Operator: Ladies and gentlemen, welcome to the Kingspan 2019 Full Year Results Conference call. My name is Felicia, and I will be coordinating your call today. [Operator Instructions]. I will now hand you over to your host, Gene Murtagh, Chief Executive Officer, to begin. Gene, please go ahead.

Gene Murtagh: Okay. Thank you very much, and good morning, everybody. Welcome to our 2019 results call. There is a good bit of detail in advance of the results itself in the presentation that we'd like to come back to in Q&A, or it's worth actually exploring yourselves in any event rather than taking up the call with it right now. So if we could move directly into the results, that's on Slide 14, which is titled 2019 In Summary.

So in essence, we had a very good year actually. Revenue was up 7% to €4.7 billion. Profit of -- trading profits just short of €500 million, and basic EPS up 11% to almost €2.05. All of the business has actually performed quite well in the year, both at an organic level. And from an acquisition perspective, there was actually very little activity apart from the Bacacier acquisition close to year-end in France.

So just by business unit, the Insulated Panels business grew at 7% worldwide, particularly strong in the Americas and most of Mainland Europe, and understandably weak in the U.K. in particular in the last quarter. In fact, the early part of the year in the U.K., as we had reported before, was quite strong in but that faltered significantly towards year-end, and that's affecting us, obviously, at the beginning of this year as well. QuadCore, which is a key part of our strategy in the Insulated Panels business, now represents 9% of global sales. And in absolute terms, it grew 36% year-over-year, which is very encouraging, and we see our pattern of growth continuing and potentially even accelerating into this year.

At a volume level incident, there's an underlying volume level, Insulated Panels grew 4% year-on-year like-for-like. The Insulation Board business revenue was up 2%. This business, in particular, would have seen significant deflationary pressure. You'll recall a couple of years ago where MDI was extraordinarily high. Well, as that came off, so too did the pricing, in particular of our PIR board business, which, if you like, curtailed the sales growth.

And at a like-for-like volume level, once again, that business, in fact, was up 8% year-on-year, which is very encouraging at an organic level. The Light & Air business really had a great year, with revenue up 12%. And that was all like-for-like organic growth. Particularly strong in North America and well improved in Western Europe, and in particular, in France. And again, we see that trend has continued into this year, where the Benelux and Southern Europe is strong and North America, again, has started the year in good shape.

Margins are improving there gradually. And our medium-term target is still to get to 10% return on sales, and we're on track, I would say, to achieve that. The Water & Energy business revenue grew 3%, so relatively steady. And our Data & Flooring business, driven particularly by the former, which is the data side, actually had a strong year with 13% revenue growth. But I'd say a lot of the activity now focused in large-scale data centers, which is also, incidentally, a significant driver of growth in the panels business and, indeed, the board business from a fireproofing insulation perspective.

So that, in essence, captures the summary of the results. And I'll now hand you over to Geoff on Page 15.

Geoff Doherty: Thanks, Gene. Just to go through some of the financial highlights on Page 15. Group revenues, €4.66 billion, up 7% year-on-year.

And I'll come to the components of that growth shortly. Group trading profit 12% ahead at €497.1 million. Group earnings per share grew by 11% to €2.046. Our final dividend of €0.335 brings -- or brought the total dividend for the year to €0.465, up 11% on the previous year. Strong free cash flow performance there.

And again, we'll go through the detail of that in a second. Free cash flow of 9% to €337 million. Net debt -- and net debt, just to be clear about it, is calculated on a pre-IFRS 16 basis, which is pre the leasing standard. So our net debt was €633 million, down €95 million on the previous year. Trading margin was up 50 basis points to 10.7%.

Our net debt to EBITDA, again, calculated pre-IFRS 16, which is consistent with our banking agreements, 1.1x compared to 1.4x the previous year. Our effective tax rate down modestly to 16.9%, and that really just reflects the relative weighting of earnings year-on-year from a geography perspective. And we continue to progress our return on capital employed, up 50 basis points to 17.3%. And just to deal with IFRS 16, which I have referenced there a couple of times, there's €122 million of capitalized leases including in -- included in payables on our balance sheet. So not classified as debt, and that's consistent with our banking definitions.

