The ROCKWOOL Group concludes successful transformation and announces expansion plans

Corporate governance Overview

Overview

What did we achieve in 2016?

The stone wool markets have been slow this past year; however, thanks to a productivity improvement and an enhanced product mix we reached an EBIT margin of 10.4%. Our consistent focus on product portfolio management, sales force effectiveness alongside the strategic cost savings initiatives have all contributed to the earnings for the year.

Return on Invested Capital

Strong profitability in a generally slow market

In 2016 our strong development was driven by cost savings in logistics and production, lower raw material costs during a part of 2016, lower personnel costs as well as quality pricing and better volume and product mix.

The market continued at a slow pace throughout 2016. We had signs of improvement in many Western European markets; although the Russian market continued to decline. North America has performed well.

Fire Resilience

Fire resilience is essential for sustainable buildings, significantly increasing their likelihood of surviving a fire. The ROCKWOOL Group is a founding member of Fire Safe Europe, whose concerns led to initiation of studies in 2016, looking into the performance of facades during a fire.

		Sales by region compared to last year (%)

	Actual rates	Local currencies
Western Europe	+0.3	+1.4
Eastern Europe	-5.8	-0.7
North America, Asia and others	+2.7	+4.8

Sales by segment

(EURm) 600

300

0 Q1

Annual Report 2016 10

Annual Report 2016 12

Enriching modern living Corporate governance Overview

Before the middle of this century, in 2050, the urban population will require 50% more food and 17% more water. In addition to this, energy consumption is expected to rise 50% by 2050 even if we know that the potential for energy savings in buildings is between 50-90%. With these prospects, I believe in the growth potential of the ROCKWOOL Group because we can support these trends in a sustainable way; we enrich modern living.

The year 2016 has been marked by tough conditions. Just as the world was recovering from the credit crisis we were faced with geo-political shifts, sanctions and several natural disasters. However, the transformed ROCKWOOL organisation did not let the difficult conditions determine our overall performance. Quite the opposite, this newly acquired pace in defining a strategy and subsequent execution set the course for another successful year.

We achieved what we had set out to do. We said we would transform the ROCKWOOL Group into a customer centric, agile and cost efficient organisation and this is what we did, even earlier than expected. Our topline growth of 2% has not been large, but it reflects the market. We reached EUR 2,202 million in sales and we have continued to work on efficiencies. This growth was achieved despite that in key markets such as Russia and the challenged business for industrial and technical insulation, we were forced to play in defense as sanctions prevailed and oil prices dropped dramatically.

We were not caught off guard. The newly formed management is always seeking

solutions to the problems in the market place, accelerating successful initiatives and ready to pull back on the ideas that do not work.

Our free cash flow improved by EUR 140 million leaving us with a net cash position end of year of EUR 119 million. An impressive result, that allows us to look positively at the future.

We are determined to do more. New energy efficiency regulations, increased renovation rates for buildings, growing concerns for food security, the need for safer and more resilient cities are just of a few of the areas that favour of our stone wool solutions.

Going forward we will invest more in our brand and in particular on our online channels so that we improve the direct and timely communication to the customer and end consumer. Our products are not visible so we feel that we can do better in sharing our story to a wider audience.

I would like to thank Jens, the management team and all the employees for a year of sterling effort. I also thank the board for their continued commitment and support.

Hedehusene, February 2017

Bjørn Høi Jensen Chairman

Dear Shareholders,

Over the next week over 1 million people will have moved to an urban environment. By the time we reach 2020 there will be 41 mega cities in the world with at least 10 million inhabitants.

Chairman's letter

Focus and timely execution

In 2016 our net sales reached a total of EUR 2,202 million, which is a decrease of 0.3% in reported figures compared to 2015 but an increase of 1.9% in local currencies. This stable development in sales represents a positive outcome for our organisation as the year was challenged by the weakened Russian construction market as well as the low demand for technical insulation in the oil and gas business.

Thanks to flawless execution on the key focus areas our full year operational EBIT (excluding redundancy costs of EUR 8 million) increased 38% to EUR 237 million corresponding to a 10.8% EBIT margin (excluding redundancy costs and write downs in Asia in 2015). This is a 3.0 pp improvement of our profit margin compared to 2015. The way the organisation embraced the challenges and even accelerated the pace of change has been impressive and is something I am very proud of.

We enter 2017 with a very strong cash flow and we are debt free. This means that we are able to communicate a proposed dividend increase from DKK 11.50 to DKK 18.80 per share.

During my first year as CEO, in 2015, we launched our Business Transformation Programme focusing on three main business drivers: organisational agility, cost efficiency and customer centricity. The ambition was to raise our profitability by EUR 50 million by the end of 2017. I am happy to share that this progamme was successfully completed a full year ahead of schedule. We will no longer communicate this as a separate progamme as the changes we introduced are embedded into our day to day business and should be part of our new lifestyle.

Britain, Europe, USA and the environment

The year 2016 is being commented by many as a year of great geopolitical disruption. We ended 2015 on the high note of a promise to tackle global climate change, set out in the Paris Agreement during the COP 21, but many events that followed have swayed the attention and progress has not been as fast as many had expected.

This has not altered our strategy. Our purposeful business model is what motivates our daily work and we continue to remain focused on the challenges facing our planet and our commitment to the United Nations Sustainable Development Goals. We know that our products can make a real positive difference in many ways and even more so when the environment is challenged by both natural and provoked disasters and we take this responsibility seriously.

Buildings account for approximately one third of global carbon emissions. We are convinced that accelerating performance improvements in the building sector is crucial to limit temperature increase to 1.5 C above pre-industrial levels, as established by the Paris agreement. Our view is that the energy efficiency opportunity in this segment is immense, that it is profitable, and that the required technologies and policy solutions are already largely known and readily available. Specifically, there is a major opportunity if we look into the existing building stock. If the world is to stand any chance of meeting the Paris commitment, we have to collectively address such opportunities much more effectively than we do today.

Driving the circular economy is another improvement theme that is highly relevant for the buildings sector. This is an area

Dear Shareholders,

At ROCKWOOL we take pride in being the best stone wool company in the world. We measure our success through our customer's feedback, our employees, and our shareholders and by the impact we have on our physical stakeholder, the planet.

With these parameters and the goals that we set for 2016 we are pleased to present the results delivered.

Enriching modern living A purposeful business

importance of web communication and customer experiences and 2017 will see the introduction of a new digital presence.

Looking ahead

We achieved what was planned in 2016 and we have already leveraged our greater financial strength to take some important steps forward in defining our digital agenda and to innovate. During the year we have, for example, developed a stone wool based non-combustible insulation solution for cold pipes down to 0°C and piloted more than 15 residential houses with a new innovative wall system comprising load bearing pillars based entirely on stone wool. The new wall system brings

an array of features in addition to the excellent insulation properties; it is non-combustible, noise reducing and possible to re-cycle.

The foundation for profitable growth is set and we can proactively consider expanding our business in both existing and new segments and we have the financial means to do so. Going into 2017 we have once again defined some very clear areas where we want to win in the market, with our employees, our customers and with our shareholders. I am confident that you will continue to follow us closely as we progress with this positive prospective and prepare to celebrate the 80th Birthday of the ROCKWOOL Group later this year with you.

Hedehusene, February 2017

Jens Birgersson

CEO

where both private and public sector can do more and where we as a Group, will increase our attention. The building sector produces approximately a third of all waste, much of which is today landfilled. So re-circulating building materials is another major global opportunity.

It goes without saying that the well-being of the environment goes hand in hand with the well-being of our stakeholders. All our products are designed with that thought in mind. Thanks to the fire resilient properties of our stone wool insulation, which limit the spread of fire from one room to the next, ROCKWOOL can make the difference between having a fire in a building and a building on fire, increasing the safety of the inhabitants and the resilience of the structure itself.

Our well-being is associated with the comfort of the environment where we work, live, learn, play or in the case of a hospital, recover. No matter where we live in the world, we will spend up to 90% of our time in a building. Interior comfort is often interpreted as requiring an expensive interior design. Our aim is to provide affordable retrofitting and energy efficient solutions that have the strong positive effects on a buildings comfort and the well-being of its inhabitants. There are numerous studies proving that noise during the night not only disturbs your sleep but spoils the recovery phase of the human body. Also noise and learning are inversely correlated. The cognitive performance of both children and adults is affected by noise and their ability to work and learn is therefore impaired. Our acoustic ceilings and partition wall insulation can, in many cases, help reduce that noise by approximately half. Once again, the technology for enriched modern living is available and affordable.

The past year saw the launch of our new corporate purpose: we release the natural power of stone to enrich modern living. ROCKWOOL has been a leading brand in stone wool solutions and insulation but we believe that a refreshed dialogue with our customer and the end consumer will ensure that the benefits derived for the use of more stone wool are no longer a secret kept within our walls or in the ground.

Our new focus will engage across all audiences along the value chain from the purchasing process through to the home owner. We understand the increasing

Throughout their lifespan the ROCKWOOL Group's products typically save between 80 and 1,500 times the carbon emissions emitted during their production.

ROCKWOOL Group 19

The ROCKWOOL strategy rests on seven pillars: profitable growth, innovative products, our strong brands, digitalisation, operational excellence, passionate employees and our customer's dedication to quality solutions.

Customer value

The customer is central to everything that we do. Our ambition is to always deliver high quality products, systems and services when and where needed by the customer. By utilising Net Promotor Score (NPS) as a common tool, we are able to continuously respond to customer feedback and establish a continuous dialogue with our stakeholders. Through formal and informal channels, we welcome feedback and ensure that we have a shared understanding of what is most valuable to their business so that both parties obtain the desired benefits. Thus we increased our NPS by 4 to 32 in 2016. A seamless access to both our products and our technical services is essential and we will invest time and effort in improving our global digital platforms and presence.

Profitable growth

Our main goal is to be the leading supplier of stone wool solutions in all our key markets. In order to maintain and develop this leadership position and pursue profitable growth we have established the organisational structure that can support our vision. We will continue to grow our core insulation business while we explore opportunities for expansion in our systems segments. In order to ensure sustainable profitability we are optimising our portfolio and the related pricing structure.

Brand

We see improved brand awareness as a crucial driver towards increased market penetration and long term positioning. We have embraced the fact that new communication channels give more and diverse people access to fast and immediate information. We know that to compete in this space we need to speak to a broader audience and this requires new messaging so that our brand can stand as unique and support our differentiation strategy.

Digitalisation

The construction industry is changing and as a leading player we understand the need for a digital playbook to support automated and integrated functions across the organisation. Starting with the customer relationship touch points as a first priority, we will continue to digitise our sales force, supply chain, production and other Group Functions. Our digital strategy is essential to the success of our new business approach.

Innovation

All product development in the Group is based on in-depth customer insight and a tight connection with our global business goals. In addition, our innovation strategy is defined by our corporate purpose to provide products that can make a substantial difference to modern living. The hero of our product is the fire resilient property of stone. From this solid foundation we deliver a wide spectrum of product offerings ranging from energy efficiency, acoustics, comfort and precision growing among others. We are sure that there are new possibilities and therefore, a fixed percentage of our R&D time is dedicated to finding new ways to release the natural power of stone.

