Wienerberger AG

VSE:WIE

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. My name is Emma your Chorus Call operator. Welcome and thank you for joining the Wienerberger conference call and the results for the first quarter of 2018. [Operator Instructions].And I would now like to turn the conference over to Mr. Klaus Ofner, Head of Investor Relations. Please go ahead sir.

[Klaus Ofner, executive]

Thank you, operator. Ladies and gentleman, welcome to the Wienerberger earnings call on Q1 '18 results. Thank you for dialing in today. Wienerberger representatives on the call are Heimo Scheuch, CEO and Willy van Riet, CFO. Heimo Scheuch would open the call with a summary of the key developments of the first quarter. After that he will speak about the outlook as well as our strategic priorities. Following the opening statement we will take your questions.And now I hand over to Mr. Scheuch for the executive comments.

[Heimo Scheuch, executive]

Thank you, Klaus. Warm welcome to our call. Good afternoon from Vienna to everybody. Q1 was for us a good start in 2018, we had a strong beginning of this year, with a good market, and a solid market demand in all of our regions where we're active.Please consider also that during the month of March, we had very harsh weather conditions throughout the whole of Europe from the U.K. into Russia and also North America. So considering the fact that the business was heavily impacted by this cold and also to some extent wet weather with snow all over the -- Europe it is a very good start into the year with plus 2% on the turnover side.And when we look on EBITDA expenses side a very strong performance with plus 30% like-for-like EBITDA coming in at about EUR 60 million in the first quarter of 2018.Just obviously, also to address your attention to the fact that from a EBITDA perspective like-for-like is -- we always, as we do always adjust for negative FX effects that were in the range of EUR 2.1 million in Q1 of this year for restructuring charges, which were in the first quarter of this year at EUR 18.9 million coming especially from the restructuring of our ceramic pipe business in Germany and our Austrian and German brick businesses, which we restructured during the first quarter of this year.Then obviously, earnings contribution from sales of nonoperating real estate and here we have -- had an incoming cash from EUR 5.2 million for which we adjusted the like-for-like EBITDA.And finally the consolidation effect coming from the takeover of the Austrian brick factory, Brenner, in the first quarter, which is EUR 0.1 million that was adjusted for. So like-for-like a strong performance in EBITDA for the group.Obviously, based on this strong start and the timely performance of our restructuring measures and optimization measures we feel strongly about our guidance for the year '18 and reaffirm our target range for like-for-life EBITDA of EUR 450 million to EUR 470 million this year.I can also obviously say at this stage after the month of April that the trading in the month of April is fully in line with our expectations and meet obviously the targets that we have established ourselves.On the CapEx front, we have obviously guided for EUR 160 million of CapEx for our ongoing business, maintenance CapEx, improvement CapEx, also new products and slight expansion CapEx. So EUR 160 million will be spent throughout our operations this year.And as far as the gross CapEx is concerned that means on one hand M&A activity and on the other hand also increasing of capacity in certain regions where we're active or increasing our product range with new products and therefore also the necessary production lines. We are on track for this EUR 200 million of expansion CapEx, growth CapEx for this year. So EUR 160 million for the ongoing and EUR 200 million for the growth.If we look a little bit more into the different segments and the performance of the markets, as we speak we see, if I may start in the eastern part of Europe, a strong increase of activity here in the eastern part of Europe, where we have seen also in the first quarter of this year a significant margin improvement in our Eastern European brick segment, which obviously highlights the strong operating leverage that we have there and in considering, as I said earlier, the cold weather it has been have a very good start into this year and we foresee, as you have seen in the attached presentation of our group that we see here a good development for the rest of the year, as we speak for residential housing construction, and also for infrastructure spending in this region of Europe.If we move to the western part, here, we obviously had the impact of the weather as well. However, we have seen good trends coming out of The Netherlands and Belgium also France and the U.K. performed accordingly. So -- and we feel strongly about the progression of these markets for the rest of the year. And the optimization measures in Germany and Austria and the full implementation and will obviously lead to the cost improvements that we have guided for.When we look at the pipe business, as I said also already in Eastern Europe, we have seen underlying market improvement with the stronger demand levels coming from the infrastructure business side. Obviously again, the cold weather at the beginning of this year impacted the growth, but we see it also already coming through also in April and the months further. So the performance operationally is satisfactory. Obviously, the EBITDA in this segment is heavily burdened by the restructuring measures that I outlined at the beginning, meaning the restructuring of the ceramic pipe business in Germany with the EUR 16.1 million.I can also report that on the pipe side we're in an implementation phase of the French pipe restructuring. So we have fully accounted for this