Gene Murtagh: Good morning, everybody, and welcome to the 2020 preliminary results of Kingspan. We've got an awful lot to get through today. So we'll just deal with the results in summary, first of all. We'll move then to the issues surrounding the Grenfell inquiry, and then we'll circle back to delve into some more detail on the business, our strategy and the results, et cetera. So if you've got the presentation in front of you, I'd ask you to go to Slide Number 3, which is titled 2020 in Summary.

No doubt all of you have talked to this already. But despite all the turmoil last year in our markets, for all kinds of reasons, the business delivered a revenue that was down just 2% at €4.6 billion. And a trading profit that was up 2% at €508 million and that was after taking account of the repayment of any government COVID subsidies that we received around the world. So it's after taking that into account, all the repayment of it, rather, after taking that into account. And then that all, in total, resulted in an EPS of 1% to €2.06.

In summary, the Panels business experienced a decrease of at 4%. And I'd say consistent with all the businesses, there was a very strong recovery through the second half and in particular, in quarter four. What we're dealing with right now is a, say, a similar trend, a good start to the year that we'd come back to and some more detail later. But a significant challenge for the business right now is handling of very significant cost inflation, which we expect this year, if it goes as we feel presently to be in the order of €400 million of cost increases. So naturally, that represents a very significant challenge for us at the present time.

And later in the discussion, we'll go back to how we're handling that. So in terms of the Grenfell inquiry, the inquiry itself commenced in May 2018. And obviously, it has attracted considerable commentary of Kingspan and our testimony late last year, in particular. The report on module 1 of the inquiry was completed in October '19 and a central conclusion of this aspect of the inquiry was that the PE cored ACM cladding on the exterior building was the primary cause of fire spread on the tower itself. Given the relative length of time the Kingspan staff, both past and present, were asked to attend and input into the inquiry and the scale of the ensuing media coverage, it's quite understandable that there are some misunderstandings perhaps about our role in the Grenfell Tower refurbishment itself.

It's therefore important for me to clarify that Kingspan did not supply any of the ACM and just 5% of the installation beneath that on the building was inadvertently our product supplied by a distributor without our knowledge or our advice. Module 2, however, of the inquiry, which is where it's at presently and where it was just pre-Christmas commenced in the first half of 2020. And this margin covers testing certification and marketing of products in the industry. It's in this phase that has attracted much of the commentary around us. We've cooperated fully, as you'd expect.

And a number of process shortcomings, particularly in our U.K. insulation board business were highlighted by us and submitted to the inquiry. During the hearings itself, and I'm referring in particular to late last year, a number of key issues arose, three of which are particularly pertinent. Firstly, the historical behavior of some of our people in that particular component of our business were identified. Well aired and entirely unacceptable and completely against the long-held principles that we've had here at Kingspan.

Secondly, for a considerable period of time, the K15 product that's been much covered relied on an outdated test certificate dating back to 2005. Again, this was totally unacceptable. But beyond unacceptable, it was also extremely disappointing insofar as that didn't need to be the case. It was an extremely poor process on our behalf. And that's demonstrated by us more recently having achieved 15 passes, system passes that incorporate the K15 product itself, and these are passes to the very demanding BS 8414 large-scale fire test.

And this also includes a retest of the oft-mentioned 2005 certificates. It's important to reaffirm our full confidence in the safety of K15 when it's used and systems that have passed, as I said, the BS 8414 test. Thirdly, there was an accusation of Kingspan having rigged tests on competing products. And this clearly was well covered as well. So respectfully, this is inaccurate and has been widely misconstrued.

In relation to this issue itself, Kingspan was actually responding to what was a public invitation for submissions. So it's not that we were particularly proactive, we were responding to a public process that was ongoing at the time around what insulation or cladding would be used above 18 meters. And our intention was very simple, and that was to highlight the need for large-scale fire testing, no matter what the system composition. The test referred to was, in fact, a robust construction, which would have been and remains compliant under what's known as the linear route. Taking this course, in our view, was important, an important matter for public safety, and we were exceptionally taken aback by how it got spun.

More generally, we completely acknowledge that these issues, although limited to a small part of our business, should not have occurred, and we apologize for this and have done so in the past. We're resolute as a team in our efforts to fully meet our obligations, in addressing all of these issues and have been actively engaged for some time with this already. To date, a good number of concrete actions have been implemented to ensure this cannot occur again, any or throughout the organization. These measures include a review that has been carried out by an international legal firm, Eversheds, the recommendations of which have been published today. We have set up a board committee for audit and compliance, which was constituted in December 2020.

We have appointed a group head of compliance, reporting directly to myself. And that individual has tentacles through the rest of the organization through product compliance officers in each business unit right across the organization. And that team will be implementing the international standard 37301, which is a compliant management system right across the organization beginning in quarter two of this year. We have committed to frequent and timetabled independent third-party reviews of testing and certification, which incidentally is the case already in the vast majority of the business, also in insulation internationally, but predominantly across the insulations panel group. That is the way it's been for decades now, in fact.

And we'll come back to that later in the discussion. We've implemented a new code of conduct which has been issued to all employees in October 2020. Separately, we have ourselves constructed Europe's most modern fire test center at our Holywell facility in the U.K. and this is designed to accommodate much more prolific R&D in the future. Once it's fully bedded in, we expect that this resource will become available to the wider industry, really for the improvement of all.

And then we have also started the process of embedding what will be an industry-leading PIM, which is product information management systems across the organization, which will dramatically improve traceability of our products there into the future. I accept that we have been uncharacteristically slow in the implementation of some of these measures, but can assure you that we are on this matter in anger now. These historical issues are in no way reflective of our wider culture and the ethos that we have built over the decades. The commitments to which we've given this and to which our people have given this entire impetus is testament to that, and I have no doubt that we'll be a much better business on the far side of this. Many of you know us for years and those that do will know that's the case.

As regards to remediation, it's a highly complex and complicated subject, which is getting more complicated, I think, by the day and by the week. There are hundreds, if not thousands, of parties involved, there are myriads of issues related to buildings, not simply around facades or insulation. That goes way beyond that. Clearly, the primary target and the rectification of any of this is around the facade itself, which, as I've said earlier, is not a business Kingspan has engaged in. But we clearly remain fully cooperative with the whole process as we go forward.

