Wienerberger AG, Results H1 2015: Press Conference

Good day, ladies and gentlemen. Welcome to all of you. On behalf of the Wienerberger team, my colleague and myself extend a cordial welcome to our press conference. After a heat wave, the temperatures have come down, but the figures correspond to warm weather rather than cold weather, because they're very good indeed. Let me briefly summarize the first six months of 2015: we have revenues of almost 1.5 billion euros, up 9% compared with the previous year. Operating EBITDA has increased by 34% to just over 180 million euros—a very positive development in all our segments, in all our regions. Not all markets have taken a positive development in infrastructure and residential construction. Nevertheless, we've been able to increase our prices in all our regions, and that has offset the inflationary cost increases and even exceeded them in certain areas. The foreign currency effect has also been positive. Energy prices were slightly lower than last year, which has had a favorable impact on our result. Despite having a more normal winter this year—the first quarter was worse than Q1 2014 because it was cold—gross cash flow is up by 54% to almost 154 million euros, which is a strong signal. Our EBITDA target, considering this very strong performance, will be increased to 375 million euros, though there will also be one-off effects from real estate transactions. Let us take a brief look at the individual segments. Clay Building Materials Europe benefited greatly from price increases and an improving environment in the UK and the Netherlands. Measures taken in recent years to optimize production facilities and improve energy consumption have also had a beneficial effect. Volumes declined slightly but were offset by optimization measures. As regards Pipes and Pavers—PipeLife, Semmelrock, and ceramic pipes—PipeLife performed very well in Northern Europe, particularly in Norway, Sweden, and Finland, gaining market shares. International project business was very good as well. We supply special fiber-reinforced pipes and long-length, large-diameter pipes for energy projects—a high-margin business. Ceramic pipes showed more stable results, although the German market was declining slightly. Semmelrock was able to slightly increase results despite shrinking markets. In North America, there was a significant revenue increase, although new residential construction grew only 5% instead of the 9% we had expected. Average prices increased slightly and we have leaner cost structures thanks to optimization measures. A one-off real estate transaction contributed a positive 12.5 million. So: revenues 1.5 billion, EBITDA 181 million—a strong increase—profit after tax of 21 million for the first half, and gross cash flow of 154 million. And with this, I hand over to my colleague.

Well, when you look at this map, our core market is single-family homes and two-family homes—that's the relevant market for us. Bricks are being used there, clay blocks, facing bricks, and clay roof tiles. The statistical office is reporting the total number of dwellings built, and this is mainly multi-story buildings. Far fewer bricks are being used. The main building material is concrete—prefab concrete construction. That's a point which, for us, is not satisfactory.

Let me try to answer your three questions. The pricing policy is a local one because we operate in regional markets—it's not countries but regions. When we talk about a price increase of 2% on average across the group, that means that in some markets prices were not increased at all, in others they were increased more strongly. So this is really a local thing. The price increases are due on the one hand to the product mix with more premium, high-value products, but again it's the regional environment that matters. Then, regarding the Austrian market: if single-family homes are to be built, you need a certain amount of financial strength, which is not as good as it was in the past. Land has to be available at an affordable price. And there is another trend—not only in Germany but also in Austria—dwellings are being built in urban areas, dwellings are smaller than they used to be, and that means less product used per dwelling. As regards the net result: if we have no extraordinary expenditure, we will succeed in generating a net profit. But there may always be impairments—we still have goodwill in certain regions, and it depends on the development of individual markets. We had to make a book impairment in Russia during the first half, and such things might happen during the second half as well. But this is merely an impairment in our accounts; it doesn't cost us any money. I would think that developments will continue along the same lines as in the first half, but let's wait until the second half is over.

Well, that's not necessarily a conclusion to be drawn. It's not always true that you can increase prices in a growing market, because there may be a competitive situation that doesn't allow you to do that. So it's really an interaction of product policy, market positioning, and local competition. But there are markets—even in a difficult market like France, we were able to increase our prices slightly because we have improved our product portfolio. But even in a more stable market you may be forced to keep your prices stable because of the competition.