Moving then to Page 16, which just shows the progression in trading profit over the last 5 years. So you'll see, from 2015 through to 2019, compounded profit growth of a little over 18%. From a margin perspective, the profile of our margins by division is set out on the right-hand side of the chart. So Insulated Panels, up 40 basis points in the year. Much of that was to do with both sales mix but also an element of operating leverage on foot of the 4% volume growth that we saw across the group.

Insulation Board, an exceptionally strong margin at 13.4%, well up on the previous year. And that would reflect a positive Kooltherm mix, but also an element of lag as well associated with the raw material deflation that we saw during the year. Light & Air continues to progress its margin at 7.7% in the year, and that will continue to build over the coming years as activity levels grow. Water & Energy at 6.8%, broadly in line with the previous year. Data & Flooring at 11.4%, still a strong margin in absolute terms but down marginally on the previous year.

And again, that really reflects the relative geographic mix of the business, but was strong nonetheless. So all of that combined to give a group margin up 50 basis points to 10.7%. Page 17 just bridges the sales and profit year-on-year. So firstly, to deal with the revenue bridge. So in overall terms, revenues grew by 7%.

From -- in terms of what the movements were, currency added €40 million to revenue, which is 1%. Acquisitions contributed €199 million or 5% out of the 7%. And underlying revenues grew by 1% or €47 million. From a profit perspective, group profit -- group trading profit grew by 12%. And the components of

that were: currency was €6 million positive or 2%, acquisitions contributed €18 million or 4%,and underlying profits grew by €27.8 million or 6% across the year.

Our free cash flow performance is set out on Page 18. Strong free cash flow performance in the year, delivering €337 million, up 9%. Naturally, the strongest driver of that was our EBITDA, €580 million of EBITDA. We had a decent working capital performance in the year as well. 11.9% of sales was our average investment in working capital.

The other key constituents of the free cash

flow performance: our cash interest expense was €16.7 million, our cash tax was a little over €87 million and our net capital expenditure across the business was €154.3 million. Reconciling net debt, which is on Page 19. We ended the year at €633.2 million. The key movements through the year were free cash flow reduced debt by €337 million. Acquisitions -- our acquisition spend was €142 million, of which Bacacier was the significant element of that and that was incurred late in the year.

Our dividend was €78 million. We paid deferred consideration on previous acquisitions of €29.7 million. So all of that combines to land us at €633 million at year-end. Return on capital employed is a key metric in the business. In absolute terms, our return on capital employed was 17.3% in 2019.

And if you annualize the impact of acquisitions, given that they were very much back end-loaded, the annualized return is approximately 17.7%. So we continue to build on our returns profile. From a geography perspective, profile is set out on Page 21. So our biggest geography is Europe at 53% of global revenues in 2019, up from 52% in 2018. In absolute terms, grew by 10%.

The Americas, a little under €1 billion now, €991 million, up 8%. The Americas comprises 21% of our global revenues. The U.K. revenues were down 6% in the year to €892 million, with the U.K. now comprising 19% of our group revenues.

And rest of world, our revenues grew by 4% to €313.7 million. And rest of world comprises 7% of our global revenues. So with that, actually, the strength of our balance sheet -- before I hand back to Gene, the strength of our balance sheet is highlighted on Page 22. The -- we have -- in terms of our principal funding basis, we have a €300 million revolving credit facility, which was undrawn at year-end, which was -- and that was arranged during the 2019 financial year. We have a pre-existing revolving credit facility of a little over €450 million, which, again, was undrawn at year-end.

And post year-end, we've agreed a green loan of €50 million, and that's to fund the group's Planet Passionate initiatives, the internal initiative that we have within the group. So we've ring-fenced green loan to help with that. So the combination of our available cash balances on hand and committed undrawn facilities is a little under €1 billion, or €992 million to be specific. And the weighted average maturity of our debt is 4.5 years. So with that, I will hand back to Gene.

