Annual Report (ESEF) • Feb 10, 2021
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Download Source File20 20 Resilient by nature Annual Report 20 20 2 04 ROCKWOOL Group at a glance 08 Message from the Chairman and CEO 10 The ROCKWOOL purpose and strategy 13 Our business model 14 Outlook 2021 18 Business updates 28 #ROCKTheBoat 30 ESG performance 48 Risk management 50 The year in pictures 56 Shareholder information 59 Financial performance Financial statements 67 Consolidatednancialstatements 112 Financial statements for ROCKWOOL International A/S Overview 3 ROCKWOOL Group Annual Report 2020 At a glance Employees by region North America Russia AsiaEurope 1 300 1 000 8 000 1 200 Net sales (EURm) 3 000 2 500 2 000 1 500 1 000 500 0 2020201820172016 2019 11 500 Highly-skilled individuals 37% White-collar positions held by women 68 Nationalities worldwide Five brands Fire-safe stone wool insulation Stone wool growing media and technology Automotive, urban acoustics and urban climate adaptation Fire-safe façade cladding, roof detailing,softsandfascia Fire-safe acoustic ceiling tiles and systems 3.7% in local currencies, incl. 0.6% from acquisitions 338EURm Down 9% compared to last year Sales decreased EBIT ROCKWOOL Group Annual Report 2020 4 Austria Belarus Belgium Bulgaria Canada China Croatia Czech Republic Denmark Germany Estonia Finland France Hungary India Italy Korea Latvia Lithuania Malaysia Mexico Norway Philippines Poland Romania Russian Federation Singapore Slovakia Spain Sweden Switzerland Thailand The Netherlands Turkey Ukraine United Arab Emirates United Kingdom United States Vietnam Manufacturing facilities Salesofces We create sustainable solutions to protect life, assets, and the environment today and tomorrow. World leader with local presence 47 Manufacturing facilities 39 Countries where we are present 120+ Countries in which we have sales ROCKWOOL Group Annual Report 2020 5 2020 (DKKm) 2020 EURm 2019 EURm 2018 EURm 2017 EURm 2016 EURm Income statement Net sales 19,397 2,602 2,757 2,671 2,374 2,202 EBITDA 3,889 522 548 507 417 389 Amortisation, depreciation and write-downs 1,370 184 176 166 159 160 EBIT 2,519 338 372 341 258 229 Financial items -97 -13 -5 -7 -11 -7 Protbeforetax 2,422 325 367 335 275 225 Protfortheyear 1,871 251 285 265 214 166 Balance sheet Non-current assets 14,337 1,927 1,825 1,468 1,383 1,409 Current assets 6,073 817 869 963 781 591 Total assets 20,410 2,744 2,694 2,431 2,164 1,999 Equity 15,566 2,092 2,118 1,877 1,684 1,536 Non-current liabilities 1,179 158 160 121 122 128 Current liabilities 3,665 494 416 433 358 336 Net interest-bearing cash / (debt) 709 95 212 375 241 116 Net working capital 1,588 213 247 198 190 175 Invested capital 14,591 1,961 1,889 1,542 1,452 1,433 Gross investment in plant, property and equipment 2,491 335 393 220 123 92 2020 (DKKm) 2020 EURm 2019 EURm 2018 EURm 2017 EURm 2016 EURm Cash ow Cashowfromoperatingactivities 3,261 438 402 408 332 326 Cashowfrominvestingactivities 2,690 362 400 212 165 89 Freecashow 571 76 2 196 167 237 Others R&D costs 306 41 41 38 32 32 Number of patents granted 148 148 235 268 201 280 Number of full-time employees (year-end) 11,4 48 11,4 48 11, 691 11,511 11,0 46 10,414 Ratios EBITDA margin 20.1% 20.1% 19.9% 19.0% 17.6% 17.7% EBIT margin 13.0% 13.0% 13.5% 12.8% 10.8% 10.4% Payout ratio 37.7% 37.7% 33.3% 33.3% 33.3% 33.3% ROIC 17.6% 17. 6% 21.7% 22.8% 17.9 % 15.8% Return on equity 11.9% 11.9% 14.3% 14.9% 13.3% 11.5% Equity ratio 76.1% 76.1% 78.5% 77.1% 77. 5% 76.8% Leverage ratio -0.18 - 0.18 -0.39 - 0.74 -0.58 -0.29 Financial gearing -0.05 -0.05 - 0.10 -0.20 -0.14 -0.08 Fordenitionsofkeygures,ratiosandexchangeratesseep.107. Five-year overview ROCKWOOL Group Annual Report 2020 6 2016 2017 2018 2019 2020 2020201820172016 2019 2,200 1,800 1,400 1,000 2,000 1,500 3,000 2,500 1,000 2016 2017 2018 2020 200 300 400 100 0 16% 12% 24% 20% 8%600 400 300 200 100 0 2019 2016 2017 2019 20202018 12% 6% 18% 0% -6% EBIT EBIT margin EBIT 338EURm Down 9% compared to last year Maintenance Capacity Acquisitions Investments in new capacity 200EURm Net sales Growth (reported) Sales decreased 3.7% in local currencies, incl. 0.6% from acquisitions Invested capital ROIC ROIC 17.6% Down from 21.7% last year Net sales & sales growth (EURm) EBIT & EBIT margin (EURm) ROIC & Invested capital (EURm) Investments (EURm) Highlights 2020 16% 12% 8% 4% 0% ROCKWOOL Group Annual Report 2020 7 Organisational agility enables strong performance Chairman Thomas Kähler and CEO Jens Birgersson Dear stakeholders, The year 2020 will undoubtedly be remembered most for the global pandemic, the rst in more than 100 years. Its impact on our world has been profound, changing the way we interact, how we work and live, and forcing us to adapt to new and often inconvenient alternatives. Looking back on the turbulent year, we are proud of how well our colleagues handled the many challenges that arose. Our local teams and leadership ensured employees were safe while quickly adjusting operations, sales and service activities to match the changing needs of the market and our customers. At the same time, we kept an eye on the recovery and the opportunities for us to help society and our communities come back stronger: we continued investing in new production facilities and more efcient and sustainable technologies; accelerated our usage of digital platforms to meet customer needs; and made new and ambitious long-term commitments regarding sustainability goals that you will learn more about in this report. Robust results Considering the global nature of the COVID-19 shock, our performance during the year was strong. Our sales declined overall but were supported in regions where the construction sector stayed active, as many governments rec- ognised that building sites could operate safely and contribute to the economic recovery at the same time. Importantly, we maintained a robust level of protability by adjusting our production to demand and keeping costs down. More specically, net sales for the year were down 3.7 percent in local currencies including 0.6 percent from acquisitions, while EBIT margin was 13 percent, down 0.5 percentage points. Prot for the year was EUR 251 million, a 12 per- cent decrease from last year. We have unused committed credit facilities of EUR 630 million and have a net positive cash position of EUR 95 million. Our largest individual investments in 2020 relate to ongoing factory projects in the United States (West Virginia), in Norway and in Germany. We made two acquisitions during the year: the Sweden-based Parafon Acoustic Ceiling business, now part of Rockfon; and Bestore & Thermal Pte Ltd, a Singapore-based specialist ROCKWOOL Group Annual Report 2020 8 supplying re protection and thermal insulation. Both acquisitions strengthen our position in the respective markets. Importantly, our customer satisfaction score increased 6.5 percent this year compared to 2019, the sixth year in a row customers have rated us higher than the year before. Considering the unique challenges everyone faced during the year, we are especially proud of this result and our employees' ability to continue meeting customers' needs. Recovery, renovation and urban regeneration COVID-19 has created simultaneous health and economic crises, on top of a climate crisis that will not release its grip. That is why greening the economic recovery is so important. And while climate initiatives may have given way temporarily to the immediate requirements of the pandemic, governments are increasingly focusing on addressing the climate challenge also as a means of spurring economic growth and creating healthier and safer communities. The European Commission is leading the way on this front – and they recognise that buildings are the linchpin for both climate action and economic recovery. Combined with the Commission’s aim to raise the EU’s 2030 greenhouse gas emissions reduction target to at least 55 percent, its “Renovation Wave” strategy calls for doubling the EU’s current building renovation rate to two percent. They are working on important new policy initiatives to achieve that goal. Doing so will require renovating the buildings in which we live and work on a large scale. Buildings are the EU’s biggest carbon emitter, responsible for 36 percent of greenhouse gas emissions. They are also the EU’s most valuable nancial asset, worth tens of trillions of euros. And crucially in times of economic stress, buildings are a job-creation machine: per billion euros invested, building renovations are estimated to create 18,000 jobs. Our own decarbonisation goals In December 2020, we announced ambitious plans to accelerate the decarbonisation of our business, with specic long-term targets. Veried and approved by the Science Based Targets initiative (SBTi), these targets include: – Reducing total factory greenhouse gas emissions in absolute terms by 38 percent by 2034 (relative to baseline year 2019); and, – Reducing non-factory, total lifecycle greenhouse gas emissions by 20 percent by 2034 (relative to baseline year 2019) These absolute emission reduction targets supplement our existing sustainability goals to continue reducing the carbon intensity (carbon emitted per tonne produced) of our production. The SBTi-approved targets equate to a one- third reduction of ROCKWOOL's lifecycle greenhouse gas emissions by 2034. We are proud of this commitment, and to be among the few energy-intensive manufacturing companies whose science-based emission reduction targets SBTi has veried and approved. Health and safety Every year, we strive to achieve the same safety goal: zero fatalities and a minimum 10 percent annual improvement in the Lost Time Incident (LTI) rate. Most importantly, we had no fatalities in 2020. For the LTI rate, our goal was a 10 percent improve- ment, from 2.9 in 2019 to 2.6 in 2020. Although we had fewer lost time incidents in 2020 compared to 2019, the LTI rate, based on the number of hours worked, was higher in 2020, at 3.0. Looking ahead With the pandemic surely leaving its mark throughout the year ahead, we anticipate that governments will continue prioritising keeping construction sites open, owing to the multi- ple economic, climate, and health benets of especially building renovations. Together with the strong market focus on non-combustible, recyclable building materials, the existing policy emphasis on greening the economic recovery should positively inuence market developments, especially in the medium- to longer-terms. Financially, we forecast sales growth of 3-5 percent in local currencies for 2021. Input costs are likely to be higher in 2021, as especially energy costs are trending upward, which we aim to offset with operational productivity gains and cost savings. Overall, we thus expect a double- digit EBIT margin of around 11 percent, which is slightly down compared to 2020 when adjusting for the additional depreciation and costs related to new factory start-up. The 2021 investment level will be around EUR 370 million, with the West Virginia factory and the relocation of one of the China factories being the main drivers. We will also invest in additional Rockfon and Grodan capacity as well as make additional investments supporting our sustainability and decarbonisation goals. We want to thank all our colleagues for the hard work, perseverance and creativity that contribute so much to the Group’s success; and our customers whose trust and continued business we never take for granted. Thomas Kähler Jens Birgersson Chairman CEO ROCKWOOL Group Annual Report 2020 9 The ROCKWOOL purpose and strategy At the pinnacle of ROCKWOOL’s strategy is our corporate purpose: to release the natural power of stone to enrich modern living. This reects our purpose’s unifying nature, conveying that stone is our core raw material and the bedrock on which our business is based. And while the stone we use may be millions of years old, what we do with it is cutting- edge. Every day, ROCKWOOL’s creative and entrepreneurial employees are developing and applying new technologies and innovations to release the potential of stone to enrich modern living. As we look to the future, stone wool and the products we make with it will play an increas- ingly signicant role in addressing two of the megatrends inuencing virtually every aspect of modern society – urbanisation and climate change. Every week, about 1.5 million people move to urban environments. By 2030, there will be an estimated 43 megacities around the globe with more than 10 million inhabitants. And by 2050, the earth’s population is expected to be close to 10 billion, nearly 70 percent of whom will live in cities. The ROCKWOOL business strategy is driven by a passion for creating solutions that connect global trendswithprotable business opportunities by creating superior solutions to protect life, assets, and the environment, and to create comfortable, healthy, and attractive spaces. In other words, by enriching modern living. The combination of more people living in more densely populated urban areas and the worsening consequences of climate change will increase the demand for modern housing and energy. Greater urban population density also heightens the importance of constructing and renovating the buildings in which we live, work and learn with non-combustible building materials. At the same time, the world must feed its growing population using fewer resources, while also managing the effects of more frequent extreme weather events, particularly in urban environments. The ROCKWOOL business strategy is driven by a passion for creating solutions that connect these global trends with protable business opportunities by creating superior solutions to protect life, assets, and the environment, and to create comfortable, healthy, and attractive spaces. In other words, by enriching modern living. Our aspiration is to grow faster than the market overall by offering top-quality products and services, strengthening our brand, building long-term customer relations, and driving an operationally effective business across all segments and geographies where we are active. As our business is inherently capital intensive, we focus on exploiting our natural strengths to balance risks, which includes a differentiated approach across selected geographies. In North America, for example, we are expanding our production capacity to capture signicant growth opportunities within all major business areas. In Europe, we will grow faster than the market by launching new products and services, while improv- ing our customer-facing activities and the produc- tivity of our production platform. We will expand capacity where needed to meet steadily growing demand in and near core markets and enhance our geographic coverage and customer service level. In Asia, the approach is different, in that we will develop and grow our business selectively where there is a clear demand for our premium quality offerings. At ROCKWOOL, everything we do is based on releasing the natural power of stone to enrich modern living. Protably offering solutions to address the challenges created by enduring global megatrends will help ensure our successful future growth. ROCKWOOL Group Annual Report 2020 10 Megatrends Harnessing the 7 strengths of stone to address the world’s big challenges Cities will continue to grow, increasing the need for buildings made with non-combustible, durable, and sustainable materials that are energy efcientandcomfortable to be in. Energy renovation of buildings could provide up to 55 percent of the GHG emission reduc- tions needed to meet UN climate targets for 2030 and align cities with a 1.5°C trajectory. Our homes have become even more important after COVID-19. Improving the comfort of our indoor spaces by optimising temperature, air quality and acoustics has well-knownbenetstoour overall happiness, health and wellbeing. Shifting to a circular economic model and using natural, recyclable materials in buildings wouldsignicantly reduce construction- related consumption and waste. of the global popu- lation is expected to live in urban areas by 2050, up from more than half today. Urbanisation Climate change Health and wellbeing Circularity 2/3 The amount of time people spend indoors, on average. 90% of global waste is produced by the construction sector. It also consumes 40 percent of global resources annually. 1/3 At ROCKWOOL, we’ve been applying the 7 strengths of stone to the world’s biggest challenges for decades. We keep a close eye on global megatrends to ensure that our product portfolio stays relevant to the most pressing issues facing our world. By seeing these megatrends as opportunities to improve the lives of people around the world, our products have become central to conversations on issues like climate change, health and wellbeing, urbanisation, and circularity. Introduction oftheworld'snal energy demand and CO 2 emissions come from buildings. ~30% ROCKWOOL Group Annual Report 2020 11 The 7 strengths of stone 01 Fire- resilience Withstand temperatures above 1000°C. 02 Thermal properties Save energy by maintaining optimum indoor temperature and climate. 03 Acoustic capabilities Block, absorb or enhance sounds. 04 Durability Increased performance and greater stability with lower costs. 05 Aesthetics Match per for- mance with aesthetics. 06 Water properties Manage our most precious resource . 07 Circularity Reusable and recyclable material. 12 ROCKWOOL Group Annual Report 2020 Our business model What does ROCKWOOL Group do? We transform volcanic rock into stone wool, a versatile material with many natural strengths that make it ideal for use in a range of applications in buildings, transportation, horticulture and water management. Our business is dened by: Low-risk transactional sales Local business Capital intensive production Conservativenancialstrategy Our impact on society We see enormous opportunity to leverage the natural power of stone to create products that accelerate progress towards a safer, healt hier, low-carbon future. Volcanic rock is mixed with lime stone and can contain up to 75 percent recycled material – in certain geo graphies and product lines – before being heated to more than 1500°C. Analheattreatmentcures the binder, giving the stone wool dimensional stability, beforenalprocessing and production into a wide range of products. The molten rock is spun into wool. A binder and ei- ther a special oil or wetting agent are added depending on the application of the end product. 47 manufacturing facilities 39 countries where we have a presence ~400 km Average transport distance for insulation in Europe (including import/export) In certain geographies and product lines, our products can contain up to 75% recycled material 120+ countries with sales activity 90% of sales does not cross customs borders All Rockpanel boards are durable like stone, easy to cut, and resistant to the effects of moisture, temperature,reand the weather. In schools with no sound absorption, children cannot hear up to 70% of consonants their teachers speak. LapinusRockowcan ab sorb up to 95% of its volume in water, without losing its rigidity and strength. Urban horticulture can reduce land use for vegetable growing by 75% or more. Proper insulation alone can reduce heating needs by 70%. S t o n e w o o l i s f u l l y r e c y c l a b l e ROCKWOOL Group Annual Report 2020 13 Outlook 2021 COVID-19 will continue to leave its mark in 2021, though focus on greening the recovery will contribute to expected modest sales growth. As the new year begins, the ongoing pandemic continues to inuence market activities to varying degrees, which will likely be the case for the full year. We do expect, however, that governments in many countries will continue prioritising keeping construction sites open, owing to the multiple economic, climate, and health benets of especially building renovations. Though still too early to estimate its impact, successful vaccination efforts would likely positively affect overall economic activity. The underlying medium- to long-term structural growth drivers for stone wool products are even stronger today than last year. On top of fundamental trends like urbanisation and increasingly tighter building regulations, we expect several other trends will continue driving growth in our business. For example, the growing focus on energy efciency, re safety, and circularity continues to inuence the decisions of consumers, the building ROCKWOOL Group Annual Report 2020 14 industry and policymakers, with the pandemic accelerating these trends in multiple ways. COVID-19 created simultaneous health and eco- nomic crises, on top of an enduring climate crisis. That is why greening the economic recovery will remain a key focus for national governments, with buildings playing a crucial role on all fronts. The EU Commission, for its part, is making energy ef- ciency in buildings a key feature of its economic and climate recovery plans. This makes sense, as energy efciency building renovations are among the highest-impact economic recovery measures to create jobs while helping deliver climate goals and ensuring more resilient and healthier communities. For these reasons among others, including re- newed focus on post-Grenfell re safety and the need for regulatory clarity requiring non-combus- tible cladding and insulation materials on high- rise and high-risk buildings, we view the medium- to long-term renovation outlook as quite positive. Regionally, in Europe, the EU commitment to greening the recovery and other positive considerations lead us to a cautiously optimistic outlook for construction sector recovery. We have also seen some early signs of positive impact from market-specic incentive schemes increasing interest in building renovation. The market in Russia is developing positively, and we expect this to continue in 2021. In the United Kingdom, we do not expect that nalising Brexit will materially affect our business there. As is typically the case for ROCKWOOL, our UK operations are locally anchored with most sales and procurements and all of our production taking place in the local market. We do expect the post-Grenfell conversion to non-combustible, re-safe building materials will continue in 2021, thus further bolstering demand for ROCKWOOL insulation and cladding. The U.S. market was already back to a relatively high activity level by the end of 2020, powered by signicant nancial recovery funds working their way into the economy. We do not expect that the political shift following the November elections will change the fundamentals behind the recovery. In Asia, we still see a slow recovery in the sectors where we are most active. Competition will increase in certain markets and applications. Our latest capacity addition in Europe, in Neuburg, Germany, gives us a strong platform to capture business opportunities with a highly efcient factory in a central location. Taking market uncertainties into account along with the expectation that EU green recovery plans will have limited short-term impact, we forecast sales growth of 3-5 percent in local currencies for 2021. While we foresee the positive impact from increased building renovation in Europe gaining traction during the year, we would expect a noticeable impact on insulation sales only after individual member states have scaled up local energy efciency incentive schemes. Input costs are likely to be higher in 2021, as especially energy costs are trending upward. We aim to offset higher input costs with operational productivity gains and cost savings. We expect some additional costs in connection with the factory start-ups in Germany and the United States as well as an increased depreciation level from the investments we have made during the past two years as the factories come online. Relative to 2020, the additional depreciation is expected to impact margins by around one percentage point. Overall, we thus expect a double-digit EBIT margin of around 11 percent, which is slightly down compared to 2020 when adjusting for the additional depreciation and the start-up costs for the new factories. The 2021 investment level will be around EUR 370 million excluding acquisitions, with the West Virginia factory and the relocation of one of the Chinese factories as the main additions within insulation. We will also invest in additional Rockfon and Grodan capacity as well as make additional investments supporting our sustainability and decarbonisation goals. EURm Investments excl. acquisitions around 370 EBIT margin around Sales growth in local currencies 11% 3-5% Outlook 2021 ROCKWOOL Group Annual Report 2020 15 San Francisco’s twisted beauty 16 ROCKWOOL Group Annual Report 2020 ROCKWOOL Group Annual Report 2020 Contractors chose ROCKWOOL insulation because it met these performance needs and made an otherwise complicated job much easier, enabling installers to work efciently and overcome the many angles, gaps and seams on the geometric façade. “ROCKWOOL’s products were favoured due to the insulation’s density and ease of install. It also had no issues with exposure to the elements, thanks to its high drying potential. It held its integrity, made installation easier and saved on time and costs”, says Tony Hughes of JJ Acoustics in San Jose, California. The Mira’s high-performance design isn’t just reserved for Silicon Valley’s wealthiest residents either – nearly 40 percent of the units are reserved for people making less than the city’s median income. After two years of watching the iconic tower rise on the San Francisco skyline, proud new owners began moving into the building in July 2020. Case study The glistening white, twisting façade of the Mira condominium tower is a tting addition to a city known for its innovation. Its spiralling design gives residents in its 392 apartments more than just access to ample fresh air, natural light and sweeping views of the San Francisco Bay. For architect Jeanne Gang, high performance was just as important as good looks, with energy efciency and sustainability being top considerations. Green roofs, a grey-water recycling system and recyclable stone wool insulation materials from ROCKWOOL helped the building meet California’s strict Title 24 building code and earn Mira a LEED Gold certication as well as several design awards. The Mira’s high performance starts on the outside where a continuous layer of ROCKWOOL exterior insulation completely wraps the 40-story building. This creates an energy-efcient envelope that also improves the acoustics of each apartment’s walls and, compared to using a combustible insulation, makes the façade much safer against re, a top priority in such a tall building. 17 ROCKWOOL Group Annual Report 2020 Following the sharp pull-back in the second quarter, construction activity recovered across most markets in the second half of the year as countries emerged from lock-down and governments shifted focus to the recovery by launching nancial support and economic stimulus packages. In many European countries, deep energy ren- ovation of existing buildings was recognised as an effective recovery vehicle – creating jobs and stimulating spending, while also contributing to long-term decarbonisation goals. As a result, renovation of existing buildings was much less impacted than the commercial sector for new buildings. This was clear in Southern Europe, where the market dropped signicantly in the second quarter but quickly bounced back in the second half of the year, amid encouraging signs in some markets that government support for building renovation programmes were gaining interest. Insulation solutions ROCKWOOLoffersre-safe, thermally-efcient,highlydurable, and recyclable stone wool insulation. Business update Insulation segment Sales of ROCKWOOL insulation declined compared to 2019. Some markets performed better than others, depending largely on the extent of government restrictionsandnancialconstraints resulting from COVID-19. In Western and Eastern Europe, sales in most countries were down compared to last year, except for the Nordic markets and the Netherlands, which showed good growth. The Nordic region increased sales each quarter during 2020, driven by the higher activity levels in home renovation; while in the UK, steady pressure from regulators and consumers bolstered demand for non-combustible building materials. Sales in Asia were particularly affected by the impact of the virus, while in North America insulation sales overall were at. Our Technical Insulation business continues to be challenged by the slowdown in the oil industry, particularly in the United States and Asia. ROCKWOOL Group Annual Report 2020 18 Forget the weather, in here it’s about the fashion “As an artist and designer, I bring creativity and passion into my designs and I want to share them with my customers through the right kind of ambience and atmosphere that allows them to be comfortable and inspired. I knew I could improve the indoor environment of my boutique with roof insulation, but I didn’t know by how much”, he says. The rst to comment after the insulation was installed was his staff, who noticed it was much cooler in the hot and humid afternoons of the summer months and strangely quiet when the rains hammered down. People could talk without raising their voices. Then came the rst energy bills and another benet of the new insulation. “Since we are open seven days a week and for long hours, the electricity costs from cooling the store can be quite substantial”, says Song- wattana. “After installing the insulation, we’ve reduced the running time of the air conditioning while still keeping customers comfortable. I’ve managed to lower my electricity bill by at least 25 percent. All around it’s been a good investment for my business”. Case study The same weather that makes Thailand one of the world’s favourite tourist destinations can be a challenge for business owners like Somchai Songwattana. The owner of the Red Warehouse Fashion Boutique, located in Bangkok’s popular ChangChui theme park, says it can get loud inside his store when it rains on the metal roof, making it hard for customers to talk and relax. And when temperatures rise outside – to above 40°C in the hotter months and near 30°C in the cooler ones – it also gets difcult and expensive for him to cool the store. To keep customers comfortable and lower his energy bills at the same time, Songwattana chose to install ROCKWOOL insulation on his metal deck roof. 19 ROCKWOOL Group Annual Report 2020 Ceiling solutions Rockfon ceiling solutions improve acoustic performance and indoor climates, while resisting humidity and inhibiting mould growth. Business update Systems segment We provide customers with indoor acoustic solutions for ceilings and walls. Our ceiling systems combine stone wool acoustic tiles with suspension and decorative metal systems that are a fast and simple way to create beautiful, comfortable spaces. Our stone wool-based products are easy to install, durable and signicantly improve indoor acoustic comfort. Sales for Rockfon in 2020 declined slightly in Europe and Asia, and more signicantly in North America. The acquisition of the Sweden-based Parafon ceiling tile business contributed positively to the results in Europe. The Rockfon business in North America has a higher exposure to the commercial sector than in Europe and Asia, and thus was affected more there by pandemic-related market restrictions. However, we also grew market share in the European and North American markets where we focused heavily on sales and customer service through the pandemic, leveraging digital channels and our supply chain platform to continue serving customers without interruption. With the design community increasingly focusing on health, wellbeing and indoor air quality, the natural benets of stone wool ceilings are becoming better appreciated and recognised within various ratings systems such as Well, LEED and Declare, for example. Overall, we are encouraged by the growing interest in our acoustic ceiling tiles and sound absorbing solutions. ROCKWOOL Group Annual Report 2020 20 Quiet comfort for patients and staff For example, white Rockfon acoustic tiles in halls and above workstations reect 85 percent of the light coming in through the building’s oor-to- ceiling windows and skylights, brightening rooms and spirits. In patient waiting areas, the maple wood linear ceiling creates a warm, inviting area – only the ceiling isn’t wood at all, but part of Rockfon’s metal ceiling offering, which is more durable and easier to maintain than real wood. Finally, Rockfon’s specially treated medical and hygienic ceiling tiles in the procedure and consultation rooms help maintain a high-level of cleanliness, safety and patient privacy. These stone wool tiles are easy to clean and don’t absorb moisture, so they won’t mildew, mould or deteriorate. “We chose three Rockfon products, each one serving a specic purpose”, says Lauren Dickey, Director of Interiors for WER. “Together they really helped us get the design and aesthetics that we needed for the client”. Case study For its new location in Little Rock, Arkansas, Premier Gastroenterology Associates (PGA) wanted to create an environment where patients and staff felt at home – safe, comfortable and welcome. One potential issue in the 9,300 m 2 space was noise. “We’re a high-volume clinic that sees thousands of patients a month, so sound control is critical”, says William E. Greene III, CEO of PGA. Communication among doctors, nurses and patients is vital and good acoustics help protect privacy of those conversations, increase comprehension and limit disturbances to others nearby. Local architect, WER, chose three different Rockfon ceiling products throughout the space to get the desired effect – and to enhance certain other key elements of the architectural design. 