Wienerberger AG

VSE:WIE

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am Sugi, your Chorus Call operator. Welcome, and thank you for joining the conference call on Wienerberger's results on the first quarter of 2021. [Operator Instructions]

I would now like to turn the conference over to Elisabeth Falkner, Head of Investor Relations. Please go ahead.

[Elisabeth Falkner, executive]

Ladies and gentlemen, a warm welcome to the Wienerberger Earnings Call on the First Quarter of 2021. Our Board representatives today are our CEO, Mr. Heimo Scheuch; and our CFO, Mr. Gerhard Hanke. They will lead you through the presentation today discussing our results in the first quarter of 2021, but also giving you an outlook on further growth opportunities for Wienerberger in the future. After the presentation, we are ready to take your questions.

I will now hand over to Mr. Heimo Scheuch for the presentation.

[Heimo Scheuch, executive]

Thank you, and a warm welcome from our side here in Vienna to all of you on the call. I will lead you through a little bit the general sort of background of quarter 1 and our strategy. My colleague, Gerhard, will sort of speak a little bit about the results and the numbers, and then I will summarize from a strategy perspective and outlook.

If you look at the quarter 1, we have had a strong start into the year with revenues more or less on the level of last year and EBITDA slight -- also on the same level as last year. And a strong, obviously, net result due to the fact that we had no write-offs in this sense compared to last year. So from a perspective of performance, strong operational performance.

Please keep in mind that, obviously, last year, 2020, before the pandemic hit us, we had a strong start as well in the year and especially a very mild winter in the big parts of Europe. I say this not as an excuse, but you need to understand when we talk about Building Solutions, and that's mostly our brick business, that the new build and especially when you talk about one- and two-family houses, it can only be started and the groundwork can be done if it's mild, not freezing and not snow. If it's wet and it's freezing, they can't sort of start the project. And this is what we had this year, we had a normal winter, in January and February in big parts of Europe. And that's a lot of projects didn't start at this stage compared to last year.

However, and this, I think, this is important for all of you that we saw this strong rebound end of February and into March, obviously, a very strong activity, and this is continuing into April and onwards. So I think from our perspective, we are starting here off for a good year. Obviously, in the new build and in the Building Materials segment, we had, obviously, a slower start due to the weather effect in the month of January and February. So nothing to worry about. And obviously, this is when it's cold. Production is also a little bit more difficult because the clay is thicker, and it get more difficult to sort of prepare it and burn it at the end of the day. So these are things that normally happen in a strong winter, but nothing exceptional from our perspective.

So if you look at the different performances of our businesses, let's go into this for a minute. As I said, from Wienerberger Building Solutions side, 4% only from a turnover perspective under last year. And considering this weather effects, I think, a very strong first quarter. And the margin effect is also slightly under last year. But as I said, it's a volume-driven thing. It has nothing to do with prices or costs. So I would say this is a very normal start into the year with a strong winter.

And as I say that the sort of company takes momentum right now in March and April, the cost structure is also going in the right direction. And obviously, from a cost inflation increase, we see the positive effect of our price increases in the market. Gerhard will talk a little bit about it, but we have been able successfully to offset this cost inflations with our price increases.

On the Piping Solutions side, again, a very strong start. You see that infrastructure spending is on the rise, especially here in Europe. And obviously, we took advantage of this slightly improving margins. And I think I will talk in a minute about the strategy and the way forward, we are moving in the right direction with this Piping segment.

North America, record results, again, I would say, in the first quarter. Very strong starting to the year, with EBITDA up and the margins up considerably. Please keep in mind also there, we had a difficult start from a weather perspective, but the recovery, especially in the south of the United States, obviously, quicker due to better weather than in February and March.

We think and we see it in the market that obviously, the following months. And this year will be a strong year when we talk about new residential housing. And the performance in Canada is also very satisfactory with respect to our operations there.

I will talk after the numbers of Gerhard a little bit more in detail about Meridian and the status of the take over and give you more update on this important project for us in a minute. So from a number perspective, a very good start, as I said, but also strategically. We have now moved, when you look at the Piping segment, very strongly into the water management and water solution business in Nordic Europe, with a strong investment in Sweden in the sort of the best and high-performing plant that the Nordic region has in Europe. And obviously, we want to be the leading player in energy and water management in the Nordic market with strong focus on ESG, with a strong focus on digitalization and, obviously, gaining a momentum in a modern solution business for water and for energy.

And therefore, obviously, the investments that we take there, the aspect of products and solutions are very important are the major drivers of future growth in this business. The new plant that we are building and the additions to the existing ones is obviously a state-of-the-art plant with all the modern features that you have in such a plant, and where we will gain from the experience that we have in the group and gain, obviously, momentum on the cost side as well.

The digitalization will help us in offering more solutions to our clients. For us, it's important, and this is not only for the water business, but that's also for the business of roofs and facades and walls to increase the convenience for our clients. This is, I think, the major issue that we focus on as a company. We want to make the life of our clients and customers easier. You remember, we talked a lot about the lack of skilled labor. We talk a lot about the caustic increases that are out there in different products, in different sort of aspect of building and infrastructure and renovation. By investing and by improving our solution business also by features -- of new features of digitalization, we improve this sort of performance for our customers and increase the value for them.

