Wienerberger AG (WIE) Earnings Call Transcript & Summary

Ladies and gentlemen, a warm welcome from Vienna to the Wienerberger Conference Call in the context of our H1 trading statement published today. Our Board representatives are our CEO, Heimo Scheuch; and our CFO, Gerhard Hanke. They will lead you through the call today discussing our strong performance in the first half of the year. Afterwards, as always, we are ready to take your questions. Please bear in mind that this is a preliminary update. The full set of H1 results will be provided on the 10th of August. And with that, I hand over to Mr. Scheuch.

A wonderful good morning also from our side here from Vienna. It's a very hot day out there with about 35 degrees. So we are glad to sit inside here. As I said, warm welcome. Marco is handling the administration today. Daniel, please be aware that he is with COVID at home. It's nothing serious, but he has to isolate himself for couple of days. So please don't call him. He is recuperating. We have asked for your kind understanding. Let's move to our performance, a very satisfactory performance in the first half of this year. It's obviously a record performance when you look on the EBITDA front. We forecasted -- we forecast of EUR 530 million EBITDA. So that's a 74% increase compared to last year, more than EUR 200 million, obviously, more EBITDA in the first half of this year. So a very strong performance. Considering these times, and I don't have to stress them, it's volatile. It's difficult to assess what's happening. The inflation side, the war side, the whole sort of rhetoric that we have around the world right now. It's very instable, but we have seen in our markets, good underlying demand levels in all of our markets, in all products, in all end markets, new housing, also in renovation and in infrastructure on both sides of the Atlantic, Canada and the U.S., strong performance and also in Europe, all around Europe. We had a very good order intake also. Deliveries are strong. And if I sort of say this is certainly affected Wienerberger has been running through full speed with our available capacity in all of our markets, we were able to deliver to the customers. You're fully aware and by alerted to this also in the first 3 months that some of our competitors are in standstill muted has been prolonged also in the second quarter of this year. So we took obviously over some of these activities from colleagues of ours that were not in production. So this is, I think, a strong momentum for Wienerberger. It shows also that our business model is more resilient, because I wouldn't call these markets that we operate in currently as booming, to be honest, they are good markets, solid markets. When I look on the new build front, there's no market that we operate in that we would qualify overbuild. By the way, if you look at certain markets, they are far under the sort of targeted some countries have been imposed on themselves on new build targets, how many housing units they have to build or if I compare over more than a decade now the development of this new build sort of rates. We are in the upper range, but far away from any peak ranges. So here, again, I'm not afraid that here we are sort of in a booming scenario or this is a bus scenario when it comes to the demand level. So what I'm trying to say with this, we have strong underlying demand still when it comes to new residential housing. Renovation obviously, is driven very strongly by the targets of CO2 reduction in Europe in the buildings segment and the initiatives that certain member states of the EU have taken already, either with tax benefits or other incentives and you see this segment is growing and making a strong contribution to Wienerberger's overall performance. And this should be continuing because obviously, the targets are relevant for the years to come. The housing stock has to be renovated, especially when we come to our roofing segment and also our façade segment, we take advantage of this. Infrastructure also, especially on the water front, strong performance in Central Eastern Europe, also in the U.S. and in Northern Europe. So good underlying demand levels, public projects coming in, tenders coming in. So here, I would say it's a good underlying demand level that we see. On the pricing side, we obviously recuperated all inflationary cost increases by the price increases, as we have said. At the beginning of this year, we continue to do so. We trade up also with the mix. We speak and provide you with information about our solution business, how we improve the range of our mix and the penetration in the markets with our new products is going well. And here, obviously, we see the benefits of this strategy and the way forward for Wienerberger. I know that there was a lot of discussion also for us, difficult to assess the political and overall discussion with the availability, especially of natural gas. That's why we have been cautious in the first 3 months because right after the outbreak of the war in Ukraine, there was a lot of discussion. Will we have enough gas? Will it be sort of cut, et cetera? But we have seen a steady flow. And so we are and still are in all of our countries at full production and full availability that we can access over the networks. So here, again, we don't see on a short notice any different approaches by any countries taken. We're in close contact with the national providers, national authorities because as you are well aware the countries in Europe have different approaches and have taken different approaches. However, on a national level, they have all the authorities and administrations in place that regulate the distribution of gas. And that's very important because here, you have different approaches through all of our markets. At this very stage, what we -- and we have put it in our trading update, we see no immediate risk, but we obviously monitor the situation in Germany and in Austria very closely. Whereas in Germany, obviously, we are at level 2 of the escalation phase. However, we have -- we are not under any sort of pressure or whatever to cut the consumption or do anything with respect to the -- to our factories, so they run through. And the only thing is obviously availability and access to it in the months and probably over the winter. I mean, my best guess at this stage is probably that we will go a little bit down with production over the winter months in Germany, for example, if they don't have different access to natural gas or we are capable of