21 ROCKWOOL Group Annual Report 2020 Based on Precision Growing principles, these solutions are used to cultivate a variety of crops. Compared to soil-based methods, our solutions produce higher yields per square metre, require far less water and fertiliser and create the possibility to use biocontrol and reduce or even eliminate chemical plant protection products. We also offer customer-specic advice and tailor-made analytic tools, facilitating the sustainable production of healthy, safe, and fresh food produce. The Grodan business grew in 2020, with sales increasing across all markets. It is clear that demand was not impacted by COVID-19. Other factors contributing to the growth are a growing awareness and interest in fresh produce that is sustainably grown and a shift in eating habits – indicated by the proliferation of plant-based foods into supermarkets, fast-food chains and diets in general. Fundamentally, we expect continued population growth and urbanisation – and a focus on urban regeneration post-COVID Precision Growing Less soil, less water, less fertiliser, lower CO 2 emissions,withasignicantly higher yield. That’s Precision Growing. Business update Systems segment – to add to the interest in greenhouses, urban, vertical and rooftop farms in cities and other locations. We’re proud that our products help our customers grow more fresh produce using fewer resources and provide an important alternative to traditional soil-based agriculture. To look further into the impact of our products and the shifts we are seeing to more sustainable growing methods, we have initiated a project with Wagenigen University to measure how high-tech growing can help reach the UN Sustainability Goals. We are the global leader in supplying innovative, sustainable stone wool growing media solutions for the professional horticulture industry. ROCKWOOL Group Annual Report 2020 22 Bringing the farm inside This rst Plant Factory currently produces a variety of leafy greens, which are well-suited for vertical farms since they are small and grow fast. Soon, Farminova expects it will begin growing strawberries and mushrooms as well as tomatoes, peppers and eggplants. “Grodan’s stone wool products and technology are essential for us to grow and track the development of our crops and help us achieve the high yields and resource efciency of our Plant Factories. And with Grodan’s ‘green advisors’ always reachable by phone or email, we know we have their support when we need it”, he says. So while Bozkurt doesn’t expect vertical farming will replace conventional farming, he sees it as an important alternative that will help humanity meet its food needs with a lower impact on the planet. “Whether it’s in the United States or Europe where more consumers are increasingly looking for food with certain traits – locally produced, fresh, organic – or it’s in Africa where there is a signicant food access problem, vertical farming will be part of the solution and we’re excited to be a part of that”. Case study Looking up at the rows of lettuce in his company’s rst vertical farm, Kerem Bozkurt is optimistic about his company’s role in shaping the future of food production. Farminova Plant Factories is a new venture from Turkey’s CANTEK Group. This one, in Antalya, Turkey, is the rst of many the company plans to build to meet a growing global demand for sustainable food production. “Field farming agriculture alone cannot meet the world’s food demands in the coming decades", says Bozkurt, Business Development Director of Farminova Plant Factories. “We need alternatives that use fewer resources to produce healthy food, year-round, and that can be placed anywhere”. Using LED lights, hydroponics, and Grodan’s growing media and sensor technology, the factory produces 4,000 heads of lettuce per day in its 1,000 m 2 space. It’s a yield that would require 45,000 m 2 on a conventional farm according to Farminova, and it does this with no soil, no pesticides, and 95 percent less water. 23 ROCKWOOL Group Annual Report 2020 Design freedom Whether shape, colour, engraving or even bending the boards, design freedom is at the heart of Rockpanel facades. Business update Systems segment Our cladding and other boards are robust and exible, and t perfectly with modern architectural trends such as organic shapes, natural materials and sustainability, while also providing cost efciency and ease of installation. Especially in its core Benelux markets, Rockpanel delivered good growth in both the roof-detailing and façade project segments. At the start of 2020 Rockpanel launched its exclusive product line, Rockpanel Premium, to compete in the high-end board segment. The Premium product offers customers the design and technical possibilities of the entire Rockpanel product portfolio in one board. A focus on greater and more frequent communication with customers via digital channels allowed Rockpanel to improve its brand awareness and generate sales leads during the year, despite challenging COVID-19 market conditions. Importantly, delivery service performance also remained at a high level. Among our products, the Woods product line continues to shine. Wood lookalikes are a major trend in interior and exterior applications and our attention to this segment has proven valuable: the two newest Woods designs launched in September have been well received by customers. We manufacture board material mostly used in ventilated constructions for façade cladding,roofdetailing,softsandfascia. ROCKWOOL Group Annual Report 2020 24 A custom façade, t for a designer “It’s a 200-metre long façade at the headquarter building. It’s what you see rst, so it needed to be beautiful and durable over time”, says Martijn de Waal. “Eromesmarko wanted the look of wood, but without the high maintenance and other challenges that come with it, like the need for weather treating and the risks of discoloration and rot over time”. When the architect approached Rockpanel with a real wood sample of the colour the customer wanted, Rockpanel had nothing like it among the more than 200 colours in its portfolio – so they custom made a new one. Two weeks later, Caramel Oak was available. “We have a lot of colours to choose from but if the desired colour isn’t in our portfolio, we will do our best to customise a colour for them”, says Raf Millis, Director of Marketing for Rockpanel. “Eromesmarko wanted the durability of stone with the natural look of wood. We’re very happy to have met their expectations”. Case study The eye-catching façade of the Eromesmarko headquarters building in Wijchen, the Nether- lands, looks so much like wood, visitors can’t believe it isn’t the real thing. “They want to know how we made such a beautiful wooden façade”, says architect Martijn de Waal from DUAL architects. “When I tell them it’s Rockpanel stone wool, they are very surprised. They have to touch it”. It is called Caramel Oak and it’s the newest colour in the Rockpanel Woods line of façade products, custom-made for the Eromesmarko renovation project. The Dutch furniture company has a reputation for innovative products specially designed to improve school environments, and a strong commitment to sustainability. They wanted the renovated building to reect their work and their values by holding its good looks and func- tionality for decades, meeting the Netherlands’ highest standard for re protection, and making employees proud and happy to come to work. 25 ROCKWOOL Group Annual Report 2020 Precision engineering Lapinus precision-engineered stone wool solutions contribute to reducing vibration, noise, dust and to better water management. Business update Systems segment All our products improve people’s lives by addressing increasingly common challenges – especially in dense urban areas – like noise and vibrations from trafc, non-exhaust vehicle emissions and the effects of climate change. Global trends of urbanisation and climate change are central to our global strategy to help create resilient cities. The Rockow water management products help urban areas mitigate the effects of extreme rains, making them safer and more attractive places to live, work and play. This year was another strong one for this part of the business, with several new projects and increased interest from markets. In 2021, we plan to enter new markets to continue growing. In the automotive product line, sales of our bres, used in passenger car brake pads, were negatively impacted by COVID-19 and a global decline in automotive sales. Our bres improve safety and comfort and reduce emissions related to braking. We expect this market to recover in the coming years. In the urban acoustics product line, acoustic fences and noise-absorbing mats for train tracks help growing urban communities maintain com- fort and quiet, by reducing vibration and noise disturbance from transportation, infrastructure and other surroundings. For tracks, 2020 was a good year with large projects in Scandinavia and Canada. An improved product portfolio for acoustic fences in 2021 is expected to boost this market segment, which is currently stable. We develop and supply innovative, stone wool-based products used in a wide range of applications in three core areas: automotive, urban acoustics and urban climate adaptation. ROCKWOOL Group Annual Report 2020 26 Climate solutions that blend right in Meanwhile above ground, traditional pavement in some areas has been replaced by ceramic surface tiles that absorb rain into the soil below. In other areas, the pavement has been replaced by plants and grasses that support biodiversity, and help retain rainwater and lower summer temperatures. When climate maps made clear the challenges facing the residents of Horst aan de Maas, they chose to act – and adapt. The chosen combination of nature and technology makes Horst aan de Maas a more comfortable and safer place to live that is also more resilient to climate change. “I expect we’ll see more projects like this that bring nature and technology experts together with towns to create the best solution for them”, says Linda de Vries, business developer at Lapinus. “Horst is a good example of how we can make communities safer, more resilient and more attractive places to live”. Case study As the world takes steps to mitigate climate change, many urban areas are already adapting to its effects. In the Netherlands, Horst aan de Maas is an example that others can learn from. The Dutch municipality used a combination of above- and below-ground solutions, mixing nature and technology to address its key challenges – abnormal summer heat and ood risks, caused by too much pavement and an old sewer system. Under the roads, parking lots, and walkways around the popular Gasthoes area is one of the technologies at work: Rockow, the stormwater management system by Lapinus. When the hard and heavy rains come, a network of gullies and pipes direct water away from sewers and into an underground stone wool buffer that retains and slowly releases the water into the surrounding soil –retaining valuable groundwater and unburdening the sewer system. 27 ROCKWOOL Group Annual Report 2020 #ROCKTheBoat Inspiring the next generation For two long weekends in the summer, aspiring young sailors got a chance to learn from the best at the #ROCKTheBoat Academy. A shared passion for sailing ROCKWOOL Group Annual Report 2020 28 Clara Nielsen is electric as her feet land on the boat dock in Copenhagen harbour. “Wow! We were so high above the water”, she says, catching her breath. “I’ve never been on a foiling boat like that before – there’s so much power!” Clara and her sailing partner, Malene Petersen, just had the thrill of a lifetime, whipping through the waters outside Copenhagen on one of the fastest sailing vessels in the world, Team ROCKWOOL Racing’s foiling GC32 boat. It is 1 August 2020 and the two 21-year old Danes aren’t just lucky bystanders, they’re participants at the #ROCKTheBoat Academy. It’s a special sailing school of sorts that for two weekends during the summer brought together Denmark’s top young sailors to learn from some of the best in the world, the six members of the Denmark SailGP Team. Ranging in age from 13 to 21, more than 40 up-and-coming sailors attended the two weekend Academy sessions in August, rst in Copenhagen and then across the country in Aarhus. Each day, with the SailGP athletes as their coaches, Clara and the others received individual and group on-the-water coaching in race tactics, specic skills and techniques, strength and conditioning and everything else it takes to make it to the top of their sport. They also got to push their limits, testing out what they learned at high- speed on the team’s foiling GC32 boat. For Clara and Malene, it was an unforgettable experience. Both have their sights set on representing Denmark at the 2028 Olympic Games, so to meet and learn directly from athletes who have already competed at a world- class level was priceless. “Just talking to them about their experiences was motivating, but then we get to train with them, too, and sail these amazingly fast boats”, says Clara. “It was great to hear their stories and advice on how we can get better and go further in our sport. It’s so important to get new inspiration and different points of view all the time – and to get it from some of the best in the world was really special”. One man who knows a lot about what it is like to represent Denmark on the world’s biggest stage is Martin Kirketerp. He is a “grinder” on the Denmark SailGP Team, the guy responsible for generating power in all the boat’s manoeuvres. He’s also an Olympic champion, having won gold for Denmark in the 49er class at the 2008 Olympic Games in Beijing, China. “I remember being a young sailor and going to events to hear from big Danish sailing stars, and to this day I still remember their advice”, says Martin. “Those moments are important in an athlete’s development, and passing on that legacy and knowledge to the next generation is something that we as professional athletes feel very strongly about”. “The #ROCKTheBoat Academy is all about showing the next generation that with hard work, energy and passion, there is a path to create a bright future in professional sailing. It’s inspiring for us to see so many hungry young athletes coming into the sport. And these opportunities are only made possible with the support of ROCKWOOL. I hope we see some of them in the future sitting where we are today, as Olympians or on the Denmark SailGP Team”. Building the future – on and off the water At ROCKWOOL Group, we’re optimistic about the future. We believe that if we use the knowledge and solutions out there, we can achieve success, together. The #ROCKTheBoat Academy isn’t just about sailing – it’s about showing ROCKWOOL’s commitment to a brigh ter, more sustainable future. Jens Birgersson, CEO, ROCKWOOL Group With so much experience in the Denmark SailGP Team – from Olympic medallists, to round-the- world racers and much more – there’s no one better to coach and inspire the next generation than this group of SailGP athletes. Clara and Malene were part of an almost 50 percent female turnout at the Academy, a statistic that encourages Denmark SailGP Team helmsman Nicolai Sehested. “It’s awesome to see female participation grow- ing in the sport, and it creates a more balanced atmosphere and culture at the sessions. We want to showcase sailing as an inclusive and truly sustainable sport”, says Nicolai. ROCKWOOL’s involvement with Denmark SailGP team provides an opportunity to build awareness around the importance of sustainability and the connection among urban living, outdoor recreation and the important role of stone wool in enriching modern living. With SailGP’s Season 2 set to take place in some of the world’s most iconic locations – beginning in 2021 – there is no better platform for ROCKWOOL to show that #ThisFutureRocks. ROCKWOOL Group Annual Report 2020 29 We are committed to delivering excellent long-term investment performance, driven by responsible environmental and social stewardship, strong relationships with stakeholders and open and transparent accounting of our business and sustainability activities. ESG performance ROCKWOOL Group Annual Report 2020 30 We also recognise that operating with integ- rity and as a responsible business is equally important and underpins everything we do. For ROCKWOOL, embedding sustainability efforts into our business leads to product and process innovation in our operations, which ultimately results in a positive impact on the Group's eco- nomic performance. Our strategic focus on sustainability makes it nat- ural for us to prioritise ESG disclosure. In 2019, we went a step further to be the rst company in the Nordic region to host dedicated quarterly ESG calls with investment analysts to communicate our performance within specic areas and to dis- cuss topics of interest. The calls, which continued through 2020, have been well received. The United Nations Sustainable Development Goals (SDGs) help steer ROCKWOOL’s ambitions. The Group is committed to 10 of the 17 SDGs, pursuing those goals where we can have the greatest impact and where they are most aligned with our business competencies. We have developed impact metrics to track our contributions to the SDGs, which include setting non-nancial goals reecting key material issues within the Group's operations that help drive improvements in our environmental and safety performance. In 2016, we set six ambitious sustainability goals, aligned with six of the SDGs, to drive Across the full range of our products and operations, ROCKWOOL is dedicated to sustainability. We aim to increase our positive impact in society and on people’s lives by maximising the use and benetsofourproducts while minimising our operational footprint. 95% revenue from insulation business that is EU taxonomy eligible 1 substantial improvements in our sustainability performance by 2030. We made good progress on all the goals in 2020 with a view to fullling the intermediate goals latest 2022. In 2020 we signed up to the Science-Based Targets initiative (SBTi), committing to reducing our factories' total greenhouse gas emissions 2 (Scope 1 and 2) by 38 percent in absolute terms and the non-factory lifecycle emissions 3 (Scope 3) by 20 percent by 2034, both targets relative to the baseline year 2019 (see p. 33). This is equal to an ambitious one-third reduction of ROCKWOOL’s lifecycle greenhouse gas emissions. We will continue to report on quantitative progress toward achieving our goals in the 2020 Sustainability Report. 1 To learn more about EU taxonomy, go to www.ec.europa. eu/info/business-economy-euro/banking-and-nance/ sustainable-nance/eu-taxonomy-sustainable-activities_en 2 According to the Greenhouse Gas Protocol, Scope 1 emissions are all direct emissions from the activities of an organisation or under their control e.g. fuel combustion. Scope 2 emissions are indirect emissions from electricity purchased and used by the organisation. Emissions are created during the production of the energy that is eventually used by the organisation. 3 According to the Greenhouse Gas Protocol, Scope 3 emissions are all other indirect emissions from activities of the organisation, occurring from sources it does not own, or control e.g. procured fuels and materials, transportation, waste disposal. ROCKWOOL Group Annual Report 2020 Environment GSE Climate and energy efciency ROCKWOOL is a net carbon negative company, in that over their lifetime, the building insulation pro ducts we sold in 2020 will save 100 times the carbon emitted and energy consumed in their production (see next page). And while the products we make save substantial amounts of energy and combat climate change on a large scale, we recognise that we need to do more. To help society reach climate change tar- gets, ROCKWOOL has partnered with the Science Based Targets initiative (SBTi) to accelerate green- house gas emission reductions in our factories and the non-factory product lifecycle. This is an enormous albeit necessary step for ROCKWOOL. With this commitment, we join a small number of other energy-intensive manufacturing companies that have science- based emission reduction targets that are veried and approved by SBTi. Reducing emissions signicantly in manufacturing and throughout the lifecycle is necessary for society to meet the global ambition to reduce lifecycle greenhouse gas emissions to net zero by 2050. We increase our positive impact on the planet by continuouslymaximisingthebenetsofourproducts while minimising the footprint of our operations. ROCKWOOL Group Annual Report 2020 32 * including upstream emissions from extraction and transportation of raw materials 1 00 times the carbon emitted and energy consumed in its production During the lifetime of its use, the building insulation we sold in 2020 will save -38% ScienceBasedTargetsinitiative(SBTi)isanon-protorganisation,supportingcompaniestosetclimate-relatedtargets,alignedwiththelatest climate science to meet Paris Agreement commitments. Read more about SBTi at www.sciencebasedtargets.org According to World Resources Institute, absolute emissions targets specify reductions measured in metric tonnes, relative to a historical baseline. By contrast, greenhouse gas intensity targets specify emissions reductions relative to productivity or economic output, for instance, tonnes CO 2 per produced unit or per unit of revenue generated. www.wri.org/publication/target-intensity Factory emissions (compared to 2019) Scope 1 and 2 Scope 3 Resulting in a one million tonne annual absolute emission reduction ** by 2034, equal to a one-third reduction compared to 2019. Non-factory lifecycle emissions (compared to 2019) -20% -1 000 000 tonnes ROCKWOOL's science-based decarbonisation targets ROCKWOOL Group Annual Report 2020 33 In parallel with our SBTi-approved emission reduction targets, we will continue tracking our progress towards achieving 20 percent reduction in carbon intensity at our factories by 2030 compared to 2015. In 2020 we have seen an additional improve- ment compared to the four percent improve- ment we achieved in 2019. We have also set a goal to increase energy efciency within our own (non-renovated) ofces by 75 percent by 2030 compared to 2015, with an intermediate goal of 35 percent in 2022. In 2019, we achieved a six percent improvement. We had a similar performance in 2020 because of COVID-related delays in nalizing a number of renovations. Circular economy Of ROCKWOOL’s three sustainability goals relating to circularity, two pertain to exploiting the inherent recyclability of stone wool. ROCKWOOL has a goal to offer recycling services for our products in 30 countries by 2030 with an intermediate goal of 15 countries by 2022. In 2019, we offered comprehensive recycling services in 11 countries and in 2020 we introduced the service in additional countries. We have also set a goal to reduce waste from operations going to landll by 85 percent by 2030 compared to 2015, with an intermediate goal of 40 percent in 2022. In 2020, we further reduced the amount of waste going to landll from the 19 percent in 2019. Reaching the 2034 targets will come primarily from ongoing efforts in three areas: improved energy efciency of our own operations, technology innovation, and exploiting the inherent circularity of stone wool. One example is our fuel-exible melting tech- nology. Where this technology is used, it allows ROCKWOOL to switch to less-carbon intensive fuels – for example, switching from coal or coke to natural gas or biogas. The two factories in Denmark, one in Poland and another in the United States will use this technology to shift to lower carbon fuels in 2021. In Denmark, the tran- sition to biogas will reduce our absolute carbon emissions in 2021 by 70 percent compared to 1990. Reclaimed waste Our goal: Increase the number of countries where we offer recycling services for our products to 30 by 2030. Landll waste Our goal: Reduce landll waste from our manufacturing facilities by 85% by 2030. CO 2 emissions Our goal: Reduce CO 2 intensity from our manufacturing facilities by 20% by 2030. Energy efciency Our goal: Increase energy efciency within own (non-renovated) ofces by 75% by 2030. Large-scale electric melting technology is anoth- er example. Operating at our Moss, Norway fac- tory since December 2020, this pioneering new melter will reduce the factory’s carbon emissions by 80 percent and production-related waste wool going to landll by 99 percent. This new technol- ogy is environmentally well-suited in countries like Norway where the electricity grid is already low carbon. The learnings ROCKWOOL gains from these multiple innovations will be applied elsewhere throughout our global operations. Regarding the circularity of our products, the ability to innitely recycle stone wool without any loss of performance sets it apart from non- recyclable construction materials that might otherwise be incinerated, resulting in end-of-life emissions. Recycling stone wool at our factories contributes to reducing production-related carbon emissions. ROCKWOOL Group Annual Report 2020 34 We have also set a goal to improve water efciency by 20 percent in 2030 compared to 2015. In 2019, we improved water efciency by seven percent and in 2020 moved even closer to the intermediate goal of 10 percent in 2022. In March 2021, ROCKWOOL Group will publish its annual Group Sustainability Report with de- tailed information on the Group’s sustainability performance and progress towards our goals. Environmental management We continuously aim to minimise the impacts of our processes on people and the environment. For some environmental areas, we have internal mandatory minimum requirements. In cases where our own requirements exceed legal requirements, our standards prevail. In line with the Group’s policy for Safety, Health and Environment (SHE), it is the responsibility of the Managing Director of each business unit to provide leadership for the SHE management systems at the individual factories and be accountable for the effectiveness, continual improvements and alignment to the overall strategic direction. The SHE management systems are based on the principles of ISO 14001:2015 and ISO 45001:2018. By the end of 2020, 75 percent of our production facilities had at least one external certication within safety, health, environment or energy management and several were certied across all areas. We conduct regular internal SHE audits, and as part of our ISO certications we are externally audited to improve the SHE performance and awareness across the Group. In 2020, due to the COVID-19 pandemic, we postponed our scheduled internal SHE audits. This has not resulted in any compromises on our SHE performance. Please go to www.rockwool.com/group/about- us/sustainability/ for more information. Water consumption Our goal: Reduce water consumption intensity within our manufacturing facilities by 20% by 2030. ROCKWOOL Group Annual Report 2020 35 Renovation and urban regeneration In several areas around Pamplona, Spain, a large- scale renovation programme is slashing the energy costs and emissions of hundreds of old buildings and breathing new life into communities. Spain ROCKWOOL Group Annual Report 2020 36 From the outside, the impact of a large-scale renovation effort in this neighbourhood in Pam- plona, Spain, is unmistakable. Once rundown, the 23 public housing buildings – all of them between 40 and 70 years old – glisten like new. The improvement for the residents in these nearly 600 dwellings goes much deeper than a beautiful new façade, though. A new thermal envelope that includes 10 cm of ROCKWOOL external façade insulation has sharply lowered energy consumption and costs and improved acoustic comfort inside. Some of Spain's best performers The project that has turned these buildings – once some of Spain’s least energy efcient – into some of Spain’s best energy performers is called Edistrict. Started in 2015, the Edistrict project is now in its third phase with renovation planned or underway on more than 1,000 additional homes in social housing buildings in other neigh- bourhoods around Pamplona-Iruna. The success of Edistrict has been recognised inside and outside of Spain as a reference case for other municipalities seeking to combine large- scale renovation with urban regeneration. The results are tangible, and the approach – including close cooperation with the community to ensure open communication during the renovation – has led to minimal disruption to the lives of residents. Since starting the project, the Government of Navarra has invested EUR 44 million in the renovation and regeneration of residential buildings in the Txantrea neighbourhood with impressive results so far. To read more about the Edistrict project, visit the website: www.edistrict.eu/ Before After Building address: Calle Urroz 25, Pamplona, Navarra Building type: Multi-family Year built: 1970 homes renovated in phase 1 588 The