Wienerberger AG (WIE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the Wienerberger conference call on the results in the third quarter of 2020. [Operator Instructions] And I would now like to turn the conference over to Mr. Daniel Merl, Investor Relations Manager. Please go ahead.

Ladies and gentlemen, a warm welcome to the Wienerberger earnings call in the first 3 quarters of 2020 and our Q3 2020 results. Our Board representative today is our CEO, Heimo Scheuch. He will lead you through the presentation today, discussing our results in the COVID environment, but also giving an outlook for further growth opportunities for Wienerberger in the future. After the presentation, as usual, we are ready to take your questions. I will now hand over to Heimo Scheuch for the presentation.

Thank you, Daniel, and good afternoon from Vienna from my side as well. Thanks for being on the call and would like to sort of briefly go with you through the Q3 results, give you an update on the situation in our markets and then also a short update on our strategy. Ladies and gentlemen, as you have received the presentation, I would sort of kindly refer to some pages that you can flip through with me. And when we look at Page 3, you see, obviously, Q3 has been a very good quarter, obviously, determined by strong operational performance in all of our units. We had post-lockdown demand that improved through the summer months, the catch-up effect due to the lockdowns in this quarter too have materialized. You remember that we discussed those at half year results and have seen them coming through in all of our units. And above all, I think the self-help efforts that our group puts in place with respect to performance enhancement measures, the improved product mix and obviously, also the strong focus on innovation is paying off, where you see that we -- even in this sometimes very challenging market environment can grow the business and especially the profitability. Drawing your attention then, obviously, on a group perspective, the turnover has been down in quarter 3 about 2%, and EBITDA compared to the record level of last year up with 2%. So it shows clearly that we're on a good path for the further development of Wienerberger. Addressing some of your potential questions already, pricing has been very stable. So we have been able to hold the prices at the levels that we have attained at the beginning of the year and throughout the whole COVID crisis. So pricing stable. We had on the front of efforts in the different units, obviously, a good performance on the Fast Forward projects. And as I said a couple of times, we have implemented our measures very rapidly and quickly. So we have delivered so far EUR 24 million out of this project during the first 9 months of this year. I'm very confident that the EUR 6 million remaining we will achieve also this year, so we will come to a EUR 30 million EBITDA improvement from our Fast Forward program. The rest that we will sort of deliver in the years to come, and especially in '21, will be then part of our overall measure. I will talk in a minute about. So this is a general sort of statement. If I can guide you to Slide 5 of my presentation. Here, I give you an overview of the markets a little bit more in detail, taking on your suggestions that I had during a couple of calls with you that you want to see a map again a little bit. So a little bit of background to the market, new business renovation. When we look at Western European markets in the first 9 this year, they have been, from an overall perspective, slightly down compared to last year, that is to do with the lockdowns. And obviously, also the problem that administrations are not full-time working, and we have some delays with issuing building permits. But this is the general sort of status when it comes to newbuild. Renovation is being up, helpful for our roofing business, especially in the strong Western European markets like the Benelux. We have seen very good performance also in the pre-build segment in Belgium and The Netherlands, very good demand levels coming in, in these segments. Central Europe, again, when you look at Austria and Germany, especially, we have been a sort of flattish market environment when it comes to newbuild in our core segment for 1- and 2-family houses and also in the renovation field, more sort of a flattish environment in these 2 markets. Then Eastern Europe, a mixed picture. Ladies and gentlemen, we have seen obviously that Eastern European markets have been sort of throughout the COVID and the lockdowns operating from very differently approach they have taken to the Western European economies. However, we have seen some markets over the summer also weakening. This is especially true for Poland and Hungary. This is not to do exactly with the COVID situation, but both countries, especially the Hungarian ones have taken tax measures before the COVID crisis, bringing the IT substantially up on building materials and services and construction. So they obviously were suffering from a quite severe downturn in the market. So we had to digest this also in these economies. So as I said, Poland and Hungary weaker compared to last year, the newbuild segment. The other markets like the Czech Republic and Romania, taking only the 2 big ones, have been more or less flattish compared to last year. In the -- again, in the renovation segment, we find a very stable sort of environment throughout the whole area, with good volumes and stable volumes compared to last year on the roofing segment. Let's move to infrastructure. Here, again, declining volumes in Western Europe due to the lockdowns, especially obviously, when you talk about the more important markets for us like The Netherlands