Gene Murtagh: Okay. Thank you, Geoff. We'll take you now to Slide 29, which is titled the Outlook. So in essence, the start of 2020 has actually been reasonably difficult in January. We would've pointed towards this in our November IMS, which largely was a result of weakening intake at the time in the U.K.

So that's translated into poor enough dispatches in particular in the U.K. in January. But overall, in fact, oddly enough, it was a short month for us, which meant we had less trading days year-over-year, which left us slightly behind prior year. That said, for the last 3 or 4 weeks, order intake, which is the key forward-looking indicator for us, has improved both in the panels and the board businesses. There's been a decent uptick and intake across most of our geographies, which should bode well for the second quarter dispatches.

Our acquisition pipeline is healthy. I'd have to say that it's always pretty healthy, but you'll have noted last year not much happened, and Geoff spoke about that. But yes, once again, healthy. We have a number of active projects presently and comfortably around €750 million of headroom without breaching our own fairly conservative limits of 2x debt to EBITDA. So that area of the business is in good shape.

But it's the most unpredictable part of our business, of course, and there's no guarantees we'll ever actually transact. From the climate agenda piece, that debate, obviously, has flared up worldwide. Our business is naturally squarely positioned in that area. Our whole business really is about energy conservation in terms of what we do, but -- as well as to how we do it is becoming increasingly important. And we're 10 years into our Net Zero Energy program.

So this isn't kind of new material for Kingspan. We set a target in 2011 of getting to net zero by 2020, which we were just about to. But going forward, we've set a -- we set the bar much higher right across the business in what we call our Planet Passionate program, which covers energy, carbon, circularity and water harvesting right throughout the group. So this is an initiative with 12 very specific and demanding commitments that we've made. And the whole business is aligned on this.

Literally, every single facility is aligned. And that, again, is a core part of what we want to achieve over the next decade. Our global footprint has been expanding dramatically over the last 4 or 5 years. And I think it's back on Slide 10, you can see what we're looking at presently in terms of the next 2 to 3 years of global expansion, which is very significant as well. So in essence, I think that takes us out of the presentation, and we're happy to throw it open to you all for questions.

Operator: [Operator Instructions]. The first question we have is from David O'Brien from Goodbody. David O'Brien: Firstly, if I could bring you back to Slide 7. Could you just walk us through some of the detail in terms of the competitive advantage of QuadCore as you'd laid out there? And in addition to that, the prospects for the QuadCore product in terms of what size it could become within the Kingspan portfolio over the next 5 to 10 years. And secondly, just touching on Planet Passionate as well on Slide 9, you outlined more detail, if you could maybe just bring us through a bit of that color.

What does it mean for the internal workings at Kingspan? Should we be thinking about this as a -- purely of cost? Or will there be some sort of return on it? And what is the reaction of suppliers and customers then to the initiative, please?

Gene Murtagh: Okay. David, thank you. So Slide 7 is you asked for first. Yes, we -- this comes up from time to time, what's QuadCore and how does it differ from traditional materials, et cetera. So we felt the best way to articulate that was actually to pick a certain project rather than talking about materials.

So if we're building with a 100,000 square meter wall requirement, which is not untypical these days. We're seeing massive data facilities, obviously, the whole online trading piece and general retailer-themed facilities in this kind of 100,000 square meter category. So just to pick one of those, if you were to go to QuadCore over mineral fiber, and this is to achieve a fairly demanding U-value of about 0.12, it would require 300 millimeters of the mineral fiber product, which the QuadCore would be maximum 150 millimeters by comparison. So the implications of that, even if you talk about the Planet piece, it's almost 340-foot trucks less on the road and, obviously, less on a site in terms of congestion, et cetera. The actual like-for-like panel cost would be around 25% lower, and that's just at a pure panel level.

And that gives a significant installation cost savings and also accessory cost savings related to a thicker product, which are extremely material. And then over on the right-hand side of that, you can see it's about 1,300 tonnes lighter structure required because the product is so much thinner and easier to handle. And from a fire perspective, we have a 60-minute -- what's known as an EI 60 standard, which is very demanding for any material. QuadCore has achieved that. And in fact, we'd be confident that in certain configurations an EI 90 will be achievable very shortly.