energy rating of every renovated building improved by at least one letter, and in some cases, by two, three or four letters. MWh/year total energy savings 3 186 EUR/year total economic savings 254 880 tonnes/year total avoided C0 2 emissions 804 Energy efciency rating Energy consumption kwh/m 2 After 69,96 Before 305,4 Emissions kgCo 2 /m 2 / year After 15,38 Before 77, 5 Txantrea Before and after renovation most energy efcient A B C D E F least energy efcient least energy efcient G ROCKWOOL Group Annual Report 2020 37 GSE Social How we act towards employees, partners, customers and the communities we are in shapes our reputation as a company among these constituencies and determines the opportunities we will have to grow with them in the future. During the pandemic, our priority has been the health and safety of our people and those with whom we interact. It has been a test of our policies and procedures but more so our leadership and company culture – two areas critical to ROCKWOOL's success that we looked deeper into during the year. What it means to be a ROCKWOOL employee Within the last couple of years, Group Human Resources conducted an extensive internal survey to better understand, from the employee's perspective, what it means to work at ROCKWOOL. We treat our employees fairly, ensuring a safe and healthy working environment, and aim to maintain strong relationships with our customers, suppliers and the communities where we operate. ROCKWOOL Group Annual Report 2020 38 This survey, combined with market research, formed the basis for what is now the ROCKWOOL Group Employer Value Proposition (EVP). The EVP explains our identity as an employer and how that identity contributes to attracting and retaining employees – all of which is represented in one motto: “Greater Together”. “Greater Together” is both a promise and an expectation. It combines what is valuable to employees with what ROCKWOOL Group offers and expects as an employer: a culture of skilled and passionate people and a collabora- tive working environment; a solid and reliable company with a strong history and legacy; and an opportunity to develop innovative products that have a positive impact on society and the world. The EVP exemplies how we work, our culture and values. It serves as inspiration for how we should aim to work, the culture that we should seek to maintain and what kind of employees we want to attract – ultimately supporting the Group's goals of growth and protability as one big team. Integrating new colleagues Our current method of integrating new employees differs greatly across the Group. Therefore, a global project was initiated in 2020 with the purpose of ensuring that our new employees feel prepared in their positions and ready to contribute, no matter where they work. loyalty, immediate manager, senior manage- ment, co-operation, working conditions, job content, remuneration, learning and develop- ment and safety. Engagement in 2020 achieved some all-time highs, including: the response rate (82 percent) and also the scores for satisfaction and motivation. Analysis of the response data and follow-up meetings are conducted throughout the organisation among teams and together with HR to learn from the results and discuss with employees how to improve. Immediate manager scores varied again this year across the Group; and while most employees report they are satised with their immediate manager, our new ROCKWOOL Leadership Programme will give all our managers the opportunity to learn and improve. For ROCKWOOL, an aligned and consistent method of bringing new employees into the Group ensures new hires have the same experi- ence from recruitment until they begin their job. For the employee, it ensures a consistent and improved understanding of the business, culture and history, and how they will contribute to the organisation’s goals. The new global onboarding programme focuses on the following knowledge areas through a timely and relevant introduction: 1. Organisation knowledge 2. Role knowledge 3. Team knowledge 4. Workplace knowledge This programme was launched in the beginning of 2020 as a pilot in North America, Sweden, Denmark and Norway and in Group functions at ROCKWOOL headquarters in Hedehusene, Denmark. After an evaluation period, we expect to roll out the programme globally in the rst quarter of 2021. Engaging employees We are continuously striving to improve the engagement level of our employees. We have a yearly engagement survey on a broad range of topics, including: satisfaction and motivation, Developing our people In 2020, we launched our new three-tier ROCKWOOL Leadership Programme. In tier one, “Managing ROCKWOOL People”, we began training the rst groups of leaders in classroom settings, before switching to virtual sessions for the remainder of the year because of COVID-19. We are training a growing number of leaders and plan to roll out the programme to the upper ranks of management in 2021. The two other tiers are still under development and will address middle and senior management. Our Operational Excellence programme continues, with the rst participants graduating in 2020 and a third group of participants expected to graduate in 2021. The programme provides participants with focused learning about operational excellence. ROCKWOOL Group Annual Report 2020 39 Diversity As always, we are committed to provide equal opportunities to all employees, promote diversity, and work against all forms of discrimination among ROCKWOOL employees. Policies and procedures that raise awareness about these topics are part of most of our global processes. The Group believes that diversity among employees and management, including an even distribution of age, nationality and educational background, contributes positively to the working environment and strengthens the Group's competitiveness and performance. We have long been a diverse workplace where employees have vastly different backgrounds, nationalities and competencies – not only in relation to gender, age and ethnicity but just as much in relation to education, experience and personality. For some illustration, there are 68 different nationalities represented across the Group, including 31 at our headquarters in Hedehusene, Denmark. In addition, there are three nationalities represented in the Board of Directors; and ve in Group Management. Our employees also have a wide variety of skills and educational backgrounds and range in age from 19 to 77, with the majority of them between 31 and 40. It is our goal to continue ensuring this diversity in the candidate eld through recruitment and promotion. In 2020, the overall ratio of females to males in the Group remained stable with an 18/82 split. Among middle management, the ratio of women is higher and similarly stable over time. In 2018, Group Management set a target of 25-35 percent female leaders in executive and middle management positions. In 2020, 27 percent of all leaders in middle management positions were female, including 44 percent of new hires. In 2020, as in 2019, two members of Group Management were female. Another target for 2020 was to have at least one shareholder-elected female member of the Board of Directors by the end of year. In April 2020, Rebekka Herlofsen joined the Board. We have now set a new target to achieve 33 percent female representation among our shareholder- elected members by 2024. The target in ROCKWOOL A/S, in Denmark, is still to have at least one shareholder-elected female member of the Board of Directors. This section on diversity covers the require- ments in the Danish Financial Statement Act §99b and §107d. Health and safety of our employees We have an annual goal of zero fatalities and a minimum 10 percent annual improvement in the Lost Time Incident (LTI) rate. For 2020, we set a goal of LTI 2.6, which represents a 10 percent improvement compared to the 2019 performance of 2.9. We had no fatalities in 2020, and although we had fewer lost time incidents in 2020 compared to 2019, the LTI rate, based on the number of hours worked, was higher in 2020, at 3.0. Human rights commitment During 2020, we disclosed the Group’s commitment to respect human rights. We support the United Nations Universal Declaration of Human Rights and the universal principles dened in the UN Global Compact relating to human rights, labour, environment and anti-corruption. We oppose any kind of discrimination due to age, gender, race, colour, Safety, health and wellbeing Our goal: Reduce Lost Time Incident (LTI) frequency rate by 10% and ensure zero fatalities annually. religion, political opinion, social origin, or any other aspects of human rights. Another right we take seriously is the right to exercise freedom of association and collective bargaining. We do not use child labour, forced or compulsory labour or knowingly engage with business partners that do so. As is the case with Group policies, the Managing Directors of the business units and Group Function heads are responsible for ensuring that this commitment is fully understood and implemented in the respective business units. Community engagement ROCKWOOL’s factories are essential to the Group’s success, as is maintaining constructive, positive relations in the communities around our existing facilities and those we are building. The factories create local employment and investment in their communities, and we always work to create and maintain positive relations with community members, their representatives, and other stakeholders. In many of the locations where we operate, we have active programmes supporting community initiatives and activities. When questions or issues arise, we seek to respond as expeditiously as possible. ROCKWOOL Group Annual Report 2020 40 GSE Governance Corporate governance at ROCKWOOL Group regulates the interaction among shareholders, the Board of Directors, and Group Management, with the aim to ensure optimal operational performance while at the same time securing an appropriate level of accountability and trans- parency of our business practices. Organisation The supervision and management of ROCKWOOL Group is divided among the Annual General Meeting (AGM) of shareholders, We act with integrity and in accordance with our values, rules and regulations. the Board of Directors (with well-dened committees), and Group Management. The Annual General Meeting The AGM is the supreme body of the corporate governance structure and elects the Board of Directors as well as independent auditors. The AGM approves any changes to the articles of association and to the capital structure, including any issuance of new shares. The company is not aware of shareholder agreements containing pre-emption rights or restrictions on voting rights. ROCKWOOL Group Annual Report 2020 41 There is an agreement among members of the founding Kähler family to meet regularly to discuss their interests in the company, including items at the AGM, but there is no requirement for them to vote jointly. The Board of Directors The Board of Directors outlines the overall purpose and strategy of the company and ensures that the business is developing on track toward agreed short- and long- term goals. The members of the Board of Directors are non-executive members in accordance with the Danish Companies Act. The Board of Directors today consists of nine members. Six are elected by shareholders at the AGM for a period of one year and may be re-elected. Of these, four members are deemed independent per the Danish Recommendations on Corporate Governance. Three members are elected by employees, for a period of four years, pursuant to the Danish Companies Act. The next election is in 2022. In 2020 the Board of Directors conducted an annual evaluation facilitated by an external consultancy rm. Based on this evaluation, the Board concluded that its present composition is appropriate and sufcient for it to perform its tasks. As for the special competences of each Board member, please refer to the CVs listed on the website, www.rockwool.com/group/about- us/rockwool-group/people/ Group Management The CEO, together with his Group Management team, is responsible for the day-to-day management, strategy execution and timely reporting to the Board of Directors. At the end of 2020, the team consisted of eight executives, of which the CEO and CFO are the registered directors with the Danish Business Authority. Board Chairmanship and Committees The Board of Directors has established three substructures. The Chairmanship The Board of Directors has established a Chairmanship consisting of the Chairman and the Deputy Chairman. They prepare the Board meetings and undertake several functions of a nomination committee. Audit Committee The Board of Directors has appointed an Audit Committee consisting of four members. The majority of its members are independent. The Audit Committee monitors and report on the statutory audit, accounting and audit policies and the nancial and sustainability reporting processes including auditor independence. The committee also conditions which policies or processes, if determined by the Board of Directors or the Audit Committee, should be subject to thorough evaluation. The Audit Committee monitors compliance with applicable legislation, standards and regulations and the internal controls and risk management systems. The Audit Committee also monitors potential cases from the whistle-blower system. Remuneration Committee The Board of Directors has appointed a Remuneration Committee consisting of the Chairman of the Board of Directors and up to two other members of the Board. The Remuneration Committee ensures that the company maintains a remuneration policy for the members of the Board of Directors and the Registered Directors and the compliance hereof, and that the guidelines for Group level variable pay schemes support the strategy. At the 2020 Annual General Meeting, a revised Remuneration Policy was approved. The Remuneration Committee makes proposals for the remuneration of the Board of Directors and reviews and approves remuneration for the Registered Directors and other members of Group Management. The Remuneration Committee also ensures the preparation of the annual Remuneration Report. The Remuneration Report will be subject to a non-binding advisory vote from the shareholders. The Remuneration Report can be found on the website. Internal control Control environment ROCKWOOL Group considers strong internal control to be an essential management tool. The control environment in ROCKWOOL Group is based on clear guidelines and accountability and a continuous effort to maintain that environment with due consideration of materiality and risk. The entire structure of the Group is designed based on the Group’s commercial activities with a clear segregation of management responsibilities. All Group policies are approved by Group Management and assigned to one Group Man- agement member overseeing implementation throughout the line organisation. Policies and manuals have been adopted within all essential areas of operation, legal compliance and nan- cial reporting. Control activities Minimum internal control requirements are stipulated in ROCKWOOL Group Standards, based on the risks identied. The control activities include procedures for authorisation, approval, reconciliation and separation of functions. The control system includes both manual and automated controls. ROCKWOOL Group Annual Report 2020 42 The local management teams are responsible for ensuring that the control environment in each local entity is sufcient to meet local and Group requirements. Information and communication ROCKWOOL Group has established standard- ised information and reporting systems to iden- tify, collect and communicate relevant informa- tion and reports on an ongoing basis and on all levels to facilitate an effective, reliable workow. In addition, an in-depth business review is performed each quarter with participation of relevant members of Group Management. The Group’s position on risk management and changes in the reporting requirements is regularly communicated at nancial meetings for the local nance directors, through the Group intranet and dialogue. Monitoring The internal control systems in relation to the presentation of nancial statements are monitored at various levels, e.g. monthly reports to Group Management on segments and markets and by regular control visits to the local entities. In addition, the Group’s Integrity Committee consisting of the CEO, CFO, a member of Group Management, the Group General Counsel and Group Integrity Ofcer, monitor integrity compliance and launch appropriate new initiatives to constantly improve compliance. The Integrity Committee furthermore reports on integrity issues to the Audit Committee. Recommendations As a Danish listed company, we are guided by the recommendations issued by the Danish Committee on Corporate Governance. The company is generally in compliance with such recommendations but has, in ve cases, chosen to differ as described below. The variations are generally due to company-specic views on the recommendations to optimise value for its shareholders. The company complies with recommendation 3.1.5. The company’s Board of Directors will, how- ever, not exclude that a situation can arise, where the Board of Directors may wish to constitute itself with a former member of the company’s management as Chairman or Deputy Chairman. ROCKWOOL Group publishes its statutory report on Corporate Governance for the nancial year 2020 cf. the Danish Financial Statements Act §107b on the company’s website, including a detailed description of the Board of Directors’ consideration regarding all the recommendations. The statutory report on Corporate Governance can be found at www.rockwool.com/group/about-us/corporate- governance/ Exceptions To a broad extent, the company is following the Committee on Corporate Governance’s recommendations, except for the following ve sub-recommendations, where the company has assessed that its present set-up is more appropriate: 3.1.3 Recommendation The Committee recommends that the selection and nomination of candidates for the Board of Directors be carried out through a thoroughly transparent process approved by the overall Board of Directors. Explanation The Board of Directors has authorised the Chairmanship to nominate qualied candidates to the Board of Directors. The Board of Directors will then evaluate the candidates before it recommends them for election at the Annual General Meeting. 3.3.2 Recommendation The Committee recommends that the management report includes information about the number of shares, options, warrants and similar in the company, and other Group companies, owned by each member of the Board of Directors, as well as changes in the portfolio of the member of the securities mentioned that have occurred during the nancial year. Explanation The company considers the portfolio of shares, options warrants and similar in the company of each member of the Board of Directors to be a private matter, and it is the company’s judgement that disclosure of such information will not add additional value for shareholders and other stakeholders. Board member remuneration does not include share-based elements. 3.4.2 Recommendation The Committee recommends that a majority of the members of a board committee be independent. Explanation The Board of Directors nds that the Chairman, as a non-independent, and the Deputy Chairman, as an independent, can perform the functions of the Remuneration Committee in a prudent manner. 3.4.6 Recommendation The Committee recommends that the Board of Directors establish a nomination committee. Explanation The Board of Directors has not established a nomination committee. Instead, the Chairmanship performs duties recommended concerning the candidates for the Board of Directors. ROCKWOOL Group Annual Report 2020 43 The Board of Directors selects candidates to the positions as CEO and other Registered Directors based on their qualications. 4.2.3 Recommendation The Committee recommends that the company prepares a remuneration report that includes information on the total remuneration received by each member of the Board of Directors and the executive board from the company and other companies in the Group and associated companies for the last three years, including information on the most important content of retention and resignation arrangements and that the correlation between the remuneration and company strategy and relevant related goals be explained. Explanation The 2020 remuneration of the Registered Directors is disclosed in the remuneration report, which from now on will show each year’s remuneration in the table of the report. The remuneration of the members of the Board of Directors and committees can be found in the Remuneration Report and on the website. Responsible tax We acknowledge that tax is an important part of society and an equally important part of responsible corporate citizenship. Tax matters and risks as well as our tax policy are governed ROCKWOOL Group Annual Report 2020 44 by the Board of Directors and discussed on a regular basis with the Audit Committee. Tax matters are operationally managed and monitored by the CFO and the Group Tax department in close relationship with the nancial management of ROCKWOOL Group subsidiaries. The aim of our tax policy is to reect and support our business by ensuring a sustainable tax rate, mitigating tax risks and complying with rules and regulations in the jurisdictions in which we operate. In all tax matters, we apply the same values and integrity as in our Code of Conduct by making sure that our primary focus is the ordinary oper- ation of the Group. We only adopt tax positions that are defendable under full disclosure. We are committed to being a responsible tax payer and avoid aggressive tax planning. We have a clear and transparent corporate structure with no contrived entities or structures. ROCKWOOL does not have any activities in any of the countries listed on the EU Black List of non-cooperative jurisdictions. There are many transactions among ROCKWOOL Group companies, and the transfer pricing policy for these transactions is driven by the activities undertaken and the value created in each part of our businesses. The key component in our prot allocation is our transfer pricing setup and methods in which we are committed to the principle of paying tax where value is created. We acknowledge that international tax matters are increasingly complex and we are committed to assigning the necessary resources to ensure compliance with relevant tax laws and regulations. ROCKWOOL Group is at the same time committed to being as transparent about its tax matters as can reasonably be expected, and we pursue an open dialogue and relationship with tax authorities in a proactive approach to handle uncertainties. For example, we already have a bilateral advance pricing agreement between Denmark and Poland. We have applied for two more agreements in other key countries, and have a fourth application in progress. Once these are established, our ambition is to add more agreements in other important markets. An advance pricing agreement is an up-front agreement between the tax authorities in two or more countries, covering the pricing methodologies for ve tax years, thereby determining the level of taxable income for the countries in question. In addition to an open dialogue with tax authorities, we also participate and engage in an open dialogue on tax matters through industry associations and other external bodies. From time to time, ROCKWOOL Group is allocated different types of tax incentives. Tax incentives are government measures that are intended to inuence business decision- making or to encourage businesses to invest by reducing the amount of tax they must pay. Several of the territories in which we operate offer incentives of various kinds. We seek to use these incentives where they are aligned with our business and operational objectives. Business integrity Our Code of Conduct serves as our most important instrument to communicate and provide guidance on ROCKWOOL Group’s way of doing business with integrity. The Code of Conduct includes Group policies related to anti-corruption, gifts and hospitality, conict of interest, competition law, data privacy, human rights and labour rights, health and safety, and environment. Beginning in 2021 around 6,000 targeted employees will be obligated to complete our Code of Conduct e-learning. This will repeat the e-learning conducted in 2019. As part of the enrolment package, new employees are obligated to complete the Code of Conduct e-learning to focus attention from the outset on the importance of the Code of Conduct. Tackling corruption ROCKWOOL Group has zero tolerance towards any kind of fraud, corruption, bribery and facilitation payments. The anti-corruption policy also applies to suppliers, agents and other third-parties. In 2020 the risk assessment of fraud, corruption and bribery was updated. The risk assessment is partly based on interviews covering the sales, nance, procurement, legal and the management area across the Group. Based on the risk assessment, new initiatives have been adopted and are being implemented to reduce the risk of corruption and bribery. These include screening of sales and procurement employees as part of the recruitment process and monitoring of sales activities to reduce the risk of corruption. Whistleblower system All employees are encouraged and required to report knowledge or suspicion of non- conformance with the ROCKWOOL Code of Conduct to management, the Group Integrity As part of the enrolment package, new employees are asked to complete the Code of Conduct e-learning to focus attention from the outset on the importance of the Code of Conduct. ROCKWOOL Group Annual Report 2020 45 Respecting human rights and supply chain due diligence Our commitment to respect human rights is an integral part of how we work with our suppliers. The ROCKWOOL Supplier Code of Conduct is an important part of that work, outlining our expectation that suppliers respect the United Nations Universal Declaration of Human Rights and UN Global Compact. We acknowledge there is a risk connected with the categories and countries where we do busi- ness, including: compliance with international, national and local laws and guidelines relating to employment; environmental and manufac- turing practices; as well as ethics and bribery, particularly in relation to sourcing. ROCKWOOL’s Supplier Code of Conduct is de- signed to mitigate these risks by explaining our expectations to suppliers and their supply chain. Before being approved to do business with ROCKWOOL Group, suppliers must register in our online supplier portal and answer questions related to our Supplier Code of Conduct. This helps us understand the extent to which the supplier is in compliance with international, national and local laws and standards. In 2019, we evaluated the sustainability risks related to three overall areas: human rights and labour rights; environment; and anti-corruption and bribery across the countries in which we currently operate and have suppliers and the type of materials and services we procure. This work resulted in a risk matrix that we use as a guideline to proactively manage and limit potential sustainability-related risks from high risk category suppliers. Due to the pandemic, we were unable to deploy the knowledge from the matrix in our supplier due diligence processes in 2020. This work is now planned to begin in 2021. Privacy and data protection Privacy compliance is essential to gaining and maintaining the trust of our employees, customers and suppliers. A global data privacy organisation with a regional presence ensures support and governance. The privacy compliance programme includes a privacy policy, a privacy manual and a handbook with guidelines for selected business areas as well as specialised templates and privacy notices. Additional e-learning has been targeted at employees in functions with highest potential risk. These are designed to enable employees to perform their daily work in accordance with all privacy requirements. Ofcer or through the whistleblower procedure. We do not accept any form of negative employment consequences for employees reporting in good faith actual or suspected non- conformance. In 2020, ROCKWOOL updated its whistleblower reporting tool. Reporting is now possible via a dedicated website and on the RockEthics whistleblower app. Reports can be made in multiple languages and anonymously. All communication with the whistleblower is encrypted and reporting is made in compliance with national data protection regulation and GDPR. The updated whistleblower reporting tool has been communicated across the Group. In 2020, 16 potential cases were reported through the whistleblower system. Nine of them qualied under the whistleblower policy and were handled in accordance with the procedure in the whistle- blower manual, and decided by the Integrity Com- mittee. The nine whistleblower cases compare to 13 in 2019 and included two cases each of alleged fraud, conict of interest, safety issues and harass- ment; and one involving bribery. Investigations into most of the cases have been completed, while several are pending completion. So far, two employees have been dismissed and one employee is subject to disciplinary actions. Other cases have resulted in corrective actions. The other seven cases that did not qualify as whistleblower cases related to HR issues (three), customer complaints (three), and one concerning an ordinary management issue. All were handled outside the whistleblower policy by the relevant department. The new system has simplied reporting of whistleblower cases for both employees and third parties and allows reporting of cases in local language via the web or mobile app. Management and the Group Integrity Ofcer continue to promote and increase awareness and knowledge of business ethics and the whis- tleblower arrangement in ROCKWOOL Group, using tools like the new e-learning course. The Audit Committee is informed about all integrity and whistleblower cases. To create awareness of unethical behaviour and underline the Group’s zero-tolerance policy, a summary of integrity cases is communicated to all employees on Group intranet to make sure that we learn from past mistakes and take proper actions. In 2020, nine whistleblower cases were reported, compared to 13 in 2019. All reported integrity and whistleblower cases are investigated. ROCKWOOL Group Annual Report 2020 46 ROCKWOOL Group Annual Report 2020 47 Systems and processes The Board of Directors is responsible for ensuring that the Group’s risk exposure is consistent with its targeted risk prole. The Board also evaluates that appropriate awareness and management processes are in place. Managing the risk process is part of the Chief Financial Ofcer’s area of responsibility and includes providing regular updates to the Audit Committee and Board of Directors. All managing directors of our subsidiaries and Group functional heads must ensure that a risk review within their areas of responsibility is conducted at least once a year; and that risks are discussed, described, scored for severity and likelihood, and quantied in terms such as predicted nancial impact. Appropriate