We've been engaged in this for some time now. And just to give you a flavor for what it's meant for us over the last couple of years, what our process has been, et cetera, I'll just hand you over to Geoff for some further detail.

Geoff Doherty: Thanks, Gene. Understandably, we have been engaged across this issue for at least two years in the UK, engaging with building owners and their advisory teams on these matters. And in the majority of those engagements to date, we've been able to close out those discussions without claim, because to Gene's earlier point, K15 is a perfectly fit-for-purpose product when it's used in an appropriate building system.

So to date, a fractional percentage of those engagements have resulted in claim. By way of further context, I would highlight that worldwide across our business, we have a warranty provision of €119 million on our balance sheet as at the end of December 2020, and we reserve through the P&L account every year approximately $30 million of costs associated with warranties. And our approach to these matters worldwide is the customer is first. If we haven't met an obligation to a customer in a market for a product and haven't done what we said we were going to do, we fix the issue and we remediate it. And we make due an adequate provision for that when we become aware of the issue.

And the situation in the U.K. in respect of these issues is that the claims traffic has been relatively low. Now as we go forward, it is reasonable to suggest that there might be further claims coming down the track. We can have no certainty on that. But if you were to take the annual cost that we have worldwide for warranty of €30 million, if that was to increase by €20 million to €30 million over time, that would be a very manageable issue for Kingspan.

And I don't mean in any way to minimize or trivialize the issue, other than to just highlight that financially, this issue ought to be manageable, and we will absolutely do right by our customers in terms of remediating any areas where we have a responsibility for that.

Gene Murtagh: That's great, Geoff. Thank you very much. Now if we could take you please to a different subject altogether, which is on Slide 4, and it's titled Our Mission, just to remind everybody of what Kingspan's about, why we're here and what we intend to be doing in the future. So our mission is clear, and that's to accelerate the net-zero emissions future-built environment.

We've been on that path for some time and are very resolute in remaining on that path into the future. In terms of the absolutes of what's been achieved thus far, there's been 164 million tonnes of CO2 saved or will be saved over the life of the buildings that we have already supplied in 2020. There are vast sums of CO2. Internally from a net-zero carbon perspective, 35% reduction in absolute Scope 1 and 2 greenhouse gas emissions achieved since 2013. In the year just gone by, we up-cycled 570 or the equivalent of 573 million plastic bottles, either into insulation or into other products, and this is done predominantly through our Synthesia business in Spain.

And from a natural daylight & ventilation perspective, we generated the capacity to create the equivalent of 9 billion lumens of natural light annually through the daylighting systems that we've been supplying. And from a conserve water perspective, over 34 giga liters of rainwater will be harvested from the systems that we produced only in the year 2020. So we'll come to more of this in detail as we go through, but they are the key areas that we're focused on as a business that drives our strategy and drives everything we do from day-to-day.

Catriona Nicholson: Yes, and then if people wouldn't mind, turning to Slide 7, just talk a little bit about what needs to happen in order to meet the objectives of the Paris accord and stay below 1.5 degrees increase by the end of the century. Buildings have a huge role to play in that with carbon from buildings and construction accounting for about 39% of carbon emissions globally.

And much of that comes from the building stock and the operation of buildings. And without addressing the energy efficiency of those buildings, we can't really hope to achieve those targets. And fundamentally, we have to address the building envelope in terms of reducing the energy consumption of buildings. And that has to happen to enable more general electrification of industry and reduce the pressures on the grid. So renovation is going to be a key tool in the fight against climate change, and clearly, we've excellent products within our portfolio to address and break down a lot of the barriers that there are to renovation in terms of disruption and losing space and losing detail and natural light into buildings.

So that's very high on most agendas all over the world, and we would begin to support that. Next, if we could turn to Slide 11, just to talk briefly on our Planet Passionate goals and some of the progress we've made this year. 2020 was really a foundational year for the program. We announced our 12 targets at the end of 2019. We really built the strategies and the structures around the business to support achievement of those targets in 2020 and built the teams around to ensure that these happen.

And their hard targets are measured every year. They're tracked throughout the year, and every division has their own targets with respect to meeting them. And significant progress has been made in the year that there's many obstacles around in terms of being able to travel, in terms of being able to implement things. So some of the highlights I'd pick out is 7, as rooftop solar PV projects. Our installations were commissioned in 2020.

As Gene mentioned earlier, we still managed to significantly increase the amount of equivalent of waste plastic bottles that we will recycle this year, up almost 40%. And last year, 573 million and 21.1 million liters of rainwater harvested. And a lot more detail will come out on our Planet Passionate progress in our report later in March. And finally, just to talk a little bit about our global expansion on Page 13, to highlight the US as a case in point, we've progressed our panel line in Pennsylvania, and that's to support the ongoing conversion to high-performance insulation and building systems in the US. We're also seeing very strong demand for our optimal products, so we hope to support that with a line by 2023, if not earlier.

We continue to expand in Brazil as it converts away from traditional materials. So we're pretty much opening a facility there every year and saw strong growth there last year and due to the new facilities South of Sao Paolo. And in France, we'll be opening a hub which will be panels and boards, that will be a showcase facility, and we'd expect to have that done by 2022. And just to highlight plans to open a panel line and a board line eventually in Vietnam, expanding our presence or kind of expanding our foothold in the Southeast Asia region.

Gene Murtagh: That's great, Catriona, thank you.

We're just going to reverse back one slide to 12, which is titled Circularity & QuadCore. And naturally Circularity is becoming a much more prevalent team and rightly so throughout the world. And just to maybe highlight where QuadCore, the QuadCore insulated panel fits into that. So first and foremost, and I think most importantly, it's actually a reusable product. Just by its very nature, it's a steel-foam-steel insulated panel.

It's modularly constructed and can actually be taken down and reused either in similar or probably even lesser important applications. So that clearly avoids any process of having to deconstruct the product and all the energy, et cetera, that's involved in doing that. We have a good number of examples where prior insulated panels have been reused. And again, in our Planet Passionate report, we expect to shine a light on that to be able to demonstrate exactly what we mean by that. Going forward, though, we expect to get much deeper into making this a much more deeply circular product in the sense of been able to take it back.