restructuring and we see already the benefits coming through in the sense of newer positioning of our French pipe business by exiting the commodities side of the business, the infrastructure one and positioning ourselves more in the niche parts like the agriculture irrigation business and some of these very niche products that we will sell in the future in the French market.On the integration side we are successfully integrating our newly prewired electro pipe business that we acquired in Belgium and in France and it's already positively contributing to our Western European region.On the international project business, I'm happy to report that on the long length and big diameter pipes we see here a slightly increasing demand and order intake on the international one especially coming from Southern America and some projects in this hemisphere. On the Soluforce, which is the pipe for the oil and gas application we still see here a weak demand level. So in one part of the business a slight pickup and the other is still on a sort of slow pace activity.If we then move to North America we have seen here in the first of 3 months a good organic growth level in all areas of the business, with a significant earnings improvement. We see a positive trend in the U.S. residential market, which should continue for the rest of the year. And also here the integration of our acquired business in Mississippi, Columbus Brick is taking pace and we're obviously, successfully integrating the business and adding it to our operations.We have restructured our activity in pipes in the U.S. last year and happy to report to the satisfactory demand levels and increasing demand levels and a good profitability coming in. And also in Canada, our business volume wise and price wise developed satisfactory.So again if I summarize, in a nutshell, rather favorable market conditions throughout Europe and the U.S. We've adjusted our prices up, as we have guided for. The costs are under control and obviously, we have addressed issues like the German and Austrian performance in the brick business and the ceramic pipe business of Germany, and we are on track on the optimization project, which will obviously also contribute this year in the amount of around EUR 10 million of cost savings in 2018.Furthermore, if I move on to the strategic projects, we have successfully disposed off the Austrian concrete paver business. You recall that we have put in place an ambitious project of selling underperforming and not strategically for us important businesses within the Wienerberger Group in the amount of about EUR 100 million in the next 16 to 18 months.We've already moved on the first business that's this Austrian concrete paver business, which made obviously a slight EBITDA loss last year in the range of about EUR 3.6 million and we sold the business for an enterprise value of around EUR 30 million. So again, here the first step in reshuffling and repositioning our portfolio, moving out of assets that are underperforming, where we don't see the necessary growth and a sufficient profitability coming through and to move these funds into higher margin and higher growth businesses in the future.Furthermore, let me point out that we have successfully bought also the minority stake from the shareholders that still had shares in our Tondach operations for EUR 30 million. This was the call that we used in order to buy out 2 banks that have reconverted that debt into equity when we did the restructuring of Tondach, so we are now full 100% owner of Tondach in Eastern Europe as well and the full integration can take place of this business as well in Eastern Europe.Again, I just want to put also forward that on the restructuring side and on the cost saving and optimization side, we are fully on track with all of our projects and obviously, they will -- we will benefit from the positive effects during the rest of the year. I recall that we will have the targeted EUR 15 million of cost savings by the end of 2019 from all these restructuring measures, which will cost us EUR 30 million as restructuring costs this year. So we are fully on track on the costs side and also on the savings side.We also are working obviously, currently, on a pipeline of further bolt-on M&A deals. These smaller deals that created immediately value and are value accretive for our company and we are certainly in a position this year to fully take advantage of this pipeline in order to reach our targeted EUR 200 million gross M&A CapEx.Just let me also draw your attention that we successfully placed a EUR 250 million bond, 7-year bond, with 2% in coupon earlier, a couple of weeks ago actually, and the demand level was high, it showed strong confidence of the investment community into our business.So again in a summary, a strong start into the year. We feel confident with respect to our guidance and we'll focus obviously, very strongly in the upcoming months on our organic growth potential and fully optimize it. We will enhance our operational performance by all the measures that are put in place and we'll certainly are determined to even increase those efforts.We will use our current and existing platforms for further growth and we will further continue to dispose of these nonstrategic assets and underperforming assets, where we have already a couple of things on our way and we'll be in a position to announce something probably a little later this year. So all in all, Wienerberger on track to reach its guided targets for 2018.I think I've tried to give a short and brief overview and would then be ready to take your questions as they come. Thank you very much.

[Operator]

Ladies and gentlemen, at this time we will begin the question and answer session. [Operator Instructions] First question comes from the line of [ Eath Formhead ] with Exane BNP Paribas.