mitigating actions for identied risks are proposed by the subsidiary or Group function and studiously evaluated to ensure effective risk management at Group level. The Group has a Risk Committee, consisting of members from business areas and Group functions. The committee is responsible for reviewing and updating the internal risk management framework and for implementing related processes. The committee meets quarterly to decide on the top risks to be included in the quarterly updates to the Board. Deep dives into the Group’s top risks are selected by the Audit Committee and presented by the “risk owner” for the Risk Committee, Group Management and nally to the Audit Committee and the Board of Directors. With these systems and processes, the Group identies and mitigates the risk. The objective is to ensure that any residual risks are at an acceptable level. Key risks 2020 Among the risks deemed to have had the highest potential to impact ROCKWOOL Group in 2020 were: climate risks, competition law compliance and cyber threats. The risk matrix combines an assessment of the probability and impact of each risk to reach a measure of the total risk. Climate risks Description ROCKWOOL has publicly supported the recommendations of the Task Force on Climate- related Financial Disclosures (TCFD) since 2019, and we annually disclose our climate-related risks and opportunities through the CDP (formerly the Carbon Disclosure Project). As part of an energy-intensive industry, ROCKWOOL faces specic climate-related risks on both the regulatory and technological fronts. Key developments in our melting technology have enabled us to commit to a roadmap for deep decarbonisation that is reected in our new science-based targets, veried and approved by the Science Based Targets initiative (SBTi). Read more about our SBTi commitment on pp. 32-34. Potential impact (mEUR) Probability (%) Cyber threats Competition law Climate risk Risk management Managing risk is a natural part of doing business in the Group. ROCKWOOL Group Annual Report 2020 48 These developments reduce our technological risks and our regulatory risks. For example, all the Group’s European factories are included in the EU Emission Trading Scheme (ETS) Phase IV from 2020-2030. Whilst the inclusion of the mineral wool sector on the EU carbon leakage list for the ETS will signicantly reduce the risk of having to purchase additional allowances, our decarboni- sation path will reduce this risk even more. Mitigation We are developing and implementing innovative technologies with lower carbon intensity to reduce the footprint of our production processes. While many of our factories currently rely on coke and coal for the core melting processes, we are increasingly using less carbon-intensive energy sources such as natural gas, biogas and renewable electricity. In Norway, a newly developed electrical melter will reduce CO 2 emissions by 80 percent compared to the conventional coke-burning furnace it replaces, while in Denmark, our two factories converted to using biogas in January 2021. Combined, these technological developments will help us achieve at least a 70 percent absolute reduction in CO 2 emissions in the Nordic region compared to 1990. The Board of Directors monitors progress against our sustainability goals as well as reviewing and guiding the strategy and risk mitigation for the climate-related issues. Competition law compliance Description Non-compliance with national and international competition and antitrust laws could lead to nes and claims as well as damage to the ROCKWOOL brand and reputation. Mitigation The Group has zero tolerance for any compliance violations. Guided by our values and Code of Conduct, ROCKWOOL Group competes in a fair manner on prices, quality, customer service, innovative products and more. We maintain a strong Group-wide control framework. A variety of measures are provided to relevant employees to equip them with sufcient knowledge to make day-to-day business decisions in accordance with applicable competition and antitrust laws as well as internal policies. Our compliance programme includes a competition law compliance manual, interactive training seminars and internal audits. In 2020, we arranged for all relevant employees to brush up on competition law compliance through an e-learning programme. New employees must complete the e-learning programme as part of their introduction to the Group, including training and guidance on compliance. Cyber threats Description Like all other companies, IT systems, networks and related processes are essential to day-to- day business, and it makes the Group vulnerable to systems outages, cyberattacks and failed IT implementation. With increased digitalisation of business processes, cyber-attack or non- availability of IT systems could have severe nancial and reputational consequences for our business and the ROCKWOOL brand. Mitigation Key objectives for IT include preventing digital theft of intellectual property; limiting and quickly rectifying operational disruptions; and protecting the rights of external and internal data subjects. Also high on the IT security agenda is the protection of consumers against misinformation or misuse of ROCKWOOL brands. The Group’s IT strategy therefore comprises a continued effort to increase the protection against cyberthreats. It involves investments in cyber protection practices and tools regarding core IT infrastructure, factory IT & operations technology, and user devices that access ROCKWOOL’s internal systems. Furthermore, the IT strategy focuses on reducing the human element risk of IT, by continually improving the Group’s authentication practices and usage of credentials, and continuous education of users. The Group's centralised IT department systematically mitigates risks based on internal assessments as well as the ndings of external IT auditors and the evaluations of external experts. The activities carried out by the Group and its partners are expected to maintain the operational stability and integrity of all digital services rendered for internal or external use. ROCKWOOL Group Annual Report 2020 49 Celebrating safety 23 years without an LTI at Rockfon’s California distribution centre. ROCKWOOL France wins CSR award for “ROCKCYCLE” The building site recycling programme collected 47,000 pallets, 550 tonnes of stone wool and 2.7 tonnes of plastic in 2019. Climate change mitigation measures in the NetherlandsRockow is presented to the Dutch Minister of Infrastructure and Water Management, Cora van Nieuwenhuizen. Staying t for next year After the 2020 SailGP season was postponed due to COVID-19, Team ROCKWOOL Racing was born. The year in pictures ROCKWOOL Group Annual Report 2020 50 Making the switch Fuel-exibletechnology enables our two factories in Denmark to operate on biogas. EFIC lab celebrates 20 years of excellence Our European Fire & Conductivity lab is central to product development andthedeningqualityofourproducts. Getting ready to roll An inside look at our newest factory in Ranson, West Virginia. Parafon joins the Rockfon family New colleagues in Sweden discuss quality control. Welcoming a new member of the Board Rebekka Glasser Herlofsen elected to the Board of Directors. Welcoming a new leader to the Group Jessica Jonasson joins Group Management. ROCKWOOL Group Annual Report 2020 51 Board of Directors Board of Directors (From left to right): Rebekka Glasser Herlofsen, René Binder Rasmussen, Carsten Bjerg, Thomas Kähler, Andreas Ronken, Jørgen Tang-Jensen, Christian Westerberg, Søren Kähler and Connie Enghus Theisen. ROCKWOOL Group Annual Report 2020 52 Thomas Kähler Chairman Elected to the Board: 2008 Other positions related to the company Member of the Chairmanship, Chairman of the Remuneration Committee, Member of the Kähler Family Meeting. Thomas Kähler participated in all Board and Remuneration Committee meetings during 2020. Carsten Bjerg Deputy Chairman Elected to the Board: 2011 Other positions related to the company Member of the Chairmanship, Member of the Audit Committee, Member of the Remuneration Committee. Positions in other Danish companies Chairman of the Boards of Hydrema Holding ApS; Arminox Investment A/S (and one fully-owned subsidiary); Bjerringbro-Silkeborg Håndbold A/S; Bogballe Investment A/S (and one fully- owned subsidiary); Ellegaard Investment I ApS (and one fully-owned subsidiary); CapHold Guldager ApS (and one fully owned subsidiary); Robco Engineering Investment A/S (and one fully-owned subsidiary); and PCH Investment A/S (and one fully-owned subsidiary). Member of the Boards of Vestas Wind Systems A/S; Agrometer Investment A/S (and three fully owned subsidiaries); and TCM Group A/S (and one fully owned subsidiary). Carsten Bjerg participated in all Board, Audit and Remuneration Committee meetings during 2020. Rebekka Glasser Herlofsen Elected to the Board: 2020 Other positions related to the company Chairman of the Audit Committee. Other positions Chairman of the Board of Norwegian Hull Club, Norway; Member of the Boards of Equinor ASA, Wilh. Wilhelmsen Holding ASA and Klaveness Combination Carriers ASA, Norway; Member of the Boards and Chairman of Audit Committees of SATS ASA and BW Offshore ASA, Norway; Member of the Nomination Committee of Orkla ASA, Norway; Senior Advisor to Altor Equity Partners AB, Sweden; Member of the Board of Handelsbanken Norge. Following her election, Rebekka Glasser Herlofsen participated in all Board and Audit Committee meetings during 2020. Søren Kähler Elected to the Board: 2013 Other positions related to the company Member of the Audit Committee, Member of the Board of the ROCKWOOL Foundation, Member of the Kähler Family Meeting. Positions in other Danish companies Chairman of the Board of A/S Saltbækvig. Other positions Member of the Board of the Foundation Sagnlandet Lejre. Søren Kähler participated in all Board and Audit Committee meetings during 2020. René Binder Rasmussen Elected to the Board: 2018 District Manager, ROCKWOOL Nordics. René Binder Rasmussen participated in all Board meetings during 2020. Andreas Ronken Elected to the Board: 2016 CEO of Alfred Ritter GmbH &Co. KG. Other positions Member of Advisory Board of Melitta Group GmbH & KG, Minden, Germany. Andreas Ronken participated in all Board meetings during 2020. Jørgen Tang-Jensen Elected to the Board: 2017 Other positions related to the company Member of the Audit Committee. Positions in other Danish companies Chairman of the Board of Strøjer Tegl A/S; Member of the Boards of VKR Holding A/S; VILLUM FONDEN and Maj Invest Holding A/S (and two fully owned subsidiaries). Other positions Chairman of the Board of Tænketanken Europa (Think Tank Europe). Jørgen Tang-Jensen participated in all Board and Audit Committee meetings during 2020. Connie Enghus Theisen Elected to the Board: 2006 Director Stakeholder Engagement, ROCKWOOL International A/S. Connie Enghus Theisen participated in all Board meetings during 2020. Christian Westerberg Elected to the Board of Directors: 2018 Design Manager, ROCKWOOL International A/S. Other positions related to the company Member of the Board of the ROCKWOOL Foundation. Christian Westerberg participated in all Board meetings during 2020. listed companies For further information about independence and competencies of the board members, please refer to www.rockwool.com/group/about-us/ rockwool-group/people/ ROCKWOOL Group Annual Report 2020 53 Group Management Group Management (from left to right): Jens Birgersson, Bjørn Rici Andersen, Kim Junge Andersen, Mirella Vitale, Gilles Maria, Volker Christmann, Jessica Jonasson and Henrik Frank Nielsen. ROCKWOOL Group Annual Report 2020 54 Jens Birgersson President and Chief Executive Ofcer (CEO) Registered Director (in Danish: Medlem af Direktionen). Member of Group Management: 2015 Other positions Chairman of the Board of Randers Reb International A/S, Denmark and member of the Board of dormakaba Group, Switzerland. Kim Junge Andersen Senior Vice President, Chief Financial Ofcer (CFO) Registered Director (in Danish: Medlem af Direktionen). Member of Group Management: 2016 Other positions Member of the Board of FORCE Technology, Denmark. Bjørn Rici Andersen Senior Vice President, Group Operations & Technology Member of Group Management: 2018 Volker Christmann Senior Vice President, Head of Insulation Central Europe Member of Group Management: 2015 Other positions related to the company Member of the Board of the ROCKWOOL Foundation. Other positions Vice President, FMI Fachverband Mineralwolleindustrie e.V., Germany (association of mineral wool industry); Member of the Board of FIW Forschungsinstitut für Wärmeschutz, Germany (research institute for thermal protection); President of BuVEG Bundesverband energieefziente Gebäudehülle e.V., Germany (federal association of energy- efcient building envelope); Member of the Board of H+H International A/S, Denmark. Jessica Jonasson Senior Vice President, Group Human Resources Member of Group Management: 2020 Gilles Maria Senior Vice President, Head of Insulation South West Europe and Insulation Asia Member of Group Management: 2007 Henrik Frank Nielsen Senior Vice President, Head of Insulation North East Europe & Russia Member of Group Management: 2007 Other positions Chairman of the Board of Betterhome ApS, Denmark. Mirella Vitale Senior Vice President, Group Marketing, Communications and Public Affairs Member of Group Management: 2016 ROCKWOOL Group Annual Report 2020 55 ROCKWOOL shares ROCKWOOL International A/S is listed on Nasdaq Copenhagen in two share classes; ROCKWOOL A and ROCKWOOL B. Each A share carries 10 votes, while each B share carries one vote. Both the A and B shares are included in the Nasdaq Copenhagen Large Cap and the B share is part of Nasdaq OMX C25, MSCI Global Standard, and STOXX® Europe 600 Construction & Materials. In addition to Nasdaq Copenhagen, the company’s shares are traded on several other equity exchanges, e.g. Bats, Turquoise and CHI-X. In 2020, the ROCKWOOL B share price increased by 45 percent. The ROCKWOOL A share increased by 44 percent. Trading of shares By the end of 2020, both shares had increased in price by an average of 45 percent, compared to the end of 2019. That compares with a four percent decrease in the benchmark index STOXX® Europe 600 Construction & Materials Shareholder information Share price development 2020 (DKK) 2,500 2,000 1,500 1,000 500 3,000 01/01 2020 01/02 2020 01/03 2020 01/04 2020 01/05 2020 01/06 2020 01/07 2020 01/09 2020 01/10 2020 01/11 2020 01/12 2020 01/08 2020 23% 2% 26% 43% 6% 28% 1% 6% 48% 17% Votes per shareholder category Ownership per shareholder category The ROCKWOOL Foundation Own shares Private investors with less than 5% Institutional investors with less than 5% Other shareholders with more than 5% OMX C25 ROCKWOOL B STOXX® Euro 600 Construction & Materials ROCKWOOL Group Annual Report 2020 56 and a 34 percent increase in the Nasdaq OMX C25 index during 2020. The ofcial share price at 31 December 2020 was DKK 2,296 (B share) and 2,075 (A share). The combined market capitalisation at the end of the year was DKK 47,062 million. Capital structure and dividend Management regularly assesses whether the ROCKWOOL International A/S capital structure is in the interests of the company and its stakeholders. The overall objective is to ensure a continued development and strengthening of the company’s capital structure that supports long-term protable growth. It is the intention of ROCKWOOL International A/S that the ratio of net debt to EBITDA should be no larger than one, with due regard to the company’s long-term nancing requirements. The dividend policy is to pay out a stable dividend that is at least one-third of the prot after tax. At the Annual General Meeting on 7 April 2021, the Board of Directors will propose a dividend of DKK 32.00 per share for the nancial year 2020 (2019: DKK 32.00) amounting to EUR 94 million (2019: EUR 94 million). Dividend to be paid out in 2021 for 2020, net of dividend on own shares held at 31 December, will amount to EUR 93 million (2019: EUR 94 million). The dividend payment occurs three banking days after the Annual General Meeting. After assessing the outlook for the economic cycle, investment plans, and structural business opportunities, and considering the dividend policy, the Company can further decide to initiate share buy-backs to adjust the capital structure. ROCKWOOL International A/S initiated its rst share buy-back programme up to an amount of EUR 80 million on 6 February 2020, to be completed within the following 12 months. In 2020, a total of 345,584 shares have been bought back, corresponding to a transaction value of around EUR 77 million. ROCKWOOL Foundation has participated proportionally to their ownership. At the Annual General Meeting, the Board of Directors will propose that the shares purchased under this programme be cancelled. Ownership The company had 27,950 registered shareholders on 31 December 2020. By the end of 2020, 22 percent of the shares were owned by shareholder deposits located outside Denmark. In terms of voting capital, seven percent was located outside Denmark. See p. 56 for an overview of ownership. Investor Relations activities As a listed company, ROCKWOOL International A/S has a dened policy for its activities related to ROCKWOOL shares. The aim is to: – Ensure that the capital market has an accurate picture of the earnings potential Stock market information 2020 2020 2019 2018 2017 2016 (EUR) DKK DKK DKK DKK DKK Earnings per share 11.5 86 97 91 73 57 Dividend per share 4.3 32.0 32.0 29.9 24.1 18.8 Cashowpershare 20 150 136 140 114 112 Book value per share 95 707 719 638 569 518 Share capital (million) 29 220 220 220 220 220 Price per A share 279 2,075 1,439 1,430 1,594 1,192 Price per B share 309 2,296 1,585 1,697 1,752 1,247 Market cap (million) 6,325 47, 0 62 33,072 34,168 36,367 26,449 Number of own shares 403,912 403,912 72,894 75,865 206,840 275,855 Number of A shares of DKK 10 (10 votes) 11,231,627 11,231,627 11,231,627 11,231,627 11,231,627 11,231,627 Number of B shares of DKK 10 (1 vote) 10,743,296 10,743,296 10,743,296 10,743,296 10,743,296 10,743,296 of ROCKWOOL shares by communicating relevant, correct, balanced, and timely information; – Ensure that the company complies with all relevant rules and regulations as laid out in the Nasdaq Copenhagen Rules for issuers of shares, as well as applicable Danish legislation for publicly listed companies; – Ensure fair and transparent rules for the trading of ROCKWOOL shares by the company itself and by persons considered to be ‘insiders’; – Communicate ROCKWOOL Group values so the capital market perception is of an honest, accessible, reliable, and responsible company; – Maintain broad coverage by both domestic and foreign equity analysts; – Be knowledgeable, responsive and proactive in our investor communication to maintain a fair balance between expectations and performance. Shareholders can communicate with and receive information from ROCKWOOL International A/S through various channels: – The shareholder portal where one can view shareholdings; register or change whether one wishes to receive the invitation to the Annual General Meeting electronically or by letter; order admission cards to the Annual General Meeting; – The Annual General Meeting; – Financial communication, such as investor audio casts, presentations and stock exchange releases; – Regular ESG conference calls. ROCKWOOL Group Annual Report 2020 57 10 February Annual Report for 2020 7 April Annual General Meeting 19 May Report on the rst quarter of 2021 18 August Report on the rst half-year of 2021 24 November Report on the rst nine months of 2021 Share data at a glance Share class A B Index OMX Large Cap OMX C25/Large Cap Sector Building materials Building materials ISIN code DK0010219070 DK0010219153 Short code ROCK A ROCK B Nominal size DKK 10 DKK 10 Number of shares 11,231,627 10,743,296 Voting rights per share 10 1 Share price year-end DKK 2,075 DKK 2,296 Proposed dividend per share DKK 32.00 DKK 32.00 Payout ratio 37.7% 37.7% Our website provides general information on ROCKWOOL Group, the performance of ROCKWOOL International A/S shares, news from the company, nancial calendar and much The Investor Relations team can be contacted at: [email protected] For a list of shareholders holding more than ve percent of the share capital or the votes, please refer to p. 121. Investment banks following the ROCKWOOL shares: ABG Sundal Collier Barclays Carnegie Danske Equities Exane BNP Paribas Handelsbanken HSBC Jyske Markets Morgan Stanley Nordea On Field Investment Research SEB Société Générale Sydbank Analyst' contact details, recommendations and consensus can be found on the investor website: www.rockwool.com/group/about-us/investors/ Annual General Meeting The upcoming Annual General Meeting will take place on 7 April 2021. Owing to pandemic- related restrictions, the Company urges its shareholders to follow the Annual General Meeting live on our website or view the recording after the meeting has nished. The agenda will be distributed 3-5 weeks prior to the meeting to shareholders who have regis- tered their choice of either electronic or printed communication at our shareholder portal. The agenda will be published on our website. The agenda will include: 1. The Board of Directors’ report on the compa- ny’s activities during the past nancial year; 2. Presentation of the Annual Report 2020 with the auditors’ report; 3. Adoption of the Annual Report and discharge of liability for Group Management and the Board of Directors; 4. Approval of Board of Directors’ remuneration; 5. Allocation of prots or cover of losses according to the adopted accounts; 6. Election of members to the Board of Directors; 7. Appointment of auditors; 8. Proposals, if any, by the Board of Directors or shareholders. Shares must be registered by name in order to vote. Shareholders can submit proposals to the Board of Directors for the agenda six weeks prior to the Annual General Meeting. more. A free service allows subscribers to receive instant e-mail alerts when the company publishes new information. Announcements to Nasdaq Copenhagen in 2020 can be found on: www.rockwool.com/group/about-us/investors/ Financial Calendar 2021 ROCKWOOL Group Annual Report 2020 58 Financial performance Net sales recovered well – with a local currency growth of two percentinthelastquarterandstrongprotabilityachievingan EBIT margin of 13.0 percent for the year. Global sales development After the signicant second quarter sales impact from the COVID-19 lock down, construction activities and our sales in the second half of the year recovered in most markets, reecting the view that keeping construction sites open during the pandemic and providing nancial incentives to promote building renovations were economic recovery priorities. All factories were in operation during the second half of the year and local outbreaks of COVID-19 were handled effectively and with focus on employee safety and continued uninterrupted customer deliveries. During the year, we maintained a low positive pricing impact in the aggregate. ROCKWOOL Group Annual Report 2020 59 Net sales reached EUR 2,602 million, a decrease of 3.7 percent in local currencies including a positive impact of 0.6 percent from the Parafon and Bestore acquisitions, which is in line with the latest announced expectation. Foreign exchange rates had a negative impact of 1.9 percent on net sales, primarily due to the U.S. and Canadian dollars and the Russian rouble, resulting in a sales decrease of 5.6 percent in reported gures for 2020. Compared to the outlook announced in the Annual Report 2019, the COVID-19 pandemic disrupted the sales growth and the dynamic in the markets, especially in the second quarter while sales for the second half of the year partly recovered. Regional sales development Sales in Western Europe reached EUR 1,575 million, a decrease of 4.8 percent in local currencies including a 1.0 percent positive impact from the Parafon acquisition and 5.0 percent in reported gures. Overall, sales in In the rest of the world, sales reached EUR 578 million, a decrease of 1.9 percent in local currencies, and 4.3 percent in reported gures due to negative currency impact from the U.S. and Canadian dollars. After a few slow months during the second and third quarters, North American sales activities increased in the fourth quarter, particularly in the United States, resulting in a full year sales growth compared to 2019. This growth continues to be driven by demand for non-combustible building insulation as well as increased new building and renovation activity levels in the residential segment. In Asia, sales were down in China and many southeast Asian markets compared to 2019. This decline is largely the result of lower building activity related to COVID-19 shutdowns and lower technical insulation sales related to the oil and gas sectors. The acquisition of Bestore in Singapore only had a minor impact. most countries decreased compared to last year, although many did recover in the second half of the year. In particular, the Nordic markets and the Netherlands showed good growth in the second half of the year. The Nordic region increased sales each quarter during 2020, driven by the higher activity levels in home renovation. Overall, central Western Europe experienced continued difcult market conditions primarily from lower construction activity. Sales in Eastern Europe reached EUR 449 million, down 2.1 percent in local currencies and 9.1 percent in reported gures mainly due to negative currency impact from the Russian rouble. Poland faced difcult market conditions during the year from lower construction activity. In the second half of the year, especially Hungary and Romania as well as Russia bounced back from the COVID-19 pandemic, and achieved full year sales at level or with growth compared to 2019. Group protability Operational cost savings combined with lower raw material prices led to an EBIT increase of 9 percent in local currencies in the second half of the year and a reported EBIT margin of 13.0 percent for the full year, which is in the upper range of the latest guidance, due to solid sales performance in December. Operational efciency improved as we continued prioritising cost savings activities during the year. This entailed a focus on driving efciency, while still investing in new competencies, digitalisation and growth initiatives, which helped deliver improved protability for the Group. Since the second wave of the COVID-19 pande- mic became more visible, we took measures to reduce costs, including organisational initiatives to preserve productivity. The main part of the severance costs was recognised during 2020. Net sales development Growth EURm Net sales 2019 2,757 Organic development -4.3% -120 Acquisitions 0.6% 16 Currency translation adjustment -1.9% -51 Net sales 2020 -5.6% 2,602 EBIT development Growth EURm Margin EBIT 2019 372 13.5% Decreased earnings from operation -5.9% -22 -0.3% Earnings from acquisitions 0.0% 0 - Currency translation adjustment -3.3% -12 -0.2% EBIT 2020 -9.2% 338 13.0% ROCKWOOL Group Annual Report 2020 60 60 80 100 120 40 2019 2020 800 600 700 500 400 Q1 Q2 Q3 Q4 2019 2020 Q1 Q3 Q4Q2 Quarterly sales & sales growth (reported) (EURm) EBIT & EBIT margin (EURm) 6.2% 12.0% -16.1% 10.0% -2.1% 14.3% 0.7% 13.2% 4.2% 14.7% 2.1% 14.1% -5.1% 14.9% 1.3% 12.3% EBITDA decreased ve percent to EUR 522 million with an EBITDA margin of 20.1 percent, an improvement compared to 2019 of 0.2 percentage points. Adjusting for the positive EUR 10 million EBITDA impact from the 2019 legal settlement involving Rockfon North America, 2020 EBITDA margin increased 0.6 percentage points. In 2020, depreciation amounted to EUR 184 million, an increase of EUR 8 million compared 2019 due to investments in new capacity especially in Romania, Poland and the United Kingdom as well as in digital solutions. Depreciation of the new facility in Germany commenced January 2021. EBIT for the year reached EUR 338 million, resulting in an EBIT margin of 13.0 percent, a decrease of 0.5 percentage points compared to 2019. Adjusting for the 2019 legal settlement related to Rockfon North America, the comparable EBIT margin for 2020 was only 0.2 percentage points below that of the record year 2019, mainly due to the negative currency impact of 0.2 percentage points. There is no direct comparison to the initial outlook announced in February 2020 on EBIT margin as the COVID-19 pandemic completely altered the underlying assumptions. The result is at the upper end of the outlook announced later in 2020 mainly due to an improved performance in the last quarter with higher net sales and positive impact from lower input costs and operational efciencies. Net nancial costs amounted to EUR 14 million, an increase of EUR 9 million compared to 2019. The increase is mainly related to unrealised currency uctuations and fees related to the share buy-back programme. Tax on prot for the year amounted to EUR 74 million compared to EUR 82 million in 2019. The effective tax rate increased slightly to 22.8 percent (2019: 22.4 percent) mainly due to higher withholding taxes on dividends and lower recognition of deferred tax assets. Group prot after tax totalled EUR 251 million, a EUR 34 million decrease, which we consider to be a satisfactory result taking the global COVID-19 pandemic into account. Prot after tax in the parent company totalled EUR 241 million, a decrease of EUR 33 million mainly due to lower income from investment in subsidiaries as the earnings were impacted by the COVID-19 pandemic. Balance sheet and equity Net working capital ended at EUR 213 million, a decrease of EUR 34 million in reported gures compared to 2019, primarily due to lower inventory and trade receivables as well as a negative currency impact and only partly offset by a small increase in trade payables. As a percentage of sales, net working capital was 8.2 percent compared to 9.0 percent in 2019. The ability to quickly adapt to dynamic market conditions and keep costs under control was key in maintaining robust protability ROCKWOOL Group Annual Report 2020 61 Total assets at the end of 2020 amounted to EUR 2,744 million, an increase of EUR 50 million compared to 2019 mainly from ongoing investments partly offset by lower inventories, trade receivables as well as cash. Equity of the Group totalled EUR 2,092 million as of 31 December 2020 compared to EUR 2,118 million in 2019, corresponding to an equity ratio of 76 percent. Equity was mainly affected by the prot for the year, the share buy-back programme, dividend pay-out, and exchange rate adjustments. The proposed dividend for 2020 is DKK 32.00 per share, unchanged from 2019. Invested capital Return on invested capital decreased in 2020, mainly due to higher investments and lower prot, reaching 17.6 percent compared to 21.7 percent in 2019. Invested capital amounted to EUR 1,961 million compared to EUR 1,889 million in 2019. Cash ow and investments COVID-19 increased uncertainties in the early part of the spring and ensuring the Group had adequate funding facilities was important. ROCKWOOL decided to draw a loan of EUR 150 million, allowing the Group to maintain its investment programme, pay dividend to shareholders and keep the share buy-back programme running. Furthermore, additional EUR 200 million was secured in committed facilities for additional safety through an extra revolving credit facility. At the end of 2020, the Group had a net cash positive position, amounting to EUR 95 million, down EUR 117 million. In addition, the Group had unused committed credit facilities of EUR 630 million by year-end. Cash ow from operating activities increased, from EUR 402 million in 2019 to EUR 438 million in 2020. The decrease in operating prot, mainly from the lower sales, was more than compensated by the positive impact from less cash tied up in net working capital, which decreased EUR 27 million in the cash ow compared to 2019. The EUR 9 million decline in tax payments also contributed positively. Capital expenditure excluding acquisitions and received investment grants reached EUR 362 million. This decrease of EUR 38 million compared to 2019 is in line with our latest expectation although negatively impacted by the currency development. Compared to our expectation announced in February 2020, some investment expenditures relating to the ongoing factory projects in the United States and Norway and the relocation project in China were postponed from 2020 to 2021. The largest individual investments in 2020 relate to the factory projects in the United States (West Virginia), in Norway and in Germany. 