Operational excellence

We are the largest stone wool manufacturer in the world. We have a strong heritage within stone wool production and technology and we constantly enhance productivity and improve our operational capabilities to remain a global leader within stone wool. As an integral element in this leadership we drive continuous improvement with LEAN and keep safety and quality as top priorities in all of our operations.

People and planet

In a fast moving global environment it is fundamental to have the right people in the right place, by selectively bringing in and developing competences in line with current and future requirements. People are our most valued asset and we care about the world they will live in today and for the future generations. Sustainability leadership is crucial to realising our strategy. We believe that we can grow profitably while contributing to society by making smarter and more resource-efficient solutions available to an increasing number of people around the world.

Sustainability

Annual Report 2016 20

Enriching modern living

ROCKWOOL Group 21

Enriching modern living

Corporate governance

Our business model

Overview

Release the natural power of stone

External

Recyclable, natural and abundant volcanic stone

Insight from customers, industry experts and science

Internal

A skilled and diverse workforce

Operations & Technology

Sustainable research

Enriched modern living

Customer value and satisfaction

Return to shareholders

Contributions to society and environment

Purpose

Energy efficiency

Renovation

Fire resilience

Urbanisation /

Precision growing

"ROCKWOOL insulation can make the difference between having ʻa fire in a building' versus 'a building on fire'. "

Enriching modern living

Sustainability

Annual Report 2016 22

Due to its stone wool material, ROCKWOOL 1000ºC

insulation can withstand fire and high temperatures – at least 1000°C – longer than comparable insulation materials

Purpose

Improving building performance for quality living

Using effective insulation to provide energy efficient solutions for everyone

Focus

Energy efficient buildings that meet the requirements of modern living: fire resilience, acoustic comfort and durability

Market and trends

ROCKWOOL Insulation is the leading provider of stone wool insulation. We provide products and solutions for all major application areas for both residential and non-residential buildings. Our offerings can be applied to the complete building envelope ensuring energy efficient and fire safe buildings.

The ROCKWOOL Insulation business area is the largest segment in the ROCKWOOL Group. The insulation solutions are specialised within three key areas; construction and building insulation, technical insulation and core solutions.

Covering the complete building envelope from flat roof and pitched roof solutions, ventilated and rendered facades systems, solutions for partition walls, ceilings and floor as well as HVAC and fire protection. We're the hidden secret to energy efficient buildings as our solutions are covered up being an implicit element to the modern structure. However, the effect of our solutions can be felt and experienced no matter the building type.

Within ROCKWOOL Technical Insulation a general rule of thumb states that properly installed and maintained insulation can

allow for at least 80% of heat to be retained. Our technical insulation solutions are engineered to enhance the production for process industry, on-shore and off-shore and the marine industry. With energy demand rising in Africa, ROCKWOOL Technical Insulation is very active in the market of power generation, which already resulted in large orders for several power generation projects in 2016.

ROCKWOOL Core Solutions are dedicated to improve OEM products or systems. Together with our partners we're developing projects to contribute and to improve the thermal, acoustic, fire safety, mechanical, filtering and buffering performance of an OEM offering.

Progress

Established in Europe and growing in North America and Asia.

Fact of 2016

We've transformed our business processes to enhance profitability

Annual Report 2016 24 Annual Report 2016 24

ROCKWOOL Group ROCKWOOL

Market and trends

Purpose

Growth substrate solutions for horticulture for professional growers and home gardeners

Focus

Precision Growing enables growers to provide plants water and nutrients much more precisely and efficiently, resulting in optimal crop yield and quality, with minimum use

of resources Progress

Global leader in stone wool growing media solutions

Fact of 2016

Supporting growers with new app technology e-Gro making it possible for customers to get real-time reporting on their substrates and get direct GRODAN customer support

GRODAN is a global leader in the supply of innovative, sustainable stone wool substrate solutions for the professional horticultural sector based on Precision Growing principles. These solutions are used in the cultivation of vegetables and flowers, such as tomatoes, cucumbers, sweet peppers, aubergines, roses and gerberas. The GRODAN business offers stone wool substrate solutions together with tailor-made user advice and tools to support Precision Growing, facilitating the sustainable production of healthy, safe, and tasty fresh produce for consumers.

2016 proved to be another strong year for GRODAN. Double digit growth was achieved in North America, while Europe & Export also showed improvements. Increased sales to both professional growers and retail customers are behind the strong performance and both segments hold considerable potential for further expansion.

The introduction of the NG2.0 technology in the portfolio, the ramp up of the GroSens® sales and the introduction of the e-Gro® app also contributed to the overall success and provide strong proof of the innovation agenda which is currently rolled-out in GRODAN. On top of that legislative developments favouring closed systems support the future expansion of GRODAN. This is also reflected in the renewal of the EU Ecolabel at the end of 2016.

On a broader scale, a growing world population drives an increasing need to produce more healthy and nutritious food. Water, land usage and energy are crucial resources for food production and are under growing pressure. It is estimated that by 2050 we will have to produce double the amount of healthy, nutritious food with half the resources of today. By utilising Precision Growing techniques we provide the plant with exactly what it needs, ensuring maximum efficiency in growing, leading to a better yield and quality while reducing the use of valuable and scarce resources. In this way, GRODAN helps to future-proof horticulture and will therefore continue to be an investment area for the ROCKWOOL Group.

Annual Report 2016 26

Annual Report 2016 26

ROCKPANEL board material is used, mostly in ventilated constructions, for facade cladding, roof detailing, soffits and fascias. The product is manufactured from the sustainable rock, basalt. ROCKPANEL boards are a robust and flexible material which fits perfectly with modern architectural trends such as organic shapes and sustainability, while also providing cost efficiency and short installation times.

Sales of ROCKPANEL cladding boards was supported by positive market conditions in Germany, the Netherlands and Scandinavia. On the other hand we experienced very difficult market conditions in the UK mainly due to the market uncertainty of continued government incentive packages.

The environmental and sustainability agendas are key drivers of growth in the ROCKPANEL business as energy performance, as a means for reducing total cost of ownership and waste reduction is becoming more important to customers. These are all key attributes of ROCKPANEL solutions. The trend towards more sustainable and natural looking facade

designs is continuing and will benefit the segment in the long term. At the same time, strengthened regulations and increased focus on fire safety among architects and contractors is also expected to drive growth, as our external cladding solutions deliver superior quality on this parameter.

In the coming years, ROCKPANEL expects to see continued growth in the market for stone wool solutions, as compared to other cladding types. Despite being relatively mature construction markets, Germany, France and the United Kingdom all offer significant opportunities for growth, with further opportunities in the rest of Europe.

Market and trends

Purpose

Safe and beautiful buildings

Provide aesthetic and protective facade cladding for ventilated facades

Focus

Intriguing facade solutions – customised or standardised – for everyone

Progress

Strong and growing position in Europe. Emerging in Russia

Fact of 2016

Customer Excellence – we increased our attention on the customer experience and grew stronger on several customer touchpoints

14 ROCKPANEL boards are currently sold in 14 European countries: The Netherlands, Belgium, United Kingdom, Ireland, Denmark, Germany, Switzerland, Austria, France, Spain, Portugal, Italy, Russia, Poland

Materials ROCKPANEL boards ROCKWOOL insulation

Architect Frank Architekten GmbH, Eggenfelden

Materials ROCKPANEL boards ROCKWOOL insulation

Architect Frank Architekten GmbH

Enriching modern living

ROCKWOOL Group 29

Annual Report 2016 28 Annual Report 2016 28

Market and trends

ROCKWOOL 29

ROCKFON provides customers with a complete ceiling system offer, combining stone wool ceiling panels with Chicago Metallic suspension grid systems, accessories and metal ceilings. ROCKFON ceiling systems are a fast and simple way to create beautiful, comfortable spaces. Easy to install and durable, they protect people from noise and the spread of fire while making a constructive contribution toward a sustainable future.

ROCKFON is the biggest business area in the Systems segment and a leading supplier of stone wool acoustic ceiling systems and wall solutions.

The sales of ROCKFON have continued a positive development in 2016 both in terms of market share development and value of sales. Sales in Southern Europe have been positive and slightly ahead of the market development, with Central Europe also demonstrating a solid development. Sales in Northern Europe have been in line with market development. Sales in Asia have been developing very positively and the ROCKFON brand and stone wool ceiling offering is clearly appreciated. Sales in North America saw a significant growth within our ceiling tile business.

In the coming years ROCKFON expects modest market share growth along a continuation of the positive development of stone wool ceiling offerings in markets where more traditional products are still dominating. At the same time, awareness of the benefits of sound absorption in open offices, health and education environments is increasing, further strengthening our competitiveness in the market.

ROCKFON acoustic ceiling tiles are manufactured at four ROCKWOOL stone wool factories located in France, Poland, Russia and the Netherlands, for distribution through sales companies all over the world.

Going forward, we will be seeking to further develop our strong position in Europe, including Russia, where there is still considerable space for further market penetration. At the same time, ROCKFON is strengthening its foothold in the North American market, which is the largest in the world. Having now completely integrated Chicago Metallic Corporation into ROCKFON, the business will continue to produce, and develop the sale of Chicago Metallic products in the United States, Europe and Asia.

Also in North America, the ROCKWOOL Group has invested in a new acoustic ceiling production facility at our stone wool insulation factory in Mississippi. The plant is expected to be operational in mid-2017, and will enable ROCKFON to continue its growth in the North American suspended ceiling market with smooth and highly noise absorbing ceiling tiles.

Enriching modern living

Allow everyone to hear every word

Absorb noise so that we can focus on the people around us

Focus

Delivering beautiful, comfortable spaces that protect people from noise and enhance learning, productivity and healing

Project Guildford Aquatic Centre, Canada

Material ROCKFON ceilings

Architect of record – exterior and interior Bing Thom Architects

Architect – pool areas Shape Architecture

Progress

Strong and growing position in Europe and Russia. Emerging in Asia and North America

Fact of 2016

Breaking ground for a new factory in USA

New Karolinska Solna (NKS) is the project name for the state-of-the-art hospital currently under construction next to Karolinska University Hospital in Solna. By end of project in 2018 ROCKFON will have delivered more than 200,000 m 2 acoustic ceiling for a healthy indoor climate.

+200,000 m 2

Enriching modern living

ROCKWOOL Group 31

Market and trends

ROCKWOOL 31

Enriching modern living

LAPINUS develops versatile, precision-engineered stone wool solutions for a variety of global industries and application materials, gaskets, coatings and water management. In addition to providing high quality stone wool products combined with dedicated practical advice, we supply other raw materials which have been specially modified and designed to meet customer requirements. The LAPINUS business also includes the Rockdelta portfolio, which produces mat-based anti-vibration isolation systems, also made from stone wool, that help reduce and manage ground-borne vibration.

LAPINUS is one of the world's largest suppliers of precision-engineered stone wool products. LAPINUS is active throughout the world with sales in more than 50 countries across all continents.