And then most crucially of all, we provide a 40-year thermal guarantee, i.e., where there's no energy performance degradation in the product, which we're not in a position to do over mineral fiber. So they're the key practical differentiators between QuadCore and older material. But what it means for us in terms of where it can go into business, as I mentioned on the call, it's 9% of our global sales presently. And we have a medium-term target of that achieving 50%. And I'd be -- not only I, we, the whole team, will be confident of achieving that probably over about a 5-year period.

The second point there was on Planet Passionate on Slide 9. Well, it's kind of self-explanatory there. We have 12 specific demanding initiatives across those 4 headings of energy, carbon, circularity and water. And this is real. It's a very embedded initiative throughout Kingspan, and it's coming hard on the heels of our Net Zero Energy agenda.

So this isn't new material for us. As some examples, we want all of our sites to have solar power generation. We're committed to zero-emission cars worldwide by 2025. The circularity piece in terms of using PET bottles -- or plastic bottles in our process is already well underway. We'll use about 300 million bottles this year, a lot of which is going into QuadCore.

And we have an intention -- a 5-year intention of that being 100% of all QuadCore will be fueled by PET. Zero waste to landfill, and then our ocean water projects are well underway as well. We obviously have a rainwater harvesting business in our Water & Energy piece. But we expect for the group, at its present size, to harvest and reuse about 100 million liters of water over that period -- sorry, by the end of that period, annually. Probably the most demanding banding part of this is from a supplier perspective.

We want to get supplier alignment to make this even deeper and meaningful -- more meaningful. And that's obviously a challenge, but something that we -- we've engaged already with the primary supply chain. And actually, it's been received quite well. But from a returns perspective, each of these projects have to stand on their own. So we're not just blindly investing in all of these areas just for pure goodness' sake.

We are a business that's focused on returns. And each of these projects have to stand up one by one, and a fair bit of it would be funded by the green bond that Geoff alluded earlier on.

Operator: Our next question comes from Tobias Weimann from Morgan Stanley.

Tobias Weimann: The first one is on the board margins. You talked earlier in the call about the positive impact from the Kooltherm mix, but also from the lag effect from the price raw material effects.

Is there any reason why we should expect this trend to reverse in 2020? Because, I guess, the Kooltherm effect will continue to be positive. In fact, you just said you want to go from 9% to 50% of sales over the next 5 years. And if I look at raw materials, they also seem to be still favorable. So how should we think about board margins in 2020?

Geoff Doherty: Just on board margin, we've been saying for some time that the margins that we've experienced through 2019 at 13.4%. That is exceptionally strong, and I would underscore the word exceptionally.

We -- a theme -- the key theme during 2019 was deflation. And I think we held on to that deflation for a little bit longer than we would have anticipated. And that will naturally unwind through 2020. So our best answer at this point is that margins in insulation through 2020 will be mid-12% as opposed to the 13.4% that we saw in 2019. And that's really just the extended lag around that deflation.

Gene Murtagh: But probably just a note of caution there as well. Look, we've -- as we noted earlier, we -- the MDI market has been fluctuating fairly extensively over the last couple of years. So it peaked about 18 months ago, it's troughed probably just about now. And just depending how things go in China with regard to the virus, it's a significant source of MDI material worldwide, which has the potential to get disrupted. And if it does, to be honest, we'd be nervous about the MDI inflating once again.

So that's something we keep a very close eye on over the next weeks, in fact, not even months.

Tobias Weimann: So if you're saying mid-12s, are you assuming that MDI prices are going up throughout the year? Or is this based on the assumption of sort of spot prices?

Geoff Doherty: That assumes flat. That assumes where we are now.

Tobias Weimann: Okay. That makes sense.

And then just following up on the pricing side as well. I think you disclosed your volumes earlier so you can sort of back out the pricing. And it seems the year-on-year pricing in boards were sort of down 8% to 9% in the second half. In panels, I think, it was down around 3%, which, I think, is similar to what you have talked about in the first half of the year. But I think the comparison base was a bit lower in H2.