2019 2020 16 18 Q1 Q2 Q3 Q4 24 20 22 14 2019 2020 200 100 0 500 400 300 YTD Q4Q1 78 21.5 YTD Q2 176 17.7 343 17.6 400 21.7 172 21.6 YTD Q3 292 21.8 243 17.7 Return on invested capital (ROIC) (%) Acc. investments excl. acquisitions (EURm) 96 20.2 ROCKWOOL Group Annual Report 2020 62 In December 2020, additional EUR 1 million grant was received as planned from the Chinese authorities in connection with the ongoing relocation of one of our factories in China; the sum of the grants received now amounts to EUR 19 million. In February 2020, ROCKWOOL acquired the Parafon Acoustic Ceiling business, comprising the Swedish ceiling tile factory, and its Nordic sales organisation, which are now part of Rockfon in our Systems segment. In September 2020, ROCKWOOL acquired the assets of Bestore & Thermal Pte. Ltd., a Singapore business that specialises in supplying re protection and thermal insulation in both the marine and building sectors in Singapore and which is now part of our Insulation segment. The consideration for both businesses totalled EUR 19 million. Free cash ow amounted to EUR 76 million, an increase of EUR 74 million compared to 2019, primarily due to lower investments and lower working capital. Cash ow from nancing activities ended at negative EUR 92 million as the share buy-back programme of EUR 77 million and increased dividend payments were offset by proceeds from borrowings of net EUR 96 million in the year as part of the new loan of EUR 150 million was repaid in November 2020. Key gures Insulation segment EURm Q4 2020 Q4 2019 FY 2020 FY 2019 External net sales 491 517 1,914 2,077 EBIT 64 70 236 269 EBIT margin 11.0% 11.5% 10.7% 11.3% Key gures Systems segment EURm Q4 2020 Q4 2019 FY 2020 FY 2019 External net sales 209 198 688 680 EBIT 36 24 102 103 EBIT margin 16.9% 12.0% 14.8% 15.1% Business segments Sales in the Insulation segment reached EUR 1,914 million, a decrease of 5.8 percent in local currencies and 7.8 percent in reported curren- cies. The sales decrease came primarily from insulation sales in Central Europe and the tech- nical insulation business. The building insulation business in North America ended 2020 with good growth despite the global pandemic. The Insulation segment’s EBIT reached EUR 236 million with an EBIT margin of 10.7 percent, a decrease compared to 2019 of 0.6 percentage points. The operational efciency in the factories could not fully compensate the start- up costs in the German factory and the electric melter project costs in Norway, combined with the overall lower capacity utilisation from the sales decrease. The Systems segment’s sales amounted to EUR 688 million, which is an increase of 2.7 percent in local currencies including 2.4 percent from Parafon and 1.3 percent in reported gures. The growth was driven primarily by Grodan and a good second half of the year for Rockfon and Rockpanel in Europe. The Systems segment generated an EBIT of EUR 102 million with an EBIT margin of 14.8 percent, down 0.3 percentage points compared to 2019. Adjusting for the positive impact from the 2019 legal settlement involving Rockfon North America, the EBIT margin increased 1.2 percentage points, with most businesses contributing positively. ROCKWOOL Group Annual Report 2020 63 Global sales development In Q4 2020, ROCKWOOL Group generated sales of EUR 700 million, an increase of 1.8 percent in local currencies compared to Q4 2019 including a positive impact of 0.6 percent from the Parafon and Bestore acquisitions. Foreign exchange rates had a negative impact of 3.9 percent, mainly from the U.S. and Canadian dollars and the Russian rouble, resulting in a decrease of 2.1 percent in reported gures. A low positive sales price impact continued in the quarter in most markets and businesses. Regional sales development Sales in Western Europe remained stable in local currencies in Q4 2020 compared to Q4 2019 including a positive impact of 1.0 percent from the Parafon acquisition, as net sales in the quarter ended at EUR 420 million. In reported gures sales decreased 0.5 percent. The German and French markets continue to be affected by the general slowdown in the economy. Most other countries recovered well. In Q4 2020, net sales in Eastern Europe amounted to EUR 119 million, an increase of 2.9 percent in local currencies, and a decrease of 9.0 percent in reported gures compared to Q4 2019. The Russian rouble exchange rate had a signicant negative impact though we achieved solid fourth quarter growth in Russia measured in local currencies. Sales in the rest of the world reached EUR 161 million in Q4 2020, an increase of 5.9 percent in local currencies compared to Q4 2019. In reported gures, sales in Q4 2020 decreased 0.5 percent. Overall sales in North America improved and showed solid growth, both in the insulation and systems business. Asia except India continued to struggle. 2020 2019 EURm Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Income statement Net sales 649 583 670 700 641 695 706 715 Operating income 651 583 672 702 644 705 707 717 Raw material and production material costs 206 187 215 237 203 238 240 248 Delivery costs and indirect costs 92 81 93 97 92 100 95 94 Other external costs 55 39 47 43 61 52 55 50 Personnel costs 173 172 172 177 168 171 175 183 Operating costs 526 479 527 554 524 561 565 575 EBITDA 125 104 145 148 120 144 142 142 Depreciation, amortisation and write-downs 45 46 45 48 43 42 43 48 EBIT 80 58 100 100 77 102 99 94 Income from investments in associated companies 0 0 0 1 0 0 0 0 Financial items 0 -5 -2 -7 -4 -2 -2 3 Protbeforetax 80 53 98 94 73 100 97 97 Taxonprotfortheperiod 19 13 21 21 16 21 20 25 Prot for the period 61 40 77 73 57 79 77 72 EBITDA margin 19.2% 17.8% 21.7% 21.1% 18.8% 20.7% 20.1% 19.9% EBIT margin 12.3% 10.0% 14.9% 14.3% 12.0% 14.7% 14.1% 13.2% Statement of comprehensive income Protfortheperiod 61 40 77 73 57 79 77 72 Exchange rate adjustments of foreign subsidiaries -68 12 -48 -4 35 -1 20 -1 Change in pension obligation - - - -3 - - - -10 Hedging instruments, value adjustments 2 0 0 0 0 0 0 -3 Tax on comprehensive income 0 0 0 2 0 0 0 4 Total comprehensive income -5 52 29 68 92 78 97 62 Quarterly follow-up ROCKWOOL Group Annual Report 2020 64 Group protability EBITDA in Q4 2020 reached EUR 148 million, an increase of four percent with an EBITDA margin of 21.1 percent compared to 19.9 percent in Q4 2019. This results primarily from continued good contribution margin and a reduced cost base. EBIT in Q4 2020 reached EUR 100 million, a growth of six percent compared to Q4 2019. EBIT margin ended at 14.3 percent, 1.1 percentage points above Q4 2019. We maintained close attention to market conditions, adjusted capacity as needed and kept costs under control to sus- tain good productivity. Business segments External sales in Q4 2020 in Insulation segment amounted to EUR 491 million, a decrease of 0.9 percent in local currencies and 5.1 percent in reported gures compared to Q4 2019. Most businesses recovered and showed good growth except the insulation business in Central Europe and Asia and the technical insulation business. EBIT in the Insulation segment reached EUR 64 million yielding an EBIT margin of 11.0 percent, down 0.5 percentage points compared to Q4 2019, driven by start-up costs in the factory in Germany and the electric melter project costs in Norway. Systems segment presented a strong Q4 2020. Quarterly net sales reached EUR 209 million, an increase in local currency of 8.9 percent including a positive impact of 2.2 percent from Parafon and 5.8 percent in reported gures compared to Q4 2019 as all businesses showed good growth. Grodan and Rockpanel continued the especially good performance. EBIT in the Systems segment reached EUR 36 million in Q4 2020, an increase of 49 percent and an EBIT margin of 16.9 percent compared to 12.0 percent in Q4 2019. All businesses contributed positively. 2020 2019 EURm Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cash ow statement EBIT 80 58 100 100 77 102 99 94 Adjustments for depreciation, amortisation and write-downs 45 46 45 48 43 42 42 49 Other adjustments 1 -1 6 1 0 1 3 2 Change in net working capital -79 40 27 39 -88 -18 72 -5 Cashowfromoperationsbeforenancialitemsandtax 47 143 178 188 32 127 216 140 Cashowfromoperatingactivities 13 126 161 138 -6 110 193 105 Cashowfrominvestingactivities -110 -80 -72 -100 -78 -94 -120 -108 Freecashow -97 46 89 38 -84 16 73 -3 Cashowfromnancingactivities 68 -67 -30 -63 -6 -94 3 -23 Change in cash available -29 -21 59 -25 -90 -78 76 -26 Segment reporting Insulation segment: External net sales 483 438 502 491 486 533 541 517 Internal net sales 73 61 74 94 65 68 79 92 EBIT 56 40 76 64 55 67 77 70 EBIT margin 10.0% 8.0% 13.2% 11.0% 10.0% 11.2% 12.4% 11.5% Systems segment: External net sales 166 145 168 209 155 162 165 198 EBIT 24 18 24 36 22 34 23 24 EBIT margin 14.6% 12.4% 14.3% 16.9% 14.0% 21.2% 14.0% 12.0% Geographical split of external net sales: Western Europe 395 349 411 420 396 423 418 422 Eastern Europe including Russia 105 105 120 119 103 124 136 131 North America, Asia and others 149 129 139 161 142 148 152 162 Total external net sales 649 583 670 700 641 695 706 715 Quarterly follow-up ROCKWOOL Group Annual Report 2020 65 68 Income statement 68 Statement of comprehensive income 69 Balance sheet 70 Cashowstatement 71 Statement of changes in equity 73 Notes 108 Management's statement 109 Independent Auditor's Reports Consolidatednancialstatements 67 Consolidated nancial statements Income statement 1 January – 31 December EURm Note 2020 2019 Net sales 1.1 2,602 2,757 Other operating income 6 16 Operating income 2,608 2,773 Raw material costs and production material costs 845 929 Delivery costs and indirect costs 363 381 Other external costs 184 218 Personnel costs 1.2 694 697 Operating costs 2,086 2,225 EBITDA 522 548 Amortisation, depreciation and write-downs 2.4, 2.5 184 176 EBIT 338 372 Income from investments in associated companies 1 0 Financial income 4.1 8 5 Financial expenses 4.1 22 10 Prot before tax 325 367 Tax on prot for the year 5.1 74 82 Prot for the year 251 285 Prot for the year attributable to: Non-controlling interests 0 0 Shareholders of ROCKWOOL International A/S 251 285 Earnings per share: 4.7 Earnings per share of DKK 10 (EUR 1.3) 11.54 13.01 Diluted earnings per share of DKK 10 (EUR 1.3) 11.51 12.98 Statement of comprehensive income 1 January – 31 December EURm Note 2020 2019 Prot for the year 251 285 Items that will not be reclassied to income statement: Actuarial gains and losses of pension obligations 2.6 -3 -10 Tax on other comprehensive income 4 3 Items that may be subsequently reclassied to income statement: Currency adjustment from translation of entities -108 53 Hedging instruments, value adjustments 2 -3 Tax on other comprehensive income -2 1 Other comprehensive income -107 44 Comprehensive income for the year 144 329 Comprehensive income for the year attributable to: Non-controlling interests 0 0 Shareholders of ROCKWOOL International A/S 144 329 Consolidated nancial statements 68 Balance sheet Assets - as at 31 December EURm Note 2020 2019 Goodwill 96 97 Software 13 13 Customer relationships 39 43 Other intangible assets 21 21 Software in progress 12 18 Total intangible assets 2.1 181 192 Buildings and sites 637 643 Plant and machinery 439 444 Other operating equipment 22 20 Tangible assets in progress 534 399 Total tangible assets 2.2 1,632 1,506 Right-of-use assets 2.3 44 52 Shares in associated companies 6 6 Long-term deposits and receivables 10 15 Deferred tax assets 5.1 54 54 Total nancial assets 70 75 Non-current assets 1,927 1,825 Inventories 3.1 216 236 Trade receivables 3.2, 4.2 247 275 Other receivables 4.2 60 54 Prepayments 15 15 Income tax receivable 5.1 38 14 Cash 4.2, 4.3 241 275 Current assets 817 869 Total assets 2,744 2,694 Equity and liabilities - as at 31 December EURm Note 2020 2019 Share capital 4.6 29 29 Currency translation adjustments -212 -104 Proposed dividend 94 94 Retained earnings 2,178 2,096 Hedging -1 -1 Equity attributable to shareholders of ROCKWOOL International A/S 2,088 2,114 Non-controlling interests 4 4 Total equity 2,092 2,118 Deferred tax liabilities 5.1 47 43 Pension obligations 2.6 66 62 Lease liabilities 2.3 27 34 Provisions 2.7 18 17 Bank loans and other loans 4.2, 4.4 - 4 Non-current liabilities 158 160 Short-term portion of bank loans and other loans 4.2, 4.4 100 1 Bank debt 4.2, 4.3 1 6 Trade payables 4.2 184 196 Lease liabilities 2.3 18 18 Provisions 2.7 8 9 Income tax payable 5.1 25 29 Other payables 4.2 158 157 Current liabilities 494 416 Total liabilities 652 576 Total equity and liabilities 2,744 2,694 Consolidated nancial statements 69 Cashowstatement The consolidated cash ow statement is compiled using the indirect method on the basis of EBIT. The cash ow statement shows ows from operating, investing and nancing activities for the year, as well as cash and cash equivalents at the beginning and at the end of the year. Cash ows from operating activities comprises operat- ing prot before nancial items adjusted for non-cash items and changes in working capital. Cash ows from investing activities comprise payments relating to acquisition and sale of companies, intangible and tangible assets and other asset investments. Cash ows from nancing activities comprise proceeds from borrowings, repayment of lease liabilities and debt, payment of dividends, sale and purchase of own shares, transactions with non-controlling interests and increases of the share capital. Cash available includes cash less short-term bank debt. Individual items in the cash ow statement cannot be directly deduced from the consolidated balance sheet. As the two business acquisitions are considered immaterial, no separate note is disclosed. For further information on the business acquisitions please see p. 63. EURm Note 2020 2019 EBIT 338 372 Adjustments for amortisation, depreciation and write-downs 2.4 184 176 Adjustments of non-cash operating items 3.3 7 6 Changes in net working capital 3.3 27 -39 Cash ow from operations before nancial items and tax 556 515 Finance income etc. received 8 5 Finance costs etc. paid -22 -5 Taxes paid -104 -113 Cash ow from operating activities 438 402 EURm Note 2020 2019 Cash ow from operating activities (continued) 438 402 Purchase of tangible assets -358 -379 Received investment grants 19 0 Purchase of intangible assets -4 -21 Business acquisitions, net of cash -19 - Cash ow from investing activities -362 -400 Free cash ow 76 2 Dividend paid -94 -87 Share buy-back programme -77 - Purchase of own shares -3 -2 Sale of own shares 2 0 Repayment of lease liabilities 2.3 -20 -17 Repayment of non-current receivables 4 -14 Proceeds from borrowings 152 4 Repayment of current debt -56 -4 Cash ow from nancing activities -92 -120 Net cash ow -16 -118 Cash available 1/1 269 380 Exchange rate adjustments on cash available -13 7 Cash available 31/12 4.3 240 269 Unutilised, committed credit facilities 630 428 Consolidated nancial statements 70 Comments Accounting policies Statement of changes in equity Dividend is included as a liability at the time of adop- tion by the Annual General Meeting. Dividend that is expected to be paid for the year is shown separately in the equity. Sale and purchase of, as well as dividends on own shares are recognised under retained earnings in the equity. The reserve for currency translation adjustments consists of exchange rate differences that occur when translating the subsidiaries’ nancial statements from their functional currency into EUR. Hedging adjustments comprise changes in the fair val- ue of hedging transactions that qualify for recognition as cash ow hedges and where the hedged transaction has not yet been realised. Non-controlling interests Non-controlling interests are recognised at the minor- ity’s share of the net assets. The difference between the costs and the non-controlling interests’ share of the total carrying amount including goodwill is transferred from the minority interests’ share of the equity to the equity belonging to the shareholders of ROCKWOOL International A/S. Shareholders of ROCKWOOL International A/S Non- controlling interests Total equity EURm Share capital Currency translation adjust- ments Proposed dividend Retained earnings Hedging Total Equity 1/1 2020 29 -104 94 2,096 -1 2,114 4 2,118 Prot for the year - - 94 157 - 251 0 251 Other comprehensive income - -108 - 1 0 -107 - -107 Comprehensive income for the year - -108 94 158 0 144 0 144 Share buy-back programme - - - -77 - -77 - -77 Purchase of own shares - - - -3 - -3 - -3 Sale of own shares - - - 2 - 2 - 2 Expensed value of Restricted Share Units (RSUs) issued - - - 2 - 2 - 2 Dividend paid - - -94 0 - -94 - -94 Equity 31/12 2020 29 -212 94 2,178 -1 2,088 4 2,092 Equity 1/1 2019 29 -157 88 1,912 1 1,873 4 1,877 Prot for the year - - 94 191 - 285 0 285 Other comprehensive income - 53 - -7 -2 44 0 44 Comprehensive income for the year - 53 94 184 -2 329 0 329 Purchase of own shares - - - -2 - -2 - -2 Expensed value of Restricted Share Units (RSUs) issued - - - 1 - 1 - 1 Dividend paid - - -88 1 - -87 0 -87 Equity 31/12 2019 29 -104 94 2,096 -1 2,114 4 2,118 Consolidated nancial statements 71 Accounting policies Note1Operatingprot 1.1 Net sales and segmented accounts 75 1.2 Personnel costs 76 1.3 Long-term incentive programmes 77 Note 2 Invested capital 2.1 Intangible assets 80 2.2 Tangible assets 81 2.3 Leases 83 2.4 Amortisation,depreciationandwrite-downs 84 2.5 Impairmenttests 84 2.6 Pension obligations 86 2.7 Provisions 89 Note 3 Working capital 3.1 Inventories 91 3.2 Trade receivables 91 3.3 Othercashownotes 92 Note4Capitalstructureandnancing 4.1 FinancialincomeandFinancialexpenses 94 4.2 Financialrisksandinstruments 94 4.3 Cash available 97 4.4 Loans 97 4.5 Ownshares 97 4.6 Share capital 98 4.7 Earnings per share 98 Note 5 Other 5.1 Tax 100 5.2 Commitments and contingent liabilities 102 5.3 Related parties 102 5.4 Auditor’s fee 103 5.5 Newandamendedstandards and general accounting policies 103 5.6 Group companies 105 Notes Consolidated nancial statements 73 1.1 Net sales and segmented accounts 75 1.2 Personnel costs 76 1.3 Long-term incentive programmes 77 Note 1 Operating prot Sales per business segment (EURm) Insulation Systems EBIT margin 13.0% Average number of FTEs 11,626 Reported sales decrease 5.6% Consolidated nancial statements 74 500 1,000 1,500 2,000 2,500 3,000 0 2020 2019 Net sales The Group produces and sells a range of non-combus- tible stone wool insulation products, including solutions for ceiling systems, ventilated facades, friction and water management and stone wool substrate solutions for the professional horticultural. Sales are recognised when control of the products has transferred to the customer, being when the products are delivered to the customer and the risk has been transferred. The products are often sold with retrospective volume discounts based on aggregate sales over a 12-month period. Revenue from these sales is recognised based on the price specied in the contract, net of the esti- mated volume discounts. Accumulated experience is used to estimate and provide for the discounts, using the expected value method. The sales include no element of nancing as the sales are made with credit terms of normally 30-60 days consistent with market practice. A receivable is recognised when the products are de- livered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Segmented accounts Group Management has determined the business seg- ments for the purpose of assessing business performance and allocating resources. Primarily segments are based on products and thermal performance, as Systems segment Notes 1.1 Net sales and segmented account is primarily dened as non-thermal insulation products. Nearly all external sales consist of sales of products. Segmental data is stated for business areas and geographical areas. The split by business areas is in accordance with the Group’s internal reporting. The segmental data is presented according to the same principle as the consolidated nancial statements. The segmental EBIT includes net sales and expenditure in- cluding non-recurring expenditure operationally related to the segment. Business segments and sales reporting Insulation segment Systems segment Eliminations ROCKWOOL Group EURm 2020 2019 2020 2019 2020 2019 2020 2019 External net sales 1,914 2,077 688 680 - - 2,602 2,757 Internal net sales 302 304 - - -302 -304 - - EBIT 236 269 102 103 - - 338 372 EBIT margin 10.7% 11. 3% 14.8% 15 .1% - - 13.0% 13.5% Financial items and income from associated companies - - - - - - -13 -5 Tax on prot for the year - - - - - - -74 -82 Prot for the year - - - - - - 251 285 Goods transferred at a point in time 1,914 2,077 688 680 - - 2,602 2,757 Non-current asset additions 326 425 44 26 - - 370 451 Geographical segments Net sales Intangible and tangible assets EURm 2020 2019 2020 2019 Western Europe 1,575 1,659 914 770 Eastern Europe and Russia 449 494 379 416 North America, Asia and others 578 604 520 512 Total 2,602 2,757 1,813 1,698 ROCKWOOL Group operates in two business segments based on products: Insulation segment and Systems segment. The information is based on the management structure and internal management reporting to Group Management and constitutes the reportable segments. Headquarters costs are allocated to the business segments based on allocation keys used in the internal management reporting. These allocation keys are reassessed annually based on planned activity in the segments. Intangible and tangible assets and related amortisation/depreciation are not fully allocated to business segments as all stone wool production is done in the Insulation segment. Financial income and expens- es, and income taxes are managed at Group level and are not allocated to business segments. Consolidated nancial statements 75 Accounting policies Comments Notes 1.1 Net sales and segmented accounts (continued) 1.2 Personnel costs Personnel costs EURm 2020 2019 Wages and salaries 580 590 Expensed value of RSUs issued 2 1 Pension costs 30 27 Other social security costs 82 79 Personnel costs 694 697 Average number of employees 11,626 11,646 The above items include to Board of Directors and Group Management: Salaries and other benets to Group Management 6 6 Value of expensed RSU cost or fair value adjustments to Group Management 1 1 Pension costs to Group Management 1 1 Board of Directors’ remuneration 1 1 Total to Board of Directors and Group Management 9 9 Hereof remuneration to Registered Directors 3 3 Hereof value of expensed RSU cost or fair value adjustments to Registered Directors 1 0 Hereof pension costs to Registered Directors 0 0 Total to Registered Directors 4 3 Remuneration of Group Management (key management personnel) complies with the principles of the Group's Remuneration Policy. The variable part of the total remuneration, measured as short-term incentive maximum and annual long-term incentive grant, can be maximum 50 percent of the total remuneration. The short-tem incentive (bonus) is dependent on achievement of individual targets and tar- gets for the Group's nancial performance, as approved by the Remuneration Committee. In addition, pension and other benets are offered in line with market prac- tice with a total value not exceeding 20 percent of base salary. The individual remuneration elements of each Regis- tered Director are disclosed in the annual Remunera- tion Report. No termination costs is included in the remuneration in neither 2020 nor 2019. Internal net sales from the Insulation segment to the Systems segment are at arms’ length prices. The Insulation segment includes among others interior building insulation, façade insulation, roof insulation and industrial and technical insulation. The Systems segment includes acoustic ceilings, cladding boards, engineered bres, noise and vibration control, and horticultural substrates. In 2020 and 2019 write-down of software was recognised affecting both segments. For additional information please refer to note 2.4. The geographical net sales information is based on the location of the customers, while the information regard- ing the geographical assets distribution is based on the physical placement of the assets. The domestic sales in Denmark are in the range of 2-3% (2019: 2-3%) of the Group’s net sales. The domestic intangible and tangible assets in Denmark amount to EUR 159 million (2019: EUR 168 million). No customers exceed 10% of the Group’s net sales neither this year nor last year. In Germany, France and the United States net sales amounts to between 10-20% of the Group’s total net sales in both 2020 and 2019. In no other country do the net sales exceed 10% of the Group’s total net sales. Intangible and tangible assets in the United States, Germany and Poland exceed 10% of the Group's total intangible and tangible assets in both 2020 and 2019. Consolidated nancial statements 76 Comments Comments Notes 1.3 Long-term incentive programmes Stock options No stock options have been granted since 2015. The outstanding options are all exercisable and fully vested at the end of the reporting period. The average share price at exercise in 2020 was EUR 267 (2019: EUR 214). In 2020, the stock options granted in 2012 expired and all the stock options were exer- cised. No stock options expired in 2019. Stock option programme Stock options outstanding at year-end have the following exercise periods and exercise prices: Time of grant Exercise period Exercise price (EUR) Number of stock options 2020 Number of stock options 2019 2012 01.09.2015 - 31.08.2020 69 - 7,625 2013 23.09.2016 - 22.09.2021 121 6,550 8,800 2015 20.03.2018 - 19.03.2023 103 8,500 18,500 15,050 34,925 In 2020, all remaining stock options belonged to senior executives. In 2019, 2,350 belonged to Registered Directors and 32,575 to other senior executives. Development in outstanding stock options 2020 2019 Number of stock options Average exercise price (EUR) Number of stock options Average exercise price (EUR) Outstanding stock options 1/1 34,925 100 37, 225 100 Exercised 19,875 117 2,300 127 Outstanding stock options 31/12 15,050 110 34,925 100 Two different share-based incentive programmes have been established: A stock option programme and a re- stricted share programme (RSUs). Both programmes are classied as equity based, as they are settled in shares. Due to local rules, a minor part of both programmes are given as phantom shares and is classied as cash-based, as they are settled in cash. The programmes are offered to Group Management and other senior executives. The incentive programmes are part of the variable part of the remuneration and follows the Group’s Remunera- tion policy. Participation in the programmes are at the Remuneration Committees discretion and no individual has a contractual right to participate or receive any guaranteed benet. Stock options On issuance of stock options, the fair value of the options is assessed using the Black & Scholes formula at the time of grant and is recognised in personnel costs in the in- come statement and in equity over the three-year vesting period. A part of the stock options are given as phantom shares (cash-based programme) and are adjusted to fair value through nancial expenses in the income statement against a related provision. Restricted Share Units (RSUs) When RSUs are issued, the value of the RSUs at grant date is recognised in personnel cost in the income statement and in equity over the three-year vesting period. On initial recognition of the RSUs, the number of RSUs expected to vest is estimated. Subsequently, the estimate is revised so the total cost recognised is based on the actual number of RSUs vested. The fair value of RSUs is determined based on the quoted share price at grant adjusted for expect- ed dividend payout (based on historic dividend payout ratio). The participants are compensated for any dividend payment by receiving additional RSUs. A minor part of the RSUs are given as phantom shares (cash-based programme) and are adjusted to fair value through nancial expenses in the income statement against a related provision. Consolidated nancial statements 77 Comments Accounting policies Restricted Share Units Restricted Share Units (RSUs) will be subject to a vesting period of three years. After the vesting period the shares are transferred to the participants without payment, subject to continued employment with ROCKWOOL Group in the vesting period. In line with the Remuneration Policy, a one-time award of conditional RSUs was granted to the CEO in 2020. The award is subject to a ve-year vesting period and only upon achievement of three parameters: a) Reduc- tion of CO 2 per tonne line wool, b) growth in sales; and c) earnings. The RSUs represent the employee's right to shares but do not carry voting rights nor have any tangible value before the RSUs are exercised and become actual B shares of ROCKWOOL International A/S. The terms of the share incentive may provide that shares may be set- tled in cash in which case, the related provision equals the share price at the time of vesting. The estimated fair value of RSUs granted in 2020 was EUR 3 million (2019: EUR 2 million) at grant date. EUR 3 million was expensed in 2020 relating to the RSUs (2019: EUR 2 million), of which EUR 2 million was recognised in personnel costs and EUR 1 million in nance expenses (fair value of phantom shares). Notes 1.3 Long-term incentive programmes (continued) Restricted share units (RSUs) RSUs outstanding at year-end have the following vesting dates: Time of grant Vesting date Number of RSUs 2020 Number of RSUs 2019 2017 07.04.2020 - 12,103 2018 12.04.2021 8,494 8,633 2019 24.05.2022 10,311 10,221 2020 23.05.2023 14,226 - 2020, one-time award 26.05.2025 9,272 - 42,303 30,957 Weighted average remaining contractual life of the outstanding RSUs at year-end (Year) 2.2 1.2 Of the number of RSUs 16,592 belong to Registered Directors and 25,711 to other senior executives. In 2019, 6,659 belonged to Registered Directors and 24,298 to other senior executives. Development in number of outstanding RSUs 2020 2019 Outstanding RSUs 1/1 30,957 34,141 Granted 24,802 11,018 Vested 