Well, that really depends on the product. It's not only a question of the individual categories like wall, facade, pipes, and pavers—it also differs from segment to segment. In the pipe segments, it's not just pipes; there are accessories and other things you are selling at the same time, and that has an impact on your pricing policy.

We said that by the end of 2016 we want to generate 100 million from our non-core real estate sell program. We are in mid-2015 and have already generated revenues of 55 million, so there is a lot more to come. We launched the program in 2012—negotiations, obtaining permits, all that takes time. We are about to close certain projects, but we don't want to anticipate anything because rezoning still has to take place. We keep our feelers out everywhere. Particularly in clay block production, we have a lot of real estate from restructuring—we closed down plants between 2009 and 2012. Whenever we can sell real estate at a reasonable price, we do so. We don't sell out. If it's not going to happen in 2016, it will happen in 2017. Our real estate is not near urban areas, and some parcels are easier to develop than others.

As long as the interest level is as low as it is—no, we're not considering this possibility for the time being. We have enough undrawn bank lines, which are much cheaper for us than a bond issue. A bond issue makes you inflexible for a certain period; bank lines are much more flexible. We'd rather use undrawn bank lines, which generate less of a negative carry. We do have a lot of cash on our balance sheet. In August, we bought back a 200 million bond from our own cash and bank lines. As long as we're paying a relatively high rate of interest on a bond, we're not going to do it—and we don't need it for the time being. As regards capital expenditure, I'd give a two-part answer. First, there is capex for our current business. We were very prudent in recent years. Wienerberger used to invest a lot of money, so we tried to use common sense and kept developing through technological investments—reducing energy consumption, using improved raw materials, investing in plant and equipment, and improving products. All that is included in the 150 million guidance, which also contains minor growth investments at individual locations—in the US and Europe in the pipe segment—because we want to step up activities in new markets and have the necessary capacities. We are earning more than last year, but still not enough, and for that we need markets. But we have to be careful when it comes to spending money. As for acquisitions: in recent years we've repositioned ourselves with a reasonable growth policy, always keeping our balance sheet and debt structure in mind. We've brought net debt down considerably and have strong cash flows. But we're not going to make acquisitions that are not well thought through. Acquisitions must have a payback component—they must be value-building and value-accretive. To reach our ROI targets, which are high—we're far from 11.5% ROI—but all the investments we've made in recent years, like Tondach, PipeLife, and Keramischer Steinzeug, were well above 11.5%, and that is important. The criteria we impose on ourselves are very demanding, and we are highly disciplined. It depends on whether opportunities arise. In the construction industry, a lot is happening—a battlefield has opened up in the cement industry with mega-mergers, and that will have an impact over the coming five years because many businesses are not profitable enough and have not gone through the restructuring we have. The turnaround at Tondach is clearly progressing—there's a clear-cut tendency since 2013 and 2014. Profitability has been higher in the pipe segment than in the brick sector, but we've also seen growth in the brick segment, particularly in the UK and the Netherlands. When markets recover, there will be high profitability.

If things go well, yes. Margins are higher. Margins for roof tiles are about 20 to 25%, for clay blocks about 20%, and for facing bricks about 18%. For pipes, margins are about 12%. Are there any further questions?

When it comes to our strategy, it's clear that Wienerberger is focusing on an overall solution—roofs, facades, walls—and we focus on customers' requirements and expectations. We have dealt with ceramic and clay products for almost two centuries, but now we are also selling new products—ceramic products, insulated bricks, insulation, and more. When it comes to pipes, we focus not only on water and sewage pipes but also on electricity and energy in the widest sense. We will see further growth, not only through takeovers but also through further product development, which is one of the strengths of our company. Wienerberger today is not only a manufacturing company—we also need to be present on building sites and consider logistics. We are more open-minded than we were ten years ago, and therefore we are trying to acquire companies that will round off and strengthen our portfolio. All our measures will be future-oriented and well-considered. Thank you very much. Thank you for your attention, and enjoy the rest of the summer.