The automotive industry remains a key segment for LAPINUS, specifically friction materials such as brake pads and linings. In 2016 we experienced a positive development in the supply of engineered fibres to brake pad manufacturers in the automotive industry. Global car sales posted a solid advance in 2016 and brake pad models are increasingly changing to new technical concepts in which engineered fibres have a good fit. The increase in customer attention to brake life time, fine dust emissions and comfort in the original equipment manufacturer (OEM) industry helps to drive demand for LAPINUS engineered mineral fibres as a key ingredient for friction material. The electrification and transition to electrical cars will lead to new product demands as these cars brake differently.

Rockdelta, today part of LAPINUS, provides noise dampening and antivibration solutions for the railway industry. The railway market is seeing positive growth with high demand for masstransportation in major cities, and global awareness about benefits of reducing noise and vibrations is increasing, especially since crowded cities bring people´s homes closer to the tracks. Rockdelta will further expand its business by exploring new application segments within the railway market by anchoring its position in the existing markets.

Growth prospects for the LAPINUS business as a whole remain strong, and ROCKWOOL plans to continue to invest in product development and increase application of the different expertise areas in core markets.

Enriching modern living

Progress

Continuously identifying global trends and challenges, and driving the development of tomorrow's products

Fact of 2016

New focus on water management solutions for tackling water challenges: drain, infiltrate, buffer, transport, etc

Purpose

Protective solutions

Provide versatile materials that help customers rise to the many challenges in today´s busy and noisy world

Focus

Using our knowledge of stone wool to design tailor-made solutions for industrial processes, to deliver a positive impact on safety, emissions, noise, vibrations and water management and to improve quality of life

Sustainability

Annual Report 2016 32

ROCKWOOL Group

Sustainability

Corporate governance Overview Enriching modern living

Energy efficiency

Buildings account for 1/3 of the energy used globally.

In order to reduce global energy consumption, there needs to be a focus on both renovating existing buildings and striving for near-zero energy consumption when constructing new buildings. Energy for heating and cooling accounts for two thirds of a building's total energy consumption. ROCKWOOL insulation can provide a healthy and comfortable indoor climate without wasting energy.

Energy efficiency is a priority for us and we will be leading from the front by improving energy efficiency in our own buildings and production while supporting legislation aimed at reducing energy usage in buildings and industry worldwide.

Renovation

Nine out of ten buildings in the EU today will still be standing and occupied in 2050. Renovation is key to providing continued quality of life for those who inhabit these buildings.

Whether through improved acoustics, better indoor climate or exterior aesthetics, or providing for urban gardening, renovating buildings can truly improve people's health and well-being. More importantly, renovation can help to increase quality of life for many who today live in energy poverty by significantly reducing expenditure for heating and cooling, making more people able to afford a healthy and comfortable living space.

Fire resilience

People spend up to 90% of their time in buildings and we expect our surroundings to keep us safe. Safe buildings also contribute to sustainable lifestyles, protecting people and possessions from potential loss.

Not only does fire injure and sometimes kill, but it destroys valuables, harms the environment and damages critical parts of society's infrastructure. This is both personally and financially costly, and sometimes impossible to rebuild.

Made from stone fibres, ROCKWOOL insulation is naturally fire proof, and can resist temperatures up to 1,000 degrees centigrade. Limited other material is used to hold the stone wool fibres together and because of this our insulation does not feed, or spread fire or produce a significant amount of toxic smoke. This means that it can protect buildings for longer when fire happens.

We are committed to ensuring regulations deliver high quality buildings, which meet the highest possible fire resilience standards.

Acoustics and health

Noise is created constantly in our everyday lives. Much of this is important, and helps us to communicate and socialise. At the same time, most of us appreciate the ability to block sounds as needed.

The ability to choose when and how we are exposed to sound is important for a healthy life and personal well-being. Unwanted sounds are thought of as noise, which can cause us both mental and physical harm. The World Health Organization (WHO) estimates that at least 1 million healthy life years are lost each year to environmental traffic noise in Western Europe alone (WHO 2011).

Noise control in offices and schools ensures we are productive and learn new skills. And noise control at home helps us relax and sleep soundly. Optimised acoustics are needed to help us to be at our most healthy and effective.

Sustainable cities and urbanisation

Continuing population growth and urbanisation are projected to add 2.5 billion people to the population of the world's cities by 2050, putting pressure on urban quality of life.

This level of urbanisation leads to challenges such as water scarcity and lack of sustainable food sources, calling for smarter and more efficient cities. We're committed to helping with future urban challenges;

providing solutions for both the indoor environment and outdoor surroundings – supporting sustainable cities.

We are working closely with decision makers to ensure quality urban living spaces are a global priority.

The ROCKWOOL Group sets five targets relating to the environment and climate change:

– Reducing CO2 emissions from our factories 20% by 2030, and 10% by 2022

Improving the energy efficiency in our own building stock by 75% by 2030, and 35% by 2020
Reducing water consumption in our factories 20% by 2030, and 10% by 2022
Reducing waste to landfill 85% by 2030, and 40% by 2022
Increasing the number of countries where we offer reclaiming of products from the market to 30 countries by 2030 and 15 by 2022

Targets set with 2015 as the baseline

Solving global problems

1/3

Buildings account for 1/3 of the energy used globally

9/10

Nine out of ten buildings in the EU today will still be standing and occupied in 2050

90%

People spend up to 90% of their time in buildings and the principal role of buildings is to keep us safe

More than 50% of European citizens experience annoyance due to traffic noise

Our sustainability promise

The ROCKWOOL Group's product portfolio can help to tackle many of today's biggest sustainability and development challenges. From energy consumption to noise pollution, water scarcity to flooding, our solutions help our customers address many of the big issues of modern living. Our range of products reflects the breadth of solutions we need in order to face the many challenges of the modern world, supporting our customers in reducing their own carbon footprint along the way.

Sustainability is not just about creating products which make a difference. It is also about the way in which these products are conceived, removed, disposed of and eventually recycled. We are dedicated to minimising the negative impacts of our products throughout their life time and beyond, making sure they can be easily extracted and recycled into new stone wool solutions when a building has reached the end of its life.

We are committed to enriching the lives of everyone who comes into contact with our products. We have zero tolerance for anything which could jeopardise the health and safety of our employees, those working with our products or those living in spaces that our products helped to create.

To set our vision for sustainability in stone, this year we announced 6 ROCKWOOL Group sustainability goals where we feel we can make the biggest impact. These goals together actively contribute towards achieving 9 of the 17 UN Sustainable Development Goals. The ROCKWOOL Group is committed to supporting all 17 UN Sustainable Development Goals but has chosen to highlight its work with 9 of them. This aligns with the ROCKWOOL Group's public promise, made in 2015, to identify ways the company can best accelerate change.

Themes of our sustainability goals:

– Climate change and energy efficiency – The circular economy – Health and well-being

– Water

Our commitment to driving constant improvements in our own sustainability is a key part of our wider purpose to enrich people´s lives and improve the communities they live in, helping them to address many of the challenges of modern living, making the world a better place for everyone.

Delivering on our sustainability promise The ROCKWOOL Group is dedicated to meeting our sustainability goals by 2030, and has set intermediate goals for 2022, with a baseline of 2015, to keep us on track.

To ensure a continued focus on these goals, a Group Sustainability Function has been established, alongside a new internal governance structure. Under this new structure, the Head of Sustainability reports directly to Group Management, guaranteeing ongoing engagement with sustainability at the most senior level of the organisation.

Driving sustainability performance

The ROCKWOOL Group will report regularly on the extent of its social performance and sustainability activities, impacting employees, safety, the environment, climate, anti-corruption and human rights. We push ourselves by setting stretch objectives, as well as integrating sustainability considerations into our daily business.

Fulfilling the UN Sustainable Development Goals

The Ng Tend Fong General Hospital and Jurong Community Hospital in Singapore are carefully designed to deliver patientcentred services, while acting as an integrated hub for the surrounding community. Together, these hospitals provide over 1,000 beds to the Jurong District, in the West of Singapore. To deliver an optimal environment, which supports patient care, facilitates interaction and supports rapid recovery, it was important that these hospital buildings were well insulated against noise and sound disruption.

ROCKWOOL Asia was selected to deliver partition insulation, based on its proven track record across other iconic projects in the region, such as the Marina Bay Sands, as well as its experience with numerous other hospitals in Singapore. During the development phase for the hospitals, ROCKWOOL Asia worked closely with the partition system partner to offer the best possible solutions to reduce noise transmission between rooms and provide a peaceful, comfortable environment.

Modern society is dependent on effective medical care and facilities. Well-designed spaces help those who are ill to recover faster, and provide a safe community space for patients, families and medical professionals.

Case study: Promoting health and well-being

These hospitals provide over 1,000 beds to the Jurong District, in the West of Singapore

9 UN SDGs

We contribute to 9 out of the 17 UN Sustainable Development Goals

Project

Ng Tend Fong General Hospital and Jurong Community Hospital, Singapore Material

ROCKWOOL insulation

Architect CPG Consultants Pte Ltd

ROCKWOOL Group 37

Employees

A dynamic and trusted culture, with passionate and dedicated employees from diverse backgrounds provides us with the solid foundation needed to meet the needs of our customers and stakeholders across the globe. Our team today consists of approximately 10,500 employees, of 61 nationalities, in 103 global locations.

We understand the need to have outstanding people and leaders in order to meet our customers' demands and to work towards the ambitious purpose that we have established for the Group. This begins with a culture of trust, where we listen to the voice of our employees and act on their feedback. In fact, each year, we host a ROCKPULSE survey, whereby all employees are invited to assess various aspects of our company, such as, leadership, teamwork and development in order to allow for comparison and benchmarking with high performing organisations. This year we reached 90% participation rate for indirect employees (in 2014: 89%) and 72% for direct employees (in 2015: 67%).

Transparent communication to all our employees is of fundamental importance to us. All policies which impact them are hosted on our Group Intranet, which

permits easy access to all. All employees are encouraged to access these policies and guidelines to initiate open dialogue with their direct managers for further understanding where needed.

These policies are in place to ensure global alignment around key practices, and additional policies have been introduced over the last year, for instance our Global Travel Policy.

Global teams make the difference

A result of the business review was global alignment and harmonisation of three support functions. Group Sourcing and Procurement incorporated local colleagues into one global function and HR moved to a regional business service model, investing in regional specialists in recruitment, learning and development, compensation and benefits and HR Information systems. Finance established a business service centre in Poland to centralise some financial activities.

To win in the market we depend on our teams working together towards the achievement of global goals. These new global functions allowed us to ensure the additional clarity in goal setting and team work required to raise performance to the next level.

Safety

We have zero tolerance regarding anything which can impact the safety of our employees or anyone who comes into contact with our products. We expect and encourage proactive safety behaviours across our operations, through our induction process followed by regular training and information sessions. Our safety policies clarify responsibilities across the organisation, including specific responsibilities of Operational business units and Group Functions. This is supported by a range of policy documents, that cover safety, health, environment among other key focus areas for the Group.