12,896 13,971 Forfeited 560 231 Outstanding RSUs 31/12 42,303 30,957 The average share price the day following the vesting date was EUR 175. Cash-settled programmes The cash-settled programmes consists of phantom shares granted during the years 2018-2020. The employees granted the phantom shares participate on terms and conditions similar to those applying to the share options and the RSUs. There are no more phantom options outstanding from the 2013-2015 stock options (2019: 2,350). The out- standing RSUs from 2018-2020 include 6,449 phantom shares (2019: 7,652). The total intrinsic value of the phantom stock options/ RSUs at year-end amounts to EUR 1 million (2019: EUR 1 million), which is recognised as a liability. Consolidated nancial statements 78 Comments Note 2 Invested capital 2.1 Intangible assets 80 2.2 Tangible assets 81 2.3 Leases 83 2.4 Amortisation, depreciation andwrite-downs 84 2.5 Impairmenttests 84 2.6 Pension obligations 86 2.7 Provisions 89 EURm Capital expenditure Down EUR 38 million compared to last year 362 EURm ROU assets 44 ROIC 17.6% Consolidated nancial statements 79 The costs of research activities are carried as expend- iture in the year in which they are incurred. The costs of development projects which are clearly dened and identiable, and of which the potential technical and commercial exploitation is demonstrated, are capital- ised to the extent that they are expected to generate future revenue. Other development costs are recog- nised on an ongoing basis in the income statement under operating costs. Intangible assets, apart from goodwill, are stated at cost less accumulated amortisation and write-downs. Amortisation of the following intangible assets is made on a straight-line basis over the expected future lifetime of the assets, which is: Development projects: 2-10 years Patents: up to 20 years Software: 2-4 years Trademarks: up to 20 years Customer relationships: 10-15 years Goodwill arisen from acquisition of enterprises and ac- tivities is stated at cost. The carrying amount of good- will is allocated to the Group’s cash-generating units at the acquisition date. Identication of independent cash-generating units is based on business structure and level of internal control of cash ow. Acquired CO 2 rights are capitalised under intangible assets. Granted CO 2 rights are not capitalised. Goodwill is tested annually for impairment and the book value of other assets is reviewed on indications of Intangible assets 2020 2019 EURm Goodwill Software Customer relation- ships Other intangible assets Software in pro- gress Total Goodwill Software Customer relation- ships Other intangible assets Software in pro- gress Total Cost 1/1 128 85 80 52 20 365 126 72 69 54 21 342 Exchange rate adjustments -5 0 -3 0 0 -8 2 -2 3 1 1 5 Additions for the year - 0 - 0 4 4 - 9 - 6 7 22 Transfer of assets in progress - 10 - - -10 - - 9 8 -8 -9 - Disposals for the year - -3 - -13 -2 -18 - -3 - -1 - -4 Business acquisitions 4 0 5 3 - 12 - - - - - - Cost 31/12 127 92 82 42 12 355 128 85 80 52 20 365 Amortisation and write-downs 1/1 31 72 37 31 2 173 31 59 20 35 8 153 Exchange rate adjustments 0 -1 -2 -1 0 -4 0 0 2 0 0 2 Amortisation for the year - 8 8 4 - 20 - 8 8 3 - 19 Write-down for the year - 3 - - - 3 - - - - 2 2 Transfers - - - - - - - 8 7 -7 -8 - Disposals for the year - -3 - -13 -2 -18 - -3 - - - -3 Amortisation and write-downs 31/12 31 79 43 21 - 174 31 72 37 31 2 173 Carrying amount 31/12 96 13 39 21 12 181 97 13 43 21 18 192 During the year R&D costs amounting to EUR 41 million (2019: EUR 41 million) have been expensed. Notes 2.1 Intangible assets impairment. When testing for impairment, the value is written down to the estimated net sales price or the val- ue in use, if greater. Software in progress is also tested for impairment annually. Consolidated nancial statements 80 Accounting policies Notes 2.1 Intangible assets (continued) Goodwill is allocated to cash generating units (CGUs) in Insulation segment at an amount of EUR 51 million (2019: EUR 50 million) and to CGUs in Systems segment at an amount of EUR 45 million (2019: EUR 47 million). Goodwill has been impairment tested for the identied CGUs, which for both years have not resulted in any value adjustments. The impairment test of goodwill is based on current and future results for the CGUs to where the results are allocated. Most of the goodwill in the Group is related to the acquisition of Flumroc in 2017, Chicago Metallic in 2013 and CSR in 2010 and they are performing according to plan. Please refer to note 2.5 for further details. In 2020 a write-down of EUR 3 million of software was recognised affecting both segments due to low utilisation. In 2019 a write-down of EUR 2 million of software in progress was recognised affecting both segments due to lower benets and utilisation compared to the original expectation. The carrying amount of other intangible assets includes brands amounting to EUR 12 million (2019: EUR 11 million), patents amounting EUR 8 million (2019: EUR 9 million) and development projects of EUR 1 million (2019: EUR 1 million). 2.2 Tangible assets Tangible assets are stated at cost less accumulated de- preciation and impairment losses. The cost of technical plant and machinery manufactured by the Group com- prises the acquisition cost, expenditure directly related to the acquisition, engineering hours, including indirect production costs and borrowing costs. Depreciation is carried out on a straight-line basis, based on current assessment of their useful lives and scrap value. The expected lifetimes are: Buildings: 20-40 years Plant and machinery: 5-15 years Other operating equipment: 3-10 years On sale or scrapping of assets, any losses or gains are included under other operating income for the year. Investment grants are deducted in the cost of the equivalent tangible assets. The investment grants are recognised as income on a straight-line basis over the expected lives of the related assets as reduced depreci- ation expense. The expected lifetime for tangible assets is determined based on past experience and expectations for future use of the assets. Especially the estimated lifetime of plant and machinery is linked to uncertainty due to varying utilisation and the signicant amount of mainte- nance costs. The expected future lifetime for the assets is evaluated annually. When there is an indication of a reduction in the prof- itability of an asset, an impairment test is performed for the assets in question and write-downs are made, if necessary. The recoverable amounts of the assets and cash-gen- erating units are determined based on value-in-use calculations and fair value less cost to sell. These calculations require the use of estimates as they are based on budgets, business plans and projections for ve years and take into account previous experience and represent Management’s best estimate of future developments. Consolidated nancial statements 81 Comments Critical estimates and judgements Accounting policies Of the carrying amount of buildings and sites, EUR 114 million (2019: EUR 114 million) represent sites not subject to depreciation. Accumulated capitalised interests amounting to EUR 3 million (2019: EUR 4 million) are included in the cost of tangible assets. There is no additional capitalised interest neither this year nor last year. For the recognised investment grants the conditions are fullled or are reasonable assured to be fullled. Some of the received investment grants are subject to repay- ment obligations provided that the attached conditions are not fullled within a number of years. The Group’s investment grants are for the main part received in Poland, Spain, the United States and China. The investment grants are in most cases linked to expansion of the Group including the amount of invest- ment in tangible assets and the creation of jobs - and is given as cash or loans. Only limited contingent liabilities exist. Contractual obligations for the purchase of tangible assets at 31 December 2020 amount to EUR 90 million (2019: EUR 134 million). Notes 2.2 Tangible assets (continued) Tangible assets 2020 2019 EURm Buildings and sites Plant and machinery Other operating equipment Tangible assets in progress Total Buildings and sites Plant and machinery Other operating equipment Tangible assets in progress Total Cost 1/1 1,094 2,084 114 399 3,691 1,021 1,972 95 160 3,248 Exchange rate adjustments -46 -82 -4 -18 -150 27 45 4 1 77 Additions for the year 0 5 0 330 335 1 4 1 387 393 Transfer of assets in progress 55 107 15 -177 - 47 84 18 -149 - Disposals for the year -1 -17 -3 - -21 -2 -21 -4 - -27 Business acquisitions 3 2 1 - 6 - - - - - Cost 31/12 1,105 2,099 123 534 3,861 1,094 2,084 114 399 3,691 Depreciation and write-downs 1/1 451 1,640 94 - 2,185 413 1,528 80 - 2,021 Exchange rate adjustments -13 -59 -4 - -76 10 38 2 - 50 Depreciation for the year 31 95 14 - 140 30 92 16 - 138 Disposals for the year -1 -16 -3 - -20 -2 -18 -4 - -24 Depreciation and write-downs 31/12 468 1,660 101 - 2,229 451 1,640 94 - 2,18 5 Carrying amount 31/12 637 439 22 534 1,632 643 444 20 399 1,506 Hereof investment grants -10 -2 - -19 -31 -10 -2 - - -12 Consolidated nancial statements 82 Comments Notes 2.3 Leases Whether a contract contains a lease is assessed at contract inception. For identied leases, a right-of-use (RoU) asset and corresponding liability are recognised on the lease commencement date. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the payments, which are xed or variable payments dependent on an index or a rate. When adjustments to lease payments based on an index or a rate take effect, the lease liability is re- assessed and adjusted against the lease asset. Service components are excluded from the lease liability except from those relating to cars. To measure the lease liability at an amount equal to the net present value of the lease payments, a discount rate is used. For this purpose, the Group generally uses its incremental borrowing rate (IBR). The IBR is calculated per main country/region per asset type considering different length of the lease terms. The lease payments have been split into an interest cost and a repayment of the lease liability. RoU assets are measured at cost corresponding to the lease liability recognised, adjusted for any lease prepay- ments or directly related costs, including restoration costs. RoU assets are depreciated on a straight-line basis over the shorter of the expected lease term and the asset’s useful life. RoU assets are tested for impairment when ever there is an indication that the assets may be impaired. Extension and termination options are included in a number of property and equipment leases across the Group. The majority of extension and termination op- tions held are exercisable only by the Group and not by the respective lessor. If the lease contract contains an extension or purchase option that the Group considers reasonably certain to be exercised, these are included in the measurement of the liability. Short-term leases and leases of low value are recog- nised on a straight-line basis as cost in the income statement. The Group’s portfolio of leases covers leases of ofce buildings, warehouses and other equipment such as cars and forklifts. Leases for ofces and other buildings have lease terms between 2-22 years, warehouses be- tween 3-10 years while car and forklift leases generally have lease terms between 3-5 years. The Group also has a few long-term site leases with lease terms up to 99 years. Leases in the balance sheet EURm 2020 2019 Right-of-use assets: Ofces, other buildings and sites 9 10 Warehouses 19 25 Forklifts, cars and other assets 16 17 Carrying amount of right-of-use assets 31/12 44 52 Contractual maturity of lease liabilities: < 1 year 21 20 1-5 years 31 30 > 5 years 10 10 Contractual maturity of lease liabilities 31/12 62 60 Current/non-current classication (discounted): Non-current 27 34 Current 18 18 In 2020, additions to right-of-use assets were EUR 13 million (2019: EUR 36 million). Leases in the income statement EURm 2020 2019 Depreciation of right-of-use assets: Ofces, other buildings and sites 3 2 Warehouses 8 6 Forklifts, cars and other assets 10 9 Total depreciation of right-of-use assets 21 17 Interest expense (included in nancial expenses) 2 2 Expense relating to short-term leases (included in operating costs) 8 8 Expense relating to low-value leases (included in operating costs) 0 0 Variable lease payments not included in the lease liabilities (included in operating costs) 2 5 The total cash outow for leases in 2020 was EUR 32 million (2019: EUR 32 million), of which EUR 20 million (2019: EUR 17 million) is classied as cash ow from nancing activities and EUR 12 million (2019: EUR 15 million) is classied as cash ow from operating activities. Consolidated nancial statements 83 Accounting policies Notes 2.4 Amortisation, depreciation and write-downs Amortisation, depreciation and write-downs EURm 2020 2019 Amortisation of intangible assets 20 19 Write-down of intangible assets 3 2 Depreciation of tangible assets 140 138 Depreciation of right-of-use assets 21 17 Amortisation, depreciation and write-downs 184 176 In 2020 a write-down of EUR 3 million of intangible assets was recognised affecting both segments due to lower benets and utilisation compared to the original business plan. When there is an indication of a reduction in the prot- ability of an asset, an impairment test is performed for the assets in question and write-downs are made, if necessary. For goodwill, annual impairment tests are made. The recoverable amounts of the assets and cash-generating 2.5 Impairment tests Impairment test of goodwill EURm 2020 CGUs Carrying amount, Goodwill Discount rate Growth rate (budget period) Headroom Chicago Metallic Corporation (Rockfon) 52 8.9% 4% Large HECK Wall Systems 6 8.0% 4% Minor CSR 8 10.8% 9% Large Flumroc 15 8.0% 2% Large Other 15 8-12% 0-12% Large Total 96 * Average growth rate due to large spread in the period. units (CGUs) have been determined based on value- in-use calculations. When testing for impairment, the value is written down to the estimated recoverable amount, if lower than the carrying amount. Other assets are tested for impairment when there are indications of change in the structural protability. In 2019 a write-down of EUR 2 million of intangible assets under construction was recognised affecting both segments due to lower benets and utilisation compared to the original business plan. Consolidated nancial statements 84 Accounting policies Comments Notes 2.5 Impairment tests (continued) When preparing impairment tests, estimates are used to calculate the future value. Signicant estimates are made when assessing long-term growth rates and protability. In addition, an assessment is made of the reasonable discount rate. Changes in the growth rate in the budget period or discount rate may result in signicantly different values. The assessments are made based on budgets, business plans and projections for ve years and take into account previous experience and represent Manage- ment’s best estimate of future developments. Key parameters are growth in sales, margin, discount rate and future growth expectations. Management has performed the yearly impairment test of the carrying amount of goodwill. In addition, impairment test of other assets has also been made, where indication of reduction of value was found. In the impairment test, the carrying amount of the assets is compared to the discounted value of the future cash ows. The assessment of future cash ows is typically based on ve-year management reviewed budgets and business plans, where the last year is used as a normalised terminal year. Net sales, raw material prices, discount rate and future growth assumptions constitute the most material parameters in the calculation. The average growth rate in the terminal period is set to 0.5 percent similar to last year. The average growth rate in the budget period is estimated to be between 0-10 percent depending on the businesses. The high growth rates are used in countries where we historically have seen steep increases after a slow period. Gross margins are based on average values the last three years and adjusted over the budget period for efciency improvements and expected raw material ination based on past actual price movements and future market conditions. Future investment is derived from the historic investment level to secure a smooth operation of the fac- tories and the capacity utilisation is based on the current situation including investment plans. The discount rate calculation is based on the specic circumstances of the Group and the operating segments and is derived from the weighted average cost of capital (WACC). 2020 The impairment test for 2020 has not shown a need for write-downs or reversals of write-downs recognised previous years. During 2020 HECK Wall Systems has been monitored closely. HECK Wall Systems follows the expec- tations and market outlook outlined in the impairment test last year. The net present value of HECK Wall Systems amounts to EUR 28 million in 2020 which gives a head- room of EUR 4 million to the carrying amount. The main driver is conversion to stone wool products and in 2021 it is expected to fully convert to stone wool products. 2019 The impairment test for 2019 has not shown a need for write-downs or reversals of write-downs recognised previous years. During 2019 HECK Wall Systems has been monitored closely. HECK Wall Systems follows the expectations and market outlook outlined in the impair- ment test last year. The net present value of HECK Wall Systems amounts to EUR 28 million in 2019, which gives a headroom of EUR 1 million to the carrying amount. The main driver is conversion to stone wool products and this has shown good progress. Sensitivity analysis As part of the preparation of impairment tests, sensitivity analyses are prepared on the basis of relevant risk factors and scenarios that management can determine within reasonable reliability. Sensitivity analyses are prepared by altering the estimates with a range of probable outcomes. 2020 The sensitivities have been assessed as follows, all other things being equal; an increase in the discount rate of 1%, a decrease in the growth rate of 1% p.a. and an increase of input costs of 1% p.a. The write-down in HECK Wall Impairment test of goodwill EURm 2019 CGUs Carrying amount, Goodwill Discount rate Growth rate (budget period) Headroom Chicago Metallic Corporation (Rockfon) 57 8.9% 2-5% Large HECK Wall Systems 6 7.6% 0% Minor CSR 8 10.7% 6%* Large Flumroc 15 7.3% 2% Large Other 11 7-11% 0-8% Large Total 97 * Average growth rate due to large spread in the period. Systems would have been EUR 1-5 million if the discount rate was to increase 1% or the growth was 1% lower. We consider the chosen scenarios as the most realistic why none of the impairment tests have given rise to adjustment of the value. 2019 The sensitivities have been assessed as follows, all other things being equal; an increase in the discount rate of 1%, a decrease in the growth rate of 1% p.a. and an increase of input costs of 1% p.a. The write-down in HECK Wall Systems would have been EUR 3-6 million if the discount rate was to increase 1% or the growth was 1% lower. We consider the chosen scenarios as the most realistic why none of the impairment tests have given rise to adjustment of the value. Consolidated nancial statements 85 Comments Critical estimates and judgements Notes 2.6 Pension obligations Pension payments concerning dened contribution plans are recognised on an ongoing basis in the income statement. Dened benet plans are stated at the net present value at the balance sheet date and included in the consolidated nancial statements. Adjustments of the plans are carried out on a regular basis in accordance with underlying actuarial assessments. Actuarial gains or losses for dened benet plans are recognised in full in the period in which they occur in other compre- hensive income. The actuarial assessment is carried out every year. Funded benet plans have assets placed in trustee-ad- ministered pension funds, which are governed by local regulations and practice in each country. The payments to the pension funds are based on the usual actuarial assessments and are recognised in the income statement after maturity. Provided that the actuarial assessments of pension obligations show noticeable excess solvency or insolvency in relation to the pension fund’s assets, the difference is entered to the balance sheet and the future payments are adjusted accordingly. With regard to these schemes, the actuari- al assessment is also carried out every year. The present value of dened benet pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes to these assumptions will impact the carrying amount of pension obligations. The discount rate and other key assumptions are based in part on the current market conditions. Pension costs EURm 2020 2019 Dened contribution plans: Total pension costs recognised 23 22 Dened benet plans: Pension costs 7 4 Interest costs 2 3 Interest income -2 -2 Curtailments/settlements 0 0 Total pension costs recognised 7 5 Dened benet pension plans EURm 2020 2019 2018 2017 2016 Present value of pension liabilities 250 247 217 227 160 Fair value of plan assets -184 -185 -164 -174 -92 Pension obligation, net 31/12 66 62 53 53 68 Consolidated nancial statements 86 Accounting policies Critical estimates and judgements Notes 2.6 Pension obligations (continued) A number of the Group’s employees and former em- ployees participate in pension schemes. The pension schemes are primarily dened contribution plans. However, dened benet plans are also used, mainly in Switzerland, the United Kingdom and Germany. The benet plans in the United Kingdom and Germany are closed for new entries. Under a dened benet plan the Group carries the risk associated with the future development in e.g. interest rates, ination, salaries, mortality and disability. Dened benet plans typically guarantee the employ- ees a retirement benet based on the nal salary at retirement. The pension benet plans in the United Kingdom and Switzerland have assets placed in independent pension funds. The remaining plans are unfunded, where the main part relates to Germany. For these plans the retirement benet obligations amount to approximately 22% (2019: 22%) of the total gross liability. Key assumptions 2020 2019 Increase in salaries and wages 1.4% 1.4% Discount rate 0.7% 1.0% Remaining life expectancy at the time of retirement (years) 25.1 25.8 Dened benet pension obligation EURm 2020 2019 Obligations 1/1 247 217 Exchange rate adjustments -4 7 Pension costs 7 5 Interest costs 2 3 Settlements 0 0 Actuarial gains/losses from changes in demographic assumptions 0 0 Actuarial gains/losses from changes in nancial assumptions 12 28 Actuarial gains/losses from changes in experience -3 -3 Benets paid -11 -10 Other adjustments - - Obligations 31/12 250 247 Except for the Swiss and UK plans, the mentioned dened benet plans are not subject to regulatory requirements regarding minimum funding. The granted pension payments of the mentioned dened benet plans are based upon the salary of the participating employees during the period of employ- ment. The Group’s contributions are derived from the split of the pension premium between the employee and employer. The actuarial assessment of the pension obligation is based on assumptions specic to each country. The latest actuarial calculation is prepared by authorised experts. The valuation of the assets is based on the composition and the expectations to the economic development. The assumptions used are weighted averages: Consolidated nancial statements 87 Comments The following payments are expected contributions to the dened benet plan obligation: Expected contributions EURm 2020 2019 < 1 year 6 6 1-5 years 25 27 > 5 years 41 43 Expected contributions 72 76 The expected duration of the dened benet plan obligation is 25 years (2019: 26 years) at year end. Sensitivity analysis Assumptions Discount rate Salary increase Life expectancy -0.5% +0.5% -1.0% +1.0% -1 year +1 year EURm 2020 - Impact on obligation 21 -19 -2 3 -8 9 2019 - Impact on obligation 21 -19 -3 3 -6 7 The sensitivity analysis above has been determined based on a method that extrapolates the impact on the dened benet obligation as a result of reasonable changes in key assumptions. Notes 2.6 Pension obligations (continued) Pension plan assets EURm 2020 2019 Pension plan assets 1/1 185 164 Exchange rate adjustments -4 7 Interest income 2 2 Return on plan assets 6 15 Employer’s contribution 4 4 Plan participants 1 1 Benets paid -10 -8 Other adjustments - - Pension plan assets 31/12 184 185 Composition of pension plan assets EURm 2020 2019 Assets quoted in active markets: Equities in European markets 34% 35% Bonds in European markets 36% 37% Assets unquoted: Cash 12% 10% Other 18% 18% Consolidated nancial statements 88 Notes 2.7 Provisions Provisions are recognised where a legal or constructive obligation has been incurred as a result of past events and if it is probable it will lead to an outow of nancial resources and if the size of the liability can be measured on a reliable basis. The provision is calculated as the amount expected to be paid to settle the obligation. Provisions relate primarily to jubilee obligations and retirement benets, fair value provision for phantom shares, restructuring, warranties and ongoing disputes, lawsuits. As at 31 December 2020 other provisions include a provision of EUR 5 million (2019: EUR 4 million) for restructuring measures. This provision is expected to be utilised within one year. Provisions 2020 2019 EURm Employees Claims and legal actions Other Total Employees Claims and legal actions Other Total Provisions 1/1 12 4 10 26 11 4 7 22 Exchange rate adjustments 0 0 0 0 0 0 0 0 Additions for the year 3 4 6 13 4 3 5 12 Used during the year -3 -1 -3 -7 -2 -1 -1 -4 Reversed during the year 0 -3 -3 -6 -1 -2 -1 -4 Provisions 31/12 12 4 10 26 12 4 10 26 Current/non-current classication: Non-current liabilities 10 2 6 18 10 2 5 17 Current liabilities 2 2 4 8 2 2 5 9 Provisions 31/12 12 4 10 26 12 4 10 26 Consolidated nancial statements 89 Accounting policies Comments EURm Net working capital in % of net sales Decreased compared to 9.0% in 2019 8.2% Total net working capital 213 Note 3 Working capital 3.1 Inventories 91 3.2 Trade receivables 91 3.3 Othercashownotes 92 Consolidated nancial statements 90 Notes 3.1 Inventories Inventories are valued at the lowest value of historical cost calculated as a weighted average or the net reali- sation value. The cost of nished goods and work in progress include the direct costs of production materials and wages, as well as indirect production costs such as personnel costs, maintenance costs and depreciation of plant and machinery. Raw materials and consumables include the net amount of the spare part inventory of EUR 22 million (2019: EUR 25 million). The net amount consists of a cost price of EUR 84 million (2019: EUR 82 million) and a write-down of spare part inventory of EUR 62 million (2019: EUR 57 million). Inventories EURm 2020 2019 Raw materials and consumables 96 108 Work in progress 10 10 Finished goods 110 118 Inventories 31/12 216 236 Inventory before write-downs 231 250 Write-downs 1/1 -14 -12 Change in the year -1 -2 Write-downs 31/12 -15 -14 Inventories 31/12 216 236 3.2 Trade receivables Trade receivable are measured at amortised cost less allowance for bad debt based on the expected credit loss model. The Group applies the simplied approach to measure expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receiv- ables have been grouped based on shared credit risk characteristics and the days past due. Trade receivables EURm 2020 2019 Trade receivables before allowance for bad debts (maximum credit risk) 257 288 Allowance for bad debts 1/1 -13 -15 Exchange rate adjustments 1 0 Movements during the year -1 0 Realised losses during the year 3 2 Allowance for bad debts 31/12 -10 -13 Trade receivables 31/12 247 275 The expected loss rates are based on the payment proles of sales over a period of 60 months before 1 January 2020 and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reect current and forward-look- ing information on macroeconomic factors affecting the ability of the customers to settle the receivables. The costs of allowance for bad debts and realised loss- es during the year are included in other external costs. Consolidated nancial statements 91 Accounting policies Comments Accounting policies Allowance for bad debts based on the expected credit loss model 2020 EURm Expected loss rate Gross carrying amount Allowance for bad debt Total Current 0.1% 241 0 241 More than 30 days past due 2% 5 0 5 More than 60 days past due 40% 1 0 1 More than 90 days past due 100% 10 -10 0 Total 31/12 257 -10 247 2019 EURm Expected loss rate Gross carrying amount Allowance for bad debt Total Current 0.1% 264 0 264 More than 30 days past due 2% 10 0 10 More than 60 days past due 40% 1 0 1 More than 90 days past due 100% 13 -13 0 Total 31/12 288 -13 275 3.3 Other cash ow notes Adjustments of non-cash operating items EURm 2020 2019 Provisions 5 5 Expensed value of RSUs issued 2 1 Gain/loss on sale of intangible and tangible assets 0 0 Adjustments of non-cash operating items 7 6 Changes in net working capital EURm 2020 2019 Change in inventories 10 7 Change in trade receivables 23 4 Change in other receivables -9 -7 Change in trade payables -2 -27 Change in other payables 5 -16 Change in net working capital 27 -39 Notes 3.2 Trade receivables (continued) Consolidated nancial statements 92 Note 4 Capital structure and nancing 4.1 Financial income and Financialexpenses 94 4.2 Financialrisksandinstruments 94 4.3 Cash available 97 4.4 Loans 97 4.5 Ownshares 97 4.6 Share capital 98 4.7 Earnings per share 98 EURm EUR Equity ratio Compared to 78.5% last year Down from EUR 269 million last year Down 1.5 EUR from last year 76.1% Cash available Earnings per share 240 11.5 93 Consolidated nancial statements Financial income and Financial expenses comprise interest income and interest costs, interest costs compiled from lease liabilities, realised and unrealised foreign exchange gains and losses, as well as fair value adjustments of cash-settled share-based incentive pro- grammes which are offset against other liabilities. Financial income EURm 2020 2019 Interest income 2 2 Foreign exchange gains 6 3 Financial income 8 5 Hereof nancial income on nancial assets at amortised cost 2 2 Financial expenses EURm 2020 2019 Interest expenses etc. 10 7 Interest expenses lease liabilities 2 2 Fair value adjustment phantom shares 1 1 Foreign exchange losses 9 0 Financial expenses 22 10 Hereof nancial expenses on nancial liabilities at amortised cost 8 5 Notes 4.1 Financial income and Financial expenses Derivative nancial instruments are initially recognised in the balance sheet at cost price and are subsequently measured at fair value. Derivative nancial instruments are recognised in other receivables and other payables. Changes to the fair value of derivative nancial instru- ments, which meet the conditions for hedging the fair value of a recognised asset or liability, are recognised in the income statement together with any changes in the fair value of the hedged asset or liability. Changes to the fair value of derivative