liquid gas as a replacement on a short notice. That's something that we are currently working on, on the German market. Austria is a little different. We might get more access to gas and natural gas through Central Europe, which has a better access to availabilities, not only from Russia, but also the Caspian Sea and throughout Turkey pipeline coming up. So I think the whole situation gets a little bit more stable, I would call it, on the availability side that there are sort of force majeure calls. There's nothing indicated on this, our current contracts and agreements are holding up, and we are actually getting under them the gas with the prices that we have negotiated with the providers in the past. So this is, I think, on the current energy front. What I would like also to relate to you that we are continuing, obviously, when we talk about investments, our investment policy and moving away to more sustainable energy resources, especially electricity. In some countries, we are working, obviously, closely with authorities and providers on the hydrogen front, biogas like in some Nordic countries and syngas could also be an option in some areas. I'm saying this because it needs to become clear for all of us. The energy policy of Wienerberger in the future, I'm looking now the 10-year sort of range will be a more local one where we access local available energy and electricity will play here a major role when it comes to production, especially in the building materials segment because as you are aware, Wienerberger has as its footprint today, only one part that is highly energy intensive which I call it the building sector, which is the clay products, because the other products are actually only depending on electricity like the whole business in the piping segment, which is obviously already more than EUR 1 billion turnover. And keep in mind that we have a turnover of more than EUR 1 billion or literally EUR 1 billion now in North America. So the exposure to this segment decreases significantly. And as I said, the access to natural gas is very different around Europe. We have better access in Nordic, Western European economies and even in Southeastern European economies, the situation has significantly improved. So here, I think we are working on this subject very intensively. It's a major subject for all of us on the Board level and the whole line management, but I think we have at this stage, pretty much under control. The year, as we speak, is progressing nicely, therefore, what we see as order intake is normal for this level of the year. So there's nothing to be worried about. Obviously, we monitor all the negative news. And I'm fully aware, I'm fully aware that the markets and especially the financial market is driven by negative news at this stage throughout the world, interest rate hikes and the consumer confidence and the debt levels, et cetera. I'm just as a humble managing part of a business that operates in these end markets, I can say that we have good order intakes. People are investing in infrastructure, investing in renovation and also in the new housing segment, 1 and 2 families with still housing units with still a very good order intake in North America and in Europe. So people are investing in this segment. And obviously, I think from the rest of the year that is in front of us the next 6 months, we should have good underlying business. And that's why we obviously increased at this stage, even in this volatile time with all these negative news around us, our guidance to around EUR 900 million. This provides, obviously, that we don't have a bigger wall than we have today. We have to be dealing with this situation, and it's obviously affecting certain supply chains, et cetera. But as you can see, we are dealing well with this situation. We are dealing also with the higher interest rates and all the sort of signals on the market, but also the inflationary cost increases, especially, I think we have learned to deal with it. On the cost side, we are working hard in order to improve our cost base with the fast-forward program, making all the good contributions to the business that we have foreseen and have built in, in our sort of guidance. So I think all in all, we are looking with a certain degree of positive and optimistic outlook for the rest of the year because it shows, ladies and gentlemen, the incredible earnings potential of Wienerberger with EUR 900 million that we can reach in a good or a relatively solid underlying economy. It's not a historical height. By the way, it's a strong economy, and we have obviously done a lot to improve our business and to come to these levels. And the question that you will be asking all of you, is this -- are these sustainable levels? And I can only say from a business perspective, managerial, the capacity, the technology, the people, the products, it's sustainable because we are operating as we deliver the systems, the solutions to the market every day. We deal with it with our digital performance in the business. We deal with it with our, obviously, pricing power that we have in the market. So I think it -- yes, it shows clearly that we are capable of running a much better business than in the past and can deal with all these challenges. Please don't forget, and I've tried to sort of allude to a couple of those that we are facing in the market. So yes, this is a strong business and has a solid backbone and can operate in difficult times. If the market as such declines and if we have certain sort of declining momentum coming our way in 2023 or 2024 or even later, I don't know yet. But I think we are prepared. We are prepared, as we have been prepared in the past to move very quickly if we see signs of declining order intake. But today, ladies and gentlemen, we are focused on getting out products to our customers and clients in all of our markets. And that's the top priority of our management of our people. That's what we are currently focusing on. So I think on this note, I will leave you to ask your question. And with Marco's remark at the beginning, please, it's the 1st of July, we gave you a very quick and fast update, a faster sort of trading update on the performance and also in the year. I think that the more details, we will sort of deal with you in the next sort of call that we will have in August when we do the whole sort of set of numbers. But this gives you, I think, the flavor and the temperature, if I may say so, under which we operate right now in Wienerberger. Thank you very much for your attention.

