ROCKWOOL INTERNATIONAL A/S

ROCKWOOL NEWSLETTER

CMC acquisition boosts ceiling business

New ROCKPANEL factory opened

Fast growth in US

New first lady in Russia

Supplier for the Winter Olympics

SHAREHOLDER MAGAZINE / DECEMBER 2013

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Editorial comment by CEO Eelco van Heel

This shareholder magazine is apart from our employees for investors, financial institutions and analysts. The shareholder magazine and the articles in same is not intended as marketing of mentioned products or services. Editor: Thorkild Diness Jensen (responsible) and Kif Frimodt. Photo: Magnus Klitten a.o. Design and production: Boje Mobeck as.

ROCKWOOL®, ROXUL®, ROCKPANEL® and ROCKFON® are registrered trademarks of the ROCKWOOL Group.

ROCKWOOL International A/S Hovedgaden 584 DK-2640 Hedehusene Denmark CVR No. 54879415 Phone: +45 46 56 03 00 Fax: +45 46 56 33 11 www.rockwool.com info@rockwool.com

The statements on the future in this shareholder magazine, including expected sales and earn-ings, are associated with risks and uncertainties and may be affected by factors influencing the activities of the Group, e.g. the global economic environment, including interest and exchange rate developments, the raw material situation, production and distribution-related issues, breach of contract or unexpected termination of contract, price reductions due to market-driven price reductions, market acceptance of new products, launches of competitive products and other unforeseen factors.

In no event shall ROCKWOOL International A/S be liable for any direct, indirect or consequential damages or any other damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other action, arising out of or in connection with the use of information in this shareholder magazine.

When I wrote the editorial for the June 2013 edition of this newsletter, the heading “A light at the end of the tunnel?” was chosen. Remember, at that point in time we had just passed a four month period during which the European continent was covered in ice and snow. The construction market was almost as solidly frozen. Let us conclude right away, the light has ap-peared but we are not out of the tunnel yet! Second quarter 2013 showed a modest rebound in our European business and third quarter confirmed this trend even more.

We look with modest optimism at the development of the Euro-pean market for 2014. Important energy improvement in build-ings through government incentive schemes in Germany and France continue – holding a firm hand under our refurbish-ment business. The legislator in both countries seems to have understood the importance of giving these schemes a long term horizon. Unfortunately the UK government is hesitating at the moment to pursue its earlier announced ECO scheme in its original version. From a macro-economic perspective we see signs that the countries hit worst by the crisis like the UK, Spain and Denmark are in the very early stage of recovery.

Our highest priority remains to prepare our European busi-ness for successful progress during the next 20 years. The new organization in Europe Division is taking shape after its estab-lishment January 1st 2012. Segment strategies for ETICS as well as cladded facades have been worked out and are under full implementation. In this respect the Group announced this summer the acquisition of BASF Wall Systems which is active in the Central European ETICS market and will form an essen-tial pillar under our strategy in this segment. Also on the man-ufacturing side are we making progress with announcements made about factory restructurings in Denmark and Poland.

Our Systems businesses are also negatively affected by the difficult European market circumstances. But remain success-

Worst of the storm seems over

ful overall with satisfactory profit levels. The Group remains fully committed to these non-insulation businesses and con-tinues a high level of investment. A new ROCKFON confection-ing unit was commissioned this summer in Poland as well as a substantial capacity expansion in the Netherlands for the ROCKPANEL business. On behalf of the ROCKFON Group we acquired the US based grid and metal ceiling producer CMC which will strongly increase the ROCKFON Group’s market pressure in Europe but also put our suspended ceiling activi-ties firmly on the map in North America as well Asia.

The Group continues to reap the benefits of its strong push for globalization started many years ago. The Russian mar-ket remains highly competitive with many local as well as international players. Despite this our colleagues in Russia perform exceptionally well and take the market by storm with new products and concepts. The recently commissioned fac-tory near Kazan is already fully booked. Also our colleagues in North America ride on a wave of market outperforming success with the commissioning of the new production facil-ity Mississippi May 2014 eagerly awaited in order to keep up with market demand. It is heartwarming to see that the North American consumer and other stakeholders now finally are starting to embrace the fact that the ROCKWOOL insula-tion product contains the sum of several unique properties compared to most other insulation products available on the market.