nancial instruments, which meet the conditions for hedging future cash ow, are recognised in other comprehensive income provided the hedge has been effective. Hedge effectiveness is determined at the inception of the 4.2 Financial risks and instruments hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument. The accumulated value adjustment related to these hedge transactions is transferred from other comprehensive income when the position is realised, and is included in the value of the hedged position e.g. the adjustment follows the cash ow. For derivative nancial instruments, which do not qualify as hedging instruments, changes to the fair value are recognised on an ongoing basis in the income statement as nancial income or nancial expenses. Financial income and Financial expenses also include adjustments to fair value hedges, and income and costs relating to cash ow hedges transferred from other comprehensive income on realisation of the hedged items. Consolidated nancial statements 94 Accounting policies Accounting policies Categories of nancial assets and liabilities EURm 2020 2019 Financial assets: Financial instruments for hedging of future cash ows 1 1 Financial assets at fair value through other comprehensive income 1 1 Trade receivables 247 275 Other receivables and receivables from associated companies 59 53 Cash 241 275 Financial assets at amortised costs 547 603 Financial liabilities: Fair value hedges 0 0 Financial liabilities at fair value through income statement 0 0 Financial instruments for hedging of future cash ows 1 3 Financial liabilities at fair value through other comprehensive income 1 3 Bank loans incl. short-term 100 5 Bank debt 1 6 Trade payables 184 196 Other payables 157 154 Financial liabilities at amortised costs 442 361 The carrying value of the Group’s nancial assets and liabilities measured at amortised cost are assessed to be a reasonable approximation of fair value. Other receivables and receivables from associated companies Other receivables and receivables from associated companies fall due as follows: EURm 2020 2019 < 1 year 60 54 1-5 years - - > 5 years - - Other receivables and receivables from associated companies 60 54 Notes 4.2 Financial risks and instruments (continued) As a consequence of ROCKWOOL Group’s extensive international activities, the Group’s income statement and equity are subject to a number of nancial risks. The Group manages these risks in the following categories: – Exchange rate risk, – Interest rate risk – Liquidity risk – Credit risk The Group’s policy is to identify and hedge signicant nancial risks on an ongoing basis. This is the respon- sibility of the individual companies in which nancial risks might arise and overall supported by the Group’s treasury department. The parent company continuous- ly monitors the Group’s nancial risks in accordance with a framework determined by Group Management and/or the Board of Directors. Exchange rate risk As a consequence of the Group’s structure, net sales and expenditure in foreign currency are to a signicant degree set off against each other, so that the Group is not exposed to major exchange rate risks. Commercial exchange rate risks in the companies, which cannot be set off are hedged on a continuous basis, to the extent that they may signicantly affect the results of the individual company in a negative di- rection, using currency loans, currency deposits and/or nancial derivatives. Exchange rate risks are hedged in the individual companies. The Group’s hedging reserve is disclosed under “Statement of changes in equity” with an insignicant amount. The Group’s net sales and expenditures will be subject to exchange rate uctuations on translation into EUR. A sensitivity analysis is made for the Group’s result and equity based on the underlying currency transactions. The nancial instruments included in the sensitivity analysis are cash, receivables, payables, current liabil- ities and nancial investments without taking hedging into consideration. The result of the sensitivity analysis Consolidated nancial statements 95 Comments Sensitivity analysis Effect in EURm EBITDA 5% change in exchange rate 2020 2019 USD (+/-) 7 10 RUB (+/-) 4 4 CAD (+/-) -1 1 PLN (+/-) 1 2 GBP (+/-) 5 4 Equity USD (+/-) 12 13 RUB (+/-) 10 12 CAD (+/-) 9 8 PLN (+/-) 12 12 GBP (+/-) 7 6 cannot be directly transferred to the uctuations on translating the nancial result and equity of sub sidiaries into EUR. The impact on the net sales of the difference between average rate and year-end rate amounts to EUR 42 million (2019: EUR 15 million) for the 5 largest currencies (USD, RUB, CAD, PLN and GBP), which is a change of -1.5% (2019: 0.5%). The Group’s policy is not to hedge exchange rate risks in long-term investments in subsidiaries. When relevant, external investment loans and Group loans are, as a general rule, established in the local currency of the company involved, while cash at bank and in hand are placed in local currency. In the few countries with ineffective nancial markets loans can be raised and surplus liquidity placed in DKK or EUR, subject to the approval of the Group’s nance function. Most Group loans, that are not established in DKK or EUR, are hedged via forward agreements, currency loans and cash pools or via the SWAP market. Interest rate risk Currently the Group does not have any signicant non-current interest-bearing debt or assets. The Group’s policy is that necessary nancing of invest- ments should primarily be affected by raising ve to seven year loans at xed or variable interest rates. Drawings on credit facilities at variable interest rates generally match the funds, and all Group loans are symmetrical in terms of interest rates. Consequently, changes in interest rates will not have a signicant effect on the result of the Group. Liquidity risk The current surplus and decit liquidity in the Group’s companies is set off, to the extent that this is protable, via the parent company acting as intra-Group bank and via cash pool systems. When considered appropriate, underlying cash pool systems are established in foreign companies. To the extent that the nancial reserves are of an appro- priate size, the parent company also acts as lender to the companies in the Group. To ensure adequate nancial reserves as dened by the Board of Directors, investment loans can be raised on a continuous basis to partly cover new investments and to Notes 4.2 Financial risks and instruments (continued) renance existing loans. The parent company has made guarantees for some credit facilities and loans. The parent company has issued ownership clauses and/or deed of postponements in connection with intercom- pany loans. The parent company ensures on an ongoing basis that exible, unutilised committed credit facilities of an adequate size are established with Investment Grade credit-rated banks. The Group’s nancial reserves also consist of cash at bank and in hand, and unused over- draft facilities. Credit risk Due to the considerable customer spread in terms of geographical location and numbers, the credit risk is fundamentally limited. To a minor degree, when consid- ered necessary, insurance or bank guarantees are used to hedge outstanding receivables. As a consequence of the international diversication of the Group’s activities there are business relations with a number of different banks in Europe, North America and Asia. To minimise the credit risk on placement of funds and on entering into agreements on derived nancial instruments, only major, nancially sound institutions are used. Customer credit risks are assessed considering the nancial position, past experience and other factors. Individual risk limits are set based on internal and exter- nal ratings. For impairment of trade receivable please refer to note 3.2. No customer exceeds 10 percent of the Group’s net sales neither this year nor last year. Categories of nancial instruments Financial assets and liabilities at fair value are related to foreign exchange rate forward contracts, foreign exchange rate swaps or interest rate swaps all of which have been valued using a valuation technique with market observable inputs (level 2). The Group is using no other valuation technique. The Group enters into derivative nancial instruments with nancial institutions. Derivatives valued using valuation techniques with market observable inputs are mainly foreign exchange forward contracts. The most frequently applied valua- tion techniques include forward pricing models using present value calculations. The models incorporate vari- ous inputs including the credit quality of counterparties and foreign exchange spot rates. Consolidated nancial statements 96 Cash available EURm 2020 2019 Cash 241 275 Bank debts 1 6 Cash available 31/12 240 269 Notes 4.3 Cash available Bank loans are measured at amortised cost. The carry- ing amount for these approximates fair value. Bank loans amounted to EUR 100 million at 31 Decem- ber 2020, mainly related to a new bank loan of EUR 150 million denominated in EUR. Part of the loan was repaid in November 2020 amounting to EUR 55 million. The full loan is due within one year and is a xed interest loan. The remaining loans amount to EUR 5 million and are also due within one year. In 2019, bank loans amounted to EUR 5 million, of which EUR 1 million was due within one year, and none were due more than ve years after the balance sheet date. All bank loans in 2019 had xed interest and were denominated in EUR. 4.4 Loans 4.5 Own shares ROCKWOOL International A/S has a reserve of own shares recognised in retained earnings. The shares are bought back to meet obligations under the Group's equity-based stock option and restricted share unit programmes and as part of the Group's share buy-back programme. Own shares EUR 2020 2019 A-shares Number of shares Average purchase/ sales price % of share capital Number of shares Average purchase/ sales price % of share capital Own shares 1/1 - - - - Purchase 76,069 257 0.4 - - - Sale - - - - - - Own shares 31/12 76,069 0.4 - - B-shares Own shares 1/1 72,894 0.3 75,865 0.4 Purchase 284,515 213 1.3 9,700 217 0.0 Sale 29,566 117 0.2 12,671 127 0.1 Own shares 31/12 327,843 1.4 72,894 0.3 Own shares are used to hedge the Group’s stock option and restricted share unit programmes and as part of the Group's share buy-back programme. Own shares are purchased based on authorisation from the General Assembly. Accounting policies Consolidated nancial statements 97 Comments Notes 4.6 Share capital Each A share of a nominal value of DKK 10 (EUR 1.3) carries 10 votes, and each B share of a nominal value of DKK 10 (EUR 1.3) carries 1 vote. The total share capital has been unchanged for the last 20 years. Share capital EURm 2020 2019 A shares - 11,231,627 shares of DKK 10 each (EUR 1.3) 15 15 B shares - 10,743,296 shares of DKK 10 each (EUR 1.3) 14 14 Share capital 29 29 4.7 Earnings per share Earnings per share EURm 2020 2019 Prot for the year attributable to shareholders of ROCKWOOL International A/S 251 285 Average number of shares ('000) 21,975 21,975 Average number of own shares ('000) 238 74 Average number of outstanding shares ('000) 21,737 21,901 Dilution effect of stock options ('000) 53 52 Average number of diluted shares ('000) 21,790 21,953 Earnings per share 11.54 13.01 Earnings per share, diluted 11.51 12.98 The share capital has been fully paid up. No shareholder is under an obligation to allow his shares to be redeemed whether in whole or in part. The shares are negotiable instruments, and all shares shall be freely transferable. Consolidated nancial statements 98 Comments Note 5 Other 5.1 Tax 100 5.2 Commitments and contingent liabilities 102 5.3 Related parties 102 5.4 Auditor’s fee 103 5.5 Newandamendedstandards and general accounting policies 103 5.6 Group companies 105 Effective tax rate in 2020 22.8% Number of subsidiaries in the Group 59 Number of associated companies in the Group 2 Consolidated nancial statements 99 The parent company is taxed jointly with all Danish subsidiaries. Income subject to joint taxation is fully distributed. Tax on prot for the year, which includes current tax on prot for the year and changes to deferred tax, is recognised in the income statement. Tax on changes in other comprehensive income is recognised directly under other comprehensive income. Provisions for deferred tax are calculated on all temporary differences between accounting and taxable values, calculated using the balance-sheet liability method. Deferred tax provisions are also made to cover the re-taxation of losses in jointly taxed foreign companies previously included in the Danish joint taxation. Tax on prot for the year EURm 2020 2019 Current tax for the year 74 90 Change in deferred tax 1 -3 Adjustment to valuation of tax assets -5 -6 Withholding taxes 3 3 Adjustment in current and deferred tax in previous years 1 -2 Tax on prot for the year 74 82 Reconciliation of effective tax rate % 2020 2019 Danish tax rate 22.0 22.0 Deviation in non-Danish subsidiaries' tax compared to Danish tax percentage 1.7 2.1 Withholding tax adjustment 0.8 0.8 Permanent differences 0.1 0.0 Effect on change in income tax rates - 0.1 0.1 Adjustment to valuation of tax assets -0.2 -2.0 Initial recognition of tax credit -1.5 -0.5 Other deviations 0.0 - 0.1 Effective tax rate (%) 22.8 22.4 Notes 5.1 Tax Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets or in relation to qualifying expenditure. The Group accounts for such allowances as tax credits. Con- sequently, the allowance reduces income tax payables and current tax expense. A deferred tax asset is recog- nised for unclaimed tax credits that are carried forward. Deferred tax assets are recognised when it is probable, that the assets will reduce tax payments in coming years and they are assessed at the expected net realisable value. Deferred tax is stated according to current tax reg- ulations. Changes in deferred tax as a consequence of changes in tax rates are recognised in the income statement. Income tax receivable and payable EURm 2020 2019 Income tax receivable and payable 1/1 15 29 Exchange rate adjustments 3 0 Current tax for the year including withholding taxes 77 93 Payments during the year -100 -109 Adjustment in respect of prior years -7 2 Current tax for the year recognised in other comprehensive income -1 0 Income tax receivable and payable 31/12 -13 15 Income tax is recognised as follows: Income tax receivable 38 14 Income tax payable 25 29 Income tax receivable and payable 31/12 -13 15 Consolidated nancial statements 100 Accounting policies While conducting business globally, transfer pricing disputes, etc. with tax authorities may occur, and Man- agement judgement is applied to assess the possible outcome of such disputes. The most probable outcome is used as the measurement method, and Management believes, that the provision made for uncertain tax positions not yet settled with local tax authorities is ad- equate. However, the actual obligation may deviate and is dependent on the result of litigations and settlements with the relevant tax authorities. The Group is subject to income taxes in numerous jurisdictions. Signicant judgement is required in determining provision for uncertain tax positions or the recognition of a deferred tax asset. A tax asset is recognised if it is assessed, that the asset can be utilised in a foreseeable future based on strong indications, that sufcient future prots are available to absorb the temporary differences including the Group's future tax planning. The valuation of tax assets related to losses carried for- ward is done on a yearly basis and is based on expected positive taxable income within the next 3-5 years. Deferred tax EURm 2020 2019 Deferred tax, net 1/1 -11 5 Exchange rate adjustments 0 1 Acquisition of subsidiary 0 0 Change in deferred tax recognised in prot and loss 9 -7 Adjustment to valuation of tax assets -5 -6 Deferred tax for the year recognised in other comprehensive income for the year 0 -4 Deferred tax, net 31/12 -7 -11 Deferred tax is recognised in the balance sheet as follows: Deferred tax assets 54 54 Deferred tax liabilities 47 43 Deferred tax, net 31/12 -7 -11 Deferred tax relates to: Non-current assets 20 10 Current assets -7 -5 Non-current liabilities -14 -14 Current liabilities -5 -5 Tax loss carried forward -5 -1 Re-taxable amounts 4 4 Deferred tax, net 31/12 -7 -11 Notes 5.1 Tax (continued) Unrecognised tax assets expire as follows EURm 2020 2019 < 1 year 1 2 1-5 years 5 5 > 5 years 21 30 Do not expire 4 5 Unrecognised tax assets 31 42 Tax assets not recognised amount to EUR 31 million (2019: EUR 42 million). The tax assets have not been recognised as they have arisen in subsidiaries, that have been loss-making for some time and there is no evidence of recoverability in the near future. Deferred tax assets and liabilities are offset in the consolidated balance sheet, if the Group has a legally enforceable right to set off and the deferred tax assets and liabilities relate to the same legal tax entity/con- solidation. Of the total deferred tax assets recognised, EUR 5 million (2019: EUR 1 million) relate to tax loss carry forwards. Consolidated nancial statements 101 Comments Critical estimates and judgements Notes 5.2 Commitments and contingent liabilities For the Group, commitments comprise EUR 28 million (2019: EUR 4 million). The increase in commitments is supplier related. Contingent liabilities amount to EUR 6 million (2019: EUR 8 million). Contractual obligations for purchase of tangible assets are mentioned in note 2.2. The Group is engaged in a few legal proceedings. It is expected that the outcome of these legal proceedings will not impact the Group’s nancial position in excess of what has been provided for in the balance sheet as at 31 December 2020 (as well as at 31 December 2019). Provisions for legal proceedings are recognised, if they are certain or probable at the balance sheet date, and if the size of the liability can be measured on a reliable basis. Legal proceedings for which no reliable estimate can be made are disclosed as contingent liabilities. 5.3 Related parties Transactions with related parties EURm 2020 2019 Transactions with associated companies: Net sales to associated companies 15 16 Dividend from associated companies 1 1 Transactions with other related parties: Shares purchased 16 - At 31 December 2020, own shares accounted for 1.8% (2019: 0.3%) of the share capital, see note 4.5. The Group’s related parties comprise the company’s shareholder; the ROCKWOOL Foundation, the compa- ny’s Board of Directors and Management and associat- ed companies. As part of the share buy-back carried out in 2020, own shares were purchased from major shareholders. From ROCKWOOL Foundation 57,557 shares for a total of EUR 16 million was purchased on 28 August 2020. The shares were purchased at the volume-weighted average purchase price of the shares in the last ve trading days prior to completion. Apart from dividends and purchase of own shares, no transactions were carried out with the shareholders during the year. For transactions with the Board of Directors and Group Management please refer to note 1.2 and note 1.3. Consolidated nancial statements 102 Accounting policies Comments Comments Notes 5.4 Auditor’s fee Fees to auditors elected at the Annual General Meeting EURm 2020 2019 Statutory audit 1 1 Other opinions 0 0 Tax consultancy 1 1 Other services 0 0 Fees to auditors 2 2 Fees for services in addition to the statutory audit of the nancial statements which were provided by the statutory auditor Price waterhouseCoopers Statsautoris- eret Revisionspartnerselskab to the Group amounted to less than EUR 1 million in both 2020 and 2019. Services in addition to the statutory audit of the nancial statements comprise tax services relating to transfer pricing, as well as other general accounting consultancy services. 5.5 New and amended standards and general accounting policies The Annual Report for ROCKWOOL International A/S has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and further requirements in the Danish Financial Statements Act. The nancial year for the Group is 1 January – 31 December 2020. 5.5.1 New and amended standards and interpretations Implementation of new standards, amendments and regulations The Group has implemented the following amendments or new standards (IFRS) for nancial year 2020. The amendments came into effect for nancial years on or after 1 January 2020: – Amendments to IFRS 3 Business Combinations: Amendment to the denition of a business. – Amendments to IFRS 9 Financial Instruments: IBOR reform phase 1. – Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Amended deni- tion of materiality. – Amendments to IFRS 16 Leases: Modications as a consequence of COVID-19. It is assessed that the amendments to IFRS 3 might have an impact on the future recognition and measurement of business combinations for the Group nancial state- ments. The remaining new standards and amendments are assessed not to be relevant to the Group or to have no signicant effect on the Group nancial statements. New and amended standards and interpretation not yet entered into force The following new standards, amendments and inter- pretations is issued, but not yet adopted by EU, could be relevant for the Group: – IFRS 3 Business Combinations: Amendments to the reference of the conceptual framework (effective date 1 January 2022). – IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: IBOR reform phase 2 (effective date 1 January 2021). – IAS 1 Presentation of Financial Statements: Clar- ication of classication of liabilities as current or non-current (effective date 1 January 2023). – IAS 16 Property, plant and equipment: Amendment related to proceeds before intended use (effective date 1 January 2022). – IAS 37 Provisions, Contingent Liabilities and Con- tingent Assets: Clarication related to onerous con- tracts - costs of fullling a contract (effective date 1 January 2022). – Annual improvements to IFRSs 2018-2020 cycle (effective date 1 January 2022). None of the new amendments are expected to have a signicant effect on the Group nancial statements. ROCKWOOL's policy is to follow the 70 percent fee cap restriction on non-audit services provided by Price- waterhouseCoopers Statsautoriseret Revisionspartner- selskab, Denmark, the auditor of the parent company. PricewaterhouseCoopers Statsautoriseret Revisions- partnerselskab complies with the 70 percent fee cap restriction in 2020. Consolidated nancial statements 103 Comments Notes 5.5 New and amended standards and general accounting policies (continued) make judgments, estimates and assumptions concern- ing future events. The judgements, estimates and assumptions are based on historical experience and other factors, and are con- sidered by Management as reasonable in the circum- stances, but are inherently uncertain and unpredictable and therefore the actual outcome may differ from these estimates. Management considers critical estimates and judge- ments under the following items as signicant to the consolidated nancial statements: – Impairment testing (note 2.5) – Expected lifetime for tangible assets (note 2.2) – Deferred tax assets and uncertain tax positions (note 5.1) – Pension obligations (note 2.6) Reporting under the ESEF Regulation The Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Reg- ulation) has introduced a single electronic reporting format for the annual nancial reports of issuers with securities listed on the EU regulated markets. The ESEF Regulation sets out the annual nancial reports shall be disclosed using the XHTML format and that the primary consolidated nancial statements shall be tagged using inline eXtensible Business Reporting Language (iXBRL). IXBRL tags shall comply with the ESEF taxonomy, which is included in the ESEF Regulation and developed based on the IFRS taxonomy published in the IFRS Foundation. As part of the tagging process nancial statement line items are marked up to elements in the ESEF taxono- my. If a nancial statement line item is not dened in the ESEF taxonomy, an extension to the taxonomy is created. Extensions have to be anchored in the ESEF taxonomy, except for extensions which are subtotals. The annual report submitted to the Danish Finan- cial Supervisory Authority (The Ofcially Appointed Mechanisms) consists of the XHTML document together with some technical les all included in a ZIP le named ROCK-2020-12-31.ZIP. 5.5.2 General accounting policies Group Accounts The consolidated nancial statements comprise ROCKWOOL International A/S and the entities in which the company and its subsidiaries hold the majority of the voting rights. The consolidated nancial statements have been prepared as a consolidation of the parent company’s and the individual subsidiaries’ nancial statements, de- termined according to the Group’s accounting policies, and with elimination of dividends, internal revenue and expenditure items, internal prots as well as intercom- pany balances and intercompany shareholdings. Besides shares, capital investments in subsidiaries include long-term loans to subsidiaries if such loans constitute an addition to the shareholding. Translation of foreign currency The Annual Report has been presented in Euro (EUR) which is the Group’s presentation currency. Each compa- ny in the Group determines its own functional currency. Transactions in foreign currency are translated using the exchange rate at the transaction date or a hedged rate. Monetary items in foreign currency are translated using the exchange rates at the balance sheet date. Ac- counts of foreign subsidiaries are translated using the exchange rates at the balance sheet date for balance sheet items, and the periodic average exchange rates for items of the income statement. All exchange rate adjustments are recognised in the income statement under nancial items, apart from the exchange rate differences arising on: – Conversion of equity in subsidiaries at the beginning of the nancial year using the exchange rates at the balance sheet date – Conversion of the prot for the year from average exchange rates to exchange rates at the balance sheet date – Conversion of long-term intercompany balances that constitute an addition to the holding of shares in subsidiaries – Conversion of the forward hedging of capital invest- ments in subsidiaries – Conversion of capital investments in associated and other companies – Prot and loss on effective derivative nancial instru- ments used to hedge expected future transactions These value adjustments are recognised directly under other comprehensive income. Critical estimates and judgements In preparing the consolidated nancial statements, Management makes various accounting estimates and assumptions that form the basis of the presentation, recognition and measurement of the Group’s assets and liabilities. The most signicant accounting estimates and judgements are presented below. In applying the Group’s accounting policies, Manage- ment make judgements that may signicantly inuence the amounts recognised in the consolidated nancial statements. When determining the carrying amount of some assets and liabilities it requires Management to Consolidated nancial statements 104 Country % Shares owned Parent company ROCKWOOL International A/S Subsidiaries Insulation ROCKWOOL Handelsgesellschaft m.b.H. Austria 100 ROCKWOOL Belgium B.V. Belgium 100 Etablissements Charles Wille et cie SA Belgium 100 ROCKWOOL Bulgaria Ltd. Bulgaria 100 ROXUL Inc. Canada 100 ROCKWOOL Firesafe Insulation (Guangzhou) Co. Ltd. China 94.84 ROCKWOOL Firesafe Insulation (Jiangsu) Co., Ltd. China 100 ROCKWOOL Adriatic d.o.o. Croatia 100 ROCKWOOL a.s. Czech Republic 100 ROCKWOOL A/S Denmark 100 ROCKWOOL EE OÜ Estonia 100 ROCKWOOL Finland OY Finland 100 ROCKWOOL France S.A.S France 100 Deutsche ROCKWOOL GmbH & Co. KG Germany 100 HECK Wall Systems GmbH Germany 100 ROCKWOOL Mineralwolle GmbH Flechtingen Germany 100 ROCKWOOL Operations GmbH & Co. KG Germany 100 ROCKWOOL Limited Great Britain 100 ROCKWOOL Building Materials Ltd. Hong Kong 100 ROCKWOOL Hungary Kft. Hungary 100 ROXUL ROCKWOOL Insulation India Ltd. India 100 ROXUL ROCKWOOL Technical Insulation India Pvt. Ltd. India 100 ROCKWOOL Italia S.p.A. Italy 100 Notes 5.6 Group companies Country % Shares owned Insulation (Continued) ROCKWOOL Korea Co. Ltd. Korea 100 SIA ROCKWOOL Latvia 100 UAB ROCKWOOL Lithuania 100 ROCKWOOL Malaysia Sdn. Bhd. Malaysia 94.84 Breda Confectie B.V. the Netherlands 100 ROCKWOOL B.V. the Netherlands 100 AS ROCKWOOL Norway 100 ROCKWOOL Polska Sp. z o.o. Poland 100 FAST Sp. z o.o. Poland 100 ROCKWOOL Romania s.r.l. Romania 100 LLC ROCKWOOL Russia 100 LLC ROCKWOOL-NORTH Russia 100 LLC ROCKWOOL-Ural Russia 100 LLC ROCKWOOL-VOLGA Russia 100 ROCKWOOL Building Materials (Singapore) Pte Ltd. Singapore 100 ROCKWOOL Slovensko s.r.o. Slovakia 100 ROCKWOOL Peninsular S.A.U. Spain 100 ROCKWOOL AB Sweden 100 Flumroc AG Switzerland 100 PAMAG Engineering AG Switzerland 100 ROCKWOOL GmbH Switzerland 100 ROCKWOOL Limited Thailand 94.84 ROCKWOOL Insaat ve Yalitim Sistemleri San. Ve Tic. Ltd. Sti. Turkey 100 ROCKWOOL Middle East FZE UAE 100 LLC ROCKWOOL Ukraine Ukraine 100 ROXUL USA Inc. United States 100 Consolidated nancial statements 105 Notes 5.6 Group companies (continued) Country % Shares owned Subsidiaries (continued) Systems Chicago Metallic (Shenzhen) Co. Ltd. China 100 ROCKWOOL Rockfon GmbH Germany 100 Chicago Metallic (Asia Pacic) Ltd. Hong Kong 100 Chicago Metallic (Malaysia) Sdn. Bhd. Malaysia 100 Other subsidiaries ROCKWOOL Beteiligungs GmbH Germany 100 ROCKWOOL Verwaltungs GmbH Germany 100 CMC Productos Perlitas S de R.L. de C.V. Mexico 100 Servicios Pearl de Mexico S de R.L. de C.V. Mexico 100 ROCKWOOL Global Business Service Center Sp. Z.o.o. Poland 100 Meilco Holding AG Switzerland 100 Associated companies Betterhome ApS Denmark 33 RESO SA France 20 The German subsidiaries DEUTSCHE ROCKWOOL GmbH & Co. KG and ROCKWOOL Operations GmbH & Co. KG, which have legal form of partnership, make use of the exemptions provided by section 264b of the German Commercial Code (HGB). Consolidated nancial statements 106 Denitionofkeyguresandratios EBITDA Earnings before depreciation, write-downs, amortisations, nancial items and tax EBIT Earnings before nancial items and tax Net working capital (NWC) Trade receivables, other receivables and other current operating assets less trade payables, other payables and other current operational liabilities adjusted for investment payables Invested capital NWC + intangible assets, tangible assets and right- of-use assets less non-interest bearing liabilities and investment payables Net interest bearing debt Cash less bank loans and other loans less bank debt less lease liabilities EBITDA margin (%) EBITDA Net sales x 100% EBIT margin (%) EBIT Net sales x 100% Earnings per share of DKK 10 (EUR 1.3) Prot for the year excl. non-controlling interests Average number of outstanding shares Diluted earnings per share of DKK 10 (EUR 1.3) Prot for the year excl. non-controlling interests Diluted average number of outstanding shares Cash ow per share of DKK 10 (EUR 1.3) Cash ows from operating activities Average number of outstanding shares Dividend per share of DKK 10 (EUR 1.3) Proposed dividend for the year Number of shares at the end of the year Book value per share of DKK 10 (EUR 1.3) Equity end of the year excl. non-controlling interests