So I think we are perfectly in line with the development and the key drivers of the market. Not to be forgotten that ESG is a major part of our business in the sense of driving the future of the business. I just want to alert, again, you -- all of you to the fact that Wienerberger is fully not committed to the circular economy by saying all our products that we launch these days are fully recyclable or to be reduced. We also have a clear commitment to biodiversity on any site that, industrially speaking, we use and we develop. And utmost importance, obviously, our contribution of positive one to climate change by reducing our CO2 emissions additionally by 15% in the next 3 years.

I'm convinced and all the sort of steps that we are undertaking today, not only on the investment side, but also in the optimization of the business, lead in this direction and that we will reach those targets, very important. And I would say also a couple of words on the CO2 emissions after Gerhard has spoken in order to give you here a little bit more flavor to this issue.

So Gerhard, if I may ask you kindly to go through the numbers, please.

[Gerhard Hanke, executive]

Thank you, Heimo. Ladies and gentlemen, we are happy that we can present the successful first quarter performance. Our revenues were slightly above prior year, as Heimo mentioned, mainly driven by the strong demand, which we have seen in our infrastructure and renovation markets.

Our EBITDA like-for-like margin with 13.2%, slightly below prior year. As also already mentioned, the very harsh winter in the beginning of the year, especially in February, led also to a lower efficiency in the production process in especially in the business unit Building Materials. As mentioned, if it is freezing and cold, production is more difficult in the clay process. And our net debt EBITDA margin that is 1.9x is, I think, stable and is considering the normal working capital upswing, which we see on a yearly basis.

Presenting you the income statement, I would like to highlight basically the development of our EBIT, which is 20% above prior year. We have this year, EBIT is equal to the operating EBIT. As you remember, we had last year, this impairment charges on the goodwill and on different tangible assets of more than EUR 100 million. The financial result is slightly declining compared to prior year. And finally, we closed the first quarter 2021, with profit after tax of EUR 27 million compared to a minus EUR 106 million last year.

In the reconciliation from EBITDA as reported to EBITDA like-for-like, let me explain you the 2 most important adjustments which we did. On the one hand, it was about the FX adjustments, so the currency devaluations of the U.S. dollar, the Polish zloty and the Hungarian forint. As well, we had some one-offs out of the sale of nonoperating assets, mainly in Austria and Germany, which we finally deducted again from the EBITDA as reported to end up with an EBITDA like-for-like. But basically, you see that the difference between EBITDA as reported and EBITDA like-for-like is rather immaterial.

The strong balance sheet ratios, which I would like to highlight, I think, is showing also the resilience of our business model. You see that the net debt development is only driven from the beginning of the year to the closing of the first quarter by the working capital upswing, which is around about EUR 200 million on a yearly base. The working capital itself is still on a rather lower level compared to last year, but still fine, but we will basically further keep going and optimizing the working capital level. And for the rest, I think, the balance sheet itself shows a very strong structure compared also to prior year.

Let me continue with the financing structure, respectively, the maturity profile that we have. We have, for the next year, a very balanced maturity profile. You see that we have no major redemptions till 2023. We have the first bigger redemptions in 2024 and in 2025, which is basically the settlement of the bonds. The first bond was out of 2018, which had a volume of around about EUR 250 million. And I think in 2025, we will settle the bond, which we issued in 2020, which had a volume of EUR 400 million. Next to that, we have, by the end of the first quarter, a liquidity reserve of round about EUR 750 million inevitable.

Let me explain you, let me say some words about the self-help program. Our newly set up self-help program is embedded in our strategic focus areas of our business units. One key aspect of operational excellence is the continuous upgrade of our industrial setup, meaning also the optimization of our plant network. When we look to innovation and digitalization, we focus further on the transformation to a full system provider, expanding our portfolio with the new products, digital services, increasing the share of recyclable and reusable products are the key aspects in the field of innovation and digitalization.

And the last pillar of our self-help program is sustainability. And here, the focus area is the further rollout of the existing technologies, but also new technologies to reduce the energy consumption and the CO2 emissions in the future.

We also have a clear financial ambition set for the self-help program. Our total financial target is a EUR 135 million on EBITDA enhancement til 2023 versus the baseline of 2020. Supported this financial target by yearly growth investments in demand of EUR 140 million, whereby EUR 60 million are allocated on ESG CapEx, meaning investments in circular economy, in biodiversity and the reduction of CO2 emissions. And round about EUR 80 million per year allocated for specialty CapEx, meaning broadening the range of the portfolio in the sense of system solutions, but also new product designs and recyclable and reusable products.

And with this program, basically where we already started in the beginning of the year, we already achieved a contribution in the first quarter of EUR 8 million on EBITDA enhancement. For the whole year, we expect an EBITDA contribution of EUR 40 million as part of the EUR 135 million.

Let me, as a last topic, which I would like to highlight, also say some words about the cost management. As we have seen during the last months and still see a general upward trend of input prices. Based on our local supply chain structures, meaning that we have local sourcing supported by a central contracting team, this helps us protecting us from the rising input prices. We have for most of our raw material prices our raw materials contracts in place, which are based on a local supply chain and which are negotiated and supported by the central procurement department.

