CEO comment: Business update

06 July 2016

In this issue of the newsletter we have gone into depth on a few of the many developments that have contributed to our strong Q1 results. The different business areas in the Systems segment are all contributing nicely to the progress and the Insulation business more than doubled its EBIT in Q1.

Dear shareholder,

In the last Shareholder Newsletter I had the pleasure of introducing our new management team and their areas of responsibility. Today, all members of the team have settled in well, the new organisation is with few exceptions in place, and we are well on our way towards the goals we set last autumn.

We have continued to improve the overall health of the business and it was good to see these efforts reflected in the Q1 results we published in May, where our EBIT increased by 59% to EUR 41.4 million.

We expect the positive trend to continue. With Q1's strong performance in mind, we have raised the full-year expectation for the EBIT margin to above 9% before redundancy costs related to the Business Transformation Programme.

In this issue of the newsletter we have gone into depth on a few of the many developments that have contributed to our strong Q1 results. The different business areas in the Systems segment are all contributing nicely to the progress and the Insulation business more than doubled its EBIT in Q1.

After many difficult years, the market in Denmark is now showing good growth. With a new production line inaugurated last year, we are well positioned to benefit from this development. A good example of how our different ROCKWOOL products can interact to create buildings set for modern living is the new South Harbour School in Copenhagen, a new public school designed and built with focus on energy optimisation, acoustic performance and harmonising the connection between the school and its surroundings.

In the more tropical region of our business in Southeast Asia we are benefitting from a change in strategy. Many people associate insulation products with cold climate, but the benefits of stone wool are just as relevant in warm climates; be it thermal, acoustical or fire resistance. With a GDP growth of 5% combined with a growing population in most parts of the region, the demand for new infrastructure such as power plants provides a good foundation for our industrial and technical insulation business mainly in our South East Asian home markets: Thailand, Singapore and Malaysia.

In Russia, the market is more challenging. Recently, I visited our Russian activities together with Chairman of the Board, Bjørn Høi Jensen. We were both impressed with our team there and are convinced that we have the right local organisation to weather the storm. We remain committed to the Russian market and once it comes around, we intend to come out stronger.

Efficient management of factory operations and engineering projects were also important factors contributing to Q1's performance. Just a few weeks ago, I had the pleasure of inaugurating our upgraded production line in Poland. This was the third major upgrade in the past two years where we added new core technology. The new production line is a cornerstone in our strategic development in Poland and the neighbouring countries where we raise the bar for product quality and product performance in several important segments.

Our recent results have shown that we are on the right track. There are several reasons to believe that the positive developments will continue in the near future and that we can achieve the goals we have set for 2016 and beyond.

CEO Jens Birgersson