Operator: Good morning, and welcome to the Kingspan Preliminary Results 2022. [Operator Instructions]. Thank you. Now let me turn the call over to Gene Murtagh. So Gene, please begin when you're ready.

Gene Murtagh: Thank you very much, and good morning, everybody, and welcome to the 2022 preliminary results call. We'll get straight into it on Page #3 of the slide presentation, which I'm sure you've got in front of you. So in summary, the revenue for the year came in at $8.3 billion, which was an increase of 28%. Trading profit pretty much as guided, came in at $833 million, which was an operating margin of 10%. And earnings per share came in at almost $3.30, which was an increase of 8% also.

And driving those increases by division was insulated panels, which were up 23%, largely owing to inflation, which we will speak a lot more about later in the call, but also aided by a very significant increase of 46% in our global sales of QuadCore, which is our proprietary technology in our insulated panels. The insulation business grew by 40%. Again, inflation played a large role here, but so too did the very significant impact of district heating, which is as a result of the acquisition of LOGSTOR last year, which grew very significantly organically. And once again, we'll deal more with that later on. As part of that division, our technical insulation, i.e., nonbuilding comprises around 35% of global revenue, and is growing significantly.

We've established our Roofing & Waterproofing Division with the acquisitions of both Ondura and Derbigum. That division now this year should deliver a run rate -- run rate revenue of approximately $500 million. And naturally, we have some other strategic initiatives in our sites on that front as well. The Light & Air business increased by 27%, with significant margin increase as we head towards a 10% operating margin there over the coming years. And Data & Flooring has flagged, grew very significantly by around 33%, again, very much driven by the data center activity in Europe and in North America.

I'm going to just take you forward to Slide #11, before we get on to the financials, which is titled 2022 Planet Passionate Progress. And just to the left side, well, probably to the middle of that slide, dealing with the underlying business's performance against the base year of 2020. So we set about very significant and challenging and ambitious targets on a good number of fronts. And just to highlight the progress in some of the areas that's actually been extremely encouraging. So at an emissions level from Scope 1 and 2 in our manufacturing has actually been a 41% absolute reduction in emissions over the last 2 years, which is obviously very significant.

In terms of our 0 emission vehicles, the replacement rate globally was 60% last year. And we're hurtling towards 100% there, which is our 2025 target, and we'll probably meet that in advance of that. Direct renewable energy, again, our target there is 60% by 2030. And in all likelihood, we will meet that in advance of that year. So 34% of our electricity was direct renewable.

And 7% of that was from our own sites. Solar PV installations across the group were almost 42% of our sites now incorporate that. And again, that will make a very significant leap forward in the coming year. And then just one further thing to highlight is the waste to landfill, which is a target we're again very passionate about. We've over -- we've reduced the waste to landfill by over 50% in the last 2 years.

And again, our target there is absolutely 0, and we'd be enthusiastic about achieving that in our target period. In terms of the organic expansion, product development, et cetera, we'll touch on that later, probably more during the Q&A session. So I'm going to hand you over to Geoff now to take you through the financials.

Geoff Doherty: Thanks, Gene. And I'm turning to Page 17 in the slide deck.

So just some of the financial highlights. As Gene outlined earlier, group revenue is up 28% to $8.34 billion. Trading profit up 10% to $833 million, EPS up 8%. A final dividend of $0.238, bringing the total dividend for the year to $0.494, so up 8% in line with earnings and a payout of 15%, which is in line with our dividend policy. A decent free cash flow performance, and I'll come to the constituents of that in a second.

But free cash flow, $393 million compared to $127 million in 2021. So considerable progress, particularly in the second half of the year on reducing working capital. Net debt came in, in line -- broadly in line with what we guided, a little over EUR 1.5 billion. The trading margin was 10%, down 160 basis points versus 2021, and we look at the divisional profile of that in the second. The effective tax rate up 30 basis points, and that really reflects the geographic mix of earnings year-on-year.

Net debt to EBITDA at 1.62x compared to 0.88 in 2021. Return on capital employed 15.9% or perhaps more fairly 16.5% when you annualize the impact of acquisitions, bearing in mind the timing of some of those late in the year in terms of return on capital employed. From a debt perspective, it's also worth highlighting that developmentally the business invested 1.3 billion through 2021 in terms of acquisitions and CapEx. So a year of significant investment. Turning to Page 18, just to look at the margin by division.

Insulated panels, 10.6% for the year, and down on 2021, which was a high water market in many ways in terms of margin performance. The margin in the second half of the year of 2022, lower than the first half, as we worked through our inventories of raw materials as the tide turned in some of those inputs midyear last year, and they were traded out through much of the second half. The installation margin, 10% compared to 12.4%. Again, that would have been reflective of an element of volume weakness in the insulation board's dimension to that business down about 10% in volume. Although the LOGSTOR business, which is now 1/4 of that division, its volumes were up 18% in the second half of the year.