The metal by its very definition, the steel is 100% recyclable. And even presently, our products contain up to 25% recycled steel in any event. And then we've developed a process through our Synthesia business in Spain, whereby the QuadCore core itself can actually be taken back to a polyol, and that polyol constitutes about 40% of what becomes the new blend. So we will be setting up our first take back center in the U.K., probably in the third quarter. And we hope to follow that by a fourth before year-end in our insulation business, more than likely in Selby in the U.K.

So we're at the early stages of this. We'd be absolutely confident about how we can take back and either reuse or recycle materials into our products. And to be frank, we've never really had to confront this so far because at a level of any serious scale, our products are relatively young so they're not coming down from buildings. And obviously, we expect the average life of a building to be 40 years. But in reality, many of them can be much longer than that.

So this is all about us being prepared for the future whenever that take back commences. But so far, it's not been a kind of necessary theme for us at Kingspan. But very excited about what we can achieve on that front. Then to move on to Slide 14, which is titled Key Innovations. And actually a central part of our business all the years.

Just to highlight kind of a handful of areas that we're focusing on at the moment, the PowerPanel development has gone very well after being held back naturally a little bit last year. We expect to go live on the initial production of this around midyear. There's obviously a very lengthy testing and accreditation process the product has to go through. And just to recap what this is a combination of panel and solar PV. So it's around a team of insulate and generate where this product will be positioned.

So you've got your structure, you'll have your insulations, your water tightness and your power generation all in the single element. And yes, we'd be very enthusiastic about where we can go with this product in the future. And when you think that in five years' time, it's almost unimaginable that a roof will be built without some form of power generation on it, and we'd like to get a head start on that by having a fully integrated product on the market. Hopefully, by the end of this year, if we can get through the accreditation. The AlphaCore has been a little bit delayed.

Again, good work ongoing, but that's been very reliant on international collaboration and this requires to be physically present on some place's and other people with us. And that has pushed it back a little, but we're trying to accelerate that again now. QuadCore continues to roll out, the second version of which we would hope to get to by around the end of this year, and that will be all around improving on each of the quads and primarily on thermal and on fire. And that's something that when we get going, will be launched initially in the UK and Ireland, and then we'll roll it out from there. With regards to Kooltherm, and not to get too technical here, but in Euro classifications, there's A, B, C, D, et cetera.

We expect to move the Kooltherm range, or at least the key product areas within Kooltherm up to a standard B-Class by around year-end of this year. And then our most optimal insulation from a thermal perspective is what we call OPTIM-R. It's got an extraordinary thermal performance, 7 or 8 times more efficient than traditional materials that are out there. It's been it's relatively embryonic, but now it's beginning to get a foothold in particular applications and actually a very strong progress in North America in particular. And again, around this area, we want to develop an A-Class or what's otherwise referred to as noncombustible.

So to have our highest performing insulant with non-combustibility will be our target to achieve this during 2022. Now there's a whole raft of other developments ongoing throughout the organization, but we feel that these will be key features of the business moving into the near-term future. So now I'd like to hand you back to Geoff to take you through the essential detail of 2020.

Geoff Doherty: Thanks, Gene. And I'm turning now to Slide 18 in the deck, Financial Highlights, just to run through the key highlights of 2020.

So revenue of €4.57 billion, down 2% year-on-year at constant exchange rates flat year-on-year. A trading profit of €508 million, up 2% or up 5% at constant exchange rates. As we referenced earlier, we took a decision in December to repay the furlough incentives worldwide. That was €17 million, and that's reflected in that trading profit number, the repayment of it. Our earnings per share of 206.21% ahead, we've proposed a final dividend of 10% of earnings or €2.06, and I'll come to our dividend policy just later in the presentation.

A very strong metric during 2020 was free cash flow, so that was up 42% versus the previous year at a little under 480 million. Our net debt was significantly lower than we would have guided back towards the end of last year. We came in about €50 million lower than consensus. Our leverage at the end of 2020 net debt-to-EBITDA of 0.4x. Our trading margin was strong at 2020, 40 basis points ahead versus the previous year, and I'll come to the constituents of that by division in a second.

Our effective tax rate was down slightly during 2020 to 16.3% primarily due to the geographic mix of earnings. And we continue to generate strong returns on capital employed and making further progress of 110 basis points to 18.4% for 2020. Then moving to the margin performance on Page 19, pretty much every division recorded a strong margin performance during the year and there was a couple of key themes within that across the business. Firstly, we did benefit from some raw material deflation in the earlier part of the year. And then secondly, from an overhead perspective, particularly in the early stage of the year, some of the more discretionary overhead type items were curtailed for a period of time at the onset of the pandemic, but that normalized towards the back end of the year.

By division, Insulated Panels continue to make progress. Margin performance of 11% versus 10.4%. Within that, QuadCore continues to advance. Its sales grew by 33% during 2020. So it now makes up 12% of our Insulated Panel sales.

Within Insulation Board, an exceptionally strong margin performance of 14%, that margin performance will not be repeated in 2021. We'll come to the raw material piece, I'm sure, through the discussion. Light & Air at 7% was due primarily to the integration of a very significant development in the Light & Air division during the year, which was the acquisition of Colt, but the trading margin within that division is progressing to plan. Water & Energy delivered a strong margin performance of 8%, particularly good performance on the cost base of the business across all categories. Data & Flooring performed well, particularly strong performance in the data center segment.

So margins there landed at 13.1%. So all of that combined to deliver a group trading margin of 11.1%. Turning to the sales and profit bridges on Page 20, you'll see those set out firstly, on sales. The principal constituents of the sales move year-on-year. Firstly, currency was a negative of 2% or €102 million.

Acquisitions contributed 7% of our sales growth during the year at €335 million. And underlying sales were down 7% or €316 million. And much of that was in the earlier part of the year when we had the significant disruption associated with the pandemic. From a trading profit perspective, currency was minus 3% or €14 million year-on-year. Acquisitions contributed 6% or €31.8 million to profitability during 2020.