and France and to some extent, also Belgium. At the Nordics, certain markets like Norway, Sweden, Finland, and the Baltics relatively flat development to last year. So on a good level, flattish. And Eastern Europe in -- especially the one -- the markets that are heavily influenced by the accretion fund and by public funding from the EU are doing well. So we had infrastructure projects. Again, in the summer it's a little bit the same scenario than in the newbuild segment in Poland and Hungary, showing a slight decline in these markets. So this is the overview on the markets. You will see the more or less the same development for the rest of the year. We'll come to this in a minute, in some areas probably a little bit more declining because obviously, the catch-up effects are now over, and we have worked up the volumes basically that were pre-COVID issuing of permits. Let's have a quick look to the U.S. and Canada. We've seen in the first 9 months and especially after the sort of COVID, major COVID crisis in quarter 2, a strong demand level in newbuild in the U.S. So good levels and in certain areas, even above last year, and you've seen also that our profitability in this segment has increased very satisfactory. And also in the renovation front, good demand level. Infrastructure, due to bad weather, obviously, a little bit below last year. Canada was severely affected by a very long lockdown. And obviously, after that, it came back nicely. But as I said, it took a while to start off the business in Canada. So all in all, I think that's the overall perspective on the market development on our end markets. So when we look at Page 7 of the presentation, 4% turnover down compared to record last year on an overall perspective. I think in this business environment, a very good performance. And it shows also that from a cost perspective, we have costs under control. EBITDA is only down by 7%. We had to digest, I recall, major lockdowns in major of our markets and digest all of this sort of cost. And I think we have done well in order to manage that. On Page 8, 9 and 10, you have an overview of our business units. I think the numbers explain themselves. And I've given you an overview. If you have any questions afterwards, we can go into the detail. But generally speaking, I think considering the markets and the development and overall very good performance. We want to draw your attention to Slide 12 of our presentation. Here, again, the overview on the financials. You see that from an EBITDA margin like-for-like, we have well digested this sort of event this year in our end market. I just want to draw your attention that, obviously, Wienerberger's business model today is much more resilient than in the past. And therefore, we can sort of digest those events rather sort of in a more appropriate way than in the past. On Page 13, 2 things that I would like to mention. First of all, you see that on a working capital perspective, we have been able to reduce our working capital. And this market environment shows how tight we manage our working capital and our structure. When it comes to net debt, you see that compared to last year, we are down by 22%, so below EUR 700 million on net debt. It gives us a ratio of 1.2x net debt to EBITDA, so a very satisfactory level. And I think it shows, as I said, at the beginning of this year, you recall, cash preservation and very strong balance sheet management for the Wienerberger. Free cash flow also on a very satisfactory level. So I think these are essential parts of the issues when it comes to cash management, balance sheet, et cetera, and working capital. Let's move very quickly to Page 20, where I give you an outlook over the whole year. I keep saying this over the year, and you have seen the consistency in my words during this COVID crisis that the markets will be down by roughly 10%. I think when we look in certain markets over the year, we will see this. You will see it at the end of the year, obviously, quarter 4 is still before us. So I think here, you will see a certain decline compared to record levels of last year. We will spend this year roughly about EUR 120 million of maintenance CapEx. Now the question that you will ask in the discussion anyway is about quarter 4. So let me give you here my personal feel. We have done very well in quarter 3. We've actually performed exceeding -- very satisfactory. In quarter 4, I think we have a lot of issues in front of us. Currently, the visibility is very low. There's a lot of political issues coming to the high infection rates that we face, especially in Europe, and countries are moving very fast in imposing all sorts of partial lockdowns or sudden lockdowns. Will they affect us? I don't know yet. I don't have sort of the visibility yet because it's moving very quickly. I can only tell you that these high rates of infections are in a certain way affecting all of us because people cannot come to work from a production perspective, from a service perspective, from also a construction perspective on the sites. So there's a lot of things that are coming our way. I'm not pessimistic at all so that I say this loud and clear, I'm not pessimistic. I'm trying to be realistic, and we face a lot of challenges in the next couple of weeks or months, as you wish. This COVID-19 won't go away so quickly. So we have to deal with it. Is the current guidance that we have out there with a like-for-like EBITDA with the higher range of EUR 500 million, is it too pessimistic? Ladies and gentlemen, the only thing that I can tell you from today's perspective, independently of lockdowns and whatever comes our way, I'm sure, and I'm pretty confident that we will reach this EUR 500 million. So I think here, you have, I