In 2016 we implemented our new IT tool RockSHE in all manufacturing sites. The system is used for reporting of all incidents, being it lost time incidents, near misses or good catches. It ensures proper root cause analysis, risk assessment and statistics, enabling us to improve, both by changed behaviour and technical improvements.

The ROCKWOOL Group has set a target of zero fatalities and a 10% yearly reduction of the rate of Lost Time Incidents (LTI) among its employees.

In 2016 our LTI rate was 3.2, a slight increase compared to 3.1 in 2015, i.e. not meeting our target of 2.5 in 2016. There were zero fatalities. We are however committed to continue to improve our safety performance and reach the target of 2.5 in 2017.

We are however committed to continue to improve our safety performance and to reach the target of 2.5 in 2017.

Increasing engagement with the company's safety culture was a priority for the ROCKWOOL Group in 2016. To do this, we hosted our first Global Safety Day in April, running global training and information sessions, and throughout the year we carried out a series of safety awareness campaigns.

Safety outside factories

A particular focus area for 2016 was travel safety. As a global player with employees operating in 38 countries we have many employees travelling both nationally and internationally. Our sales teams spend many hours on the road visiting customers. At the same time, we continued our focus on factory safety. A series of Group safety, health and environment factory audits took place, in ten factories in Europe, Russia and North America and new Mandatory Minimum Requirements for occupational exposure to curing ovens were developed and issued.

Climate and environment

Better insulation is a key component of reducing energy usage and protecting our climate. Throughout their lifespan the ROCKWOOL Group's products typically save on average between 80 –1,500 times the carbon emissions emitted during their production. Growing the market for

insulation has therefore a positive net impact on the climate. This is a focus area for the ROCKWOOL Group's leadership, which regularly reviews and updates the company's strategy for driving this change. The Group has a number of levers to do this, including engagement on regulatory changes and requirements, operations expansion, innovation and new solutions, improved understanding of customer pattern preferences and environmental product declarations. As well as being a focus of our goals, our commitment to the climate and environment is reflected in our internal policies, guidelines and best practice documents.

Our environmental policies commit our operational companies to a series of measures, including:

– An environmental management system, describing responsibility and control procedures, which is continuously updated and improved

An ongoing open dialogue with stakeholders, including customers, regulatory authorities, employees, suppliers, investors and neighbours, to ensure environmental requirements are being met and needs and expectations are understood
Ensuring that factories do not cause problems for their local community, above and beyond those expected in an industrial area
Regular Group auditing of the factories
Compliance with all relevant regulations, as a minimum. Including reporting of non-compliance, with immediate steps toward compliance

In 2016, we enhanced our focus on the environment and climate change in a number of ways, in addition to setting sustainability goals. We developed and issued new policies e.g. a Group Mandatory Minimum Requirement on Prevention of Soil, Surface and Groundwater pollution to enhance the liability of our factories through ensuring the risk for pollution is minimised and a REACH policy and manual that will be anchored in the organisation in the coming year in order to strengthen chemical management including more transparency in the supply chain.

The environmental performance in our factories is improved continuously, and in 2016 some of the initiatives were the installation of our new melting technology with change of fuel resulting e.g. in reduced CO2 emissions in the factory in Doense in Denmark, de-sulfurization in the Chinese factory, installation of technology in our factory in Croatia to reduce emissions and optimised binders to reduce emissions.

Ethics, Integrity and Human rights Ethics

The ROCKWOOL Group recognises that corruption is a potential risk in business and is dedicated to responding to this risk as comprehensively and systematically as possible. The fight against corruption is part of the Business Ethics Manual of the Group. It is vital for us that every employee conducts the business with the highest

level of integrity.

The Group's Integrity Committee is drawn

38,000

The Earth produces 38,000 times more stone material than is used to make ROCKWOOL stone wool annually

from the company's senior management and covers competition law, business ethics, anti-bribery, data privacy and export control. The committee also ensures timely and consistent follow through of all issues raised through our whistle blower system. This year, the committee employed a new Integrity Officer, representing legal affairs. The role of the committee is to initiate and monitor progress in the above areas of compliance. It ensures that the Group adheres to the highest standards of business ethics and updates the Group on integrity and associated policies. It is also responsible for formal reporting to the Audit Committee.

The ROCKWOOL Group recognises the importance of employee training in compliance. All Group employees with third party contacts and indirect employees must undertake e-learning training in Business Ethics to ensure they understand how to remain in compliance. Additional training has been focussed in

two areas flagged as higher risk: Management in countries with high corruption ratings and Group Sourcing and Procurement management and staff. The Group's whistle blower policy encourages employees, suppliers, distributors and customers to expose any corrupt practices or misconduct with their anonymity protected.

In 2016, we investigated 8 integrity incidents, 3 of which were reported and investigated as a result of whistle-blowing.

Human rights

The ROCKWOOL Group strongly believes in the rights and freedoms to which all human beings are entitled. As a company, we are committed to acting in compliance with international human rights, throughout our businesses.

Group Sourcing and Procurement is responsible for the governance and procurement principles as well as the ethical code of conduct for suppliers as per the Group Procurement Manual. This is to ensure a robust due diligence in compliance with the UN Global Compact. Sourcing is at all times done in compliance with our Group Policies and it is a requirement that suppliers of direct materials with an annual spend above EUR 100,000 sign the ROCKWOOL Code of Conduct based on the UN Global Compact guidelines. Already today 94% of the suppliers who fall into this category have signed this agreement. We carried out 121 supplier evaluations in 2016, two of which led to corrective actions.

We respect our employees and know that they are a key asset for our organisation. It is essential to us that everyone worldwide who carries out activities on behalf of the ROCKWOOL Group, whether at our offices, terminals or warehouses, in our vehicles, as employees or subcontractors, are treated decently and with dignity.

The ROCKWOOL Group endorses and is committed to complying with internationally agreed human rights. We support equal rights and are against differential treatment, harassment, inappropriate or unreasonable interference with work performance and similar in employment and working conditions, whether based on race or gender, or sexual, religious or political orientation or ethnic or social background. The Group opposes discrimination of any kind,

in 2016 were female

The ROCKWOOL Group harnesses the properties that nature has yielded to create innovative solutions for modern living.

This network is intentionally kept informal, as a place for young employees to share interests, tackle challenges and build on the culture within the organisation. The network is driven by the younger employees with full support from their managers. It has been embraced by many across the organisation as it is seen as a perfect way for the less experienced to build relationships and facilitate business knowledge and understanding.

The network was created in the Hedehusene headquarters and has growing membership from across the organisation, with the range of nationalities, background and roles, reflecting the

In 2011 a group of young employees decided to set up the company's first Young Professionals Network.

ROCKWOOL Young professionals

Getting up to speed with company culture and business

diversity of the ROCKWOOL Group. A helpful, friendly, open atmosphere constantly draws in new members, who use the Network to help them navigate the wider organisation, learn about the company and its culture and address practical challenges. The ambition is that similar networks will be established in some of the major hubs.

Five years in, many members of the Network have participated since the start, with "old-young" members advising those who are newer to the organisation, and using their growing experience and understanding of the wider organisation to the Network's advantage.

54 members – and counting… 54

anywhere, and particularly in its workplaces. Our organisation recognises its employees' right to join a union and participate in collective bargaining. We support constructive dialogue between employers and employees, and oppose all forced employment and degraded working conditions. The ROCKWOOL Group is against child labour and does not employ children. We recognise the framework on minimum working age for children set forth in the ILO convention no. 138, also appreciating that youths should work in different types of employment from adults.

All employees of the ROCKWOOL Group will receive a letter of confirmation of their employment conditions if so required by national legislation. We comply with all current national legislation and agreed standards on employee working hours and commit to employee remuneration which meets or exceeds national industry minimum standards.

Diversity as a competitive advantage Being a global company we acknowledge that diversity is especially crucial in today's marketplace. The rewards of having a diverse workforce touch every area of the business by potentially resulting in increased creativity, broader capabilities, new solutions to difficult problems and successful interaction with different cultures and clients.

We believe in respecting and embracing diversity and strive to stimulate diversity in the management teams, as well as in Group functions.

We base our diversity work on the principle that it is a prerequisite for success that we treat all our employees with respect and dignity and that we will not tolerate discrimination or harassment of any kind.

Accordingly we have taken steps over the past few years to ensure equal opportunities for our employees, irrespective of gender, age, ethnicity, etc. As a principle, we want our employees' career development to be performance and potential based, without the hindrance of any diversity-related obstacles.

Increased focus and follow up The under representation of women in top management has been under review in Denmark over the past few years. In 2013, we set the target of 15%-30% female executives on our management teams by 2017. Despite the increased focus and follow up we are still at the lower end of

this range with a score of 15% compared to 16% the year before. The learnings from our cooperation with a major consultancy firm about a 'women in leadership' survey are used as inspiration to drive initiatives supporting diversity improvement.

ROCKWOOL Group management is today represented by members from six different nationalities. With regard to female members elected to the Board of Directors by the General Assembly, the current aim is to have at least one member by 2020. In the resent election process candidates were identified, but have not been selected due to focus on additional diversity and competence criteria, however, if the opportunity arises, this will be pursued.

Future outlook

Our industry is male dominated and the gender split for the total Group has been very stable over the past few years; we have an 18/82 female/male split at the end of 2016. The male dominance in the factories is clear, but in the offices and amongst our sales force we can see an increasing portion of female employees: 37% female employees at the end of 2016, but with 45% of the new hires in 2016 being female. The trend is similar when looking at the portion of female line managers outside production: 26% female managers, but with 31% of the line managers hired in 2016 being female.

Read more about our Diversity and Equal Opportunity Policy on the global website. www.rockwool.com/diversity

Required reporting referring to the Danish Financial Statements Act §99a and §99b can be found on pages 20-21 and 32-41 and 56-59.

Last year Marina Potoker, Managing Director of ROCKWOOL Russia Group, won the prestigious "Business Women 2016" award from Ernst & Young. The Jury particularly noted Marina's management style, which is based on innovations as a key to brand promotion as well as market and industry development, building up a strong corporate culture and the implementation of personal growth and development programmes for Russian ROCKWOOL employees.

Marina started in 2002 in the purchasing and logistic department of ROCKWOOL Russia and was appointed Logistic Director in 2007. Two years later she was appointed Technical Director and in January 2014 Marina became Managing Director. Not only is Marina herself a role model and good example of an employee utilising her talent to advance in the ROCKWOOL Group, her management team is also outstanding with four out of six positions occupied by women.