So that's just imply that prices sequentially has gone down from H1 to H2?

Gene Murtagh: Yes. That's correct, yes.

Tobias Weimann: And as a follow-up, how should we think about pricing for 2020? Because, obviously, raw materials are still down. If I look at MDI, it's currently, I think in the spot price, down 10% year-on-year. Should we expect pricing to still be weak in 2020? Or was your guidance for negative organic growth in Q1 mainly based on lower volumes?

Gene Murtagh: The volume in January, for sure, was under pressure.

We'd expect less so in February and March. But from a pricing perspective, we're still seeing downward pressure on our selling prices, particularly on board. And as you rightly point out, it's largely MDI-related.

Tobias Weimann: Okay. Perfect.

And just a final follow-up on your -- sorry...

Gene Murtagh: But this is a moving piece. And I wouldn't -- we can't really understate the potential impact of the China piece in terms of inflation.

Tobias Weimann: Okay. That makes sense.

And just a final follow-up on the U.K. Obviously, Q1 you said it's still weak. But maybe can you talk a little bit if you look at your order book, do you expect an improvement in the U.K. maybe in Q2 or at least in the second half of the year? I guess, the comparison base will get easier as well, or do you think the U.K. will remain weak throughout the year?

Gene Murtagh: Okay.

So it has started weak, which is a result of the weak intake in Q4. So that's -- if you like, the days have passed for Q1. We carry an order book generally of about three months on average in Insulated Panels, so that's kind of hard visibility. The intake has improved encouragingly, I'd say, in February. Not good in January, improved well in February.

So we ought to see year-on-year at least a steady business from Q2 on.

Operator: Our next question is from Flor O'Donoghue from Davy. Florence O'Donoghue: Just a couple from me. One is just on what you're seeing in Europe at the moment, I guess, with particular reference to Germany, France and maybe Netherlands as well. The second one, if I may just refer to the slide deck as well.

Slide 10, as ever a very interesting slide on your global organic expansion. Just would be interesting to hear a bit more on the agenda there. It looks, relative to the last time you had the slide up, there's a few new projects that've come in there. So your thoughts around that would be very appreciated.

Gene Murtagh: Okay.

As far as -- so just in terms of the end markets, I think we've talked enough about the U.K., and that's clear. Germany is -- continued to be reasonably weak actually. There's a lot of news out there in terms of industries far beyond us, other industrial industries, et cetera, that are particularly weak, and that is having a knock-on effect on the ground, and we're seeing that in demand. So, so far in the year, we're actually behind in Germany, and we'd have no reason from where we're standing now to think that that's going to change any. The Netherlands actually has been weak enough as well.

And that's all into a couple of environmental measures that maybe are a little over the top in the Netherlands, which has cut back on activity on building side. So we're be reasonably optimistic about those measures being adjusted, let's say, to allow activity to resume in the number of sites that've been held back. So the Netherlands' slow for now, but that should change. And then France, you asked about as well, encouraging, I'd say, in a word. We had a good year there last year and we've had a very decent start in France.

So we'd be optimistic about that. On to Slide 10, which you referred to, yes, there are a number of new projects there. So this is our next 2- to 3-year pipeline of organic developments. New to this would be the couple of lines in Brazil. We just completed one last year.

We're building a new facility right now in the very southern part. And then mid- to north of the country, we expect to build what would be a 6 facility in the portfolio next year. So that's encouraging. And we're, in fact, looking at some other regions in Latin America as well concurrently. We're building an Insulated Panel line in the Northeast.

And actually, under the same roof -- that's in the U.S. rather. And under the same roof, we intend to build a PIR board line, which will be our first. Our presence in insulation there so far is really limited to XPS in our Winchester business. The PIR market and flat roofing in particular is very large in North America, so this will be our first serious attempt at that.