And underlying profitability down marginally, down by €6.6 million. Turning to free cash flow on Page 21, a standout year from a cash perspective. EBITDA, naturally, the key contributor to it at €596.5 million. We had a very strong working capital performance, so working capital reduced by €107 million during the year. Working capital to sales ratio at the end of December was 8.8%.

That compares to a three year average of closer to 11.5%. So I think there were some specific issues that gave us a low working capital level at the end of 2020. Inventories generally across the business were lower than normal. So we would expect the working capital percentage to normalize through 2021, not least for reasons of raw material inflation, which we've referred to. Other items on the free cash flow bridge, interest outflow is €21.6 million; tax payments of €89.7 million; net capital expenditure of 126 million during the year, all combining to give us a little under €480 million of free cash generation during the year up from the €337 million that we delivered in the previous year.

In terms of how that played out on overall net debt, that's set out on the next page, 22. So we started the year with €633 million of debt and free cash substantially reduced that during the year. Our acquisition spend during the year was €46 million so we ended the year with €236 million of debt. Our dividend policy is set out on Page 23. During 2020, we outlined that we were going to review our dividend policy.

As part of that review, we formally sought shareholder views. And our objective in assessing the policy was to balance our dividend with capital allocation for longer-term growth and to preserve our ongoing balance sheet strength. The view of the shareholder base generally was to prioritize the longer-term capital growth, while it's also, I suppose, affording some space for annual income. Our outgoing policy was a 25% payout. Our revised policy is to pay out 15% of earnings with effect from our 2021 financial year.

And as an intermediate step, we've announced and are proposing a final 2020 dividend, which amounts to 10% payout for 2020 or a dividend of €2.06 cents per share. Our return on capital profile is set out on Page 24. This is a metric which we drive through the business year in, year out. And we've recorded further progress during the 2020 financial year. Our return on capital employed landed at 18.4% for 2020.

Our sales by geography are set out on Page 25. And what we've done on this occasion is given the extent of our European sales territory, we've given some further analysis of that. We've identified two European regions, Western and Southern Europe, and secondly, Central and Northern Europe. So if you take Western and Southern Europe, it comprised 36 million of our revenues in 2020 as compared to 33% the previous year. Central and Northern Europe, pretty consistent year-on-year, 22% in '20 versus 21% in 2019.

The Americas, again, consistent year-on-year, 20% in 2020 from 21% the previous year. Britain comprises 16% of our revenues in 2020, down from 18% the previous year. And Rest of World is 6%, so pretty much in line with the previous year. And with that, I will hand back to Gene.

Gene Murtagh: Thank you very much, Geoff.

We won't labor through all of the divisions, but no doubt we get time to do that over the coming days. So we take you to Slide 32, which is titled Outlook. And as we mentioned earlier 2021, we're almost seven weeks through '21 now, and it started very well, in fact. We would have noted that towards the end of last year, our backlogs were strong, record backlogs, in fact, in a lot of countries. If anything, they've got stronger through the first seven weeks.

So trading top line and bottom line has, as I said, been very positive. The raw material issue, again, which we referred to earlier on, is absolutely a challenge. Our primary purchases are around steel and polyurethane-related chemicals, amongst others. And we're seeing dramatic inflation in both of those. And it's unusual for us to see it in both materials concurring, but it's happening worldwide.

Very steep, in some cases, well in excess of 50% increase in a period of six months. So if this level of pricing inflation or what we expect through Q2 is to stick, will be a year-on-year increase of approximately 400 million. Now obviously, our approach has always been to recover it. And that effort is underway since quarter four last year. And naturally, you'd expect some lag which there will be as we've got order, we've got committed backlogs that will obviously be at previous prices.

Of course, in the past, at least, we've always been successful in getting the job done and have no doubt we'll get that done again this year. And then just more broadly, the balance sheet, as Geoff referred to, is in great health. And our appetite on the development front is as much or more than it's ever been. So we're well-positioned to tackle what comes our way and to take what our opportunity comes our way as we have this year. So Maxine, we'll open that to questions now, if that's okay.

Operator: [Operator Instructions] The first question comes from David O'Brien from Goodbody. David O'brien: Three for me, please. Firstly, look, you very clearly provided a lot of reassurance around K15 testing. Could you elaborate a little bit more on the comments you made that you reviewed the remainder of the Kooltherm product range as well? Secondly, in regards to your commentary on positive trading year-to-date, does that include the UK? And can you give us some color on that performance from both a panel and board perspective? And in the same breath, are we seeing any moves from rigid insulation to fiber? And finally, just on M&A, we've all seen depressed speculation indicating the process you're involved in, in roofing membrane, which subsequently transacted on multiple implying single digit returns on capital. How do you view opportunities in that market going forward? And given that there is the positive long term outlook there, coupled with lower interest rates, do you have to reassess the multiples you're willing to pay to get involved there?

Gene Murtagh: We'll start in reverse, if you don't mind.

So in terms of -- yes, there was a widely publicized opportunity last year that we were involved in. The number got away from us. But the opportunity, and in general, that kind of end market is something that we've been targeting for some time. We have a rigid board presence in there but our membrane presence is limited to products like Topdek, X-Dek and Ondek, which are actually progressing very well, but we need to get deeper into it. I guess, like at a very broad level, we'd have up to around 2 billion of firepower.

And do we have to review multiples, quite possibly, although we still need to maintain discipline. We've been a returns oriented business forever, and I think we clearly don't want to abandon that. But as you rightly point out, at the current interest rates, and particularly if we can secure 10 year money at extremely low levels, that might enable a stretch a little more than we have done in the past. On trading overall, yes, like almost without exception, we've had a good start. Like very few markets would be at par or below last year, and that includes the UK.

So both the panels and the Board businesses in the UK have traded well in the early part of the year. And the order bank for insulated panels, which obviously by its very nature it needs an order bank because it's all bespoke, is significantly up on what it would have been in February last year. You asked about rigid to fiber. It's very clear in the kind of high rise residential applications in the UK, in particular. There's absolutely been a shift.