[Operator Instructions] The first question is from Brijesh Siya from HSBC.

I have many on 2 questions. So possibly on the first one is on the order book. You talked about order intake being at a very good level. If you could compare the Q2 order intake versus how it was in 2021 and possibly give us an update versus 2019, just to see how the level -- at what level we are? And if you can just give a similar number for Q1, so we can just see how things are progressing? And secondly, on the order book, if you could give the order book length, I understand that's possibly in building solutions, you may be thinking -- maybe that's the main one. If you could give what's the order book length? And secondly, on the EBITDA guidance for second half, which implies just 5% decline on an absolute basis. What's the underlying assumption in terms of volume and the cost inflation?

First of all, let me comment a little bit and I appreciate them, obviously, and understand full [indiscernible] with respect to information. But when you look at the guidance, and I think when you look at it from a perspective, what we have achieved last year, half the last 2021 to the second half of the year, a good indication where we are, right now. Because obviously, last year, it has been a strong demand level, especially also going into Q4, yes, with a lot of momentum building due to price increases and people are stocking our materials. So we've seen a lot of momentum on the volume basis in the second half of last year. So I think at normalized levels, then I'm referring to the sort of demand levels in the market. That's what I referred to. And this is, by the way, not surprising because if we look at the first half of this year, also from a volume perspective, it's from an overall perspective or sort of a trend that we will see throughout the year, I mean stabilization on a good level. So this is where I see the group developing towards and the demand level in the market. So based on this scenario, I strongly would sort of allude to the fact that actually, it's from a perspective of guidance, it's a very ambitious guidance. It's a strong guidance and especially in this instable times, we need to be aware that things might change. And at this stage, I think it's no decline as you see it. And obviously, you can't sort of only run numbers, and I understand it. Please, if you see our work, it's the substantial work that we put in there to assess the different markets, the cost structures. And therefore, we think that this is obviously a very ambitious way forward to get to EUR 900 million in the year-end '22. And I think considering all of what's happening around us, and I think you will agree with me, it's going to -- we will be happy to see this result for Wienerberger. And the second question that you asked about is order intake. You need to be aware that, obviously, our business cannot be compared 100% with others. I'm aware that, for example, our friends of Kingspan that are more in -- also in the commercial business can give you a better sort of feel for the order intake because they have longer order intake processes and are working more on the commercial business front. So we are, as I said, in a lot of markets, we are in the 1 and 2 family houses, which is I don't say it's a cash and carry market, but it's sort of a market that moves differently and we don't have so long order phases like in other materials and other markets. However, what I tried to say and explain is that we have a visibility in certain markets around 3 months or a little less, and in some markets, a little more than that. So in order intake, as such, as I said, it's very -- it's not -- and it doesn't lead to any surprises or to any sort of worries when I look at it from a perspective, if I compare it to 2019, '20 or '21, it's very much in line with those years. And it's -- I think it's a solid order intake. As I said at the beginning, it's very satisfactory for this very environment. You