Also elsewhere in the world the Group is making headway. Turkey – Middle East – South East Asia and to a lesser extent China.

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Acquisition of BASF Wall SystemsThe ROCKWOOL Group is in the final stages of closing the acquisition of BASF Wall Systems, which is a leading German company for external facade insulation (ETICS), owned by the BASF Group.

The acquisition, which was announced to the stock exchange earlier this year, is a major leap forward for the ROCKWOOL Group’s strategy of offering customers total inclusive solu-tions. Such complete solution consist not only of insulation, but also of all the other necessary elements – such as mesh, render, paint etc. – that make up a total facade system.

Under the agreement, the ROCKWOOL Group will take over a state-of-the-art render production facility in Marktredwitz, Germany, and the well-established brands HECK MultiTherm and Rajasil. BASF Wall Systems had a turnover of 68 million euros in 2012 with 190 employees.

BASF Wall Systems complements very well the existing ROCKWOOL business in Europe where the Group has seen good growth in the facade insulation markets in recent years. In 2011, the Group acquired the Polish ETICS system holder FAST and acquisitions are seen as an important element of the growth strategy.

An ETICS system is a total facade solution consisting of insulation, render, mesh and paint.

Re-engineering production in EuropeThe next step in the re-engineering plan for the ROCKWOOL Group’s European production platform has been decided. The important Polish market – the third largest insulation market in the EU – will be the key target for the 66 million euros investment which will be finalised in 2015. A number of building code regulations aimed at improving the energy efficiency of Polish buildings are ex-pected in the coming years, and this will add to the growth prospects for the insulation market.

Based on the Group’s significant improvements in techno-logy over recent years, the local Polish factory will be up-graded and streamlined with the most advanced process equipment. This will substantially improve product quality and logistics, as well as production costs. Last year, a similar factory upgrade was agreed to benefit the Danish market.

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The major acquisition of Chicago Metallic Corporation (CMC) is an important platform for growth within the ceiling markets of Europe, North America and Asia.

The paperwork is done and the ROCKWOOL Group has now officially taken over the American ceiling company CMC for nearly 140 million dollars. With the relevant approvals in place, CMC operations will now be integrated into the Group, with accounting taking effect from 1 October 2013.

The acquisition is part of the strategy to develop its ROCKFON ceiling business globally, which today accounts for approxi-mately 10% of Group revenue. Moving forward, the Group’s ceiling business will be run by two operating companies in the Systems Division, namely the ROCKFON Group (Europe, Rus-sia and Middle East) and the CMC Group (North America and Far East Asia).

CMC Group is the official internal name of this OPCO just like ROCKFON Group is for the second OPCO.

“This is the ROCKWOOL Group’s largest acquisition to date and we are all greatly looking forward to a joint future. In the best interests of our employees and our customers, we are currently working on the integration of both organisations in all the countries in which we operate. Our goal is to merge all sales and marketing functions within one year,” says Division Managing Director, Systems Division, Herman Voortman.

More complete solutionsCMC is one of the leading companies in the world for ceiling suspension systems and metal ceilings. It has a reputable his-tory in North America and Europe, with an emerging position in Far East Asia. The EBITDA ratio has in recent years been around the 14% level, which is at the high end of the market, making CMC potentially a very profitable business for the ROCKWOOL Group.

“Joining forces with CMC will allow us to progress our inte-grated tile and grid offer. This is an essential priority, both in terms of system selling and for product and system develop-ment. Acquiring CMC will also be a lever for accelerating ex-pansion in North America and China,” says Herman Voortman and he continues:

”The acquisition complements the existing ROCKFON busi-nesses very well. It will provide us with a strong platform to develop and offer complete solutions to customers by selling not only the ceiling panels, but also the metal grid which is a key element in the suspended ceiling system. In the past, the ROCKFON and CMC companies have worked together on the development of joint solutions, and each company holds a lot of experience within its own field of expertise.”

“The many similarities between the two companies also mean that the merger costs are relatively low. Of course there will be some costs for integration of systems, products and marketing, but from an overall perspective they are relatively modest,” Herman Voortman concludes.

With a turnover of 139 million dollars (108 million euros) and almost 600 employees worldwide, CMC has successful organisations and a strong distribution networks in Europe, North America and Asia.