We announced in the beginning and basically implemented in the beginning of the year our price increases. And this price increases, which we have announced and implemented are already covering the input price increases, which are around about 2% to 3% in average in most of our markets in the first quarter of 2021.

One second topic, which is important to mention is active margin management, which we are doing in relation to the price increase of the plastic granulates in the Piping business. We see a continuous upward price trend for plastic granulates, which is pushed by the shortage of availability from producers, mainly due to maintenance work in force majeure events in production. And thanks to our proactive margin management, we were largely successful in mitigating the effect of rising input costs.

The last point, which I would like to highlight is the topic of energy hedging as it is also for us, as Wienerberger, a huge cost position, which is important to hedge or respectively, to actively manage. We have in our hedging strategy, our hedging policy in place, meaning also that big part of the volumes, a big part of the price is basically what we need for 2021, meaning more than 90% is already hedged and fixed and that basically helped us benefiting from the attractive price levels of the prior year where we locked in.

So basically with our successful inventory management, our long-term supplier relations and also long-term contracts which we have in place, our local supply chains and our proactive cost management, we were able, in the first quarter to meet our customers' demands at any time during the first quarter.

With these final words, I would like to hand over again to Heimo.

[Heimo Scheuch, executive]

Thank you, Gerhard. And ladies and gentlemen, I think from what you heard, we are perfectly on track with our self-help program. Just to alert you to the fact, obviously, beginning of this year, politically speaking, we couldn't move our people around Europe still. So this was obviously a major setback for us because the engineers were not able to travel yet due to this turmoil with vaccines and other things. But as we speak, quarter 2 will help us in sort of putting a lot more emphasis on the manufacturing side and the projects will run quicker, and therefore, obviously, the improvement of the contribution from this self-help program will improve dramatically in quarter 2 and quarter 3.

So this is some additional information on the front of the self-help. If we look at the markets as such in Europe and in North America, let's look at it from the perspective of new build renovation and infrastructure. I think when we look at renovation, it goes without saying that in all of our markets, regionally speaking, we see a positive trend. So all the aspects of renovation are on the rise. I just redraw your attention to the fact that the turnover in this part of the business is about 20% of the whole turnover of Wienerberger and increasing.

When we talk about infrastructure, more or less 25% of our turnover goes into this sort of end market. We see a stable, slightly growing market when it comes to infrastructure in Western Europe, Central, Eastern Europe, Nordics and growing -- definitely a growing one in North America. So here, again, a very good market environment.

On the new build side, obviously, growing in North America and especially in the U.S., we have a slight decrease in the Nordics. Our exposure is minor to these markets in the Nordics and our major exposures in Western Europe and Central Eastern Europe, you have probably noted that we are more optimistic and positive about Western Europe. That has to do with the markets, as they have performed in recent weeks and months. We talk about big markets, the Benelux for us; France, also the U.K.; and also, in Central Europe, Poland is picking up; the Czech Republic of Austria; and Hungary; and Romania. So here, good underlying trends.

We see also the trend that, obviously, after COVID, people are investing in the rural parts of these markets. More in one-family houses, our key markets, obviously, because they want to invest in the future, and they have their own sort of gardens. So from a health perspective, they feel here a better sort of situation than being in an apartment. So here again, we see some positive trends for our business, not just for the coming months, but for the following years.

I have promised that I'll say a couple of words on the following items: Meridian. Meridian acquisition, everything is going well. We had our discussions with the Department of Justice in the U.S. as foreseen by the procedure. It took probably a little longer due to the COVID effect and the change of administration in the U.S. but nevertheless, we are moving in the right direction.

We foresee sort of closing of this transaction in the quarter now, that means in the second quarter, so that we can then consolidate the business, probably, as I say, half year onwards. So nothing to sort of worry about. The businesses are performing well. So there's no cash strain in the business of Meridian, and it's going in the right direction. I'm not allowed to say anything more because, obviously, bound by the regulations in the U.S. and especially the Department of Justice. You will understand if I can't sort of answer very particular questions as to the performance of businesses. To ours, yes, but not to theirs, colleagues. But as I said, I'm very optimistic that we close this transaction in quarter 2.

Then I said also, I would say a couple of words on CO2 emissions. That's an important subject. From our perspective, as you are all well aware, we are part of the trading scheme of the European Commission. We are now in the third phase, it goes up to '29. We are, obviously, part of the carbon leakage status as an industry and get allocated free allowances on the CO2 side. These allowances we use. We are -- we have, obviously, enough of those. And as it is the policy of such a trading scheme, we are obliged to reduce our emissions year-by-year by pretty neat number. And this is what we are doing.

On top of it, we clearly said, and that's what Gerhard was alluding to with the program of ESG investment in decreasing or reducing our CO2 emissions by another 15%. So again, here strong effort of Wienerberger to do so.

So what does it mean? From our perspective, we will optimize our structures as much as we can, reduce our emissions, step by step. And obviously, from an optimization standpoint, don't shy away from any effort to reduce it further and make a positive contribution to climate change.