think, a very strong message from us that even in these difficult times, we are more or less certain to reach this EUR 500 million. So it's a strong statement from my side, independently, obviously, of the market developments that are -- the general political and other developments that we might see in the next weeks. So I think what I'm trying to say was this, if it's going better, if we have a mild winter, if the weather conditions are such that we can work through right through to Christmas and if also from a perspective of COVID-19, we have a favorable one, yes. The answer is yes, we will be doing better. But let us sort of see this during the next couple of weeks, I will be updating you as I did in the past on COVID. But from today's perspective, the visibility is low, and it is -- would be obviously not the right way to rush ahead and do some sort of scenarios again because we will see. As I said, we will work on the working capital, we will work on our cost structure, and as we did in the first 9 months, bring in the best performance that we can get. So I think this addresses the whole issue of guidance. And for those who want to take quarter 4 of last year, meaning 2019, as an example, please don't do that. It was a very different quarter for a couple of reasons. I only give you 2. First of all, we did some price increases last fall. So they were fully effective in quarter 4, and we didn't do this year because it was not the right moment to do so. First issue. Second issue, it was a very, very mild winter, and we were able to work through right to Christmas, and there was a lot of deliveries also in December, so a strong month. And I'm not saying it's not going to be the same. I would say, only one word, don't take this as an example, okay? So this is, I think, my message as far as the guidance is concerned. Let's move a little bit towards the future to address also our strategy. We've clearly laid out during our Capital Markets Day that Wienerberger, independently of the markets that we will find in '21, '22 and '23, wants to grow, and we will again focus on our business, on our products, on our route to markets, on sort of our overall business approach with services and with solutions to grow the business. To simplify, you find on Page 23 of the presentation that we want to grow in these 3 years by EUR 135 million EBITDA, investing in the business, obviously, but with a clear payback. We do this on a very structured basis in improving our technologies, improving our processes, improving our overall performance and adding, therefore, EUR 135 million. If I sort of multiply this with our current -- multiply on the stock exchange will create more than EUR 1 billion sort of value for the company. So an impressive, again, goal and strategy forward independently of markets, independently of M&A. Ladies and gentlemen, I think when you look at our targets on the ESG front, you see, again, a very clear commitment of Wienerberger to reduce energy consumption, to reduce, obviously, our emission of CO2 by 15% in the next 3 years. Again, a very impressive way forward. And it's not only enough to talk about CO2 emissions. We are talking about biodiversity. We are talking about our portfolio saying it's 100% recyclable or reusable, the new products that we designed and put in the market. So a strong commitment of Wienerberger to a very modern, a very forward-looking ESG management. Last but not least, let me just say one thing. We don't shy away of looking at our portfolio, also divesting certain assets if we don't see that there's enough growth, if we don't see that there's enough opportunity for further improvement. You've seen that we have successfully divested our Swiss business for higher multiple, actually, that we are currently traded on the stock exchange rates. Again, a very good move forward on the liquidity side. And on the strategy side, we can invest this money in businesses that grow faster. And again, we promised to divest EUR 150 million of value we did so and are successfully obviously ticking this box again. On an M&A front, we obviously, we have created a lot of liquidity. So that's certainly the case. We have created a room for further growth. We'll wisely use it in the upcoming months and upcoming year. You've seen a small acquisition coming through, and I've described it on Page 25 of my presentation. It's again, there, you can see that we are improving our range of products and solutions for our clients. We have added a software company that basically offers smart infrastructure solutions to monitor, predict and control data when it comes to sewage water. And again, here, we think we can offer new additional features and value to our clients. I think summarizing all of that, I think, from our perspective, we will move forward on our innovation strategy and clearly do it by M&A and also internally. We have ambitious targets for our Fast Forward enhancement project with all the performance enhancement that I've sort of given you an overview very briefly. ESG and sustainability are top priorities with clear targets that we can track, that we can communicate it and that you actually can sort of check on us. And we will use the strong cash generation for further growth. Again, anticipating some of your questions, yes, we have a very good and interesting pipeline of projects. They will come through. It takes their time, and obviously, we're not rushing into something. We don't feel ourselves under pressure. I think the next month will show that when we do a move, it's the right one for the right price and creates value for all of our shareholders. So thank you very much for your attention, and I'm obviously delighted and ready to take all of your questions. Thank you.