Roofing & Waterproofing very much a stub period in 2022, 5.5% trading margin, but we would expect somewhere between 7% and 8% in the current financial year trending to 10% over time. Light & Air recorded some progress, 7.5%. But again, the medium-term margin guidance there in the next couple of years or so is 10%. Water & Energy, 5.5%; Data & Flooring, 12%, in line with 2021 and trending similarly as we move into the early part of this year in that division. So overall 10%.

And you'll see on the right-hand side of the -- of that particular page, compounded trading profit growth of 17% since 2018. Turning to Page 19 and just the bridge of group sales and profitability. Dealing with sales in the first instance, currency was plus 3%. Acquisitions contributed at 9% and underlying revenues grew by 16%, or a little over $1 billion in '22 versus '21. From a profit perspective, currency was plus 3%, acquisitions contributed about 8% and underlying down -- slightly down by about 1% from a profit perspective.

Turning to free cash flow on Page 20. Decent free cash flow performance overall, EBITDA, a little under EUR 1 billion. Working capital increased by EUR 136 million, but bearing in mind that underlying sales were up by EUR 1 billion. We expect to make progress in reducing the working capital sales percentage further progress in that regard in 2023. The metric was 14.5% at the end of December compared to 13.8% in -- at the end of December '21.

I think there's 100 basis points or so of working capital to come out of the business over the course of the next 12 months. So that should aid cash flow in the current financial year. Other significant items on that page, our tax outflow is EUR 158 million, broadly in line with the current tax charge for the year, and significant CapEx in the year, EUR 250 million during the year. Our CapEx guidance for 2023 is approximately EUR 180 million. So it ought to be a little bit lower in the current year.

And all of that combined to deliver the EUR 393 million of free cash flow. Reconciling that to net debt on Page 21. The other significant cash flow items beyond free cash flow where the acquisition spend of EUR 893 million, the Roofing & Waterproofing acquisitions were a significant component of that, along with project in the insulation business and other acquisitions made in the year. The financial asset was the strategic minority stake in Nordic Waterproofing. Our cash dividends paid during the year about EUR 97 million.

So we closed out the year with a little over EUR 1.5 billion of debt. On Page 22, just we just highlight some numbers around our balance sheet, leverage net debt 1.62x. We arranged additional lending facilities of EUR 800 million during 2022. Our liquidity is a healthy EUR 1.45 billion between cash balances on hand and committed undrawn facilities. And the weighted average maturity of our long-term private placement note is 5.7 years.

Return on capital employed as a metric is set out on Page 23. So in terms of the annualized return after the impact of acquisitions, 16.5%. And we ought to see that progress as we reduce the working capital position, in particular, during the current financial year. And clearly, it's a very important metrics as we think about the business and its profile. The sales by geography are set out on Page 24.

No significant changes geographically year-on-year. The Americas comprising 22% of the business as compared to 20% in 2021. And the European markets, broadly 70% or there or thereabouts of the business. So with that, I'll hand back to Gene.

Gene Murtagh: Great.

Thank you very much, Geoff. If we could take you now to Slide 31, which is titled Outlook. It was just as a general comment, we've probably never seen as mix an environment in the history of the business. So by geography, by product set, by end markets, there are really huge variations, which are probably not surprising. In terms of our kind of current trading, it's like it's very difficult to look too far ahead naturally, but year-to-date underlying like-for-like revenues are broadly similar to what they were in the prior year.

So that's up 6% or 7% in price and down 6% or 7% in volume. And when we add on the acquisitions, it's about 7% ahead of the revenue for the year to date. Naturally, we're heading into probably the toughest comp, which is Q2, which was the highest performance of the business really ever, driven usually by inflationary pressures at that point last year. But all in all, we would feel -- we'd feel reasonably confident about how we'll take the business through the current year. And that's it from the formal presentation perspective.

Very happy to open it up to questions now.

Operator: [Operator Instructions] The first question we have from the phone lines comes from David O'Brien of Goodbody.
David O'brien: Three, please, if I could. You've mentioned, Gene, in the outlook, just the -- I suppose, the variabilities performance across geographies and end markets. Just wondering, if you could maybe flesh that out a little bit first and give us a flavor of the varying regions and end markets by performance?
Secondly, specific to the U.S., can you give us a view on like we've got the Inflation Reduction Act, we have the CHIPS Act, but how do they play into Kingspan's business more medium-term?
And then finally, could you give us a flavor of what trends you're seeing in steel, MDI and mineral fiber costs, please?