And then just started right across the world, there's a number of other initiatives from a K-Roc plant in our Sydney facility for panels. And new to us would be Southeast Asia, where we're very actively looking at a start-up in Vietnam, which would hopefully kick off on later this year for commissioning next year. So yes, very, very healthy portfolio of new projects there. Florence O'Donoghue: Great. And just a quick follow-up for Geoff.

Geoff, have you guidance on CapEx for this year?

Geoff Doherty: Approximately €160 million. Florence O'Donoghue: €160 million. Great.

Operator: Our next question comes from Gregor Kuglitsch from UBS.

Gregor Kuglitsch: A few questions.

Just coming back to the -- I think this was mentioned in the text, I don't know if you've mentioned in the presentation on this sort of the, call it, AlphaCore, which is the sort of fiber-free, if I'm not mistaken, fire safety kind of product. Because obviously, there's been an issue in the U.K. So I wanted to get an update there and how you see that perhaps kind of panning out. And perhaps you could, therefore, share a little bit the highlights. Then just coming back to QuadCore.

So I appreciate the slide, which is very interesting. But how does it compare to your existing panels? I just wonder, obviously, there's probably an element of QuadCore replacing some of your legacy panels, if I'm not mistaken. So what's the improvement kind of compared to that? And then in that context, you commented that QuadCore will be 50% or that's the sort of midterm aim. Is there an element of -- I think we've seen the same in Kooltherm that you kind of get rid of some of the older technology and this kind of partly as substitute and keeps you ahead of the game in terms of keeping your premium margin. And then if you could just -- sorry, those are kind of the sort of longer-term piece of questions.

In terms of numbers, could you just remind us where we are now? And sort of separately, the chemical and the steel build, so we can get a bit of a sense where this ended up that would be helpful.

Gene Murtagh: Okay. Okay, thanks for that. Yes, the AlphaCore project is traveling along broadly to plan. This, as you point out, will be a non-fiber alternative to the so-called noncombustible category.

We -- the development should see us at least soft-launch a product towards the latter half of this year and then in earnings next year. As we pointed out before, this is pure R&D and it will be a first iteration of our development into this non-fiber A class category. So we'd expect that to lead to, I would say, other iterations down the track. But I think we'd expect it to be a low-volume production item and a relatively high-cost production item for the near term. Its key advantage over mineral fiber, of course, will be its thickness.

So we expect the thermal properties of this to be broadly in line with PIR, so something close to half the thickness of fiber. But at the get-go, at a significant premium just by its very nature, because it's a very new material. The QuadCore that you asked about here, it's -- versus our existing material, it's about 15% better on thermal. And although our existing PIR insulated panels, in particular, have exceptionally high-fire performance, the QuadCore brings that up to a different level once again, which we talked about while we were on the slide. There is, of course, some internal substitutions.

There's no doubt about that. But that's at a premium margin, of course. So we'll encourage that all day long. We'd expect about 50%, as I said, of the total panel business to be QuadCore in -- by 2025.

Geoff Doherty: Just on raw materials, Gregor.

I mean, for us, as we said before, in very broad terms, raw material moves are a pass-through for us with the lag in on both directions and, very directionally, are still billed a little over €1 billion. And our chemicals, in one shape or form, are approximately €700 million. But they're very directional numbers.

Operator: Next question comes from Arnaud Lehmann from Bank of America.

Arnaud Lehmann: My first question, I guess, a follow-up from Gregor on Kooltherm and QuadCore.

It sounds like you want these products to be a very large part of your business in the medium term. Could we have a feel for the margin gap with your existing business? I appreciate you don't want to be too specific, but as you increase the penetration of these products and you replace some of your traditional PIR volumes, what is the margin potential driven by this penetration? And my second question is, if you could give us a little bit more granularity on your acquisition pipeline. Should we expect bolt-on acquisitions in your board and panels businesses in Europe? Or are you looking at totally slightly bigger deals in your, let's say, new products around industrial installations or waterproofing?

Gene Murtagh: Okay. Arnaud, thanks for that. I think you'll appreciate, it'd be a little bit sensitive to get too much into pricing or margin premiums for the shift to QuadCore and Kooltherm.