On the front of different resources of energy, we have tried those, experienced with those electrification of kilns, for example, that's what we are currently doing in one of our projects in Belgium and it's running very well. And we, obviously, use such sort of different resources of energy like hydrogen as well in order to test it. Also, a positive outcome from those tests. And I think we are ready also to use biogas when we get it like in Denmark, for example, we had already biogas very successfully to our production. So it's an approach step-by-step and national sort of market by national market.

Why? Dear, ladies and gentlemen, because Europe has no common policy. You will see also emerge from a national perspective, very different approaches from Denmark to the Netherlands, from the Netherlands to Germany and Austria. So people will sort of propose different solutions. And we, as an industry, will take advantage of those. So our general sort of policy is to be open, open-minded as far as energy resources are concerned. Alternative ones, use them, implement them. And as I said, we have already prepared ourselves to these different resources or energy and are able to use them. So this will continue as we speak.

Then a last word also before I go to the outlook on the M&A side. We have a completely full pipeline of M&A projects. In all the different areas of our businesses, meaning Piping, meaning the Building Solutions sites throughout Europe, especially. So we will pursue those growth projects in the not-too-distant future because they fit nicely into our businesses, enhance the performance of those businesses and create stronger and faster-growing businesses, as we speak.

So this is something where we do our work thoroughly and with a lot of diligence. And therefore, it's not to be timed that some transaction will be sort of completed in quarter 2 or quarter 3. But as I said, we have a full pipeline of those projects for this year.

This leads me to my final comment that's the guidance for this year. From all the things that have been said by Gerhard and myself, I can confirm, again, that all the cost inflation has been covered by price increases and successfully so in the market as we speak. I will dedicate a couple of words to the specific item of plastic granular prices, because I think this is an important item that you have to understand. We had, obviously, a force majeure call by the major producers worldwide at the beginning of this year. So they were all down for maintenance and created a shortage of supply, prices went up by 50% to 60%. So this was a really tough situation for all the producers in the plastic industry and therefore, also for us as well.

We managed it very well, by the way, as Gerhard pointed out in quarter 1. But it will hit us eventually also now in quarter 2 and 3. Why? Because we have long-term contracts with our clients on infrastructure projects and where we obviously can't pass them through immediately. So this will stay with us. So it's a max amount of EUR 20 million that we see as of today. It's the same amount as at the beginning of the year. We see it to be -- to materialize in quarter 2 and quarter 3, but it's a onetime effect, by the way.

So again, I think, when we take our guidance and if we position ourselves on the -- I would say, on the upper side of our guidance, meaning the EUR 620 million, then obviously, when you add the EUR 20 million of this plastic granulate price impact on us, then you have, obviously, a serious number that is a real indicator where Wienerberger's performance is going through this year.

So this means I'm rather optimistic for the rest of the year. I'm not sort of saying I'm disappointed by the first 3 months because actually, for me, there was only 1 month in one of the business areas that was strong. It was March. But I see with optimism the numbers coming in, in April and May. So as I say, the performance is moving in the right direction. As Gerhard pointed out, the self-help program is picking up momentum. On the CapEx spending side, we are, again, very disciplined. So all in all, and as I said, from a perspective also on the M&A front, we have good sort of projects ahead of us. So it gives me the optimism that we will sort of move in the right direction with respect to our guidance.

So ladies and gentlemen, I hope we covered some ground and answer probably one or other questions that you had already burning and probably could contribute it. And if there are more questions to come, my team is -- and myself are, obviously, ready to take those. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Tobias Woerner, Stifel Europe.

[Tobias Woerner, analyst]

The first questions you in a way alluded to already, it seems to be supported by data. We look at, i.e., that you've been selling from inventories in the first quarter. You also mentioned difficulties producing or getting clay out of the ground, so to speak. Should we see this as the main impact on margins for you in the first quarter? Your working capital was, obviously, significantly lower. If we look at the Piping Solutions side of the equation, is it basically there where your inventories are higher building up for the typical seasonal selling? So that's the first question.

The second question, you mentioned price increases to the tune of 2% to 3% in the U.S. We're already seeing in March a price increase of almost 4%. Just remind us of your usual practice. And the ability of you -- for you to pass on further price increases as the yield goes on.

And then just lastly, permits in the U.S., housing permits in the U.S. and Poland are extremely strong as of March. Are you seeing similar pictures in other markets?

[Heimo Scheuch, executive]

Thank you, Tobias, for your 3 questions. Let me just sort of talk about the housing permit. Obviously, we see those numbers as well in Poland and in -- especially in the U.S. From my perspective, I don't see this sort of steep increases in other markets yet, to be honest with you. But I see strong numbers coming through from other markets. And I mean, obviously, the Netherlands or Belgium are more stable, so you don't see these hikes up and down. So there if we see a couple of percentage points plus, I'm delighted to see those, to be honest. And also, the English market is moving in the right direction. So again, not those sort of increases, but that we see in Poland and in the U.S. with respect to permits, but still very good ones.