Gene Murtagh: Okay, David, yes.

In terms of the regional performances -- in terms of the regional performance, let's say, starting with North America, I'd say, it's probably 1 of the better performing regions that we've got. Naturally, our significant exposure there is nonresidential, which is still performing well as a backdrop, but also our sectoral exposure there is very much to our advantage as well. So huge exposure to the data side, huge exposure to the automotive transition towards EV, which is driving off a lot of our project volume at the moment. And the pipeline we're looking forward to there actually for the next 18 months or 2 years is extremely encouraging. Moving across to Europe.

France and Germany would be very steady for most of our businesses. Benelux and Central Europe and in particular, Poland, we would highlight that as very weak. And then the U.K., I would say, understandably, not an outstanding performer either. And that's it broadly in terms of the regional variations. In terms of the IRA Act in the U.S., I'd say in terms of how that will affect us, that's kind of a TBC.

It's very early days for us in that area. And then from a cost perspective, and there's a lot moving around there actually at the moment. So I would say that our costs have probably bottomed out. So if anybody was anticipating further deflation in our cost base and in our selling prices, I think that has certainly halted for the time being. So steel naturally will be our biggest purchase, then chemicals and then to a smaller extent, mineral fiber.

So steel, we would actually expect to see it rising in the second quarter. Difficult to put a percentage on it, yes, and obviously, that will be commercially sensitive enough. But in terms of direction of travel, it's going to go up and so too with our selling prices, but with the typical lag. MDI, similarly, we would expect to harden in the foreseeable future as well as demand picks up again. And then from a mineral fiber perspective, obviously, we consume a lot of that.

Developments more recently is that there's a lot of capacity available, we are seeing more availability. We're seeing more price reductions. Difficult to call where that will go. But obviously, energy is a huge driver for that particular segment. Energy prices now are probably similar to what they were a year ago for the production of those products, and selling prices a year ago were probably 30% lower than what the IMF.

So let's see where that travels over the next couple of months.

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

Arnaud Lehmann: Three questions as well, if I may. Firstly, I guess, you comment on Q1 profit, but you do not published Q1 profit. So could you give us an indication of typically how much Q1 contributes to your first half results, let's say, how much was it in 2022? Is it 30%, 40%? I assume it's smaller than half.

Indication would be helpful. Secondly, I think you mentioned that you're going to combine the Light & Air and the Water & Energy division. Could you please explain the fundamentals for that?
And lastly, you gave us some indication in your initial comments on the free cash flow. But is it correct to assume that excluding acquisition, you could reduce your debt by, let's say, 500 million to 600 million on lower CapEx and positive working capital this year?

Geoff Doherty: Okay. Just to deal with the question around Q1.

I mean very directionally an average year, Q1 will be about 20% of annual profitability, give or take, but that's, as I say, in an average year. And maybe just to deal with your -- with the last question on cash flow. Absolutely, 600 million is the net cash generation before acquisitions that ought to be deliverable this year in light of that working capital percentage coming down, and CapEx being sub 200 million. So absolutely, that's the general number there.

Gene Murtagh: Thanks, Geoff.

Yes. And in terms of the Light & Air & Water, as we grow, we naturally need larger platforms, very much a part of creating a larger product platform, global across this combined business unit. There's going to be channel synergy. There'll be I'd say, a significant boost in the online channel, which is well established in the water business, less so in the Light & Air, and the products would be very suitable for that channel. And there's also a very significant service dimension to both of these businesses, which is different than the rest of the group, and we would see the opportunity to, over time, amalgamate that and grow it significantly on a global scale, and hence, the rationale for amalgamating these businesses.

Operator: Our next question comes from the line of George Speak, BNP Paribas Exane.

George Speak: Just first one on LOGSTOR. So clearly, very attractive business proposition and attractive volume growth. Do you think that's sustainable going forward? Or what's the long-term volume trajectory of that business?

Gene Murtagh: So as Geoff pointed out, 18% organic growth, which is really very encouraging, very significant. We would be very enthusiastic about the longer-term prospects for this business, and that's naturally as a result of a transition in energy sourcing largely around cities in Europe.

So couldn't really be precise on it, but there is growing interest in district heating as a concept rather than the opposite. And LOGSTOR would be the significant market leader in Europe on that front. So yes, we will be, I would say, very pleased about the prospects for that business, and related contributory businesses as well that we hopefully will develop over time as well.

Geoff Doherty: And I think, George, our capacity plans also reflect the ongoing positive prospects for that particular business, when we plan to increase our capacity by 30% in the current year, and by a further 50% a 3 years out from this year. So yes, the structural growth in that business ought to be positive in the coming years.