Corporate governance Overview

Performance

5 year overview

EURm	2016 DKKm	2016	2015	2014	2013	2012
Income statement items
Net sales	16,394	2,202	2,208	2,180	2,003	1,969
EBITDA	*2,957	*397	*337	312	313	303
Depreciation, amortisation and write-downs	1,190	160	187	150	144	149
EBIT	*1,768	*237	*172	161	169	153
Financial items	-51	-7	-4	-6	-6	-7
Profit before tax	1,672	225	133	157	164	147
Profit for the year	1,237	166	91	113	116	104

Balance sheet items
Non-current assets	10,472	1,409	1,446	1,431	1,371	1,271
Current assets	4,391	591	559	560	486	470
Total assets	14,864	1,999	2,005	1,991	1,857	1,741
Equity	11,418	1,536	1,367	1,303	1,284	1,263
Non-current liabilities	950	128	119	121	134	138
Current liabilities	2,495	336	519	566	439	339
Net interest-bearing debt	-862	-116	93	175	100	9
Net working capital	1,301	175	162	173	147	149
Invested capital	10,655	1,433	1,467	1,484	1,374	1,309
Gross investment in plant, property and equipment	686	92	167	234	217	125

Cash flow
Cash flow from operating activities	2,427	326	297	206	253	240
Investments and acquisitions	663	89	201	257	265	133
Free cash flow	1,764	237	97	-52	-13	106

EURm	2016 DKKm	2016	2015	2014	2013	2012

Others
R&D costs	234	31	32	32	30	30
Number of patents granted in the year	280	280	165	98	161	218
Number of full time employees (year-end)	10,414	10,414	10,601	11,031	10,562	9,778

Ratios
EBITDA margin	*18.0%	*18.0%	*15.3%	14.3%	15.7%	15.4%
EBIT margin	*10.8%	*10.8%	*7.8%	7.4%	8.4%	7.8%
Payout ratio	33.3%	33.3%	37.1%	29.7%	25.9%	28.4%
Return on invested capital	*16.4%	*16.4%	*11.6%	11.3%	12.6%	12.0%
Return on equity	11.5%	11.5%	6.8%	8.7%	9.1%	9.0%
Equity ratio	76.8%	76.8%	68.2%	65.5%	69.1%	72.6%
Financial gearing	-0.08	-0.08	0.07	0.13	0.08	0.01

Stock market information	EUR	DKK	DKK	DKK	DKK	DKK
Earnings per share	7.7	57.2	31.3	38.8	40.1	35.9
Dividend per share	2.5	18.8	11.5	11.3	10.4	10.2
Cash flow per share	15.1	112	103	71	88	83
Book value per share	69.7	518	463	440	435	428
Share capital (million)	29.5	220	220	220	220	220
Price per A share	160.4	1,192	944	689	956	629
Price per B share	167.8	1,247	963	696	956	634
Market cap (million)	3,558	26,449	20,580	14,969	20,580	13,607
Number of own shares	275,855	275,855	391,835	359,522	437,246	427,310
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

* Excluding redundancy costs in 2016 and 2015 from the Business Transformation Programme and write-downs in Asia in 2015.

For definitions of key figures and ratios see page 116

Project SDU Det Teknologiske Fakultet, Odense, Denmark Material ROCKFON ceilings Architect C. F. Møller A/S

Overall market developments

The geopolitical situation and the most recent indications on energy price development and other raw materials going up in Europe cloud the outlook for the coming year and require an agile approach to market and pricing opportunities around the entire Group.

In Europe there are positive signs of increased construction activities due to a growing awareness of the benefits derived from energy efficient building. The potential for insulation and the fire resilient properties of stone wool in this would benefit the Group. Large markets such as Germany and France are expected to

Grooming the business for growth while continuing to improve productivity.

Outlook 2017

deliver a sound growth going forward, and the overall markets (in Europe) are expected to continue towards a slow recovery of growth.

The market in Russia is slowly stabilising albeit at a lower level and there is still uncertainty about the general market recovery. With higher gas prices, the Russian Rouble has strengthened, which would benefit the exchange rate impact on the Group´s financial performance.

The insulation market in the USA is developing positively and the increased awareness of the benefits of using stone wool leads us to believe that there are sustained growth opportunities in this market. This allows for further expansion in both the Insulation and Systems segment. The Group´s technical insulation business is still impacted by lower activities within the oil and gas industry, however with our strong product portfolio we are confident that new market opportunities can be established to compensate for the lower activity level in our traditional markets.

The Systems segment expect to continue the good trend from 2016 – especially our horticultural substrate business (GRODAN) delivered healthy growth. With a new ceiling tile plant, for our ROCKFON offering, coming on line in the middle of 2017, we are confident that we are able to serve the growing market for acoustic ceilings in both North America and Europe.

Sales price increase to compensate for inflation

After a period with stable raw material prices, we foresee an inflationary pressure not only on stone wool producers but for the insulation industry in general. This will affect the cost of manufacturing. It will therefore be necessary to implement sales price increases to complement productivity improvements to ensure that the Group will deliver an acceptable earnings level. Efforts to achieve savings from a more centralised approach to procurement continue and will to some degree also compensate for an increased inflation.

Financial outlook

With the assumption of no further contraction in the technical insulation business and the market in Russia, the Group forecasts a net sales growth of 2-4% 2-4% in local currencies.

The Group forecasts a net sales growth of 2–4% in local currencies

While margins will come under pressure compared to 2016, especially during the first part of the year, we have initiated actions to safeguard our earnings level and with the benefits from the continued focus on productivity and efficiency, we expect to deliver an EBIT margin slightly above 10%. Investments excluding acquisitions for 2017 will be at a similar level as the year before at around EUR 130 million, with the opening of the ceiling tile plant in the US and a larger improvement of a production line in one of our factories in Poland as the main investments planned for the year. Review of investment for capacity requirements to cater for growth in North America and Europe is ongoing however this will only have limited financial impact for 2017. Investment plans include the purchase of land in Sweden, Romania and the United States to increase capacity and improve the efficiency and quality of the production process.

Project BBVA offices, Madrid, Spain

Material ROCKWOOL insulation

Architects Herzog & de Meuron and Ortiz León Arquitectos

Group Sales Development and Market Overview

In 2016 the ROCKWOOL Group generated net sales of EUR 2,202 million, an increase of 2% compared to 2015 when measured in local currencies with 26% of the net sales generated by the Systems segment.

Systems segment had a strong 2016 with an EBIT of EUR 81 million and an EBIT margin of 14.2%. This is 1.2 pp higher compared to last year.

The Group sales shows a stable development thanks to the continued increase in both North America and in the Systems segment. This is a positive outcome when you take into account the challenged Russian construction market and the lower demand for technical insulation from the Energy industry due to the low oil prices; situations that could have had a more negative impact.

The Insulation segment shows solid performance Insulation

Insulation is our largest business area and will continue to be the primary focus for the organisation. This core segment includes insulation offerings for interior

buildings, facades, roofs as well as industrial and technical insulation. These products represent 74% of all sales in the ROCKWOOL Group.

Sales in the Insulation segment reached EUR 1,634 million in 2016, which is an increase of 0.7% in local currencies. As mentioned before, the relatively low increase was mainly due to the industrial and technical insulation industries and the slow development of construction in Russia in both new build and renovation. Our new organisational agility allows us to adapt quickly to changing market dynamics and despite the turmoil in these two areas the Insulation Segment EBIT reached EUR 149 million with an EBIT margin of 7.9%. This was an increase of 3.1 pp, adjusted for redundancy costs in 2016 and 2015 related to the Business Transformation Programme as well as write downs last year.

ROCKWOOL Product Applications

The flat roof insulation business had a satisfying year, seeing strong growth in Germany and several eastern European countries. When we step outside Europe, and take a look, in particular, at the North American market, we experienced a positive development in Canada on the back of growing market penetration, whereas we saw sales declining in the US market. Flat roof insulation is often used in commercial constructions to reduce heat loss, provide fire resistance and reduce noise pollution. As our stone wool solution is a perfect match for all these concerns we will continue to develop products for this segment with the aim of matching offering to the customers´ needs.

Market overview The building insulation business

performed as expected in 2016. Sales were slightly down compared to last year, due to weaker sales in some of the important central European markets. This was offset to a certain extent by an improved performance in Southern Europe where Spain showed positive development and confidence, especially in new build and where the Italian market showed a pick up in the latter part of the year as a result of increasing focus on energy efficiency in renovation.

For the facade insulation business we

provide a wide range of solutions to cater to the different market regulations and building requirements. Regulation within fire safety is a key driver for our facade insulation as sales levels are often correlated to the desire for markets to tighten these regulations. In the latter part of the year we saw a shift to stricter regulations and a preference for noncombustible stone wool products in some of our key markets. This shift of focus provides optimism that the continued upswing within residential as well as non-residential construction in Germany and the rest of Western Europe will translate into improved facade-sales in 2017, a shift from the slow progress made,

especially in the first half of 2016.

Our HVAC/Fire Protection insulation

business saw good growth rates in Europe, especially in UK, Germany and Scandinavia. The positioning of the high quality systems and solutions in the Fire Protection segment was well received in the market. These new offerings led to gained market shares in most of our key markets and during 2017. As an example, at the end of 2016 we launched an innovation in the cold pipe segment in Central Europe, an area where we had a gap in the offering that had been focused on hot pipes. This product is already showing success in Germany and Central Europe and we expect further growth opportunities for this segment in new markets going forward.

We are the world leader in technical insulation where stone wool products are used to insulate pipes, ducts and boilers in industrial plants and power stations. A significant part of the business is related to oil and gas which, as already mentioned throughout the report, has been negatively affected by the oil price drop and the uncertainty related to recovery

74 ROCKWOOL insulation % represents 74% of all sales in the ROCKWOOL Group

the total sales in the Group

EBIT margin per segment

Net sales per segment

(EURm)

424	442	424		417	432	417
			368

133	129	156	127	138	138	165

Q2 2015	Q3 2015	Q4 2015	Q1 2016	Q2 2016	Q3 2016	Q4 2016

to previous levels. More or less all geographical areas showed a slowdown in business. A positive exemption was Africa, demonstrating strong growth related to booming solar power plant installations. Another important area within the technical insulation segment is the marine and offshore market. We are satisfied with the positive development in the Marine business where our innovative new light weight product lines are successful especially within the cruise liner business, light weight vessels and offshore installations.

Total sales by geography

Western Europe

In these markets, the construction cycle generally follows that of the overall economy, which means that when the economy is strong, there is a high level of construction activity which drives demand for insulation.

The Western European market showed a slight increase in the sales compared to last year. This region, approximately 59% of our total net sales, managed to sustain a positive activity level, although it is clear

that growth in the construction sector has not yet completely recovered from the recession. For 2016, sales in Western Europe improved by 1.4 % in local currencies. The Scandinavian and Spanish markets performed particularly well throughout the year, while other markets such as the German started to show signs of improvement after a slow start.

We expect greater growth in demand for stone wool products in Western Europe between 2017 and 2020 than what we saw during the last 24 months. This increase in demand for insulation will be driven by both residential new build activity and an improved renovation rates for pre-existing buildings, also as a result of the recent energy efficiency directives issued at EU level.

The three biggest markets for new housing, France, Germany and the United Kingdom, have now returned to normal levels of development. We remain positive about the outlook for the British market, noting that although growth may not reach pre-Brexit levels, new housing demand currently seems to be relatively unaffected. Scandinavia, Benelux and Spain are all forecasted to continue to grow as renewed demand and favourable financing conditions have a positive effect on the business.