On the price side, the price side is something, as we said, Gerhard and myself, we were very disciplined to get the price increases through quickly. And I mean it's positive to say that beginning of May, we have everything sort of aligned. Yes, there might be additional price increases throughout the year. We have certain markets where we are active in that are open to such sort of things. I'm saying this with respect to Eastern Europe. Northern Europe is a little bit more disciplined when it comes to pricing. They usually do one price increase a year, exceptionally, 2. If we are in a situation like this one where steep increases are, like I alluded to in the Piping, one was the plastic granulate. And when we took -- when we take other markets in Western Europe, usually, we are here also in the situation for 1 max 2 price increases. But as I say, from this perspective, we are already moving in the right direction. If there's additional possibilities, and needs, Wienerberger will certainly move on that.

And by the way, in the U.S., it's much higher than price increases on our side, it's about 5%. So just to give you a little feedback on this thing. Do you want to say something on the inventory side, Gerhard, or shall I continue?

[Gerhard Hanke, executive]

Basically, I think, the inventory side, there are 2 aspects. I think the one that you already mentioned that we had inefficiencies in the production, which was due to the cold weather, but this is not leading to a big limitation in the output of clay products. Because it is basically an issue what you have with clay production. We had a very strong start starting the renovation part. We are -- basically, volumes started picking up already in the beginning of the year. So it's -- I would say, we are right on track with the development on working capital and already now in May, we simply see that working capital is on the level where it should be for the season of this year.

[Tobias Woerner, analyst]

Maybe one add-on question, if I may. In the U.K. and also in Poland volumes deliveries seem to be up according to the data we follow about 12% and 11%, respectively. Is there something you're seeing as well?

[Heimo Scheuch, executive]

We see this, I mean, from a perspective of general remarks, yes, the U.K. market is strong, definitely. The Polish market, as I said, was when we talk essentially about our brick business and that's the walling segment to be -- that's the clay blocks. And as I said, from a starting perspective, the winter was especially also harsh in Poland to -- January and February were slower. But in March and April, we see the pickup again.

So this, obviously, is increasing strongly, and the numbers you are hinting towards are right. But this is also some sort of effect because the January and February numbers were lower. So this has to be seen a little bit on the long run if this continues this trend, especially when we talk about Poland.

[Operator]

The next question is from the line of Yves Bromehead, Exane BNP Paribas.

[Yves Bromehead, analyst]

I will have just a few questions on my side. I'll take them one by one, if that's okay. My first question is on the like-for-like. I'm struggling to reconcile the Q1 like-for-like in the clear Building Solutions. You mentioned you had a negative FX of around 2%. But I remember that you also divested some assets last year, including in Switzerland. So could you maybe help us to understand what's the actual organic revenue development in Q1? And split this between volumes and prices. I guess we could assume 2%, 3% price and the rest is volume, but if you could help us on this.

And I guess related to that, you mentioned margin in April is strong. We're already halfway through May. Can you maybe help us understand the exit rates in March? What's happening in April and May in terms of volume developments?

[Heimo Scheuch, executive]

Well, if I may take the first -- the second one. As I said, I mean, volumes are up and strongly in March and April, also into May. So, as I said, I'm positive and go with optimism in the second quarter. If you pretty well understand that the second quarter will be a very strong one compared to last year because, obviously, the comparable numbers last year were affected by lockdowns, et cetera. So we will see, again, a very strong performance in the second quarter, but not only due to this effect, but to the affected numbers are improving in April and May, yes?

So now we need to move to your first question, a like-for-like. Yes.

[Gerhard Hanke, executive]

And maybe I think what we have to consider also because you mentioned the base of the clay business unit. There is also this year. When we look to the currency development, there is an impact in it on the zloty and the Hungarian forint, which is hitting basically the business unit this year rather strong. And looking to the development for like-for-like, I think, what is important, what we already mentioned that we had this year a totally different first 2 months development like we had in 2020. And out of that, I would say that months is January and February as the most basically influencing factors, which are basically showing or explaining the different development of the CMBE business unit compared to prior year.

[Yves Bromehead, analyst]

And sorry, are you just able to quantify the like-for-like in percentage development in Q1? Is that something you could give in the Clay Building Solution?

[Gerhard Hanke, executive]

Basically, we cannot quantify it or we would not like to quantify it really in detail, as we said. We basically adjust the EBITDAs by one-offs, which you have seen, like the sale of noncore assets and the currency devaluations. You mentioned also the Swiss topic, which basically was sold last year in, I think, in November -- in September, as far as I remember. This is considered also in the like-for-like comparison in the position of consolidation. So out of that, basically, the reconciliation, the like-for-like reconciliation should be possible to make up for you.

[Yves Bromehead, analyst]

Yes. I guess I was more talking about revenues to be fair in the Clay Building Solution. So if you can provide that, that'd be great. If you want to follow-up after the call, that's fine. Maybe just a second question then on the outlook. I understand you're keeping the EBITDA guidance. Just to be completely clear, given the comments you just made on pricing and the fact that you could potentially come back to the pricing and increase it further sequentially given the strong increase in volumes, is it fair to assume that your current EBITDA guidance of EUR 600 million to EUR 620 million does not include any further price hikes, sequentially speaking?