George Speak: Okay. And that kind of feeds quite nicely into just M&A intentions. And clearly today you have a long shopping list of different verticals and products that you're looking up, how do you balance those? What's the key priority right now? What are you looking at? What's interesting?

Gene Murtagh: Yes, probably a more encouraging pipeline than we've ever had, which is a good starting point. We'll be characteristically disciplined in terms of our balance sheet as we've been in the past. So I'd say, I'd be cautiously optimistic about how we take that agenda forward.

In terms of geographic exposure, the significant opportunities will be Continental Europe and America, both Latin America and North America. And there are opportunities right across the product portfolio. Literally, every division, there are significant opportunities. And no more to be said then that really.

George Speak: Okay.

Understood. Maybe 1 just final question then, just returning to the outlook. I appreciate you haven't published the panels volume backlog, but do you mind just giving an indication of how it compares to last year?

Geoff Doherty: We haven't given the specific backlog number because given the range of markets that we're in, the range of applications and different things running at different speeds. The direction of travel you can take it is consistent with what Gene outlined in terms of our volume performance year-to-date being down 7% or there or thereabouts. That feels like life for now.

Operator: We now have Flor O'Donoghue of Davy.
Florence O'Donoghue: Just a couple from me. The first is just in relation to Slide 12 in the deck, the very interesting graphic you always put up, just interested to note there, it looks like it's something like over 10 projects coming to fruition this year. Just maybe to get a sense of what the revenue opportunity over time from that level of kind of capacity coming on stream is. And then the second one, just a sense of the warranty charge last year, just how that evolved, if that's okay?

Gene Murtagh: Yes.

So on that Slide 12, the organic expansion, Flor, like it's -- to be honest with, there's nearly more internal demand than we're physically able to satisfy in the sense of actually building facilities, sourcing the equipment, et cetera. And as the group clearly expands and the divisional footprint expands, the demand get bigger along the line, as Geoff just highlighted in terms of LOGSTOR, as an example. So demand, literally for 2 new facilities there right now. And as you can see from this, it's covering all divisions and pretty much all geographies. So there's probably about 400 million of CapEx demand on that slide itself.

And typically speaking, the revenue would be approximately twice the CapEx. So once we kind of get this -- once we get all of this done, and bear in mind now there's several years of development here. But these are all projects that are either underway or very much in our planning pipe. So -- it's encouraging to say the least, that the demand is there from the businesses for this CapEx.

Geoff Doherty: Yes.

And just a question on the warranty total provision at the end of December 2022, approximately 180 million and the income statement charge, approximately 48 million.
Florence O'Donoghue: Great. Just 1 final follow-up, if that's okay. Just on Rooftricity, I think you mentioned in the document just some supply constraints around getting, I think, parts of the product and just maybe to get comments on that and maybe how that's going in general? Any way or your thought process around that in the power panel?

Gene Murtagh: Yes. Yes, absolutely, Flor.

So not surprisingly, a lot of the world solar comes from China. And so to do the modules for this particular product. So there has been some, I'd say, well aired disruption in that whole channel. And also, I would say, some delays in just the certification process just owing to log jams of testing requirements generally around the markets. So that's all going to go absolutely fine.

And we also -- we're trying to extend the supply base as well, probably to be less reliant on the areas where we commenced. In terms of the appetite, like the appetite is really extremely significant. And to be frank, we're just trying to hold that back until we're physically fully ready for it all. But as you look ahead, it's very conceivable that within a period of 4 or 5 years, the demand for solar incorporated into roofs will be -- multiples higher than what it presently is. And this is all about readying ourselves for that.

And as you can see from the Slide 12, there are a number of other facilities aside from the U.K. that we expect to get ready for power panel over the next year or 2. So yes, like of all product sets, probably the one I'd be most to clarify.

Operator: We now have Gregor Kuglitsch of UBS.

Gregor Kuglitsch: I hope you're well.

I've got a few questions, please. Maybe can we start with the waterproofing business. So I think you're sort of saying EUR 500 million run rate. Can you sort of tell us, what you think the sort of initial margin is on that? I appreciate you have to integrate that business and then sort of the medium-term aspiration. Maybe related to that, I think you sort of called out that there's more opportunities here strategically.