[Unknown Analyst]

I'll have 3 questions if I may. The first one is on your full year [indiscernible] that you stick with the EUR 450 million, EUR 470 million, if my calculation are correct, it implies a low teens run rate for the next 3 quarters, which seems quite undemanding given that the base effect is getting easier. I think that in the Q1 report, you are also referring --could the fact that you are absolutely confident on the targets set out for this year. So I was just wondering what are the key drivers and what you need to see before looking at upgrading your guidance for the full year '18 number?

[Heimo Scheuch, executive]

Shall we take your second and third question or are they related?

[Unknown Analyst]

Yes, you can -- I'll go ahead with the next ones. So my second question is, could you give us a rough number in terms of the full year '17 EBITDA contribution from the French pipe business and if I remember, I think it was loss making, so I just wanted to understand whether you would expect that to breakeven this year and if that's included in your EUR 5 million cost saving for full year '18. And my last question is on the international pipe business, you mentioned today in the last conference call that the underlying trends were improving, have you continued to see further improvements and do you have inner visibility at this stage of the year for the remainder of full year '18.

[Heimo Scheuch, executive]

I may sort of go in the other direction and take your last question first, if I may. The international pipe business, as I try to mention, we see a sort of a slight up tick in demand levels on the long diameter and -- long lengths and big diameter pipes coming out of our Norwegian operations and especially when I look at the order intake level, it's more coming from the southern parts of America these days. So here yes, a little up tick and on the other one, the Soluforce it's still on a very low level. So from compared to what I told you at the beginning of this year, it's not a significant change right now. So we are more or less in the same direction as far as the demand level is concerned. Willy, may I ask you to --

[Willy Van Riet, executive]

On the French bid yes, we were EBITDA negative last year. We have seen a good improvement in the first quarter, but the first quarter of course is a smaller quarter on the whole thing. And yes, it's included in the EUR 5 million that we definitely put because it's part of the whole improvement process and that gives us the confidence what we see now. We will complete the restructuration and everything by the midst of the year as things progress now and they're progressing well as planned. So that's the update on the French business.

[Heimo Scheuch, executive]

The overall guidance, I think we went into this year with confidence in establishing a guidance of EUR 450 million and EUR 470 million like-for-like obviously and we remain confident that we achieve that. I understand that when you make certain calculations, you come to certain results, but let us first of all I think after a first quarter, which is I would say in the whole range and not so significant one, let us wait for the second one in order to have a better view on the year as we progress. So I would say with a certain respect for the world and for the economical situation, let us sort of be positive for this year, but let us -- give us the opportunity to realize what we want in the year, this ambitious target and we want to deliver obviously and we'll certainly not shy away from better results if they come, but I think it's already a strong statement from our side that we are confident with respect to our guidance at this stage.

[Unknown Analyst]

Sorry, if I could come back to the pipe division, just want to also to note, the Austrian -- the sale of the Austrian business in the ceramic pipe, is that also included in the EUR 5 million fixed cost savings?

[Heimo Scheuch, executive]

This is the German one.

[Willy Van Riet, executive]

No, no, no, the Austrian -- concrete paving is not included.

[Operator]

The next question comes from the line of Matthias Pfeifenberger with Deutsche Bank.

[Matthias Pfeifenberger, analyst]

Couple of questions. Firstly, on the U.S. pick up and the EBITDA is quite sizable, can you maybe run through them and you mentioned a couple of points that's the integration of Columbus, but also pipes in Canada, what's the driving factor there? On the U.K. you mentioned in the release it’s a high demand -- you expect, high demand to stay, does that go for the entire year because previously you've basically said, we're quite confident for the first half. So is that kind of more optimism there? Germany, did you mention you're restructured the ceramic pipes business in Germany or in Eastern Europe?

[Heimo Scheuch, executive]

In Germany.

[Matthias Pfeifenberger, analyst]

Okay, so it's basically most of the restructuring in the Q1 was in bricks and ceramic pipes in Germany. So is that like seeing you lost the hopes on this market for the medium term? And then a last one, only if you want here, maybe you can comment on the shareholder -- on the selective shareholder criticism.

