q1.

Yes, I understand. But [indiscernible]...