Expected strengthening of European regulations on energy performance for buildings and manufactured products will continue to be an important driver of demand for insulation for renovation. We see increased renovation rates in Europe as absolutely fundamental to the EU's efforts to reduce emissions and meet its environmental commitments. At current rates of refurbishment, these commitments cannot be met, and the Group is dedicated to increasing political and regulatory awareness of this, at both the EU and national levels. Favourable EU-wide and national incentives and finance schemes will be key to ensuring increased renovation to meet these commitments.

A growing focus among builders on the benefits of indoor comfort and fire safety considerations, which is in part driven by new regulation, is also increasingly impacting new build and renovation activities. We welcome this development, as it fully aligns with our purpose of creating better and safer living for all.

Eastern Europe & Russia

Eastern Europe and Russia are important markets for our Group and for stone wool insulation in general.

In 2016 sales in Eastern Europe decreased 0.7% in local currencies, despite an impressive performance in several of the Eastern European markets. Sales in Russia, which remains an important market for us, continued to be impacted by the geopolitical situation, where the decline in the oil price and trade-sanctions have had a continued negative impact on the economy and construction activity in Russia. This in turn has had a direct effect on sales in this market compared to last year.

Given this, the expectation is stable sales in this region. The demand for stone wool insulation is expected to be driven to a large extent by public expenditure on new build development as well as the use of financial incentives and guarantees. Despite recent market fluctuations, our operations in Russia remain a profitable and value-adding contributor to the Group, with a strong brand and welllocated assets, proving a stable foothold in the market.

North America, Asia and other markets Solid growth in North America

In North America sales continued to show positive developments with a double digit increase. Improved logistics and factory efficiency also had a positive impact on the performance in North America whereas, similar to most regions, the demand for technical insulation on the market was impacted by the current high degree of volatility in the energy industry, as the low oil-price has dampened investment levels.

With factories in both Canada and the United States, we are in a strong position to meet growing demand for stone wool

17% Eastern Europe and Russia: 17% of the total sales in the Group

Students in schools using ROCKFON solutions hear 30% more consonants than without noise insulation

Nova Scotia Power Headquarters, Halifax, Canada

Material ROCKWOOL insulation

Architect WZMH Architects

Architect

forecasted to rise in the year to come as recovery in the building sector picks up pace. In the United States, we are seeing increased focus on fire safety and energy performance, allowing us to differentiate from other insulation products.

Recent political developments in the United States may stimulate construction activity, but at present this is unclear. The growing penetration of stone wool insulation in general in this market, means that North America is expected to deliver double digit growth for ROCKWOOL Group in the years to come.

Asia-Pacific

Continuous focus and attention to winning in the region.

Sales in Asia showed a small growth compared to last year, despite growth being constrained by the region's heavy exposure to the difficult industrial and technical insulation market. In 2016, we were able to develop our market footprint and operational performance on the Chinese and Indian markets. Compared to 2015, sales prices in 2016 remained relatively stable. Going forward we can expect to grow at pace with the market in this region, due to the significant potential of our stone wool insulation products.

The outlook for the entire Asia-Pacific region is positive, as underlying trends and macro-conditions are driving a growing market and increasing demand for stone wool insulation. Important trends include

The government of Morocco aims to generate 42% of its electricity from renewables by 2020 and 52% by 2030. Through the Morocco Solar Plan (MSP) it aims to install 2,000 MW of solar capacity by 2020, contributing around 14% of the energy mix in the country's electricity supply.

In 2016, ROCKWOOL Technical Insulation won the tender for the Noor Ouarzazate II and III plants, part of the world's largest solar power complex, in the Moroccan desert. When complete, these plants will provide electricity to more than 1 million people, lowering carbon emissions by an estimated 760,000 tonnes per year.

Rapid development is leading to swiftly rising energy demand across Africa. And sustainability objectives mean that many countries are prioritising renewable development in order to meet this demand.

ROCKWOOL Technical Insulation delivers for world's largest solar power complex

Ensuring that solar energy is not lost through poor insulation is key to the success of solar plants. To deliver this, ROCKWOOL Technical Insulation is providing several thousand square metres of wire mats, pipe sections and slab insulation, which will be used in tank roofs and walls, as well as pipe work. The first deliveries have already taken place and continue into 2017.

urbanisation, rising personal incomes and a growing middle class, alongside increased focus on environmental issues and global warming. These all help to grow demand for new housing and building renovation. The outlook for construction activity in China in particular is very positive, although there is a risk of overheating or a construction bubble.

On the back of improved performance in 2016, in China and India in particular, we expect further organic growth in the region, based on increased construction activity.

We plan to develop our presence in Asia, having refocussed our regional activities in 2015. Despite being a relatively small player in Asia Pacific, organic growth and increased regulatory and legislative focus on fire safety are likely to drive further opportunities in this market. In the years to come, we expect a tightening of compliance requirements and building codes which will drive increased demand for high-quality insulation materials such as stone wool in Asia Pacific.

24% of total sales in the Group are from North America, Asia and others

Project Cogeco Amphitheatre, Trois-Rivières Quebec, Canada

Material ROCKWOOL insulation

Architects en consortium Paul Laurendeau François Beauchesne

Project NOOR II, Ouarzazate, Marocco Material

ROCKWOOL technical insulation

Global sales development

Net sales ended at level with last year and totalled EUR 2,202 million, which is in line with the expectation. Net sales measured in local currencies increased 1.9% and came mainly from the System segment (5.5% in local currencies) while the Insulation segment increased 0.7% in local currencies. Exchange rate fluctuations impacted negatively primarily due to devaluation of the Russian Rouble and the British Pound during the year, most notably in the Insulation business.

During the year, the Group improved sales and pricing capabilities, through the Business Transformation Programme. Net sales were positively impacted by increased volume which also benefitted the capacity utilisation, improved product mix and improvement in sales prices mainly from North America.

Group profitability

EBITDA was up 21% and totalled EUR 389 million, which is an improvement in the EBITDA margin of 3.1pp to 17.7%. Late in December 2016 a part of our land site in Roermond, the Netherlands was sold with a gain of EUR 3.7 million for the year, which was an unexpected one-off gain. Adjusted for redundancy costs in 2016 and 2015, the EBITDA margin improved 2.7 pp to 18.0%. The increase is mainly driven by cost savings in logistics and production amongst other stemming from improved productivity in the US factory, lower raw material costs from procurement benefits and deflation; and

The Group managed to show strong profitability and reached an EBIT margin of 10.4%. Cash generation improved significantly.

Financial performance

Net sales 2016 compared to 2015
	Growth	EURm
Net sales 2015		2,208
Organic growth	1.9%	43
Currency translation adjustment	-2.2%	-49
Net sales 2016	-0.3%	2,202

EBIT development

	Growth	EURm	EBIT margin
EBIT last year adjusted		171.7	7.8
Increased earnings from operations	41.4%	71.0
Currency translation adjustment	-3.1%	-5.3
EBIT excl. redundancy costs**	38.3%	237.4	10.8
Redundancy costs**		-8.0
EBIT this year		229.4	10.4

**related to the Business Transformation Programme

Quarterly net sales

Raw material costs & production material costs

Delivery costs and indirect costs
Other external costs
Personnel costs

Redundancy costs

lower personnel costs. The lower average number of employees compensated most of the salary inflation. Fixed costs have been well under control during the year, where focus has been on driving efficiency and investment in new competencies. This resulted amongst other things in setting up a new business service centre in Poznan in Poland, which went live end of 2016 with financial back-office functions for Scandinavia and the Netherlands. In 2017 we will expand the services to cover all of Europe.

We have achieved the goals ahead of time under the Business Transformation Programme both financially and organisationally – exceeding expectations laid out in the Annual Report from last year. Going forward the Business Transformation Programme is running as an integrated way of doing business. In 2016 EUR 8.0 million redundancy costs related to the progamme was included compared to EUR 15.4 million last year. In total EUR 23.4 million was spent which is slightly lower than the expected EUR 25 million.

EBIT improved significantly and totalled EUR 229.4 million resulting in an EBIT margin of 10.4%.

Depreciations for the year amounted to EUR 160 million, a decrease of EUR 5 million mainly due to large investment being fully written off and lower depreciation on strategic spare parts.

Flawless execution of the Business Transformation Programme increased profitability

At the end of 2016, total assets were EUR 1,999 million, at level with 2015.

Equity

Equity of the Group came to EUR 1,536 million as at 31 December 2016 compared to EUR 1,367 million last year,

corresponding to an equity ratio of 77% compared to 68% the year before. Equity was mainly affected by the profit for the year, dividend, exchange rate adjustments and an increase in the UK pension liability due to change in actuarial assumptions.

Net financial costs amounted to EUR 7 million including EUR 3 million net exchange rate loss, which is an increase in costs of EUR 3 million compared to last year. During the year the level of borrowings and interest costs remained low as the Group became cash positive.

Tax for the year amounted to EUR 58 million compared to EUR 43 million last year. The effective tax rate decreased to 26% from 32% last year mainly due to the significant write-downs included last year.

Profit after tax in the parent company amounted to EUR 109 million, an increase of EUR 92 million primarily due to a significant write-down of the costs price on shares in subsidiaries in 2015.

Cash flow and investments

At the end of the year the Group became net cash positive, amounting to EUR 119 million, an improvement of EUR 207 million compared to the year before. By year-end, the Group had unused committed credit facilities of EUR 498 million.

Cash flow from operating activities was EUR 326 million for 2016 against EUR 297 million for 2015 – an increase of EUR 29 million or 10%. The increase is mainly attributable to the high operating profit and a stable net working capital.

The Group's funds tied up in working capital by year-end came to EUR 175 million against EUR 162 million in 2015. The increase is mainly stemming from exchange rate development as the level in local currencies was stable. Receivables from sales were slightly higher due to higher sales in December compared to last year. The inventory ended slightly higher than last year as planned to secure a sufficient level of certain products. These increases were set off by an increase in trade creditors.

Net working capital as a percentage of net sales was 7.9% at year-end 2016 against 7.3% the year before mainly due to the increase in inventory and receivables.

Investments excluding proceeds reached EUR 101 million in 2016 which is a decrease of EUR 70 million compared to last year. Late December we received in total EUR 12 million from sale of land in North America and the Netherlands and investment grants. The investment amount is lower than expected primarily due to the sale of land. The largest individual investments in 2016 relate to the factory re-engineering project in Poland and the new ROCKFON production facility in US. With focus on improving the utilisation of our non-current assets the level of capacity investment was one of the lowest in the last 5 years.

16 Return On % Invested Capital

Free cash flow came to EUR 237 million against EUR 97 million for 2015 – an increase of EUR 140 million. The free cash flow for 2016 was spent to reduce the net interest bearing debt to positive cash of EUR 119 million.

Invested capital

Return on invested capital improved significantly in 2016. Adjusted return on invested capital was 16.4% compared to 11.6% in 2015 showing an improved performance mainly from improved profitability.

Invested capital amounted to EUR 1,433 million against EUR 1,467 million last year. The decrease is primarily due to a decrease in tangible assets.

EBIT margin

Systems and processes

The Board of Directors continuously evaluates that the Group's risk exposure is consistent with the chosen risk profile and that appropriate awareness and management processes are present.