Number of shares at the end of the year ROIC EBIT Average invested capital including goodwill x 100% Return on equity (%) Prot for the year excl. non-controlling interests Average equity excl. non-controlling interests Equity ratio (%) Equity end of the year excl. non-controlling interests Total equity and liabilities at the end of the year x 100% Payout ratio (%) Proposed dividend for the year Prot for the year excl. non-controlling interests x 100% Leverage ratio Net interest-bearing debt EBITDA Financial gearing Net interest-bearing debt Equity end of the year Market cap Number of outstanding shares x share price Growth in local currency Growth rates excluding currency impact, as both periods are using the same exchange rates. RATIOS The ratios have been calculated in accordance with www.keyratios.org/ issued by CFA Society Denmark. The ratios mentioned in the ve-year summary are calculated as described in the denitions above. EXCHANGE RATE Average DKK/EUR 2020 7.45 2019 7.46 2018 7.45 2017 7.44 2016 7.45 Accounts of foreign subsidiaries are translated using the exchange rates at the balance sheet date for bal- ance sheet items, and the periodic average exchange rates for items of the income statement. x 100% Consolidated nancial statements 107 Management’s statement The Board of Directors and the Registered Directors have today considered and adopted the Annual Report of ROCKWOOL International A/S for the nancial year 1 January - 31 December 2020. The Consolidated nancial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act, and the parent company nancial statements have been In our opinion the Management’s review includes a true and fair account of the development in the operations and nancial circumstances of the Group and the parent company, of the results for the year and of the nancial position of the Group and the parent company, as well as a description of the more signicant risks and ele- ments of uncertainty facing the Group and the parent company. Board of Directors Thomas Kähler Chairman Søren Kähler René Binder Rasmussen Carsten Bjerg Deputy Chairman Andreas Ronken Connie Enghus Theisen Rebekka Glasser Herlofsen Jørgen Tang-Jensen Christian Westerberg prepared in accordance with the Danish Financial State- ment Act. Management's review has been prepared in accordance with the Danish Financial Statement Act. In our opinion the consolidated nancial statements and the parent company nancial statements give a true and fair view of the Group’s and the parent company’s nancial position at 31 December 2020 and of the results of the Group’s and the parent company’s operations and cash ows for the nancial year 1 January - 31 December 2020. Hedehusene, 10 February 2021 Registered Directors Jens Birgersson CEO Kim Junge Andersen CFO In our opinion, the Annual Report of ROCKWOOL International A/S for the nancial year 1 January - 31 December 2020 identied as ROCK-2020-12-31.ZIP is prepared, in all material respects, in compliance with the ESEF Regulation. We recommend that the Annual Report be adopted at the Annual General Meeting. Consolidated nancial statements 108 Independent Auditor’s Reports To the shareholders of ROCKWOOL International A/S Key audit matter Impairment of intangible and tangible assets Intangible and tangible assets might be impaired due to for example increased competition in local markets, changes in the global economy and changes in the strategy of the Group. We focused on this area as the determination of whether or not an impairment charge for intangible and tangible assets was necessary involves signicant estimates and judgements made by Management, including especially: – estimation of future cash ows, including sales margin, and the signicant assumptions underlying Management’s expectations; – discount rates applied in discounting future cash ows; and – long-term growth rates Reference is made to notes 2.1, 2.2, 2.4 and 2.5 to the Consolidated Financial Statements. How our audit addressed the key audit matter We tested the impairment tests prepared by Management and evaluated the reasonableness of estimates and judgements made by Management in preparing these. Our audit procedures included assessing the Group’s impairment model. Special focus was given to the key drivers of the future cash ows, including growth in net revenues, cost ination and efciency improvements, as well as the signicant assumptions concerning dis- count rates and long-term growth rates applied. We examined sensitivity analyses performed over changes in discount rates, revenue growth and efciency improvements. Moreover, we tested the historical reliability of Man- agement’s estimates by comparing budgeted gures to actual gures for the past years. We evaluated the disclosures of impairment testing in the notes. Report on the audit of the Financial Statements Our opinion In our opinion, the Consolidated Financial Statements give a true and fair view of the Group’s nancial position at 31 December 2020 and of the results of the Group’s opera- tions and cash ows for the nancial year 1 January to 31 December 2020 in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act. Moreover, in our opinion, the Parent Company Financial Statements give a true and fair view of the Parent Company’s nancial position at 31 December 2020 and of the results of the Parent Company’s operations for the nancial year 1 January to 31 December 2020 in accordance with the Danish Financial Statements Act. Our opinion is consistent with our Auditor’s Long- form Report to the Audit Committee and the Board of Directors. What we have audited The Consolidated Financial Statements of ROCKWOOL International A/S for the nancial year 1 January to 31 December 2020 (pp. 67-106) comprise the consolidated income statement and statement of comprehensive income, the consolidated balance sheet, the consolidated cash ow statement, the consolidated statement of changes in equity and the notes, including summary of signicant accounting policies. The Parent Company Financial Statements of ROCKWOOL International A/S for the nancial year 1 January to 31 December 2020 (pp. 112-121) comprise the income statement, the balance sheet, the statement of changes in equity and the notes, including summary of signicant accounting policies. Collectively referred to as the “Financial Statements” Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and the additional requirements applicable in Denmark. Our responsibilities under those standards and requirements are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) and the additional requirements applicable in Denmark. We have also fullled our other ethical responsibilities in accordance with the IESBA Code. To the best of our knowledge and belief, prohibited non- audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 were not provided. Appointment We were rst appointed auditors of ROCKWOOL International A/S on 9 April 2014 for the nancial year 2014. We have been reappointed annually by shareholder resolution for a total period of uninterrupted engagement of 7 years including the nancial year 2020. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most signicance in our audit of the Financial Statements for 2020. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Consolidated nancial statements 109 Statement on Management’s Review Management is responsible for Management’s Review (pp. 3-66 and p. 107). Our opinion on the Financial Statements does not cover Management’s Review, and we do not express any form of assurance conclusion thereon. In connection with our audit of the Financial Statements, our responsibility is to read Management’s Review and, in doing so, consider whether Management’s Review is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. Moreover, we considered whether Management’s Review includes the disclosures required by the Danish Financial Statements Act. Based on the work we have performed, in our view, Management’s Review is in accordance with the Consolidated Financial Statements and the Parent Company Financial Statements and has been prepared in accordance with the requirements of the Danish Financial Statements Act. We did not identify any material misstatement in Management’s Review. Management’s responsibilities for the Financial Statements Management is responsible for the preparation of con- solidated nancial statements that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the EU and further requirements in the Danish Financial Statements Act and for the prepa- ration of parent company nancial statements that give a true and fair view in accordance with the Danish Financial Statements Act, and for such internal control as Manage- ment determines is necessary to enable the preparation of nancial statements that are free from material mis- statement, whether due to fraud or error. In preparing the Financial Statements, Management is responsible for assessing the Group’s and the Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Management either intends to liquidate the Group or the Parent Company or to cease operations, or has no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and the additional requirements applicable in Denmark will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inuence the economic decisions of users taken on the basis of these Financial Statements. As part of an audit in accordance with ISAs and the additional requirements applicable in Denmark, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: – Identify and assess the risks of material misstatement of the Financial Statements, whether due to fraud Independent Auditor’s Reports (continued) or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufcient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre- sentations, or the override of internal control. – Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s and the Parent Company’s internal control. – Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. – Conclude on the appropriateness of Management’s use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signicant doubt on the Group’s and the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the Financial Statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern. – Evaluate the overall presentation, structure and content of the Financial Statements, including the disclosures, and whether the Financial Statements represent the underlying transactions and events in a manner that achieves fair presentation. – Obtain sufcient appropriate audit evidence regarding the nancial information of the entities or business activities within the Group to express an opinion on the Consolidated Financial Statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signicant audit ndings, including any signicant deciencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to commu- nicate with them all relationships and other matters that may reasonably be thought to bear on our independ- ence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most signicance in the audit of the Financial Statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benets of such communication. Consolidated nancial statements 110 Independent Auditor’s Reports (continued) Hellerup, 10 February 2021 PricewaterhouseCoopers Statsautoriseret Revisionspartnerselskab CVR no 3377 1231 Torben Jensen State Authorised Public Accountant mne18651 Rune Kjeldsen State Authorised Public Accountant mne34160 Report on compliance with the ESEF Regulation As part of our audit of the Financial Statements we performed procedures to express an opinion on whether the annual report of ROCKWOOL International A/S for the nancial year 1 January to 31 December 2020 with the le name ROCK-2020-12-31.ZIP is prepared, in all material respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements related to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Management is responsible for preparing an annual report that complies with the ESEF Regulation. This responsibility includes: – The preparing of the annual report in XHTML format; – The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all nancial information required to be tagged using judgement where necessary; – Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in human-readable format; and – For such internal control as Management determines necessary to enable the preparation of an annual report that is compliant with the ESEF Regulation. Our responsibility is to obtain reasonable assurance on whether the annual report is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained, and to issue a report that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, whether due to fraud or error. The procedures include: – Testing whether the annual report is prepared in XHTML format; – Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process; – Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements; – Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable element in the ESEF taxonomy has been identied; – Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and – Reconciling the iXBRL tagged data with the audited Consolidated Financial Statements. In our opinion, the annual report of ROCKWOOL International A/S for the nancial year 1 January to 31 December 2020 with the le name ROCK-2020-12-31.ZIP is prepared, in all material respects, in compliance with the ESEF Regulation. Consolidated nancial statements 111 Financial statements for ROCKWOOL International A/S 113 Income statement 114 Balance sheet 115 Statement of shareholders’ equity 116 Notes Parent company nancial statements 112 Parent company nancial statements Income statement – ROCKWOOL International A/S 1 January – 31 December EURm Note 2020 2019 Net sales 2.1 358 402 Costs of raw material and consumables 117 134 Other external costs 98 110 Gross prot 143 158 Personnel costs 2.2 60 58 Depreciation, amortisation and write-downs 3.1, 3.2 19 24 Operating prot / EBIT 64 76 Income from investments in subsidiaries 2.3 195 226 Financial income 4.1 11 10 Financial expenses 4.1 15 11 Prot before tax 255 301 Tax on prot for the year 5.1 14 27 Prot for the year 241 274 Parent company nancial statements 113 Balance sheet – ROCKWOOL International A/S Assets – as at 31 December Equity and liabilities – as at 31 December EURm Note 2020 2019 Completed development projects 12 13 Acquired patents, licenses and trademarks 19 21 Development projects in progress 4 9 Intangible assets 3.1 35 43 Land and buildings 20 21 Other xtures and ttings, tools and equipment 7 7 Prepayments and property, plant and equipment in progress 4 1 Property, plant and equipment 3.2 31 29 Investment in subsidiaries 1,884 1,821 Receivables from subsidiaries 213 204 Fixed assets investments 3.3 2,097 2,025 Fixed assets 2,163 2,097 Contract work in progress 3.4 13 17 Receivables from subsidiaries 333 270 Tax receivables 12 7 Other receivables 21 27 Prepayments 6 5 Receivables 385 326 Cash 74 126 Current assets 459 452 Assets 2,622 2,549 EURm Note 2020 2019 Share capital 29 29 Revaluation reserve according to the equity method 71 43 Reserve for development costs 12 17 Retained earnings 1,857 1,914 Proposed dividend 94 94 Shareholders’ equity 2,063 2,097 Deferred tax 5.2 7 5 Other provisions 1 3 Provisions 8 8 Bank debt 105 - Trade payables 19 24 Payables to subsidiaries 411 402 Other payables 16 18 Current liabilities 551 444 Liabilities 559 452 Liabilities and shareholders’ equity 2,622 2,549 Parent company nancial statements 114 Statement of shareholders’ equity - ROCKWOOL International A/S EURm Share capital Revaluation reserve according to the equity method Reserve for develop- ment costs Retained earnings Proposed dividend Total equity Shareholders’ equity 1/1 2020 29 43 17 1,914 94 2,097 Exchange rate adjustments - - - 8 - 8 Prot for the year - 140 - 7 94 241 Development costs for the year - - -5 5 - 0 Currency revaluation of investments in subsidiaries - -111 - - - -111 Other adjustments - -1 - - - -1 Expensed value of RSUs issued - - - 1 - 1 Share buy-back programme - - - -77 - -77 Purchase of own shares - - - -3 - -3 Sale of own shares - - - 2 - 2 Dividend paid to the shareholders - - - 0 -94 -94 Shareholders’ equity 31/12 2020 29 71 12 1,857 94 2,063 Shareholders’ equity 1/1 2019 29 1 25 1,724 88 1,867 Exchange rate adjustments - - - -1 - -1 Prot for the year - -4 - 184 94 274 Development costs for the year - - -8 8 - - Currency revaluation of investments in subsidiaries - 53 - - - 53 Other adjustments - -7 - - - -7 Expensed value of RSUs issued - - - 0 - 0 Purchase of own shares - - - 0 - 0 Sale of own shares - - - -2 - -2 Dividend paid to the shareholders - - - 1 -88 -87 Shareholders’ equity 31/12 2019 29 43 17 1,914 94 2,097 Parent company nancial statements 115 Notes for ROCKWOOL International A/S 1 1.1 Accounting policies 117 2 2.1 Net sales 118 2.2 Personnel costs 118 2.3 Income from investments in subsidiaries 118 3 3.1 Intangible assets 118 3.2 Property, plant and equipment 119 3.3 Fixed assets investments 119 3.4 Contractworkinprogress 119 4 4.1 Financial income and Financial expenses 120 4.2 Proposeddistributionofprot 120 4.3 Derivatives 120 5 5.1 Taxonprotfortheyear 121 5.2 Deferred tax 121 5.3 Commitments and contingent liabilities 121 5.4 Related parties 121 116 Parent company nancial statements Note 1 1.1 Accounting policies The nancial statements of ROCKWOOL International A/S have been prepared in accordance with the Danish Financial Statements Act (accounting class D). The Financial statements for 2020 are presented in EUR. Changes in accounting policies The accounting policies applied remain unchanged from previous year. The accounting policies are the same as for the con- solidated nancial statements with the adjustments described below. For a description of the Group’s accounting policies, please refer to the consolidated nancial statements. Recognition and measurement in general Income is recognised in the income statement as earned. All costs incurred in generating the year’s revenue are also recognised in the income statement, including depreciation, amortisation and impairment losses. Value adjustments of nancial assets and liabilities measured at fair value or amortised cost are also recog- nised in the income statement. Assets are recognised in the balance sheet when it is considered probable that future economic benets will ow to the company and the value of the asset can be measured on a reliable basis. Liabilities are recognised in the balance sheet when they are considered probable and can be measured on a reliable basis. At initial recognition, assets and liabilities are measured at cost. Assets and liabilities are subsequently measured as described below for each item. Net sales The company produces and sells machinery and consul- tancy service. The projects typically include one deliver- able. Revenue from the projects is recognised over time based on the progress and is based on the price of the projects. As the work is done at the customer's site, con- trol is transferred along with the progress of the project. Recognition is based on the actual costs spent relative to the total estimated costs for the project, as this meth- od is estimated to reect the transfer of control. The credit terms are normally end of month plus 20 days. Royalty is received for the use of the ROCKWOOL brand and technology. Royalty is based on the level of sales in the subsidiaries and recognised when earned according to the terms in the agreement. Intangible assets The accounting policies for intangible assets follow those of the Group with the exception of goodwill, which is amortised over a period of 10 years using the straight-line method. An amount equal to the total capitalised development costs after tax is recognised under Shareholders’ equity in the Reserve for development costs. Fixed assets investments Investments in subsidiaries are recognised initially at cost and measured subsequently using the equity meth- od. The company’s share of the equity of subsidiaries, based on the fair value of the identiable net assets on the acquisition date, minus or plus unrealised inter- company prots or losses, with addition of any residual value of goodwill, is recognised under Investments in subsidiaries in the balance sheet. If the shareholders’ equity of subsidiaries is negative and ROCKWOOL International A/S has a legal or con- structive obligation to cover the company’s negative equity, a provision is recognised. Net revaluation of investments in subsidiaries is recognised under Share- holders’ equity in the Revaluation reserve according to the equity method. The reserve is reduced by payments of dividends to the parent company and adjusted to reect other changes in the equity of subsidiaries. The proportionate share of the net prots of subsid- iaries less goodwill amortisation is recognised under Income from investments in subsidiaries in the income statement. Goodwill in subsidiaries is amortised over a period of 10 years using the straight-line method. Receivables from subsidiaries Receivables from subsidiaries are recognised at amor- tised costs and are subsequently measured after de- duction of allowance for losses based on an individual assessment. Leases Leases in which a signicant portion of the risks and rewards of ownership are retained by the lessor are classied as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. Dividend The dividend proposed for the nancial year is shown as a separate item under Shareholders’ equity. Cash ow statement ROCKWOOL International A/S has in accordance with the Danish Financial Statements Act, Section 86 (4) not prepared separate cash ow state ments. Please refer to the consolidated cash ow statements. References to notes to the consolidated nancial state- ments for the following notes, see information in the consolidated nancial statements: – Own shares – see note 4.5 – Share capital – see note 4.6 – Auditor’s fee – see note 5.4 Parent company nancial statements 117 EURm 2020 2019 Revenue from projects 142 160 Royalties and other fees 216 242 Net sales 358 402 2.2 Personnel costs EURm 2020 2019 Wages and salaries 54 52 Expensed value of RSUs issued 1 1 Pension costs 5 5 Other social security costs 0 0 Personnel costs 60 58 Average number of employees in ROCKWOOL International A/S 448 428 Reference is made to note 1.2 and 1.3 to the consolidated nancial statements concerning remuneration of the Board of Directors and the Registered Directors. Note 2 2.1 Net sales EURm 2020 2019 Share of net prot/(loss) 205 236 Amortisation of goodwill -10 -10 Income from investments in subsidiaries 195 226 2.3 Income from investments in subsidiaries Note 3 3.1 Intangible assets Completed development projects and development projects in progress mainly comprise software development. Comments EURm Completed devel- opment projects Acquired patents, licenses and trademarks Develop- ment projects in progress 2020 Total 2019 Total Cost 1/1 79 53 9 141 126 Exchange rate adjustments - 1 1 2 0 Additions for the year - 3 4 7 21 Transfer of development projects in progress 10 - -10 - - Disposals for the year -3 -13 - -16 -6 Cost 31/12 86 44 4 134 141 Amortisation and write-downs 1/1 66 32 - 98 81 Exchange rate adjustments 1 1 - 2 0 Amortisation for the year 7 5 - 12 20 Write-down for the year 3 - - 3 - Disposals for the year -3 -13 - -16 -3 Amortisation and write-downs 31/12 74 25 - 99 98 Carrying amount 31/12 12 19 4 35 43 Parent company nancial statements 118 EURm Land and buildings Other xtures and ttings, tools and equipment Prepay- ments and property, plant and equipment in progress 2020 Total 2019 Total Cost 1/1 37 18 1 56 46 Exchange rate adjustments 0 0 0 0 1 Additions for the year 0 0 6 6 11 Transfer of property, plant and equipment in progress 0 3 -3 - - Disposals for the year 0 -1 0 -1 -2 Cost 31/12 37 20 4 61 56 Depreciation and write-downs 1/1 16 11 - 27 25 Exchange rate adjustments 0 0 - 0 0 Depreciation for the year 1 3 - 4 4 Disposals for the year 0 -1 - -1 -2 Depreciation and write-downs 31/12 17 13 - 30 27 Carrying amount 31/12 20 7 4 31 29 Note 3 3.2 Property, plant and equipment Of the total net book value of land and buildings, EUR 1 million (2019: EUR 1 million) represent land not subject to depreciation. EURm Investments in subsidiaries Receivables from subsidiaries 2020 Total 2019 Total Cost 1/1 1,778 204 1,982 1,710 Exchange rate adjustments 7 1 8 -1 Additions for the year 30 89 119 277 Reductions/disposals for the year -2 -81 -83 -4 Cost 31/12 1,813 213 2,026 1,982 Value adjustments 1/1 43 - 43 1 Exchange rate adjustments -111 - -111 53 Share of net prot 205 - 205 236 Amortisation of goodwill -10 - -10 -10 Dividends received -55 - -55 -230 Other adjustments -1 - -1 -7 Value adjustments 31/12 71 - 71 43 Carrying amount 31/12 1,884 213 2,097 2,025 3.3 Fixed assets investments 3.4 Contract work in progress EURm 2020 2019 Sales values of work performed 293 209 Invoiced on account -280 -192 Contract work in progress, net 13 17 Recognised as follows: Contract work in progress (assets) 13 17 Prepayments received, contract work in progress - - Comments Parent company nancial statements 119 EURm 2020 2019 Interest income 0 0 Interest income from subsidiaries 4 1 Foreign exchange gains 7 9 Financial income 11 10 EURm 2020 2019 Interest expenses etc. 6 3 Interest expenses to subsidiaries 1 6 Fair value adjustment phantom shares 0 1 Foreign exchange losses 8 1 Financial expenses 15 11 Note4 4.1 Financial income and Financial expenses 4.2 Proposed distribution of prot EURm 2020 2019 Proposed distribution of prot: Proposed dividend to shareholders 94 94 Revaluation reserve according to equity method 140 -4 Retained earnings 7 184 Total prot 241 274 Reference is made to note 4.2 to the consolidated nancial statements concerning derivatives. The policy is not to hedge exchange rate risks in long- term investments in subsidiaries. When relevant, external investment loans and Group re- ceivables are, as a general rule, established in the local currency of the company involved, while cash at bank and in hand are placed in the local currency. In the few countries with ineffective nancial markets loans can be raised and surplus liquidity placed in DKK or EUR, subject to the approval of the parent company’s nance function. 4.3 Derivatives Most Group receivables that are not established in DKK or EUR are hedged via forward agreements, currency loans and cash pools or via the SWAP market. To ensure adequate nancial reserves as dened by the Board of Directors, investment loans can be raised on a continuous basis to partly cover new investments and to renance existing loans. Ownership clauses have been issued and/or deed of postponements in connection with intercompany receivables. Please refer to note 5.3. Comments Parent company nancial statements 120 EURm 2020 2019 Current tax for the year 11 15 Change in deferred tax 1 1 Withholding taxes 3 8 Adjustment in current and deferred tax in previous years -1 3 Tax on prot for the year 14 27 EURm 2020 2019 Deferred tax 1/1 5 6 Change in deferred tax recognised in prot and loss 1 -1 Deferred tax for the year recognised in equity 1 0 Deferred tax 31/12 7 5 5.2 Deferred tax Note 5 5.1 Tax on prot for the year 5.3 Commitments and contingent liabilities The are no contingent liabilities neither this year nor last year. Operational lease commitments expire within the following periods as from the balance sheet date: EURm 2020 2019 < 1 year 0 1 1-5 years 0 0 > 5 years 0 - Operational lease commitments 0 1 ROCKWOOL International A/S has registered the following shareholders holding more than 5 percent of the share capital or the votes: 2020 Share capital Votes ROCKWOOL Foundation, DK-1360 Copenhagen K 23% 28% 15. Juni Fonden, DK-2970 Hoersholm 6% 10% Dorrit Eegholm Kähler, DK-2830 Virum 4% 6% 5.4 Related parties Comments For certain receivables amounting to EUR 173 million (2019: EUR 80 million) deeds of postponement have been given. Parent company nancial statements 121 The ROCKWOOL ® trademark TheROCKWOOLtrademarkwasinitiallyregisteredin Denmarkasalogomarkbackin1936.In1937,itwas accompaniedwithawordmarkregistration;aregistration whichisnowextendedtomorethan60countriesaround theworld. The ROCKWOOL trademark is one of the largest assets inROCKWOOLGroup,andthuswellprotectedand defendedbyusthroughouttheworld. ROCKWOOL Group’s primary trademarks: ROCKWOOL ® Rockfon ® Rockpanel ® Grodan ® Lapinus ® Additionally,ROCKWOOLGroupownsalargenumber of other trademarks. Disclaimer The statements on the future in this report, including expectedsalesandearnings,areassociatedwith risks and uncertainties and may be affected by factorsinuencingtheactivitiesoftheGroup,e.g.the global economic environment, including interest and exchangeratedevelopments,therawmaterialsituation, production and distribution-related issues, breach of contract or unexpected termination of contract, price reductions due to market-driven price reductions, market acceptanceofnewproducts,launchesofcompetitive products and other unforeseen factors. In no event shall ROCKWOOL International A/S be liable for any direct, indirect or consequential damages or any other damages whatsoeverresultingfromlossofuse,dataorprots, whetherinanactionofcontract,negligenceorother action,arisingoutoforinconnectionwiththeuseof information in this report. © ROCKWOOL International A/S 2021 All rights reserved Required reporting referring to the Danish Financial Statement Act §99a, §99b and §107d can be found on p.13andpp.30-49. Photography credits Cover (Ben O’bro) P.8(JesperSchwartz) P. 16, 17 (Jason O’Rear) P. 19 (Red Warehouse) P. 23 (Farminova) P. 25 (Thea van den Heuvel) P. 28 (Brian Carlin) P. 35 (Shutterstock / Damsea) P.44(JesperSchwartz) P. 52 (Brian Carlin) P.54(BrianCarlin) P. 115 (Ben O’bro) Design and production Kontrapunkt A/S Released 10 February 2021 ISSN ISSN1904-8653(print) ISSN1904-8661(online) ROCKWOOL Group ROCKWOOL International A/S Hovedgaden 584 2640 Hedehusene Denmark Phone: +45 4656 0300 CVR No. 54879415 www.rockwool.com/group/ 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International A/SDenmarkAktieselskabDenmarkHovedgaden 584, 2640 HedehuseneGlobalThe purpose of the company is domestically and globally, amongst others by investing in other companies, to run industry, trade and service related activities as well as companies related to this, and to run investment activities.N/AROCKWOOL International A/SN/AAnnual reportAuditor's report on audited financial statementsParsePort XBRL Converter2020-01-012020-12-312019-01-012019-12-31213800QRC7LNX935OZ09ROCKWOOL International A/SReporting class D54879415Hovedgaden5842640HedehuseneDenmark+4546560300www.rockwool.com/group/https://www.rockwool.com/group/about-us/corporate-governance/11,62611646448428Hedehusene2021-02-10Jens BirgerssonCEOKim Junge AndersenCFOThomas KählerChairmanCarsten BjergDeputy ChairmanRebekka Glasser HerlofsenSøren KählerAndreas RonkenJørgen Tang-JensenRené Binder RasmussenConnie Enghus TheisenChristian Westerberg213800QRC7LNX935OZ0954879415ROCKWOOL International A/SHovedgaden 5842640 HedehuseneOpinionBasis for OpinionHellerup2021-02-10Torben JensenState Authorised Public Accountantmne1865133771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabStrandvejen442900HellerupRune KjeldsenState Authorised Public Accountantmne3416033771231PricewaterhouseCoopers Statsautoriseret RevisionspartnerselskabStrandvejen442900Hellerup
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