[Heimo Scheuch, executive]

Okay, I just want to take up your question Matthias, if I may on Germany. I think we have not lost confidence nor in the German market nor in the usage of our products, ceramic pipes and bricks. We have always said that on the ceramic pipe business with 3 production sites in -- 2 in Germany and 1 in Belgium, there's one too many and we want to regroup in order to use our efficiencies and to use -- have a better utilization rate. So that's why we moved and restructured the business and reduced the sites to 2 and that's in order to utilize these sites better. And keep in mind that in the past a substantial amount of pipes was basically exported at not real margins but at a cost level to international markets like the Middle East et cetera. So we said it's better to concentrate on the European markets as margins obviously with higher ones and to better utilization of the production capacity. On the bricks side, again remember last year, we took over a very modern and very productive site near Berlin and that was integrated in our network and that's why we moved out of 2 old sites in order to better utilize it again. So from a utilization rate perspective this helps us improving it and the cost structure is obviously better in this site. So we are not saying that we quit markets or exit markets, it's better utilization, better cost structures. Two other questions that you had were the U.K. The U.K. is, as we speak, I think the demand level is healthy, I would call it at this stage and stable as far as the months to come, we remain optimistic for the rest of the year in the sense that we are progressing at this level of activity. So I think this is what we can tell you about the U.K.

[Matthias Pfeifenberger, analyst]

And then in the U.S. did you improve?

[Willy Van Riet, executive]

Basically in the 3 fields that we have, we have seen in bricks, a lower volume activity but compensated by -- with a better pricing. The Canadian market is still good, although there, there is a bit of an expectation, if you look at the measures that have been announced by the Canadian government that might cool down in the second half of the year, and in our plastic pipes, as Heimo mentioned, we have reorganized that business over the last couple of years and there we see a good performance both on pricing and on volume.

[Matthias Pfeifenberger, analyst]

Yes, thanks.

[Heimo Scheuch, executive]

And Matthias the last question that you had was on the shareholdership and I -- let me put it this way. Myself and the whole team see every year hundreds or even thousands of shareholders and investors of Wienerberger. We take comments and if they're critical ones, positive ones, encouraging ones obviously very serious and try to learn from every input that we can get and if there are interesting ones and constructive ones and especially inputs that bring us further, we are very appreciative. We view any comment as valuable and we don't see it negative for something like this, we see it as a constructive approach and we only feel positive in order to encourage ourselves and the whole team to perform even better and to do deliver the results, that's what we're doing and what we are currently also doing, what we are showing in the first quarter obviously and will continue to show this year. Operator^ [Operator Instructions] Next question comes from the line of Miguel Borrega of UBS.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

I've got 2 questions for you. The first one is on Clay Eastern Europe, can you give us a flavor of the strong performance in this division, could you give us some sense of how much is pricing gains and where you are actually seeing strong volumes coming through in which particular markets where you're seeing strong growth. My second question is a follow up to the recent corporate development. Could you give us some comments on the recent board proposal from one of your investors? Are you proposing different board members to the AGM, have you spoken to other shareholders with regards to this candidate, any feedback that you can give us?

[Heimo Scheuch, executive]

If I take the question on the Clay Eastern Europe, it's on older markets, we see it's a lower quarter of course on volume because in Eastern Europe we always have -- we have a winter but we also see a healthy up tick in pricing and as always we will comment later on in the second quarter and relatively see pricing sticking yes or no, but it's encouraging on everything. And of course, what we then see if we would extrapolate that, that we see of course, a better utilization of our capacity in that area of course. And then you know then we have our operating leverage that's really comes through. So all of that with the exception of Russia, but in Russia we are not losing money, we have trimmed down on operations and we're still in good positive territory. And your second question was related to corporate governance and I can only say from a management perspective of Wienerberger that Wienerberger is among those companies that has and meets the highest international corporate governance standards, and it has an outstanding performance as far as this -- the board work on the supervisory board levels are concerned and on the management board level and we will certainly keep this in this direction because this is, I think, of the utmost importance for a public company. We respect all the shareholders in the same way and will do so in the future and therefore I think it's also under Austrian law you need to understand that this is a purely a supervisory board issue and has nothing to do with us and the management board's side, we are running the company, the supervisory board is responsible for looking for the right candidate qualified, independent and experienced candidates for the board. So this is then you have to understand it's not our business to do, that's the supervisory board that deals with these issues.

[Miguel Nabeiro Ensinas Serra Borrega, analyst]

Fair enough, thank you. Operator^ [Operator Instructions] Gentlemen, there are no further questions registered at this time.

[Klaus Ofner, executive]

Okay. Ladies and gentlemen, thank you for questions for dialing in today. We hope that you will join us again on the 16th of August and we will release our H1 results for 2018. All that is left for today is to thank you for your attention, have a nice day and goodbye. Operator^ Ladies and gentlemen, this concludes the Wienerberger conference call and the results for 2018. Thanks for joining and have a pleasant day, goodbye.