[Operator Instructions] And the first question comes from the line of Yves Bromehead of Exane BNP Paribas.

I have 3 questions. My first one is, well, I guess you've already answered anyway, the Q4 and the full year '20 guidance. So I'm not going to ask you something about that. But when we look at the kind of stock level of brick inventories in the U.K. and elsewhere, it seems that the market is getting quite tight, especially post the catch-up effect. So I guess, two-sided. One is, can you keep that level of free cash flow? Or are you going to have to increase working capital in Q4? And secondly, is that preparing you very well for the price increase season as we get towards January 2021? My second question is, I wanted to know if you could comment on the impact of recent consolidation in the U.S. through one of your competitors. And in Europe, recently, there has been an announcement on the tile market. Just wanted to get a feel as to how consolidated the market is today versus maybe pre-crisis? And last but not least, I appreciate you've been very vocal around the niche piping solutions where you're increasing your our weight there. Are you also interested in maybe some new verticals like the HVAC industry? And could there be some overlap there?

Thank you, Yves, for your questions. I think the first one on the inventory level, I think, from our perspective, we are in a situation in Wienerberger where we can easily sort of deal with any changes in the industry. We are clearly monitoring our route to markets. I think we're -- that company that works the closes with our end consumers and end users even in the U.K. on the contrary to our main competitors there that are working more or less in the -- in, I would call it, in the commodity and the big sort of scale and the volume business. We are working with a lot of smaller clients. And here, we have a good visibility. We have stock levels on acceptable levels, I think, not lower or not, in any means, for me, in a critical situation for the demand level that could pick up eventually or also, as you are referring, price increases coming our way. And don't underestimate our capacity to move production from U.K. to Mainland Europe or actually also to support the U.K. production with our capacity in Mainland Europe. So here, I feel that we have all the flexibility we require. And also in the tile segment because you referred to it also in a later question, but also in the tile segment, I see ourselves well positioned because I see renovation picking up. And here, obviously, we are monitoring this also very well to have the stock level under right situation. Working capital is not only linked, obviously, to inventory, as you correctly pointed out. But for me, it's also, I think that from a Wienerberger's perspective, we are in the right way, and we don't need additional sort of inflow of cash to finance additional working capital. So I think we are fine for the rest of the year as well. Consolidation effects, your second question, is obviously moving along, and you had obviously M&A activity. Etex selling its business in Creaton roofing tiles in Europe, and they sold it to the French competitor, Terreal, a group owned by private equity. And they have bought it for quite a high price, I would say, at this way when we look performance of the business. So I'm happy that the consolidation is taking place. And as you see, we are not only thinking of consolidating out the industry and think it's helpful that others do it also because we are moving ahead already in the sense of integration of different businesses and to offering more than 1 one solution. And it's not only about capacity, but the whole solution. So when you talk about the roof, our competence is not only in roof tiles, but in non-ceramic accessories in insulation and other material that is linked to the roof. So this is going to be Wienerberger's path forward. But again, if there are consolidation possibilities, you referred to the U.S., but I refer also to smaller ones in Europe. Wienerberger will be ready and do it for the right price because obviously, we are not doing it just for the need of consolidation, but it must make a lot of sense. So yes, we are certainly a consolidator also in the future and do it for the right parameters that require -- that we require to create value for all of our stakeholders. On the niche piping solution part, again, yes, we are driving our change process in the piping segment very thoroughly with a lot of energy from the management side, and you've seen the strong numbers coming in from this segment, and we will do so over the next years. It's a process. I always said, it's not something that will be in a couple of months achieved. So this is -- will certainly be part of our strategy forward for the next years. You will see us, first of all, investing in the business. Yes, we create capacity. We create the technology for additional products, accessories that we can sell with our piping business. You've seen us doing as little M&As left and right, and we'll continue to do so. And so the answer to your question is, yes, we think that we can sort of grow the in-house segment, which we call it the electrical one and the water one of the business and also on the infrastructure side, create here a product range that is not only consisting of pipes, but as I said, on the M&A front, with the Dutch acquisition, a more comprehensive and more value-creating product range that we put in place over the next years. I hope I've addressed your question, Yves.

Yes.

The next question is from Xintong with On Field Investment Research.

So I have 2, if I may. The first one is actually on the Q4 outlook or even rolling into 2021. Because if I look at the EBITDA guidance, which means that the Q4 EBITDA like-for-like will be even lower than 2017 or 2018 levels, not just 2019. So I'm just wondering, in that sense, can you please help me understand a little bit like in Q4 in which market that you see a significant slowdown that will roll into 2021? And also, what are your rationale behind the EUR 500 million guidance? Because I'm just trying to understand the gap, the difference versus the previous year. And my second question would be actually on your digital tools because you've mentioned that during, say, Q3 or even the first 9 months, your digital solutions actually helped a lot, for example, the unbuilding solutions business. So I'm just wondering, is it possible to quantify the impact in any sense? For example, how many more users you've got? And also like how do you see it improve their productivity? And also, what kind -- what is the opposite scenario, for example, the slowdown in construction activities or businesses? Did you foreclose one actually in place in the first 9 months? I'm just trying to understand the impact of all the digital talk here.