CMC acquisition boosts ceiling business

PANEL TOTAL CEILING SYSTEM

CMC ROCKFON Global ceiling systems

EMPLOYEES

583

CMC

228

ROCKFON

811

ROCKFON GRID

SYSTEMS

PERCENT OF GROUP TURNOVER

ROCKFON TOTAL CEILINGCMC

5% 10% 15%

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What is CMC?Until the acquisition, CMC was a family-owned company, established in the 1890s. It became an innovator in sus-pension grids in the late 1950s and has since evolved as a leading global manufacturer of metal grids and tiles. In an increasingly competitive market, CMC had been looking for partners and system solutions to boost their market offer in terms of a total ceiling system.

The decision by CMC to offer the ROCKWOOL Group the opportunity to acquire its business was made because both companies saw a clear cultural match with the same high commercial ethics, plus an appreciation of similar values and employee engagement.

ROCKFON ceiling panel production

CMC metal ceiling or grid production

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There were wide smiles across the board when the Group’s new ROCKPANEL factory in the Netherlands was opened by the push of a button. This symbolic act took place in October and was performed by the Dutch Minister for Housing and Civil Service Stef Blok, together with the Danish Ambassador to the Netherlands Ole Moesby, the ROCKWOOL Group’s CEO Eelco van Heel and Managing Director of the ROCKPANEL business Mark Gerardts. More than 350 invited guests were present at the event, including a broad spectrum of international custom-ers, suppliers and other business partners, along with col-leagues from every corner of the ROCKWOOL Group.

”Undoubtedly, this was a big day in the history of the ROCK-PANEL business, but it was also an important milestone. The new factory increases our production capacity threefold so we are now ready for significant expansion in Europe and Russia,” says Mark Gerardts.

New factory Showing continued growthThe ROCKPANEL business is a specialised unit within the ROCKWOOL Group, which produces high quality, decorative boards for facades, details (entrances and exterior ceilings) and roof lines. It is still a small but important business with large potential for growth, driven by a rising demand from customers for aesthetic and sustainable* construction sys-tems and methods.

”In recent years we have witnessed a growing number of ar-chitects and installers appreciate the innovative and unique properties of our products. So even though the financial crisis, with its decline in construction activity, has left its mark on our business, we have not been hit nearly as hard as many other players in the building industry. Also our expansion into new geographical markets will make the ROCKPANEL business more solid and stable as a company,” Mark Gerardts explains.

heralds growth phaseThe Group has tripled its production capacity for facade boards to meet further demand.

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About the ROCKPANEL company

• Subsidiary in the ROCKWOOL Group Systems Division, based in Roermond, the Netherlands, with European customers and a strong product design focus. The ROCKPANEL company generated more than 40 mil-lion euros revenue in 2012.

• The world’s only developer and manufacturer of stone wool based panels for the higher end of the aesthetic facade board market.

• ROCKPANEL facade boards are used in a variety of buildings for both the commercial market – offices, hospitals, schools, leisure, industrial buildings – and the housing sector, including multi-unit housing/apart-ments.

• ROCKPANEL facade boards have passed the accredited assessment scheme regarding the environmental im-pact of construction products. The scheme is called Environmental Profiles (the Environmental Assessment Method) and it is made by the company BRE, an indepen-dent British research and certification centre. The facade products are acknowledged as among the best perfor-ming in their category with A+ and A ratings, where A+ represents the best environmental performance / least environmental impact.

• ROCKPANEL facade boards offer design freedom, can be curved and bent, are fire safe and easy to install.

* See the definition of sustainability on the Group’s website www.rockwool.com

The new ROCKPANEL factory was officially opened by the Dutch Minister for Housing and Civil Service Stef Blok; ROCKPANEL Managing Direc-tor Mark Gerardts; Danish Ambassador to the Netherlands Ole Moesby and CEO of the ROCKWOOOL Group, Eelco van Heel (from left to right).

A peek at the numbers reveals that the European market for facade cladding has grown steadily by 2-3% in recent years, and that the ROCKPANEL business has experienced faster growth in the same period. Today the ROCKPANEL business has an annual turnover of more than 40 million euros and a higher operating margin than the ROCKWOOL Group aver-age.