Risk management is part of the CFO function but reports directly to the Board of Directors. All managing directors of our subsidiaries and Group functions heads must ensure that a yearly risk review within their areas of responsibility is conducted; that risks are scored for severity and likelihood, and quantified in terms such as predicted financial impact. Appropriate mitigation actions for identified risks are proposed by the company or Group function and studiously evaluated to ensure effective risk management at Group level. These are integrated into the quarterly business reviews between the CEO/CFO and the responsible ROCKWOOL Group Senior Vice Presidents.

In 2016, we formed an Enterprise Risk Management committee consisting of members from both the business and Group functions. The committee is responsible for reviewing and updating the

internal risk management framework and for implementing the related processes. Twice a year the committee meets to prepare the update of risks to the Group Management and the Board of Directors.

Strategic Risks

Public energy efficiency programmes The insulation markets in several countries are stimulated through various incentive schemes in order to promote energy efficient buildings. In 2016, the risk associated with a large scale withdrawal of these incentive systems was not significantly higher than previously. However, the Group still awaits the enactment of a new incentive scheme in one of the larger EU markets. In the EU, new targets were set for energy and climate protection to 2030; we estimate that these goals will maintain incentives at the status quo level.

Mitigation

Through our international network of public affairs officers, we support the advancement of reliable legislation aimed at reducing energy demands in both buildings and industry.

Managing risk is a natural part of doing business in the Group

Risk Management Collectively, they work toward increasing

awareness and adoption of insulation as an effective action in order to help tackle global energy challenges. As part of this, we support relevant authorities in increasing renovation rates and developing policies, tools and systems needed to drive further retrofitting of existing buildings.

Nationalisation of assets and lack of local currency convertibility

In a number of countries where we operate production facilities, democratic convention and the rule of law are less well established than in our traditional core markets.

Mitigation

In none of the countries where we have evaluated the risk of nationalisation, do our local assets represent more than 10% of total ROCKWOOL Group assets. New investments into risk countries will be assessed with a particular focus on these aspects. Currently, the highest percentage of assets in a single country is Russia where we operate four stone wool facilities.

Operational Risk

Raw material sensitivity

The stone wool production process relies on substantial amounts of energy to melt volcanic rock and recycled materials. In most factories this is done via a coke-fired cupola oven. The price of coke – which has fluctuated highly over the years – is thus an essential element of the costs and profitability of the Group. During the second half of 2016, the price rose significantly.

Mitigation

To limit this risk factor, we focus on researching alternative energy sources for the cupola oven, as well as developing new melting technology using energy sources other than coke. Furthermore, our Group Procurement function has put focus on securing optimal contracts which reflects our important position within this market.

Violation of intellectual property rights

Patents and proprietary technology are essential to the ROCKWOOL Group in order to support the business and to safeguard our freedom to operate. Patent strategies are formulated to secure our innovative work as well as to support the business strategies and protection of know-how by controlling access to our physical facilities as well as our IT systems forms part of the work.

Mitigation We file patents to protect investments in research and development that give us a competitive advantage. To counter balance the risk of having our freedom to operate reduced, we oppose blocking patents or we license technology.

A new system to strengthen the protection of communications, documents and professional know-how, was implemented in 2016. Our new green field factory in the US has piloted this system and similar programmes for existing factories will follow.

Neighbourhood

In some of our sites the cities have spread and are building up around our factories. There is a risk of tenants not wanting a factory in their backyard.

Growing urbanisation close to our production facilities, alongside stricter regulations on noise pollution, require initiatives aimed at managing logistics, odour and smoke in these areas.

Mitigation

We are constantly reviewing our sites and factories to ensure that there is limited impact to the surrounding community.

geopolitical developments, market dynamics and major technological developments the supply chain, HR, IT and

physical assets

with code of conduct, legal affairs and regulatory matters

accounting and reporting, foreign exchange, tax, interest rates, credit and liquidity (see also note 26)

Risk assessment process

Each quarter the CEO/CFO reviews each business area with the respective SVP

IT

Business is increasingly dependent on centralised and cloud-based information systems. We focus on the following risks:

Single-point of failure components in business critical platforms
Highly specialised IT skillsets, where availability of people is scarce
Risk of loss or theft of information which could damage confidentiality, business or reputation
Risk of attacks due to malicious software, hacking or advanced threats

Mitigation

The mitigating actions include, but are not confined to:

Multiple redundancies in relation to critical components
Internal or external backups for people with critical knowledge
Disaster recovery procedures, backups and data encryption
Software and hardware protection and limitation of end-user rights

Business integrity

We want to work with all of our stakeholders in a responsible manner. Our business ethics manual covers topics such as bribery, fraud, fair competition and

money laundering, and we are dedicated to best practice through a wide variety of activities. Our stakeholder management includes a strong emphasis on environmental responsibility, encouraging and stimulating our diverse workforce and management groups, and giving priority to the protecting of our people by implementing rules and programmes for robust operational safety.

The ROCKWOOL Group operates a whistle-blower arrangement whereby employees and third parties can report suspicion or actual violations of the business ethics manual including competition law. An Integrity Committee consisting of top management monitors compliance with the business ethics manual. The Integrity Committee also decides on individual cases. Integrity issues are reported to Audit Committee and ROCKWOOL International A/S Board of Directors.

Mitigation

In order to monitor and mitigate risk a number of Group initiatives have been launched. Internal procedures and manuals are designed to ensure compliance and mitigate risks. E-learning in competition law and business ethics is rolled out on a regular basis to all relevant employees. This also includes face-to-face debriefing sessions enabling discussions and questions to be raised. Relevant employee groups are participating in targeted training sessions such as sales and procurement staff.

Environmental emissions and mitigation

There is a trend in several markets towards more stringent environmental regulations. This includes the production process, as well as the products and materials used in our industry. We closely monitor the likelihood of new regulations and standards so as to be able to accommodate new conditions in our markets and maintain our competitive edge. Politically influenced production costs imposed on, for instance, raw materials or emissions, pose a risk – especially with regard to the cost of energy and CO2 emissions.

The ROCKWOOL Group production facilities are of significant size and are, as with other heavy industries, subject

Corporate Governance

to strict environmental supervision by local authorities and stakeholders. This is especially the case in densely populated areas.

Mitigation

When new factories are constructed, these will normally be located in industrial zones or well apart from major residential areas. However, for a number of our older plants, increasing urbanisation has brought residential areas closer.

The Group invests in cleaner technologies to address potential nuisance and to ensure – as a minimum – that we comply with local regulations. We also operate open door policies where we engage in dialogue with local stakeholders to define neighbourhood challenges and solutions to environmental issues.

The Group supports sound environmental policies and we are working actively to encourage legislators to establish programmes that will not counteract the competitiveness of stone wool insulation

or encourage producers to allocate production facilities outside the CO2 taxation area. We continue to address this challenge by inter alia concentrating our effort on developing new highly energy efficient process technologies with a lower CO2 impact.

The ROCKWOOL Group was awarded Carbon Leakage for 2015-2019, meaning that we receive a significant amount of free allowances in addition to the free allowances granted on the basis of a benchmark system and are therefore not economically affected by the EU Emissions Trading System (EU ETS) during this period.

Financial risks

As a global business the ROCKWOOL Group is exposed to a number of financial risks relating to currency and interest rate fluctuations, liquidity and credit risks.

Please refer to note 26 for further information on these risks.

Corporate governance at the ROCKWOOL Group regulates the interplay between shareholders, the Board of Directors and Group Management aiming at securing optimal operational performance while at the same time securing an appropriate level of accountability and transparency of our business practices.

Organisation

The supervision and management of the ROCKWOOL Group is divided between the Annual General Meeting (AGM) of shareholders, the Board of Directors (with well-defined committees), and Group Management.

The Annual General Meeting is the

supreme body of the corporate governance structure and elects the Board of Directors as well as independent auditors. The company is not aware of shareholder agreements containing pre-emption rights

or restrictions on voting rights. There is an agreement between members of the founding Kähler family to meet regularly to discuss their interests in the company, including items at AGMs, but there is no requirement for them to vote jointly.

The Board of Directors outlines the overall purpose and strategy of the company and ensures that the business development is on track toward agreed short and long-term goals. Members of the Board of Directors are non-executive members in accordance with the Danish Companies Act.

Group Management

The CEO is, together with his Group Management team, responsible for the day-to-day management, the execution of the strategy and timely reporting to the Board of Directors. The team currently

ROCKWOOL Group 61

consists of nine executives of which the CEO and CFO are the Registered Directors with the Danish Business Authority.

The Board of Directors

The Board of Directors today consists of nine members. Six are elected by shareholders at AGMs for a period of one year and may be re-elected. Of these, four members, including the chairman, are deemed independent according to the Danish Recommendations on Corporate Governance. Three members are elected by employees, for a period of four years, pursuant to the Danish Companies Act.

Self-evaluation of the board

Three substructures have been established by the Board of Directors

The Chairmanship

The Board of Directors has established a structure consisting of the Chairman and two Deputy Chairs. They meet prior to board meetings to prepare. The Chairmanship furthermore undertakes a number of the functions recommended for a nomination committee.

Audit Committee

The Board of Directors has appointed an Audit Committee consisting of three members. The majority of the members of the Audit Committee are independent. The Audit Committee monitors accounting and audit policies plus conditions which, if determined by the Board of Directors or the Audit Committee, should be subject to thorough evaluation. Further, the Audit Committee evaluates internal control and risk systems.

Remuneration Committee

The Board of Directors has appointed a Remuneration Committee consisting of three of its members. The majority of the members of the Remuneration Committee are independent. With the overall goal of being able to attract and retain highperforming top executives, the

Remuneration Committee prepares the Remuneration Policy and Incentive Guideline which is approved by the shareholders at the AGM.

The Remuneration Committee annually evaluates and brings forward recommendations for the remuneration of the Board of Directors, again subject to approval by the shareholders at the AGM. The Remuneration Committee is authorised by the Board of Directors to approve remuneration for senior executives.

Internal control

Control environment

The ROCKWOOL Group considers strong internal control to be an essential management tool. The control environment in the ROCKWOOL Group is based on clear guidelines, clear split of responsibilities and a constant effort to strengthen the control environment with due consideration of materiality and risk.

The entire Group structure is designed as a simple structure based on the Group's commercial activities with a clear split of management responsibilities.

All Group policies are approved by Group Management and assigned to one Group responsibility to ensure implementation and

Management member who has the

compliance of the policy. Policies and manuals have been adopted within all essential areas of operation, legal compliance and financial reporting

Control activities Minimum requirements of internal controls have been laid down in our Group Standards on the basis of the risks identified. The control activities include procedures for authorisation, approval, reconciliation and separation of functions. The control system includes both manual and automated controls.

The local management teams are responsible for ensuring that the control environment in each local entity is sufficient to meet local and Group requirements.

Information and communication The ROCKWOOL Group has established standardised information and reporting systems to identify, collect and communicate relevant information, reports etc. on an ongoing basis and on all levels to facilitate an effective reliable work flow. In addition, an in-depth business review is performed each quarter with participation of Group management.