I think there's been -- there's one large deal the other day, which was probably a bit too big for you, correct me if I'm wrong, in the U.S. But just give us your thoughts on kind of the size and scale that you want to push that business into the next few years? That's sort of question 1 and 2, I guess. Then the second question is, can you just remind us in rough terms, I appreciate it's a bit commercially sensitive in rough terms where we are now? What was the steel in bill last year so we can get a bit of an idea how to think about that?
And then related to that, I think you called out in H2 that you had a bit of a headwind from -- I suppose, overpriced or high-cost inventory. Can you quantify how much that actually was, like in euro million terms or something like that?
And then finally, I know your QuadCore sales are growing quite nicely, and they're now actually becoming quite a big chunk of the second, can you just give us an idea how much extra margin you make on that? Sort of I appreciate again, commercially sensitive, but directionally, please?

Gene Murtagh: All right. So I'll just start with the roofing.

So the roofing side of it you -- look, there's been lots of M&A activity in that sector, which you know well about over the last couple of years. I think we've been working away reasonably discretely ourselves on that front. There was that Duralast deal announced recently in the U.S. in terms of scale, it's not remotely too large for us, actually. So we were at that table.

Gregor Kuglitsch: I think -- value -- but okay.

Gene Murtagh: No, no. The multiple was way out of anything we'd be prepared to pay, which is a different issue than the absolute figure. So that's really all we have to say on that front. But yes, it's that type of business that would exactly fit the profile of what we're about.

We're a very returns-focused business and that just wouldn't fit our profile. Geoff, maybe you take some of the other.

Geoff Doherty: Yes. Just on the impact of higher priced inventories in the second half of the year, about 100 basis points of margin in the insulated panel business in the second half of the year will be broadly attributable to that. On the Roofing & Waterproofing margin profile, 5.5% in 2022 is effectively just reflective of the fact that we acquired the business late in the year and the acquisition costs and so forth were also reflected in 2022.

This year ought to be at or about 7.5% or 8%. But very much the direction of travel here is a 10% return on sales division, and we've been working hard in the coming years to achieve that.

Gregor Kuglitsch: And on steel and chem?

Geoff Doherty: Yes, on steel and chemicals, Gregor, we -- for the last number of years, we've been reluctant to give specific numbers on that for reasons of commercial sensitivity. So I think of this out, we're not feeling any differently about that.

Operator: The next question we have comes from Rajesh Patki of JPMorgan.

We will move on to the next questioner. The next question is Yassine Touahri from On Field Investment Research.

Yassine Touahri: Just couple of questions. Could you give a little bit more color on the volume development and pricing development that you experienced in the first quarter of 2023. I think you mentioned 5%, 6% volume decline, but I just want to double check.

And is it fair to assume, based on your comments that the volume were down double digits in the fourth quarter of 2022. So question on volume. Then second question on the pricing dynamics in your panel business. Could you explain a little bit how the pricing negotiation work with installer?
And how confident are you in your ability to have a positive or neutral price cost dynamic for 2023, given the volatility in chemical price and steel prices? That would be my second question.

Geoff Doherty: Okay.

Just to deal with the volume question in Q1. In the early part of this year, volumes are globally are down by about 7% and pricing is about 7% ahead. So our underlying sales pretty much flat year-to-date. And that's the direction of travel through Q1.

Gene Murtagh: And that takes into account extreme variations, which we highlighted earlier on.

Like some of the businesses are like significantly ahead and some are significantly behind. But Geoff highlights, that's the average take on what it looks like. And in terms of how the pricing dynamics works, it's reasonably straightforward. We try to get the highest price we can, and the customer tries to get the lowest price they can. And that's pretty much how it works out.

Now as I highlighted earlier on, we would feel that our cost base certainly for the foreseeable future has bottomed out. So we're looking at actually at an increasing cost base. And coming with that will naturally be efforts to increase our selling prices with, as I said, the typical lag. But our pricing naturally right now is under pressure because of the current low level of -- sorry, relatively low level of our cost base. And of course we would expect that to be fairly short-lived if the expected growth in our raw material costs transpires.

Catriona Nicholson: And you made some comments, you see that volume and double digit in Q1 2022. I think that's a narrow the volumes are ahead in Q1 last year.

Yassine Touahri: No, in Q4 2022.

Gene Murtagh: For Q4.

Yassine Touahri: In the Fourth quarter.

Yes.

Catriona Nicholson: [indiscernible] volumes on a quarterly basis.

Yassine Touahri: In the second part of the year...

Gene Murtagh: You can take it; they were under pressure.

Geoff Doherty: Yes, absolutely.

Yassine Touahri: And just to follow-up on the pricing, do you see any increased competition from you're -- the steel manufacturer like Tata Steel and Arcelor in an environment where volumes are down, or do you feel people in the industry is rational?

Gene Murtagh: I would say the downstream businesses of steel mills are never particularly rational. But that's no different today than it was last year or 5 years ago.

Operator: We now have Manish Beria of Societe Generale.