But our -- suppose, our primary aim, first of all, is to protect what we have. We already have healthy margins in our board and panel businesses. So that's our primary ambition is to make sure that we're a step or 2 ahead of the market at all times to protect that. But you'll have seen the pattern over the last 2 to 3 years of margin expansion in those businesses, and that's largely as a result of the transition to those materials. So I hope that answers that.

From an acquisition perspective, I'd say bolt-on on the medium-sized is what our focus is. Of course, every now and then, we come across a gargantuan prospect, but so far, we haven't been tempted into that zone. So everything we're looking at is bolt-on to medium-sized and very absorbable. You mentioned panels and boards, of course, that's key to us, and further consolidation of those markets will be a primary focus of our M&A agenda. But also our Light & Air business is focusing on a number of opportunities that we'd hope to land this year as well.

We set a short-term target of getting that around €500 million revenue, and what we're looking at right now would at least take us to that in the near term. So they are the 3 business areas that are going to be getting the primary M&A focus.

Operator: Next question is from Yassine Touahri from On Field Investment Research.

Yassine Touahri: Yes. A couple of questions.

First, on your inflation. You kindly commented on the inflation for chemical. Could you give us a bit of color on what you've seen in 2019 for steel? And what would you expect for 2020 in terms of steel deflation or inflation? And then I think you were very helpful in commenting a little bit about the margin prospects for your board business, could you give us a little bit of color on what you see for your panel business? And my last question would be on regulation. So the European Commission has announced the Green Deal in December last year. How do you think this could impact Kingspan business? And I think in this Green Deal, there is a substantial focus on improving the existing buildings.

What kind of offering do you have? And what kind of marketing offering could develop to address the renovation of building in Europe?

Gene Murtagh: Okay, Yassine, thank you very much for those questions. And I'll just deal with a couple of them first generally. From a steel perspective, we saw steel deflate somewhat last year, and that continued actually into the fourth quarter. The steel industry is, I suppose, attempting to harden their price and potentially get it up in Q2, and we're obviously very mindful of that. But at the same time, with one eye on demand, I think it's feasible that steel doesn't actually succeed in inflating in the second quarter because general industrial demand, as we talked about earlier, is under some pressure.

From a regulatory environment perspective, it's improving but it's not anywhere like what you'd expect out of the global climate talks that have happened successively. So it's moving in the right direction, but there's nothing we could point towards that's very solid that's going to significantly move the dial for Kingspan in the short term. But obviously, the general direction of travel is good. From a renovation perspective, we -- the business is very focused on that. It's really only about 1/4 or less of our activity, but our products are totally suited towards that.

And if codes do change, we'd expect them to change most significantly in terms of upping the renovation opportunity. Because as we keep saying, if emissions are to be reduced from buildings, they have to be reduced from ones that exist, not ones that don't exist yet. So if governments are serious about this, then the renovation agenda will come much more to the fore.

Geoff Doherty: Yes. Looking at the...

Yassine Touahri: On the margins -- yes, on the margin for the Insulated Panel maybe, do you have a view of where you would like to be medium term as well?

Geoff Doherty: Just on the panel margins itself, we added 40 basis points to us in 2019 to 10.4%. The driver of panel margin will be a function of many things, including geographic mix, product mix, the impact of acquisitions which were made in 2019 and so forth. So it's very difficult to be specific to within 10 basis points. But I think given the mix of activity that we have, it will be somewhere between 10% and 10.5%, depending on all of those factors. More medium term, our medium term is high teens return on capital employed.

Our pricing will reflect that. But I think our margin profile in panels over the medium term will be similar to current levels, which is in that kind of early 10-type area. I mean, for us, it's all about achieving 2 things. We do value returns and growth, and we're trying to convert elements of the market away from traditional materials. So that volume piece over time is every bit as important as pricing.

So from a modeling perspective, you can model similar margins in panels as currently.

Operator: We have another question from Robert Whitworth from Exane BNP Paribas.