The Group's position on risk management and changes in the reporting requirements is regularly communicated on financial meetings for the local finance directors, through the intranet and dialogue.

Monitoring

The internal control and risk management systems in relation to the presentation of financial statements are monitored at various levels e.g. monthly reports to Group Management on segments and markets and of regular control visits to the local entities.

In addition, an Integrity Committee was established in 2016 consisting of the CEO, CFO, a member of Group Management and the Group General Counsel, and is responsible for monitoring integrity compliance and launching appropriate new initiatives to constantly improve compliance. The Integrity Committee furthermore reports on integrity issues to the Audit Committee.

Corporate Governance recommendations

As a Danish listed company, the company is guided by the recommendations issued by the Danish Committee on Corporate Governance. The company is generally in compliance with such recommendations but has, in four cases, chosen to differ as described below. The variations are generally due to company-specific views on the requirements to optimise value for its shareholders.

The ROCKWOOL Group publishes its statutory report on Corporate Governance for the financial year 2016 cf. the Danish Financial Statements Act section 107b on the company's website, including a detailed description of the Board of Directors' consideration in respect of all the recommendations. The statutory report on Corporate Governance can be found at www.rockwool.com/corporate governance-2016

Corporate governance

Annual Report 2016 62

Shareholder information

The ROCKWOOL shares ROCKWOOL International A/S is listed at Nasdaq Copenhagen. The Company's shares are listed on Nasdaq Copenhagen in two 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 OMX Large Cap. In addition to NASDAQ Copenhagen the company's shares are traded at a number of other equity exchanges, e.g. Bats and Turquoise and CHI-X.

In 2016, the ROCKWOOL B share price increased by 29%. The ROCKWOOL A share followed the same pattern and increased by 26%.

Trading of shares

The Company's share price improved, so by end of 2016 the two shares had increased in price on average by 28 % compared to end of 2015, whereas the bench market index 'STOXX® Europe 600 Construction & Materials' only increased by 9%. For comparison, the Danish OMX C20 CAP index decreased by 2% during 2016.

The official share price at 30 December 2016 was DKK 1,247 (B-share) and 1,192 (A-share) ending the year with a combined market capitalisation of DKK 26,793 million (including own shares).

Dividend

It is ROCKWOOL International A/S's policy to pay out a stable dividend that is at least 1/3 of the net profit after tax. The intention is that the net debt should be maximum one time the EBITDA, with due regard to the company's long term financing requirements.

At the Annual General Meeting on 5 April 2017, the Board of Directors will propose a dividend of DKK 18.80 per share for the financial year 2016 (2015: DKK 11.50). Dividend is paid out in DKK. The dividend payment is three banking days after the Annual General Meeting.

Ownership

The company had 17,146 registered shareholders on 31 December 2016. By end 2016, 17.3% of the shares were owned by shareholder deposits located outside Denmark.

The ROCKWOOL Foundation (23%) Own shares (1%) Private investors with less than 5% (38%) Institutional investors with less than 5% (26%) Other shareholders with more than 5% (12%)

Ownership per shareholder category (%)

The ROCKWOOL Foundation (28%)
Private investors with less than 5% (35%)
Institutional investors with less than 5% (6%)
Other shareholders with more than 5% (31%)

Votes per shareholder category (%)

Share price development 2016

ROCKWOOL B

Eurostoxx 600 Constructions & Materials

OMXC20CAP

3.1.2 3.4.6 4.2.3

3.3.2

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 qualified 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.

Recommendation

The Committee recommends that the Board of Directors establish a nomination committee chaired by the chairman of the Board of Directors.

Explanation

The Board of Directors has not established a nomination committee. Instead the chairmanship performs the duties recommended concerning the candidates for the Board of Directors.

The Board of Directors selects candidates to the positions as CEO and other Registered Directors on the basis of their qualifications.

Recommendation The Committee recommends that the total remuneration granted to each member of the Board of Directors and the management by the company and other companies in the Group, including information on the most important contents of retention and retirement/resignation schemes, be disclosed in the annual report and that the linkage with the remuneration policy be explained.

Explanation

The remuneration of the members of the Board of Directors and committees is available on the company's website.

The remuneration of each member of the Group Management is seen to be a private matter and it is the company's judgment that disclosure of the remuneration paid to each individual member of the Group Management will not add additional value for shareholders and other stakeholders.

Recommendation The Committee recommends that the management report includes the following information about the number of shares, options, warrants and similar in the company, and other group companies, owned by the member, as well as changes in the portfolio of the member of the securities mentioned which have occurred during the financial year

Explanation

The company considers the portfolio, and changes in the portfolio during the financial year, 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 judgment that disclosure of such information will not add additional value for shareholders and other stakeholders.

Financial Calendar 2017

24 February Annual Report for 2016

5 April Annual General Meeting

18 May Report on the first quarter of 2017

23 August Report on the first half-year of 2017

15 November Report on the first 3 quarters of 2017

We adopt a "quiet period", where financial communication is halted 30 days prior to the publication of the interim reports, as well as before the full year results.

Banks following the ROCKWOOL shares ABG Sundal Collier

HSBC Berenberg Bank Jyske Bank Carnegie Bank A/S Nordea Danske Bank SEB Exane BNP Paribas Sydbank Handelsbanken

Analysts' recommendation, consensus and contact details for the analysts can be found at the investor website: www.rockwool.com/analyst

Annual General Meeting The upcoming Annual General Meeting will take place on Wednesday 5 April 2017 and is hosted in Roskilde, Denmark. The meeting can be followed live on our website or viewed after the meeting has taken place.

The agenda will be distributed 3-5 weeks prior to the meeting to shareholders who have registered their choice of either electronic or printed communication at our shareholder portal. The agenda will be published on our website. The agenda will include:

The Board of Directors' report on the company's activities during the past financial year;
Presentation of the Annual Report 2016 with the auditors' report;
Adoption of the Annual Report and discharge of liability for Group Management and the Board of Directors;
Approval of Board of Directors' remuneration;
Allocation of profits or cover of losses according to the adopted accounts;
Election of members to the Board of Directors;
Appointment of auditors;
Proposals, if any, by the Board of Directors or the shareholders.

Shares must be registered by name in order to vote. Shareholders can submit proposals to the Board of Directors for the agenda 6 weeks prior to the general meeting.

In terms of voting capital, 7.3% was located outside Denmark. See below for an overview of ownership.

The Group can hold own shares. At the Annual General Meeting a frame for purchase of own shares is decided. Based on this decision, the Board of Directors can decide to purchase owns shares.

Investor Relations activities

As a listed company ROCKWOOL International A/S has a defined policy for its activities relating to the ROCKWOOL shares. The aim is to:

Ensure that the capital market has an accurate picture of the earnings potential 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 the 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;
Work towards a diversified shareholder base in terms of both investment horizon and geographical location;

– Committed to being knowledgeable, responsive, and proactive in our investor communication maintaining 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 you can view your shareholdings; register or change whether you wish to receive the invitation to the General Meeting electronically or by letter; order admission cards to the Annual General Meeting; unsubscribe or re-subscribe to the printed version of our shareholder magazine;

– The Annual General Meeting;

Shareholder magazine;
Financial communications such as investor audio casts, presentations, and stock exchange releases;

Our website provides general information on the ROCKWOOL Group, the performance of the ROCKWOOL Group shares, news from the company, financial calendar and much more. A free service allows subscribers to receive instant e-mail alerts when the company publishes new information.

Announcements to Nasdaq Copenhagen stock exchange in 2016, can be found at: www.rockwool.com/stock-exchange

The Investor relations team can be contacted at: [email protected]

For a list of shareholders holding more than 5% of the share capital or the votes, please refer to note 29.

Share data at a glance

Share class	A	B
Stock exchange	NASDAQ Copenhagen	NASDAQ Copenhagen
Index	OMX Large Cap	OMX Large Cap
Sector	Building materials	Building materials
ISIN code	DK0010219070	DK0010219153
Short code	ROCK A	ROCK B
Nominal size	DKK10	DKK10
Number of shares	11,231,627	10,743,296
Voting rights per share	10	1
Share price year-end	DKK 1,192.33	DKK 1,247.37
Proposed dividend per share	DKK 18.80	DKK 18.80
Payout ratio	33%	33%

Board of Directors

Andreas Ronken Born in 1967, nationality:

German

CEO of Alfred Ritter GmbH &Co.KG.

Other positions: Member of Advisory Board

of Otto Cosmetic GmbH, Groß Rohrheim, Germany

Thomas Kähler

Born in 1970, nationality: Danish

Senior Vice President, Head of Systems Division, ROCKWOOL International A/S.

Other positions related to the company: Member of Group Management and Senior Vice President, Head of Systems Division. Member of the Kähler Family Meeting.

Bjørn Høi Jensen Chairman

Born in 1961, nationality: Danish

CEO of Zeno ApS.

Other positions related to the company: Member of the Chairmanship and Chairman of the Remuneration Committee.

Positions in other Danish companies: Deputy Chairman of the Board of Erhvervsinvest Management A/S.

Other positions: Chairman of the Board of CEPOS. Member of the Board of the Bevica Foundation.

Lars Elmekilde Hansen

Born in 1960, nationality: Danish

Elected by employees Senior Project

Manager, ROCKWOOL International A/S.

Other positions related to the company: Member of the Board of the ROCKWOOL Foundation.

Dorte Hanne Page Larsen

Born in 1955, nationality: Danish

Elected by employees

Senior Transport Coordinator, ROCKWOOL International A/S.

Lars Frederiksen

Born in 1958, nationality: Danish Other positions related to the company:

Member of the Audit Committee. In accordance with legislation for audit committees in Denmark, Lars Frederiksen is the member of the Audit Committee who is independent and possesses the required insight and experience in financial, accounting and audit aspects of a company listed on the stock exchange.

Positions in other Danish companies: Chairman of the Board of Matas A/S. Member of the Boards of Falck A/S, Widex

A/S, Hedorf Foundation, and Augustinus Industri A/S.

Other positions: Chairman of the Board of the Committee for Good Corporate Governance, Denmark. Member of the Supervisory Board of PAI Partners SA, France. Member of the Board of Tate & Lyle, the United Kingdom.

Connie Enghus Theisen

Born in 1960, nationality: Danish

Elected by employees Group Sustainability Manager, ROCKWOOL International A/S

Carsten Bjerg First Deputy Chairman

Born in 1959, nationality: Danish

Other positions related to the company: Member of the Chairmanship, Chairman of the Audit Committee and member of the Remuneration Committee.

Positions in other Danish companies: Chairman of the Board of PCH Engineering A/S, Ellegaard A/S and Guldager A/S. Vice Chairman of the Board of Højgaard Holding A/S.

Member of the Boards of Vestas Wind Systems A/S, MT Højgaard A/S, K. Nissen International A/S, and Agromater A/S.

Søren Kähler

Second Deputy Chairman Born in 1950, nationality: Danish.

Other positions related to the company: Member of the Chairmanship, Remuneration Committee, Audit Committee, Board of the ROCKWOOL Foundation,

and 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.

Corporate governance

Annual Report 2016 68