But that's been a mandated shift, I'd say, rather than necessarily a market shift. So that has been happening over the last couple of years. But more generally, and just as a barometer, we, as you know, we're the largest producer of mineral fiber cord insulated panels in the world and by some stretch within our overall range. And in 2019, that represented 11% of our global volume. And in 2020, it represented 10% of our global volume.

So I wouldn't be highlighting that as a shift really one way or the other, but it's definitely not a negative shift. And obviously, within our panels business, the QuadCore, the QuadCore aspect of it has been the key highlight, and it's now up to 12% of global sales and growing even more rapidly this year. Then in terms of the wider testing of Kooltherm, as we've said no issues of safety or materiality have been highlighted. There's been a historic marketing inaccuracy that's been well-aired at the inquiry. That obviously come up but that relates to a classification actually that's since been replaced by what's known as the Euro class norms.

And these are norms they apply right throughout Europe and indeed, the UK. And we comply at many levels across many different products and many different applications. We comply fully with the euro class norms. And just when we're on the subject of a wider review, like we haven't managed to get through the entire organization because we produce thousands and thousands of products, but what I can say to you is that the vast bulk of the group and in particular, the insulated panels business, is independently reviewed and validated oftentimes, several times annually. So this happens to bodies like Factory Mutual, United Laboratories, the last provincial council, just to mention a few.

And this involves regular site visits, samples being taken randomly off for testing. And that's been a process that actually for decades, we've gone through in our panels business in particular, but increasingly in boards as well. And this process really provides -- this assurance is not just to us, but the wider stakeholder community around the performance of our products. So yes, third-party assurance is the way to go, and we'll be increasing that level of oversight in the business into the future.

Operator: Our next question comes from Flor O'Donoghue from Davy.

Flor O'Donoghue: Thanks for all that, it was very comprehensive. I'll just speak with a couple. If I can go back to the raw materials, thanks very much for giving us some good detail on that. Just wondering on the €400 million, is it correct to kind of suggest that effectively means you'll be looking to push prices up this year by circa 8% to 9%? And then secondly on that, just where it's coming from, you obviously mentioned steel and chemicals. Is it pretty evenly distributed between the two or is it more skewed towards one or the other? And also, I guess, just remind us again, of the bill for each of them in terms of what the level of likely spend is? Second thing then is if I may also just go back to M&A., just wondering in terms of the pipeline and what the outlook is for this year, I know you have a couple of deals there that are either just about to close or are in the process of closing.

But just beyond that in terms of maybe deploying some of the balance sheet capabilities that you have? And then just as in addition to that, just interested to hear your thoughts, you've obviously decided to put facilities in Vietnam, just the sense of the opportunity there in terms of the market size and data. I guess, the kind of the medium-term opportunity in Southeast Asia?

Gene Murtagh: Flor, you've got quite a bit in there. So from a raw materials perspective, yes, that will be about right to say we'd be looking on average for increases of probably 8% or 9%. I think in some product categories, a lot more. Bearing in mind, we're probably not seeing this inflation as much in some of the other divisions.

But yes, and that's a tall order incidentally. Our wish clearly would be to recover margin on the increase in materials as well. But naturally, that will be difficult. Our starting point would be to get the 400 back. And initial indications are reasonably positive on that front, but it's a challenge, as I said.

In terms of proportionality, steel is definitely the bigger proportion. Not just because of its scale, but also in the level of increase. So essentially, kind of what's happened here is that I'd say the industry got caught out a little as demand was lower last year, and I think demand has probably recovered in some areas more rapidly than they might have expected. And the capacity isn't coming on stream commensurately. So that's where the tightness exists.

It would be interesting to see where steel goes in the second half. Let's just see how that evolves. From an M&A pipeline perspective, there are a couple kind of ready to go now, as you pointed out. There's the typical bolt-ons still underway throughout the business and plenty of activity on that front, as you'd expect. But overall, what I'd say is that the pipeline is probably more lively than I've ever seen it.

So the opportunity is there. We've obviously got the balance sheet scoped to execute as well. So that's the position there. In terms of Southeast Asia, so we've been supplying that predominantly from Australia, sometimes from Turkey or India, but predominantly from Australia, and it's very, very hard to actually get any kind of deep foothold in the market from a distance. So Vietnam is an extremely interesting and vibrant market.

It's an excellent distribution point for a lot of the Southeast Asia area. The key areas that we will be focusing on there is food, technology and distribution. And they are all areas that our product sets ideally geared towards. So we think now is the time where we would expect to settle on a site for the Insulated Panel business, hopefully within the next month or two. And then the insulation business will be hot on the heels of that.

So we're up at it and we have a team appointed for the execution of that project during '21 and '22.

Geoff Doherty: Just on the spend themselves, Flor, just on that question, and these are 2020 numbers. And clearly, in these inflation times a bit of a moving feast. But the spend for 2020 on steel was approximately €1 billion. And on chemicals approximately €500 million, both of those are 2020 numbers.

Operator: Our next question comes from Yves Bromehead from Exane BNP Paribas.

Yves Bromehead: First of all, I just want to say congrats to Gene and the success of Kingspan throughout this year. So all the best for his well-deserved retirement later this year. If I could, I have three questions on my side, maybe number one, just coming back to Grenfell but also more generally to the wider, high rise dwelling issues, including the kind of cladding scandal and the insulation facade repair works outlined by the government. I just wanted to understand how you're thinking around sort of the provisions, the financial risk and if Kingspan could also be held liable, sorry, for some of the remediation works that needs to be done on those high-rise dwellings, including maybe below 18 meters as well? My second question is just whether you've seen any damages and impact on your position with customers around more generally the foam insulation industry from that Grenfell issue, but also related to conform in the UK and in Europe? And last but not least, my last question is on the UK and EU renovation potential.

The UK has just formally announced sort of its new Part F and Part L of the building regulation. London is tendering for €10 billion in social housing renovation package, so quite huge numbers there. What is your view in terms of the opportunities for Kingspan in the UK but also in the EU in terms of renovation?

Gene Murtagh: So from a Grenfell and from the tower itself, it's obviously very difficult to speak about that in particular. I think we hopefully characterize pretty clearly for us whilst our position was on us and our lack of input in any respect, whether it was design, construct, advice or anything on the tower, not to mention the extremely limited amount of materials. So that's a project that will take its own course.