[Heimo Scheuch, executive]

Well, if I may take this one up. I said in my sort of statement that we see ourselves on the upper range already of the guidance, so EUR 620 million. So I think we have made here a considerable step already, yes? And I also said that the EUR 20 million of plastic granulate additional price increases that we have to absorb. So basically, from a perspective of Wienerberger, we are far ahead of this already guidance that we gave at the year -- at the beginning of the year, sorry.

And yes, the answer is also, yes, we have not built into this additional price increases. So we have assumed that we can offset the inflationary cost increases with price increases. So if other price increases were to follow, they will add on, obviously. But as I said, I mean, it's very important to note from all of you listening into the call that we actually improved already our guidance upwards.

[Operator]

The next question is from the line of Brijesh Siya, HSBC.

[Brijesh Siya, analyst]

I have 2 questions, if I may. The first one is on the exit rate. You hopefully talked about kind of -- I'm sorry, helpfully talked about the improvement. If you could put some number around it. How the clay business kind of performed in March and April? And if you could contextualize with 2019 numbers, so that would be, at least, we see that the comparison is not being mixed with the COVID-19 impact.

[Heimo Scheuch, executive]

Well, I think what we are not going to do and that time we were speaking, we are now breaking down quarter results by monthly results or numbers because that would then only create more confusion, et cetera. When I say that the trading numbers of March and April are strongly up and substantially up, I think, this gives you a good indication already, yes, compared to last year, yes? So here, we, I think, give you already a substantial information in this respect.

[Brijesh Siya, analyst]

Okay. Understood. And if we look at the exhibit, Slide 25, you kind of raised the numbers for new build and infrastructure is kind of down to flattish. Could you please tell us what are the kind of countries where you have seen those positive strength from what you communicated in February?

[Heimo Scheuch, executive]

Well, as I said, when I talked about the Western European markets, we have seen, obviously, and confirm that the U.K. market is doing better than originally expected. Then also the Benelux markets, Belgium and Netherlands are becoming better right now, and that's why we, obviously, realigned it from a red to a more stable one. So I think these were the major drivers for this change. And these are the most important markets, if I may say so, in this region for Wienerberger.

[Brijesh Siya, analyst]

Okay. And probably a last one on the plastic granulate. That number being confirmed at EUR 20 million for this year again. But if we just follow through your comment and you talk about there is a delay in pass-through. Does that mean we are going to get a benefit in Q4, hence, the impact of EUR 20 million may not be fully seen for this year, it could be EUR 15 million or EUR 10 million depending upon where the plastic granulate pricing will be in Q2 or Q3?

[Heimo Scheuch, executive]

Well, I think, what we need to see, first of all -- and I think it's too early to make your judgment. I understand fully and appreciate your comment. But first of all, we need to see a stabilization on the plastic granulate prices, and then the full supply coming in. And what we assume as of today, and we have not more information than that, that the production capacities of the producers of plastic granulate are now up and running, first of all. So the supply issue should, as I said earlier, move away in quarter 2 and into quarter 3. And therefore, then the pricing should come down as well and stabilize.

So I think these are things if we then see these positive trends, then we can probably talk about a little bit of a positive impact on this EUR 20 million. But for the moment, I think, from a risk perspective, it's the most -- the best information that we can give you at this stage, yes?

[Operator]

The next question is from the line of Matthias Pfeifenberger, Deutsche Bank.

[Matthias Pfeifenberger, analyst]

Only one question from my side. Could you elaborate a bit on France and Germany under which new business you saw over the last couple of months and how that has developed? Was it just a freeze? Is that something that's going to bit us maybe later in the year? How are the dynamics there?

[Heimo Scheuch, executive]

On France to start with strong dynamics on the renovation market, that's important for us because we have a roofing business there. And we see also on the new build side here also an improving market environment, yes. Started a little slow, but permits and other activities picking up in France. So this is a positive trend that we see there.

On the German side, renovation, again, also strong and forward-looking also positive. On the new build side, I would call it more established environment, yes? So nothing to worry about immediately and nothing in the not-too-distant future, but it's more a stable environment.

[Operator]

The next question comes from the line of Markus Remis, RBI.

[Markus Remis, analyst]

I actually have withdrawn from the line, all my questions have been answered.

[Operator]

The next question comes from the line of Yassine Touahri, On Field Investment Research.

[Yassine Touahri, analyst]

Yes, so a couple of questions. First, you mentioned that you've got 2% to 3% price increase covering the cost. You mentioned 5% for North America. Could you give a bit of thought for your Piping Solution and your Clay Building Solution in Europe? Is it lower than 2%, 3% in those 2 divisions?

Then I've got a second question, which is on gas prices. So I understand that you're fully hedged this year that you're largely hedge 2022, at least for part of the year. But when I look at the gas prices right now in Europe, they are very, very high. So is it a concern for you for next year and for 2023? What's your strategy there?

And then a third question, with is probably much more long term, is that have you think of a strategy for carbon-neutral for Wienerberger by 2050?