might see in certain markets, and I say this loud and clear is whether if they are bigger projects, meaning bigger residential projects like it can be in Poland, it can be in Romania, but it can also be in the U.S. that people tend to wait a little bit that they are sold. Sold means they start the building process only if 60% or 70% of the apartments are already sold and not as in the past with 30%, for example, because obviously, the interest rate hikes and the more difficult financing process makes them wait a little longer. However, and this is, I think, the good news, there's the demand level still behind and people can afford these apartments and buy into the market. So it's not yet the market where we see that there's a lack of demand. So this is, I think, how to answer your question.

Very Helpful. If I just confirm, so you're talking about order intake be in line with 2019?

Yes. In the sense, obviously, not that you say, yes, '19, '20, '21, I think there's nothing that surprises me when I look at the order intake of all these different markets. And please be aware, we are operating in 30 different markets with 30 different ways and how -- but I can't -- we don't have a number, this is not very helpful and this doesn't lead to any. But all the intelligence that we gather and this is what I'm trying to say, it's a normal -- asset is normal for this period of the...

The next question is Yassine Touahri from On Field Investment Research.

Yes, I would have 2 questions. On the -- could you give us a little bit of color on the gas inflation, cost inflation that you're expecting in 2023. So I understand that you've hedged more than 90% of your gas in 2022, more than 80% for next year. So based on your hedging, you should have already a good view of what kind of gas cost inflation you're expecting for next year? And in this context, what does it mean for the necessary price increase in 2023? And then another question is that what do you think would be your pricing power in the event where we have seen -- where we see a downturn in activity. I remember that in 2009, 2010, pricing came a little bit under pressure in some markets. Do you see any risk of that if volume are under pressure?

Thank you for very good questions, by the way, and very, very important ones. If we talk about the pricing power and the situation, I strongly would suggest that we are in a completely different scenario than we were in 2008, '09 or '10 because here, we had not only a lack of demand, we had overbuilt markets, end markets, especially in new residential housing. Wienerberger was then a very different animal because we will focus so much on new residential housing only. And last but not least, very importantly, we were so focused on commodity products. Our mix has dramatically changed. Now when we talk about the current situation, then, and this is, I think, very interesting also for me to go through this space. Some on quite a few of these smaller producers have stopped in this phase because energy is obviously very high. If you're on the spot market, you know much better than me, it's very difficult to produce and get the pricing right because the spot prices are tremendously high. So for them, it's very difficult to operate. So again, I think they will not come back so quickly, because what you are suggesting that we are going into a more difficult scenario, I call it now a recession case, for example, where demand levels dropped dramatically and other economical indicators go down sharply. And in this case, I would say that these people will not so quickly enter the market again. So there won't be an overcapacity on the supply side. And again, we will manage it much better with the product mix that we have with the stronger grip on the market. And as I said, Wienerberger has developed away from a very strong commodity-oriented business. The second question, I will hand over to Gerhard, who is here as well to talk about the gas price development.