More generally, as Geoff expressed, like the position is -- genuinely, it's extremely complicated. I know what the government announced recently, and obviously, the focus of the government's announcement was very much around the ACM facades. Like that's clearly been highlighted as the primary issue, and it certainly seemed to be the center point of what the government announcement was last week or the week before. From our perspective, where our product is not backed by proper large scale testing and certification or has been used in the wrong application as a result, directly as a result of poor advice from us, we will absolutely stand up and deal with those issues. But where in us and where the product is completely compliance with, what we're or are the building codes, that's that kind of speaks for itself, Yves.

But there's a long road to go here. There's, as I said, hundreds, if not thousands of parties involved. Bear in mind Yves this, that Kingspan doesn't design anything and it doesn't construct anything and it doesn't sign off any buildings. It's never been our role or our responsibility. So it's deep and wide the issue.

In terms of liability below 18 meters, that's not something we have encountered at all. We haven't even been challenged on it, never mind of liability. Whether it spreads to there or not is yet to be seen. But I think lots of other things need to be taken into account. Insulation, how it performs long term, what the implications are for the structure of the building, the cost of the building.

There are lots of things that need to be taken into account, not simply the fire subject, which is obviously one we major on. So we need to be careful, Yves. We need to also save energy for the long-term as well, and we've got the best solutions to achieve that. In terms of trends in Kooltherm, unsurprisingly, they would be under pressure in the UK, and that's probably been over the last couple of years, Yves, to be honest. Obviously, the product got dialed out of the over 18 meter.

And naturally, you get some contagion into other applications. But interestingly, overall, the Board business, whether it's PIR, XPS or Kooltherm, it is actually up and up quite materially year-on-year even for the first seven weeks of this year in the UK. So it's maybe shifting from 1 technology to another, but that's our experience overall. Elsewhere, like in Europe, Western Europe up into the Nordics, very fast-growing markets for Kooltherm, and that's been completely uninterrupted. If anything, it's actually accelerating.

From a renovation perspective, the opportunity is clearly large for us. We're about 25% renovation as a group, and that's been growing as a percentage of our business. And I know, historically, we would have been seen as a primarily new build business, but our solutions go way beyond that, they've been growing. And I'm always slightly skeptical of these measures and green deals and whatever, and our position very much is kind of bring it on. And when it comes, we'll be able to assist with the solutions.

So it's not something we bank on.

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

Gregor Kuglitsch: Can I just go back on sort of the M&A side? I think, obviously, you kind of called out a healthy pipeline. I guess I'm interested whether anything more strategic there? I mean, obviously, firestone would have been on the membrane side. But if I recall, now dating back a few years.

Obviously, there's obviously a few strategic areas such as membranes, but also industrial insulation. You kind of wanted to make a bigger impact. And obviously, I would say not very much has happened since then. If you could just maybe flesh out your appetite or whether there is anything larger out there that could kind of move the dial on those particular areas? And then maybe going back, so just to be very clear what you're saying on the product side, I mean, as far as just to understand on the mid-rise buildings, we understand in the UK, 18 meters plus, your product isn't being used at all. What's your exposure to that sort of three to six storey? And is there anything happening in that regard? Is there any market share loss that you can see? And then maybe one on the first quarter.

So you've highlighted a few times, it's quite strong. Could you put some numbers around kind of how strong is the first quarter? I appreciate by the time we get into March, you'll be lapping kind of COVID comps. But as it stands today, are we talking double-digit growth organic? Just whichever way you'd like to phrase that. And maybe one small one on CapEx, if you could just guide us, that would be helpful.

Gene Murtagh: So just from an M&A perspective, as always we expect plenty of bolt-on activity.

Obviously, there was a bit of a drought last year because it was clearly logistical roadblocks. But we have a fairly full pipe of kind of small to medium-sized bolt-ons that have historically worked very, very well for us. From a strategic perspective, you're right, we've highlighted for some time, membrane and industrial. If you recall, at the time, we said this was our long-term view of completing the envelope. It wasn't something we're expecting to be imminent back, whatever, three or four years ago.

I suppose our intent became very clear late last year, it's a pity we missed out on that. There hopefully will be other opportunities in that sphere, small, medium, potentially large. And I think the same applies for industrial. That remains very much part of our scope. We're probably rolling up at close to €200 million of organic revenue in our industrial insulation business covering pipes and docks and applications like that.

So organically, we've actually been growing very well in that area, and yes, we're intent on moving that along at pace and working on some opportunities there. From a product perspective, above 18 meters, you're right to some extent, but we do actually have a product called K-Roc in the range, which is an OEM produced mineral fiber products. So we are actually active in the above 18 meters, although we might not shout about it. And we intend to grow our position in that area through that. And as I said earlier, when we get around to eventually having the AlphaCore product, that's going to be key.

So we do have a presence in that. And also in our insulated panels solutions in some cases, and indeed, with our dry design facade solutions, we're predominantly over 18 meters. So we do have our presence in that area.

Geoff Doherty: Just on trading to date, Gregor, and I have to stress, it's early days, we're very early into the new financial year. But in the first six weeks, our sales were ahead by approximately 20% versus the first six weeks of last year.

And order intake globally in our Insulated Panel business is up by a similar quantum in the first six weeks as well. So it is a strong start to the year, but very much early days in terms of 2021.

Gene Murtagh: And a couple of extra trading days.

Geoff Doherty: And a couple of extra trading days in January, absolutely, in terms of the way the trading calendar fell.

Gregor Kuglitsch: Okay, and that's organic, right?

Geoff Doherty: That's organic.

Gene Murtagh: Totally organic.

Gregor Kuglitsch: Okay, and the CapEx?

Geoff Doherty: CapEx for '21 is €150 million approximately.

Operator: Our next question comes from Arnaud Lehmann from Bank of America.

Arnaud Lehmann: Three questions, if I may. Firstly, could you say a word on Kingspan culture? I appreciate for any business you try to find the right mix between pushing for more sales volumes but also sticking with compliance and regulations.