[Heimo Scheuch, executive]

Just before Gerhard comes in. Yes, we have thought about the carbon strategy of Wienerberger. I tried to be very brief in my sort of statements, but obviously, we have a tremendous plan behind it when we talk about different resources of energy, what we can use, how we can access them. So it's a state -- I will call it a national approach. Because as I said at the beginning, it's going to be very different from country to country in Europe, especially, and therefore, we need to adjust this.

One very important subject for you at this stage. We successfully moved away already from natural gas only in Denmark to biogas, yes? So you see how quickly we can do it if the availability is there. If we have insurance, enough of this energy is there, and if the supply can be sort of send through a network of pipeline. So this is very important.

So we can talk a lot about, for example, hydrogen or others, if it's not available for us, at this stage, it's an interesting subject, but we can't sort of work on it. The only thing we can do, and that's what I tried to explain earlier, that in case we have access to such sort of alternative resources of energy, we can use them. Now kilns, we need to adapt certain things, but we can use them. And the same goes for electrification. You can do certain sort of aspects of production and especially burning with electrification, but then you need enormous amounts of electricity that can be -- first of all, need to be available long-term through 365 days a year and also then be brought to your production sites.

So one is the reduction of our CO2 emissions by cutting our input of energy. Second is efficiency improvements throughout our production process, and thirdly is our alternative resource. So this is our clear strategy ahead. And if we come to your second question, it's about gas hedging or whatever you want to take first.

[Gerhard Hanke, executive]

Let me start with your first questions where you were asking about pricing development. You mentioned basically the 2% to 3% price increase, what we communicated in the first quarter and also basically the 5% on the Piping side. Yes, we have -- on the Piping side, we have even higher price increases, but also not forget that we also have higher input prices. So we see basically a stable margin development, and we are able to manage the margins, especially on the Piping side, very good. But that leads also to even higher price increases on the Piping segment or in the Piping business unit, especially here in the U.S., where we have a rather flexible pricing measures. And basically, when we look to the Building Solutions, as Heimo mentioned, we see this 2% to 3% price increase, in average, which is covering the input costs, inflation or input cost increase, what we see across the business unit of business -- Building Solutions.

The second question, if I may add, is the topic of hedging. As I mentioned before, a big part of our prices for 2021 is already fixed. And maybe to add some figures to that, the gas is already for -- 90% fixed for 2021. And for 2022, we even have 70% fixed on the price level. So we are benefiting at the moment on the -- on a favorable cost structure as we locked in already these volumes or these prices basically last year.

On the electricity side, which is not that material for us, but still also a big cost position. It is comparable. We had on the electricity side, on the power side, around about 90% fixed for '21. And for 2022, we also have around about 70% already fixed for 2022. And this hopefully answers your questions about the volumes, the price is basically which the -- hedged for the future.

[Yassine Touahri, analyst]

Is it fair to assume that the hedging price for 2022 is higher than the price -- the average price for 2021?

[Gerhard Hanke, executive]

The hedging price of 2022 is slightly higher than the hedging price which we have in place today for 2021, yes, right.

[Yassine Touahri, analyst]

But the risk is mostly for 2023, which is a long time down the road?

[Gerhard Hanke, executive]

We have -- for 2023, we only have small volumes basically hedged so far, but this is simply going too far.

[Operator]

The next question is from the line of Cedar Ekblom, Morgan Stanley.

[Cedar Ekblom, analyst]

I had a question on your M&A strategy going forward. I wanted to ask how you see the M&A landscape. And if you could compare and contrast maybe what you're seeing on the Piping side versus the brick side in Europe? And maybe give us a bit of color in terms of how you see capital allocation going forward. Where you see the growth opportunities? And maybe also talk about multiples in the different markets. I would assume that multiples of parting businesses are probably a bit higher then on the brick side of things. Maybe just give us an understanding of the next leg of the M&A strategy, please.

[Heimo Scheuch, executive]

Thank you, and obviously, appreciate your question on this from our side. When we talk about the pipeline, it's again a mixed one. It's smaller deals in the Building Solutions side, add-ons that we require on accessories and others. So it's, as I say, it's a mixture of midsized and small, that is a couple of million euros, et cetera. So the multiples are not that high and not that different from before, we didn't develop that much. So this is, I think, very digestible. And from a perspective of further growth, makes a lot of sense.

You are absolutely right. If I look around and look at different multiples that are currently paid in the Building Materials side, in Europe, we are approaching quite high multiples. And from our perspective, we will be very careful because it's a matter of creating value that is, obviously, in the sense of our attention and not just buying companies.

On the Piping front, we see a multitude of midsized and smaller deals that we can absorb and do in different geographies around Europe, Eastern and Northern and Western part of Europe, and that we will move on. We see them as perfect add-ons to our current structure and exposure. So as we said, water management and energy management made 2 major focus points and also on the in-house business when it comes to Piping. So these are the major focus points.

Multiples have not sort of increased dramatically. They are not higher than in the Building Solutions side, by the way, so pretty much in line. And I don't foresee in recent months that they shoot up or go through the roof, as we speak. But as I said, we are known for a disciplined team of people when we talk about the M&A side of the business.