Basically, your question was about how much -- I think is hedged. We communicated already last time that you know that for this year, there is more than 90% hedged also a big part of 2023, hedged more than 80% and also a big share of 2024. The prices which we have hedged basically also for the next year, we feel very comfortable. And we also know that some of -- there are also some countries which we cannot hedge because there is legally hedging or a forward buying it possible. These are countries like Bulgaria and Romania, which we have to buy them according to the national regulations, which we have to imply. But your question was also more in the direction. I understood on necessary price increases related to energy price development. And here, I don't see a major hike basically for us to increase only out of energy prices, the price levels for 2023. What we will see is more, I guess, based on the general cost inflation, which we feel this year will also translate in higher personnel costs in 2023. So this is a percentage what I expect will be higher from energy, I would not see a big price hike versus 2022.

And could you quantify a little bit the gas cost inflation that you're expecting in 2023? Or is it too sensitive?

No, it's not too sensitive, it's not major.

It's not material. Not material difference.

The next question is from Pam Liu from Morgan Stanley.

I have 2 quick questions, please. In your press release, you talked about to ensure the availability of natural gas, you have implemented contingency plans. Could you tell us a bit more about what contingencies that have been implemented on that? And then the second question is, given you have largely secured the gas supply contract for 2022. I'm just curious, what would be the legal position if, let's say, in the unfortunate event that these contracts are not honored?

The legal -- I answer the second question first. The legal situation is different from country to country. There's no one situation. And the countries have different ones, and I will probably refer to 2 or so, so that we have a clear understanding. The German situation is very clear. We are currently in Phase 2 of this emergency sort of scale. And this means that, obviously, the government monitors very closely consumption and deals with the industry and gets information and monitors it. It's not that they interfere in contracts, not at all. If they would go to this #3 escalation, then they have, not by -- not they must, but they have the opportunity to go into the market and say, I cut the contracts or they would -- people can call force majeure as you would say, under contractual law. That's the escalation system that the Germans have implemented. The Austrians have a different system, again, to be honest. So here, when I talk about emergency plans or contingency plans, what you were referring in your first question, for example, in Austria, we work very closely with them. So we basically stock, for example, some of our guests that we have bought we can stock it in their reservoirs and deals and the stockages and deal with them with very closely. But they don't put us in a -- they have a list of industries that would be cut from gas first and second and third. So we are not even in the first 3. So this is -- they have categorized this. And so that's why we deal with very intensively. It's -- actually, it's a top shop attention point right now, so it's so important for us. And in some countries, we are even considered as a system-relevant industry. So they cut us the last basically on the chain. So what I'm trying to say, very complex, but we have, I think, now a good grip on this throughout all of our markets. And you see also how I argue with you, I'm more relaxed in a couple of months back because we have now sort of taken this to their competent levels on the state level. And so I think -- from our perspective, here, we have a good overview on the supply side that we get enough supply in the countries that are under potential sort of a risk factor. I would say that so much that, obviously, you can also deal in a German situation, for example, and we are discussing or can be discussed with the government that if they go to emergency #3, that we don't automatically don't get no gas, but we get gas in a structured way or we go down with certain lines where we take production not to a 0, but to a lower level. So -- and also during the winter time in certain more maintenance or beyond short-term stops or so. So these are things that currently are discussed in case of emergencies. And that's what I mean with all the contingency plans that we have in place.

The next question is from Kuglitsch from UBS.

So I want to understand the German gas situation a little bit more in detail. So I think you said sort of Germany, Austria is 10%, I think of group sales, I guess that's building solutions. So if we say half of that is, say, Germany, can we just use that as a proxy on your total gas bill? And the question obviously is, I think there's sort of a consensus that -- well, maybe it's not a consensus, but certainly, there's a view that maybe in the summer, they basically call force majeure and you'll have a repricing. So maybe to ask it differently or just to ask it directly, if say tomorrow, you had to pay spot rather than your hedge what the sort of the monthly cost increase, I guess, just specifically on Germany. So that's the first question. The second question is just, did you disclose your half 1 revenues just so we can get a sense. And related to that, did you say you thought North America as a segment, I don't know if that was, if I understood correctly, is going to make EUR 1 billion of revenues. Is that what you're saying? Just to double check.