Robert Whitworth: I just wanted to start with a follow-up on the M&A theme. So where do you stand on Recticel? Given where the share price is currently, would you consider this acquisition in the future? And I guess, also, just as a follow-up, are you prepared to pay above your historical deal multiples to penetrate new verticals as well?

Gene Murtagh: Just on the Recticel, we haven't revisited that at all. We always remain open to it.

It's a very fine business, but it's not currently on our agenda at all. And I can answer your second part, we're not changing our return aspirations up or down. We've prefer to have a fixed view on that, which has served us well in the past and we're going to stick to that.

Operator: The next question is from Brijesh Siya from HSBC.

Brijesh Siya: I have three questions, if I may.

First one is if I can go back to your order book outlook. You talked about January was visibly weak and that improved in the 4 weeks to February. Can you just give us on broad sense of globally how the panel order book looked like in January and how it is looking right now? That one is first. And the second one is coming to QuadCore, there's an improvement from volume growth happened from 36% for the full year. If I look at -- first half was around 42% and so that implies second half has slightly slowed down.

So am I reading a little bit too much into it? Or is there any specific -- like the U.K. decline had the largest impact that's why the growth was kind of slowed down to 30% in the second half? And the third one is on your carbon reduction target, which you talk about 50% reduction in the supply chain. Does that include somewhere how the MDI emits carbon or steel emits carbon? Or it's just on the other part? So a little bit more clarity on that would be helpful.

Geoff Doherty: Sure. Okay.

Just to deal with the question around the order book, without wanting to go into too many specifics on individual regions, we flagged in our November trading statement that the area that we were seeing pretty acute weakness in terms of order book and intake was the U.K., where we were down mid- to high teens in the latter end of last year. And naturally, we're harvesting the far side of that now in terms of sales out the door in the early part of this year. As Gene mentioned earlier, we have seen order intake in the U.K. improve in recent weeks. So what all that will mean, we feel, by Q2, is from a volume perspective, our global panels order book will be low single-digit volume growth when you take the mix of geographies that we have running at different speeds around the world.

As regards to our growth levels in both Kooltherm and QuadCore, they're very much intact and on track. Kooltherm volumes actually grew by 15% during 2019. QuadCore, as we've mentioned earlier, the medium-term plan is that it will comprise 50% of our global Insulated Panel sales, and grew by 36% in absolute terms in 2019. So that agenda is very much on track.

Gene Murtagh: And then you asked about the carbon-reduction targets from our suppliers.

Yes, as I pointed out, that's probably the most demanding of our targets because it's not directly in our control. And yes, absolutely, it's our MDI and steel suppliers primarily are the ones that are going to be focused on. Both of those are reasonably consumptive. And on the MDI side, it's obviously petrochem-based in the first place. And so yes, but they are long-term projects.

But I would just say that those industries realize the requirements and are receiving that kind of demand quite positively. But we ought to just be cautious in terms of timescales here, nothing can change overnight. But those industries are receptive, and will be putting in place initiatives to address their own term.

Operator: The final question comes -- Yes, we have another one from Rajesh Patki from JPMorgan.

Rajesh Patki: Yes.

You've commented fair a bit on your European operations. If you can provide us some more color on trading in the Americas, so in the U.S. but also in the LatAm markets. How are the acquired businesses performing there?

Gene Murtagh: Okay, Rajesh, thank you for that question. The North American markets for us last year was at an excellent outturn actually.

Like everywhere, it was a little bit slow in January, but order intake has notably improved actually in the last couple of weeks. So we'd be positive in North America for at least the first half. It's always as far as we can see. In Latin America, we've been growing organically at quite a pace over the last two years in our Kingspan-Isoeste joint venture, particularly in Brazil. We're present, as you know, in Colombia and Mexico as well.

Those businesses are somewhat smaller. But the Brazil side of the side of the coin is where most of our focus is going to be in the near term. And as I said, between last year and next year, we'll have built three new totally new facilities. So that gives you some indication of the demand we expect from LatAm.

Gene Murtagh: Okay.

You're all very welcome. And thank you for joining the call. And no doubt, we'll be speaking to each other over the next few days. Thank you.