Manish Beria: So yes -- so my first question is also the question asked by Gregor last time was that the QuadCore has become very important for you. It's already 17% of the panels business.

So just trying to understand, do you get a mix impact when the QuadCore sales grew faster than the rest of the business, I mean. So is there a margin difference in there? This is my first question. The second question I wanted to ask on your pricing strategy this time because Kingspan has been delivering positive price/cost spread in the last 2, 3 years now. So is there a willing to give back this time price cost? Or it just like continue to have a positive price cost spread also in 2023?

Geoff Doherty: Absolutely. Like any innovation that Kingspan has, clearly, the margin profile for the latest tech is positive.

So there is a positive impact in the panels business. And it did contribute to the margin performance in 2022, bearing in mind that overall volumes in the division were down and QuadCore was ahead. So again, for commercial reasons, I wouldn't want to talk specifically about the margin other than it is a -- it has a positive mix impact, and that of to play out further in the coming years as QuadCore becomes an even more meaningful part of the insulated panel business.

Manish Beria: Okay. And the price cost, the pricing strategy this year?

Gene Murtagh: There's obviously a very close relationship in terms of trend wise between our cost and our selling prices, which is why I would say we're probably -- we're in or around at the lowest level presently, I would say.

But as we anticipate costs increasing. Naturally, our quotations very shortly are going to have to reflect that in terms of our incoming in Q2. So we will be increasing prices very shortly in certainly the insulated panels business.

Manish Beria: So is it fair to say, I mean, as you say, there is some lag always? So this year also, maybe there is some lag, but you'll have some inventory because last time you suffered because of the high-cost inventory, so that will be beneficiary. So in that sense, I mean, it will still be neutral to positive this year, the price cost?

Gene Murtagh: Yes, probably in the heel of the hands, you're right, absolutely.

So we'll naturally enter Q2 with low-cost inventory, but that will rise as we go towards midyear.

Manish Beria: Okay. So yes, but I just wanted to see like how do you feel about the consensus that is for EBITDA this year for 750 million. I mean you did 33 million this year, '22. And now the consensus is expecting like 10% decline.

So are you happy, do you seeing this is a reasonable range? Or is it something like you can absolutely -- it's a very low number, the consensus now? How do you think about that?

Geoff Doherty: Yes. I mean the consensus number that we collect shows 751 million of trading profits for 2023. And while we're not giving specific guidance for 2023, the 751 million is a number that we would be comfortable with at this early stage in the year.

Operator: We now have Rajesh Patki of JPMorgan.

Rajesh Patki: I hope you can hear me now.

Gene Murtagh: Yes.

Rajesh Patki: Great. I've got 3 as well, please. So the first 1 is if you could give us a rough idea of the group's cost base, maybe in terms of fixed and variable costs, appreciated to provide details on steel and MDI individually. And you've commented on the trends on steel and MDI, you see them moving.

But maybe if you can comment on how, you see the fixed cost base evolve this year?
The second question is one of the listed competitors last week said they expect a double-digit decline in top line for the full year. I appreciate the difference in product profiles, but is that something you broadly agree with? And if not, why?
And lastly, I think you mentioned prices running at around 7% for the first quarter, with potentially further increases in the second quarter from a -- purely from a cost perspective, do you see any competitive risks to these price increases? And particularly given the challenging volume environment.

Geoff Doherty: Yes. Just on the fixed versus variable cost profile of the business. I mean on average; our gross margins are somewhere between 28% and 29%.

And our overheads below that are 18% to 19%. And those overheads are approximately 50% fixed and 50% variable. So I suppose if you wait long enough, every cost is variable. But in the short-term, that's the outline a little bit.

Gene Murtagh: Yes.

And in terms of the mineral fiber producer, I guess you're referring to that came out last week talking about double digits. I'm not sure what it was volume -- like it's really a very different industry with different dynamics going on in -- its extremely energy led from a cost perspective. And as I highlighted earlier, energy is pretty much at the same price as it was a year ago. So I guess what they're probably highlighting is that their selling prices, et cetera, are going to reflect that very shortly. And lots of free capacity there, which we've noticed over the last couple of months emerge as well.

Our business is very different. As we've said, we're actually expecting cost increases and some of it quite significant in Q2. So there's no alternative for us to drive that through in our selling prices.

Operator: We now have a Yves Bromehead from Societe Generale.
Yves

Brian Bromehead: Can you hear me?

Catriona Nicholson: Yes.