”This positive growth is continuing and, for a couple of years now, we have started to operate internationally,” explains Mark Gerardts. This strategy has been supported by the 2012 decision to invest 175 million Danish Kroner in the expansion of production capacity.

New business model The new factory is located at the ROCKWOOL Group’s pro-duction facility in Roermond in the Netherlands, and is thus centrally positioned with regard to existing markets, as well as new growth markets in Europe, which the ROCKPANEL business expects to develop in the coming years.

The ROCKPANEL business has previously serviced existing markets through local ROCKPANEL organisations, but now the company is taking a new path.

“As part of the growth strategy, we have decided to invest in markets where the building concept of aesthetic cladding is well known, and where the ROCKWOOL Group already has a presence. This will help us to have quicker access to the market and customers by drawing on the knowledge and contacts of local well-established ROCKWOOL companies,” Mark Geradts says.

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On the fast growth track in the USThe ROCKWOOL Group stands stronger than ever in the US with increasing sales and a new factory underway.

This year ROCKWOOL Group sales in North America are expected to post double digit growth, which continues the trend of the last few years, and the forecast for ROXUL North America, is equally as exciting. With the Group’s first US fac-tory in Marshall County, Mississippi under construction, and scheduled for production in May 2014, ROXUL President Trent Ogilvie is very optimistic about the future.

“The US market is one of the largest insulation markets in the world and, although dominated by glass fibre and plas-

tic foam products, the potential for growth is significant. Construction and housing starts are showing a modest in-crease and energy efficiency is on the rise. Code changes are strengthening and, as a result, insulation levels are increas-ing. There is also a new level of awareness about the benefits insulation on the exterior of both new and existing buildings,” says Trent Ogilvie.

Learn more on these pages.

Growth in the DIY market

In particular, the strong returns in North America have been fuelled by Do It Yourself (DIY) sales through major chains like Lowe’s and Home Depot. ROXUL North Amer-ica’s offering began as a special order product in 2009 in just a handful of stores – today the products are stocked in 700 Home Depots and 880 Lowe’s stores in 35 states in the north-east, mid-south, north-west and in Colorado, Texas and California.

The company’s sales team, which will grow 25% by year end, is supported by in-store merchandising. Third party representatives educate store personnel and consumers with hands-on in-store demonstrations of the features and benefits of the ROXUL products. This initiative, along with a solid distribution network, supports the growth both through the big box channel and the lumber building sup-ply chains.

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ROXUL North America’s industrial business continues to generate momentum by securing key oil, gas and petro-chemical projects following the discovery of large oil and gas reserves in both Canada and the US. The industrial sector consumes approximately 25% of the world’s energy and represents a significant opportunity to achieve energy savings and carbon reduction, while lowering plant oper-ating costs.

Targeting project sales ROXUL North America sees good growth in project sales, especially within roofing and building envelope solutions. With the new US facility due for completion in May, the company is increasing its sales efforts to reach the southern US states, an area that has been historically difficult to compete in, due to freight costs and other competitive fac-tors. This new outreach is leading to an increased presence and brand awareness among the design community.

Growth in the US roofing business has been driven by success with several large automotive related projects including: the Michelin Tire Plant and the Continental Tire Plant both in South Carolina, a new Volvo Trucks facility in Pennsylvania, and a new Honda factory in Mexico, which has opened new doors for ROXUL North America. The central region of Mexico is the location of choice for several automo-tive companies due to favourable conditions including proximity to the US, railroad transportation, a skilled and competitive labour force, and government incentives promoting investment. This means the com-pany could well see additional growth in the Mexican market for its roof and building envelope products.

Securing key oil, gas and petrochemical projects

ROXUL North America’s sales and technical product spe-cialists therefore play an important role in assisting engi-neering and facility owners with a solutions-based approach which delivers process efficiency gains through heat loss analysis and corrosion control. An increased US sales team will also allow the company to focus on the enormous po-tential for piping and process insulation solutions in the en-ergy corridor of the south central and south western US.

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This appointment comes into effect on 1 Januar 2014 and represents two major milestones: Marina Potoker will be the first female Managing Director in the ROCKWOOL Group’s insulation business and, for the first time in its history, ROCKWOOL Russia will be led by a local Russian.