Yes. If I may take your second question first, and thank you for this one. Obviously, we track it very detailed -- in a very detailed way this approach. And please, if I may remain a little sort of a helicopter level and not go to any -- all of the details. But if we introduce a workshop for plumbers in Austria, for example, which we did last year and this year was fully effective. We see here double or even triple-digit growth in this workshop. What does it do? It actually offers the plumbers to order directly from us directly, and we deliver between 12 and 24 hours on the construction site. So this is the approach Wienerberger takes. We have put this in place. And as I said, we have here double or triple-digit growth. So yes, it adds to our business. Yes, it creates it. It's difficult to measure on a group level because we have so many things in place. And actually, I could tell you, if we hadn't these sort of things in place, we probably wouldn't create the business that we have done in the past. From a sort of users that come to our website that order from us directly ordered are in contact with us in order to create leads for project sales, for example, all in all, we have, again, very impressive growth rates. I mean when I look at Belgium, one of our major markets in Western Europe, we have a traffic here of more than 1 million people at our -- on our sites and work with us. So it's quite impressive. And I think we are surprised by ourselves how strongly people are using and interacting with us in the digital field. And you will see more and more features from us to satisfy the demand level and satisfy basically our clients. One -- as a matter of fact, one of our subject is also we have more and more access or hits to our installation videos, how people install our products. And so it's very helpful for them to see it, to get instructions directly from us. We use these learning tools more and more, especially in the COVID times. So these are things where we are dramatically changing our efforts and, we have human efforts and also financial efforts going. From a financial perspective, these investments are not huge for us. We are not talking about EUR 10 million or EUR 20 million here. It's smaller amounts that we exactly use for those businesses and bring to the marketplace. I think -- I hope I addressed it. But obviously, I will think and take your question for the future to give a sort of a couple of KPIs that we can track them in the future so you a better idea. But I hope I addressed it in a way that you can get a better feel, that digital is for us a major tool when we talk about customer relationship and interaction with our customers. Your first question was relating to the quarter 4 and the guidance. Let me just give you, as I tried in my presentation first to give you the following sort of perspective. We were one of the first companies in the sector to give a guidance this year, and we did. And we upgraded the guidance in the sense that we said very early in the year, EUR 500 million is the upper range, basically, that we -- I think we are able to achieve. So yes, we are working towards it. And as I said, please don't take always the comparison to last year because it was very different with the price increases, with high volumes in quarter 4. So it's a very exceptional one. You're right to go back to '18 and '17 look there as well. It's fine. It's good. I said, with the current situation, and please understand my position here. It is very difficult to update guidance in October when you have not a lot of visibility for the rest of the year. And I can guarantee you, as of today, that we will reach the EUR 500 million in any event with all the closures and all the lockdowns that potentially, and I say, potentially come our way. We don't know yet. But I'm just saying, I think Wienerberger can go through by not affecting our current performance, and we can sort of say, give you the assurance that we will make EUR 500 million this year. That means on the contrary, if nothing happens and if everything goes well, if we have a mild winter, yes, we will do better than that, absolutely. And you are right to look at the historical numbers, and we will do better. And that's, I think -- I can update you probably in the 3 or 4 weeks' time when we have the visibility. But from today's perspective, I rather would stick to what we have to give you this information, and this is the best I can do at this point of time.

Next question is from Ami Galla of Citi.

Just a couple of questions from me, and I'm sorry for asking a bit more on the Q4 again. But would it be possible for you to give us some color on how the October trading pan through your markets? And secondly, is it -- based on the sort of lockdown information that we have as we stand today, would it be fair to assume that actually most countries are still quite positive in terms of the construction sector, and there aren't as many restrictions in place versus when we compare to the first lockdown? I think related to that, I would -- I mean, it would be also helpful to understand how the renovation sector, as you see it, would probably operate in the current lockdown scenario? My second question really is on the international piping business. I mean if you could give us some color on how the backlog stands in that business, that would be quite helpful. And the other really connecting question is really on the margin performance in piping has been quite good in the past 2 quarters, obviously, there has been some self-help measures as well as product mix benefit. If you could give us some color as to what is the normalized margin that we should expect your piping business to have on the back of the optimization measures that you have taken so far?