Yves

Brian Bromehead: Just a quick follow-up on the power panel. I just wanted to know; can you actually quantify the market potential that you see here? And can you also explain whether or not the revenue exposure of that product would be more tilted towards renovation versus new builds, that would be really helpful. And maybe secondly, on stone wool, you've clearly mentioned that you've got some plan here. So I was wondering, what kind of technology are you looking at? Are you looking to go full on electric? And then can you maybe specify which region you're looking to penetrate? And what kind of CapEx we should be looking for if you're actually going through a stone wool European expansion program?

Gene Murtagh: Thanks, Yves. Yes.

From a power panel perspective, there is -- in terms of the potential, we like it's just difficult to call. But it's not inconceivable that 50% of wools within 5 years will have some form of solar incorporated into them. So that naturally has very significant implications for the value of an insulated panel bearing in mind that it's probably around 3x the square meter revenue versus what it is currently. So that's big. And then from a refurb perspective, again, we're trying to fine-tune the Rooftricity model, which is a funded solution.

So in essence, what we'll be doing there is kind of essentially knocking on doors of existing inefficient and old building owners to try and encourage them to switch without having the capital outlay to start with -- I think the refurb opportunity will be more significant than the refurb opportunity currently is would be our perspective on it. I'd say we will have a much crisper view of this within 6 to 9 months as we properly get up and running. But as I said earlier, if anything, we're trying to hold back interest in it until we're logistically ready for takeoff. From a stone wool perspective, just to put some context around this, we have a very clear ambition, and we're about 95% on track to be the only global multi-technology as in every insulation technology provider right across the piece as in 8, 10 technologies. And part -- like a gap we have is stone wool.

As you know, about 11% or 12% of our global insulated panels incorporate that as a core, which naturally is our key interest. And there are some countries that have that as a preference in certain applications, and it's a gap in our portfolio. But we would expect this even in 5 years' time to be a relatively small part of the group. It's not an ideal technology for a lot of applications. It's usually energy and emission consumptive, which is not really Kingspan's direction of travel.

And to your point about electrification, our solar goal here in terms of the manufacturing profile is renewably powered electrification, and we will only come to market with a -- and also low carbon alternative, which is not run of the mill, as you know, from the existing incumbents. So it will be very much part of the Kingspan ethos when it comes to the energy profile.
Yves

Brian Bromehead: Would that open the door as well to potentially looking at glass wool, wood wool, hemp pool and all the rest of it? Probably the latter ones, absolutely, glass, very unlikely.

Operator: We now have Brijesh Siya of HSBC.

Brijesh Siya: I have 2 questions.

The first one is if I just go back to chemical and steel. I appreciate you are not willing to give us an absolute number, but if you could just give us what kind of further inflation last year? And what do you expect this year as inflation together all that chemical steel and mineral oil?
And the second one is on market share. I mean your competitor highlighted last week about issue there and potentially, I know you produce insulation, which are at the high end. But do you see a chance of you gaining market share in that market because the pricing differences are quite different from what it was 1-year back?

Gene Murtagh: Sorry, what was the last question, Brijesh?

Catriona Nicholson: Are we gaining shares from...?

Brijesh Siya: Well, I was talking about the minerals and the pricing difference appreciate. I mean, last year, you had a negative spread versus them.

But this year, it's kind of the opposite. So do you expect the market shares back to you?

Gene Murtagh: Like -- yes -- like, we don't really compete head on, like there are -- for a start, a very significant portion of our panels business actually is that as a core. So it's not competition. It's front and center for us within Kingspan. And as a pure insulation, they're not that substitutable or interchangeable.

And they're generally used in different applications, which is the only reason we would consider being in the game in the first place. So I would say to you, as in general, a mineral fiber, and I just glass and stone into 1 for the time being. It's probably about 1/3 of the price per square meter of our technology. So if that moves 10% or 15% up or down or likewise us, it doesn't significantly change the competitive dynamics because the gap is already so large. Now obviously, there are outer exceptions to that in terms of product spec and pricing.

But they're not as interchangeable from a commercial perspective as might meet the eye.

Geoff Doherty: Yes. And just as regards to inflation, I mean, our price growth during 2022 was of the order of 20% or there thereabouts. So that was to recover the significant inflation inflicted on the business last year. We're still only very early into 2023.

So it's not possible to kind of be specific on what the inflationary or otherwise outlook would be for this year, other than to say that we're saying in Q2, we fully expect some level of inflation in steel in particular, Q2 versus Q1. I think we could generally speculate that we're highly unlikely to see the quantum of inflation over the course of this year as we had last year. But let's see how the year plays out.

Brijesh Siya: Sure. Can I just follow-up one last one.

In terms of the renovation wave and any kind of energy efficiency regulations. Looking at the volume declines, we do not see much of the pickup in that segment. Could you please elaborate, if there is any kind of specific government plans, which has come through and you are excited about?