And as you highlighted, there was a issue in the UK board business. Could you please explain coming back to basics in a sense, what is the culture of Kingspan? And how can we feel confident that this was really a localized issue with the UK Board business rather than a broader issue with the culture of the company? That's my first question. Secondly, just coming back on M&A. Could you give us an indication of the multiples you paid, I guess, for the last few deals? I'm thinking of Colt, Terasteel, Trimo and I think that you announced today. I'm assuming this was kind of single digit EBITDA multiples.

And am I right to understand from one of the previous questions that you would be ready going forward to go towards kind of double-digit EBITDA multiples for larger acquisitions? And just coming back, if I may, on Jeff's comment around claims in the UK, I think you say you spend on a rolling basis, €30 million on a year on claims globally, and if it was to increase by €20 million to €30 million, that would be manageable. And that's a fair statement. But where did you think, you know, going to €50 million to €60 million a year in total is your expectations, is that just a scenario analysis at this stage?

Gene Murtagh: Okay, no, that's a bit wide ranging. So in terms of culture, so you'll be aware that the origins of the business and very much today, the ethos in the business is family-oriented. And it's always been the way.

And like coming with that, you'd expect honesty and integrity to be absolutely central to our culture, and it is and always has been. Alongside that, obviously, we're a business. It's a demanding environment, it's very entrepreneurial in its style, but none of that should ever be confused with creating pressure to do things that we shouldn't do or to cut corners or to do anything like that. It's a demanding environment at all levels, like it's demanding about what we make, how we make it, how good we make it, how we sell it, how profitable we want it to be. It's demanding at all levels.

It's not demanding over on the right-hand side of the equation at the cost of the left-hand side of the equation. That's not the way it is. It's never been the way it's intended to be. And rightly or wrongly, we've worked on a basis of trust, probably more so than we should have or I'd say demonstrably more so than we should have. So I think trust is still something that's key to have between people, particularly in the type of culture we have.

But we clearly need to be more systems robust to be able to be belt and braces around that and not just rely on it. So to be quite honest with you, we got caught out on the trust equation here, and it's as simple as that. It's the long and short of it. And yes, we'll be absolutely resolute in ensuring that the principle of the business get's re-embedded, if you like, in that area of the company. So it was a big let down for us, probably much more so than it was for anybody outside, I can assure you.

In terms of multiples, we're probably buying at an average, I'd say, of 8-ish at the outset. It's probably been where we've positioned things. Some are lower, some are higher for obvious reasons. Whether we get pushed to the higher multiples or not. It's very hard to buy high-profile assets probably for 8x at the moment.

But there are some very decent businesses that can be bought at that, and indeed below, depending on what end sector it is, but some of the more higher profile deals that get auctioned, yes, it's difficult to get them at that. So we may have to brighten up a little in some areas.

Geoff Doherty: Arnaud, if you wouldn't mind just repeating that last question you had in respect to claims, we were competing with a drill here in Kings Court, so I didn't quite hear it. If you wouldn't mind repeating it.

Arnaud Lehmann: Sure, I appear to hear there's building activity happening in…

Geoff Doherty: Very important here.

Arnaud Lehmann: No, I was just coming back on your comments in the introduction, you said on the claims that you were spending about €30 million a year globally. And that if it were to increase by another €20 million or €30 million, that would be manageable, and I think that's a fair point. But I guess my question is where does the €20 million to €30 million increase is coming from? Is this just an example or you think that's a realistic outcome with what's happening in the U.K?

Geoff Doherty: What I would say, Arnaud, is that, that number at this point is nothing close to a run rate. We incur across all markets currently about €30 million. The claims experience in the U.K.

currently in respect to the issues that we've spoken about at the moment is very, very low. So it was more to just outline that in a scenario where the claims experience was to increase by €20 million or €30 million. That's a situation that Kingspan could adequately handle. But it also has to be stressed that that's not something that we're currently seeing at this point. So we remain very much tuned into this.

And to repeat the point that was made earlier, where Kingspan has an obligation to a customer and has a responsibility to a customer, we will absolutely step into that and deal with it as we do in every other market around the world, and I've done so for many, many years.

Operator: Our next question comes from Lush Mahendrarajah from Berenberg.

Lush Mahendrarajah: I've got three questions, if that's all right. The first is just on sort of the dividend and sort of the capital allocation out there. I know you alluded to it at the H1 results, but I guess, why are you doing this now? I know you've already given us CapEx guidance for next year, but should we anticipate an acceleration and sort of organic investment and sort of new factories or across the board going forward, and particularly in the out years.

Just secondly on Kooltherm and sort of getting it to a B-Class, presumably, that still can't be used on high rise buildings, but does that add any additional scope elsewhere in terms of other buildings, whether for the linear route or large-scale testing. And then just lastly on raw material inflation, historically, that's sort of increasing share of quarter and the mix to sort of offset a lot of that raw mat inflation, particularly in MDI. Is that something we could expect again or is it sort of more general broad-based raw mat inflation going to mean we shouldn't see that this year?

Gene Murtagh: So I'll start just with the raw material piece. You're right, last time out when the MDI went completely crazy, it was an opportunity for conversion actually up into Kooltherm. We would clearly see the scope for that depending on how high MDI rises.

But right now, we actually don't expect it to get to quite as lofty levels as it did a couple of years back. But if it does we have the scope. There was also a conversion at the time into XPS and EPS on the continent, depending on what the applications were. So yes, we obviously have a spectrum of material that we can substitute, if that's the case. And in particular, if the raw material becomes short, which was more the issue last time out.

So we got scope there. In terms of Kooltherm, Lush, and B-Class, we actually have a product currently that does achieve that in one of the applications, and it's more to try and get that not across the entire range, but more across all of the critical applications. From a high-rise or above 18 meter, if you like, perspective, the product is sold in robust systems day in and day out still. And if anything, it's actually increasing its share in some markets. So the B classification product with the right facade is an extremely robust solution.

And like I know, it's not the time for certain markets to be considering that, but I can tell you from an absolute performance perspective, it's extremely robust when it's partnered with the right external facade material. And then CapEx?