Yes. I can confirm with what I've been saying on the North American segment that we -- due to the strong performance of the segment, we will be approaching EUR 1 billion turnover for the whole year, for the whole year 2022. So a strong performance on the sales side and the increase organically of the business. From a turnover point of view, I gave you only a guidance on the EBITDA and also on the year -- full year and half year, I hand over a little bit to give you more color to Gerhard.

On revenue side, yes, as Heimo just mentioned, we are normally not guiding it, but we expect revenues in the size of EUR 2.6 billion, EUR 2.550 billion for the first 6 months. And this in line with basically the EBITDA guidance or forecast for the first 6 months of approximately EUR 530 million on operating EBITDA.

So I think we have addressed 2 out of 3 and now coming back to your gas situation in Germany. I wouldn't say it's a consensus. I think the German government is contemplating a lot of things. And please don't take my comments now as provocative or whatsoever. I think for them, it's also very difficult as a new government to handle such a crisis, so you get a lot of different messages out of there. I was privileged to speak to a lot of people last week in Berlin. I think from our perspective that they will call Phase 3 in summer is, I think, premature. It's premature. That's for sure. If they call it at all this year, it's a different question. I mean, and what consequences it will have to all of us. I wouldn't say that, automatically, we will go to spot prices. That's my first take away from this. It's more availability thing for the whole of Germany. If they make a different pricing system or whatever, then I think we will need to discuss with them if they interfere with existing contracts or whatsoever. But at this stage, I'm not seeing an immediate action on them to go to Level 3. So that's my first one. And then Gerhard?

Maybe also here to add, please keep in mind that, yes, the announced Level 2, they have the possibility also to enforce basically this price adjustment law, which they basically are preparing. You also know that the preconditions are not fulfilled at the moment. So even if they have fulfilled the legal preconditions to make -- to bring this price adjustment law in place, they also then have to release it. And we are in a constant exchange with the national authorities and also our legal advisers. It is not foreseen in the next week, so not expected. So I think for that moment, as Heimo mentioned, we are positive, what will happen after the summer, we will see. We will basically monitor that very closely. We're in a constant exchange with the authorities supported by our advisers. So from today's perspective, we feel fine with the German situation.

Okay. I understand. But could you still give us a sense of what the impact in theory would be appreciating that you don't think it's going to happen.

I think really to name a number is difficult because you know that, as Heimo mentioned, the maximum could be the spot price, but the legal draft as an appropriate price. And the question is, what will be the appropriate price? Could be something which is I don't know, 20% below, but never I would expect that it will be above the spot market price. So I think to really name or to give you a figure doesn't -- is not fair at the moment. So I think we have to wait and see in which direction this will develop.

Yes, because actually, we are not trying to avoid your question, but it could be a couple of million euros or it could be whatever, EUR 10 million. But at the end of the day, I think when you look at the whole group, it's not that dramatic, it's minor.

Yes. That's what I'm trying to get to at the end of the day.

You want the color there -- so from our perspective, yes, we will handle it. It will come our way, but we are not relaxed. As you can see, we are very much into detail of both of us because it's a major subject for us. But I think from a group's perspective, we can digest it and deal with it.

[Operator Instructions] There are no further questions at the moment. I hand back over to [indiscernible]

Thank you, operator. Ladies and gentlemen, thank you for taking the time and dialing in today. The next conference call will be on the 10th of August at 2:00 p.m. CET for our full set of results in the first half of the year. For today, we wish you a nice weekend. Goodbye.