Gene Murtagh: I could say as a general backdrop, we probably ought to be more excited than we are. There's obviously a lot of talk and discussion about refurb and energy conservation and all of that. And the direction of travel is clearly encouraging.

But there's not nearly as much of it being activated as needs to be in terms of any of the climate goals. So it's -- I'd say that's all to look forward to us very little bit in place so far from our perspective.

Operator: Our next question comes from Jonathan Coubrough of Numis.
Jonathan

William Coubrough: I've got 3, if that's okay. The first one is on steel prices, and I'd be interested to hear what gives you confidence that you think steel prices will increase through Q2? And also, what you think the capacity is for your end markets to absorb further price -- prices and what it could mean for volumes?
And then secondly, on inventories, that remain elevated as you pointed out, at the end of 2020 versus revenues.

And you've delivered to them kind of normalizing through 2023. Do you expect that will have a further impact to the margin? Or is that fully played out as far as you're concerned?
And then thirdly, just on the Q1 guidance, I'd be grateful to hear your thoughts on kind of visibility for this year at this stage. How does that compare to a typical year and what the effect is affecting that at the moment?

Gene Murtagh: So in terms of what gives us confidence, raw mat, steel in particular is going to rise. It's just -- I suppose it's not even confidence. It's just going to happen.

Like, it was probably be down to, I would say, a false low in terms of steel demand. As you know well, there's been -- there was significant inventory build in multiple materials, insulation, of course, but also steel was very significant inventory build through last year as people were concerned, then people pulled away from the market very much in Q4, and in fact, in Q1, which would equally be our experience as we try and flush through higher cost inventory from last year. So that kind of created -- from an end market perspective, it didn't really reflect the true demand. So a bit of a falls high and a bit of a fall low. And naturally, demand then increases as inventory levels are heading towards a very low level.

The steel industry knows that. And as a result, and it's global. We are certain that we will see increases in the second quarter.

Geoff Doherty: Yes. And then as regards the margin impact of, if you like, that the destocking through the second half of last year, I mean much of the heavy lifting has been done on that.

There are still some markets where there's -- where there's a bit to do, but much of it has already happened through the back end of '22.
Jonathan

William Coubrough: Sorry, just with regard to the ability of end markets to absorb the price rises. What's your expectation there at the moment?

Gene Murtagh: Like depending on the quantum of increases, there will really be no choice. It's -- our experience over multiple cycles has been to pass-through up and down with some lag. And assuming that there's going to be a sustained increase.

And as Geoff pointed out, all we really know is what's happening in the second quarter. But if it is sustained, there's simply no option or no scope not to pass it on.

Operator: Our final question comes from Yuri Serov of Redburn.

Yuri Serov: Let me ask my questions one by one, if that's okay. First of all, your acquisition spend.

So you're talking about cash generation before acquisitions of 600 million, your EBITDA is likely to fall in 2023. Does that mean that -- I mean, and you spent 1 billion on acquisitions last year? That tells me that you definitely are going to spend less than 600 million in 2020, and probably even less than that, what do you think?

Gene Murtagh: That just -- it's probably just not quite a straight line as that. It could be nothing or it could be a lot more. It depends on the opportunities. It depends on the value.

It depends on the returns proposition. But I guess you can take it, it's not particularly our ambition to drive our net debt profile to EBITDA higher than what it is now.

Yuri Serov: So you would not want to increase it?

Gene Murtagh: Ideally, no.

Yuri Serov: Okay. I understand.

Secondly, on volumes. So you were just talking about destocking in steel. And the -- your own industry went through destocking last year in second half and in Q4. And you're saying that in steel, you're going to see volume rises. Does that mean that we're going to see volume rises in the second half for your business as well? Does this logic call there?

Geoff Doherty: I suppose the second half is a long way away.

I mean, at this point, we just don't know what the profile of the business will be in the second half of the year.

Yuri Serov: But you're quite confident that demand going to rise in steel. I mean, you should have more visibility on your own business.

Gene Murtagh: Well, thanks for that. I mean we -- I don't really get you.

So the second half is a long way away. We'll take this month-by-month, quarter-by-quarter. Steel going up in Q2. That's what we know. That's not kind of a maybe or whatever it's going up.

And what happens after that will obviously be very much demand led.

Catriona Nicholson: All right. Yuri, thanks for that, actually, we've run out of time for the call. So thanks, everybody, for your time today, and we look forward to seeing those of you on the roadshow over the next couple of days and weeks. Thank you.

Gene Murtagh: Thanks, everybody.

Operator: Thank you all for joining. That does conclude today's call. Please have a lovely day. You may now disconnect your lines.