Geoff Doherty: CapEx for 2021, approximately €150 million. I think that's probably a reasonable run rate going into '22 this removed from that. So currently, we have in excess of €2 billion of development capital available. So naturally, the lion's share of that over time will be deployed by way of -- on strategy M&A will be the significant piece of it, and we continue to organically develop the business as well at that level.

Operator: Our next question comes from Yassine Touahri from On Field Investment Research.

Yassine Touahri: So a couple of questions for me. You're talking about increasing your price by 8% to 9%. You mentioned that you were increasing prices by 8% to 9% in your insulation business, but the question I have is that do you think all of it will stick? And to what extent are you comfortable sticking to this, let's say, 9% price increase, if it means that you will lose market share. So that would be my first question.

And my second question would be, in addition of the raw material inflation, do you see any availability issues for MDI? I understand that a couple of MDI plants, for example, one in Texas has been shut down. There might have been some logistical issues also related to Brexit to get some EBITDA into the U.K. Could it impact your capability to supply your customers? Those would be my two questions.

Gene Murtagh: So on the inflation, as we pointed out, yes, 8% or 9% across the piece, taking some product -- Maxine, would you just cut him off, please, and we'll answer the question. So yes, we do expect, if you can hear us, Yassine, we do expect the prices to stick when we eventually get them embedded.

And in terms of market share, it's not our expectation to lose market share. That might be the case in the early part of the effort to get increases. That can happen. But ultimately, everybody else is going to have the same inflationary experience. And to such an extent, I don't think they have an opportunity, but to pass them on.

You're well up-to-date in terms of the MDI issue in Texas. A couple of days ago, BASF declared force majeure on their MDI plant in the U.S. and that obviously is creating a little bit of tension. As things stand, we're not aware that we're going to be cut off, but naturally, we'd be very mindful of that. And as I said in the earlier answer that we'll be looking at product substitution, if that does become an issue.

Operator: The next question comes from Cedar Ekblom from Morgan Stanley.

Cedar Ekblom: One follow-up question on remediation, appreciating that there's quite a lot of uncertainty, is there any information that you can give associated with the percentage of revenues or an absolute revenue number that may be linked to selling Kooltherm products that didn't necessarily have the right safety certificates associated with it? I don't know if that's a number that you guys have run internally that you could share.

Gene Murtagh: And I don't mean to be in any way kind of not answering that question, but it's very complicated. It's like we've done a huge amount, I mean, the K15 products, and I'm joking you not, is the most tested insulation for high rise facades in the UK by some stretch. So we have a very extensive bank of live and valid tests and certifications.

We won't know until we go through building by building exactly what the construct is, does the certification cover it or not, did that have anything to do with Kingspan in the first place, was it our advice, et cetera. There's a lot of moving parts in it. And to be honest, we just can't answer that question. But as Geoff said, our experience to date has been well covered.

Geoff Doherty: And the only point that I would add to that is that at its peak K15 sales annually would have been €16 million per annum.

So that was the quantum of it at its peak. Clearly, it's a lot less than that now.

Operator: Our next question comes from Brijesh Siya from HSBC.

Brijesh Siya: I have two questions as well, so first one is on margin. I mean would we be thinking about going back to around 2018 kind of trading profit margin for this year, considering the significant raw material increase which we are kind of experiencing right now? And the second question is about volume.

You have seen a great start to the year. Does that mean that we are in for a recovery of 2019 volume in 2021?

Geoff Doherty: Well, just on the margin point, I think given the lag, which is part and parcel of the recovery effort, it's unlikely that we will repeat the margin performance of 2020 which was 11.1%. That's an unlikely margin for 2021. It's more likely to be mid 10s, 10.4%, 10.5%, allowing for that lag. That's our best sense of it at this point.

And the second question?

Catriona Nicholson: When volume can be recovered in 2019?

Gene Murtagh: Yes, it's far too early in the year to really call that, but like already the volume actually is ahead of 2019, in fact, across most businesses. But say, we've had a particularly good start, we had the benefit of an extra couple of trading days in January. But I think encouragingly, our intake has been strong. And obviously, in the Insulated Panels business, that kind of gives us a two to three month view on things as well. So that's encouraging so far.

Operator: Our next question comes from Rajesh Patki from JPMorgan.

Rajesh Patki: First question I got is on the order book that you mentioned. A good level of order books in the panel business, how much of that is supported by the pre-buying activity that you mentioned at the Q3 trading update? Or if I try to put it another way, the underlying improvement in the order book position, if you can give some color on that, that would be helpful. The second question is on the provisions and claims, the incremental provision for €20 million to €30 million potentially, is that essentially aimed to cover an increasing proportion of potential claims in the U.K. alone? Or are you considering potential claims elsewhere in the business as well? And lastly, on wages, if you can provide some color on how you see the wage cost fees evolve this year, particularly given there were targets globally for a couple of months during last year.

Gene Murtagh: So just in terms of the backlog. You'd be right to suspect some prebuying. It's very, very hard for us to distinguish between what is and isn't except what we've been seeing is this level of intake has been pretty robust for the last three or four months. So it's not something that's been just very recent. As I said, we'd be encouraged by it continuing through January and February.

So honestly, it would have been a concern of ours in Q4 last year, but we'd be encouraged by the progress at the beginning of this year. So yes, there's some degree of it. But as long as somebody keeps pre-buying, that's the main thing.

Geoff Doherty: Yes, as regards the claims piece, Rajesh, the additional €20 million to €30 million that I've mentioned is just to absolutely emphasize that's not a run rate we're currently seeing. It was more just to outline.

If that were to happen, the adequacy of our financial position and being able to deal with that. So we'll just have to take that as it comes and address that as it comes. But that's the that's the situation on that. As regards to payroll, during 2020, at the onset of the pandemic, we implemented some very significant short term pay reductions across the business. We reversed those in the second half of the year in light of the trading performance of the business.

We're back now to a normal run rate from a payroll perspective.

Gene Murtagh: Maxine, we'll take one more question, please.

Operator: We have no further questions, so if you'd like to continue.

Gene Murtagh: No, that's fantastic, Maxine, thank you very much. And thank you all for joining us.

No doubt, we'll be speaking over the course of the next days and weeks. Thank you.