A daunting challenge? Perhaps for some, but not for Marina Potoker who thrives on challenges.

“Indeed, my new job has challenges, but I am not afraid of new horizons. I know that my profile is different from that of other executives inside, as well as outside, the ROCKWOOL Group. That to me is a good example of the drive and courage we have always had in Russia. ROCKWOOL Russia is in many ways a front-runner, and it is my intention to keep it that way in future,” says Marina Potoker.

The Russian success storyThe ROCKWOOL Group is already one of the leading insulation players in Russia, and the main challenge for Marina Potoker is to continue the positive development which the company has experienced in the last five years. During this period, sales have doubled and the production platform has increased from two to four factories.

A career highlight: Maria Potoker explains the production line to the Danish Queen, Margrethe II, during a royal visit to ROCKWOOL Russia a few years ago.

New first ladyin Russia

A new era begins in one of the Group’s biggest markets with the appointment of Marina Potoker as new head of ROCKWOOL Russia.

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Meet the new head of ROCKWOOL RussiaWhen Marina Potoker takes over the leadership in Russia, she brings extensive experience and know-how about the Group’s stone wool business.

The growth path has continued in the first three quarters of 2013, when ROCKWOOL Russia has seen strong sales despite a difficult environment. This positive growth is partly driven by a new product, known as SCANDIC, which was launched in 2013. SCANDIC has rapidly become one of the leading insulation products among Russian homeowners and has helped ROCKWOOL Russia gain market share.

A challenging marketMarina Potoker is, however, cautious about the future: “Russia is a lively dynamic market, where things happen really fast. Right now we are experiencing increasing demand for thermal insulation and the order books are full. But we can also see that competition is tough, and this is a huge challenge moving forward.”

ROCKWOOL Russia is also facing a challenge to cover the market demands. Even with all four factories running at full capacity, the company does not have enough products to supply the market. Consequently, import of products from neighbouring countries has restarted which is a rather costly solution. Further down the road, it could be appropriate to invest in greater capacity in Russia; but this is not on the cards for the near future.

“There have been rumours that we may build a fifth factory in Russia, but no concrete plans are on the table. It is part of the Group’s normal investigations – in Russia as elsewhere – to assess potential site locations for possible expansion,” Marina Potoker stresses.

Marina Potoker, who joined ROCKWOOL Rus-sia in 2002, comes from the position of Technical Director for the Group’s four factories in Russia and has also been Logistic and Purchasing Director. Therefore, over the years, she has contributed signif-icantly to the positive de-velopment of the Group’s business in Russia. Among her key achievements are the construction of the world’s largest stone wool factories in the Volga region and acquisition of the factory in the Urals.

In preparation for the Managing Director role, Marina Potoker has already relinquished her Technical Director position on 1 September 2013. This extra time has allowed her to broaden her scope; among other disciplines, she has strengthened her sales and marketing experience by working in four out of ROCKWOOL Russia’s ten regional sales offices over these four months.

“From day one, my work has been closely connected to the production process, so I am well aware that I have a lot to learn in other parts of the business. However, during my eleven years within the company, I have managed to establish good constructive dialogue with colleagues, and we have a really strong team spirit here in Russia. This allows me to feel confident in my new position,” Marina Potoker concludes.

In February 2014, the eyes of the sports world will turn to Sochi, Russia, where next year’s Winter Olympics are taking place. ROCKWOOL Russia contributes to the event as a material supplier for several stadiums and related buildings.

ROCKWOOL Russia’s involvement consists of a wide range of products, which will help to keep the Olympic facilities energy efficient and fire safe. One such installation is the Adler Arena – the facility intended for speed skating competitions – which can accommodate 8,000 spectators. ROCKWOOL Russia has provided insulation for the pipework and the roof.

Supplier for the Winter Olympics

Safety is at the forefront of the Olympics, so the regulations and requirements from the Olympic Committee are very high.

“The Olympics will attract thousands of visitors from around the world. Naturally it is very important that energy efficiency and safety are of the highest standard. For our company, the Winter Olympics is an important opportunity to showcase our products and, of course, we are proud to be associated with this extremely high profile project,” enthuses the new Managing Director of ROCKWOOL Russia, Marina Potoker (see interview page 10-11).

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