So again, yes, there are good opportunities out there. We pursue them. We're eager to take these opportunities, if we can get them at the right price. And we will sort of make sure that our teams are ready to integrate it. And finally, yes, they are more in Europe at this stage because on the U.S. side, we will have our hands full of integrating Meridian then from the next quarter onwards.

[Operator]

The next question is from the line of Miro Zuzak, JMS Invest AG.

[Miro Zuzak, analyst]

I have 4. The first one would be regarding the gross margin now in the current quarter, you seem to be very, let's say, bullish on the price increases. And that you can offset the raw material prices. Is it fair to assume that your gross margin, which has been a little bit under pressure in Q1 will normalize in Q2 already? And by normalizing, I mean not going back to the previous year level, but to the 2019 level of 36%, 37%, is this realistic? That would be my first question.

[Heimo Scheuch, executive]

Yes. I think, obviously, we always have the same development. I think gross margin, you need to see over the year, by the way, and not over quarters. Because, obviously, you get to, first of all, shutdowns for maintenance and then start-up of plants that are in this in certain quarters. But you're absolutely right. In quarter 2 due to the full utilization of plants, they're running smoothly, and the output is increasing. Obviously, margin goes up. And I would say it's fair to assume that we go to the '19 level.

[Gerhard Hanke, executive]

And I think on the Piping side, as Heimo already mentioned, yes, we foresee that there is some pressure on the margins, which we quantified by a maximum risk, which partly will affect quarter 2 and finally also quarter 3.

[Miro Zuzak, analyst]

Okay. Then regarding the carbon leakage status which now basically is guaranteed until 2029. What happens thereafter?

[Heimo Scheuch, executive]

That's a good question of yours. But obviously, we have different sort of schools of thinking, and I think we need to be very agile and very sort of flexible because I'm certain that -- there are some people, and you see the tendencies already in Europe that this gets replaced by a national policy. So that the governments put national policies in place like carbon taxes, like sort of references with respect to carbon prices and et cetera, et cetera.

So I'm not sure that we will have from '29 onwards, a common European approach, by the way. We might have a common European approach on the borders of Europe. But as far as the national ones are concerned, there could be eventually a move towards a more, call it, nationalistic approach by all due respect. But that's something where we see already certain tendencies when we look through our landscape of activities that we have.

But that's a best guess. We can also have a broader reflection because the U.S. is currently talking to Europe again about this whole sort of climate change procedure. We might sort of see a bigger discussion on those items. It's like looking into a glass bowl, to be honest. I can't give you here more of this information. The only thing is that I can tell you, we prepare ourselves for all sorts of different scenarios. It's not only one scenario that we are basically looking at, meaning that this sort of trading scheme continues. No. We think also of more national approaches as well.

[Miro Zuzak, analyst]

Okay. And then the third question would be regarding the selling cost, which has been down year-over-year. Is this -- have you -- are you there -- are you more efficient there? So can we expect to have a lower level in terms of percentage of sales going forward compared to the 2019 levels? Are you more effective there? Or was there a temporary effect in Q1?

[Heimo Scheuch, executive]

No. I think we, obviously, are more effective because we do a lot in digitalization. We put a lot of emphasis, as Gerhard puts it, on the fast forward or now the sort of the self-help program. So here, we have made considerable improvement. But it would be also too ambitious to see that we do it every year and in the same amount. So I think this gradually goes lower. And obviously, last part is then more difficult region. And I think if we are very efficient already to squeeze out another percentage point, it's much quicker than at the beginning of such a journey. So yes, we will continue to positively develop, but not at the same pace as we did in the past.

[Miro Zuzak, analyst]

Okay. Cool. And administrative cost was up, quite a contrarian development. Was there any one-offs? Or is this the new flight level, the 64?

[Heimo Scheuch, executive]

No. I think in some -- again, quarter-by-quarter, it's difficult to adjust because, obviously, here, again, in the first quarter, you might have some bonuses in it and some sort of -- from the past, some issues. So please don't look -- don't overreact on those things in the first quarter. And then Gerhard, you can confirm that.

[Gerhard Hanke, executive]

I think there's nothing special what you see. I think especially on the administration cost, it is really only a timing impact what you see. On the selling cost, I only can underline what Heimo said, yes? We did our efforts and also what we should not forget, there was in the last -- also last year, this year, no fares, basically, which also were part of the selling cost in the past, so we constantly are coming down. But as we said, I think the efforts what we are showing are coming also to a level where every percentage point to go further down is difficult and challenging. Yes.

[Heimo Scheuch, executive]

Operator, I think, we need to look at also our timing. And I think if there are one or 2 more questions, we might take them, but if not, then we will sort of close the call.

[Operator]

There are no further questions at this time.

[Heimo Scheuch, executive]

Thank you.

[Elisabeth Falkner, executive]

Thank you very much, operator. Ladies and gentlemen, thanks very much for dialing in today. Next conference call will be on August 11 for our half year results. And today, I can only wish you a nice remaining afternoon. Thank you very much for dialing in, again, and goodbye.

[Operator]

Ladies and gentlemen, this concludes the Wienerberger conference call. Thank you for joining, and have a pleasant day. Goodbye.