Wienerberger AG (WIE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Timo, your Chorus Call operator. Welcome, and thank you for joining the Wienerberger conference call on the half year 2022 results. [Operator Instructions] I would now like to turn the conference over to Daniel Merl from Investor Relations. Please go ahead.

Thank you, operator. Ladies and gentlemen, I hope you're all well. A warm welcome to the Wienerberger earnings call and the results for the first half of 2022. Our Board representatives today are our CEO, Heimo Scheuch; and CFO, Gerhard Hanke. They will lead you through our presentation and will discuss our strong performance in the first half of the year. After the presentation, as always, we are ready to take your questions. I will now hand over to Mr. Scheuch for the presentation.

Good afternoon, and welcome from London from the whole team. Ladies and gentlemen, I have the pleasure to walk you through very quickly through the major points of our set of results for the first half of 2022. You've seen it's a strong set of results with turnover up by 38% to EUR 2.5 billion. The EBITDA has been up by 79%, up to nearly EUR 550 million and a strong increase in net results to more than EUR 320 million. The EBITDA margin for the first half of the year is above 20%, to be precise 21.3%. And ladies and gentlemen, this is a strong set of results, especially if you look at the circumstances and the market environment in general, which we are currently operating in. It's obvious. And unfortunately, for all of us, we live in a very volatile period of our lives with geopolitical instability, with war in Europe, with a lot of turmoil in the financial market and with an effect that has to be seen in all of our lives with high inflationary cost increases that are now obviously a major issue for not only the economy, but for the population in all countries. The rising mortgage rates have hit especially already the eastern part of Europe, countries outside the Eurozone. We talk about Poland, we've got Czech Republic, Hungary, Romania, where we approach today interest rates between 9% and 10% already. So this instable global market environment has created a certain impact on our end markets. I recall the end markets for Wienerberger are the new residential housing market, the renovation market and the infrastructure market, both in Europe and North America. We have seen on a group perspective in the new residential housing market in the first half of this year a slight decline, decline between 2% and 5% depending on the market. We have seen stable environment in renovation, and we've seen stable environment, more or less, in infrastructure. The good news that we can convey to you is that our performance, Wienerberger performance in these markets is a positive one. We were able to increase volumes compared to last year in the new build one, in the infrastructure one and in the renovation one. So we have clearly outperformed our end markets. Obviously, and this goes without saying, one of the major discussion points and attention points was the theme of energy, especially natural gas. Natural gas, why? Because the dependency of the European economy on Russian gas was heavy and has obviously played a major role with respect to supply, availability and especially cost. Wienerberger has done 2 things. We have done so in the past. We've always bought forward our energy and also gas. And therefore, we have a clear buying forward strategy, which obviously has enabled us to be here more flexible and have a better cost base than competitors or other industries in the sector. But furthermore, we have also decreased the dependency on Russian gas dramatically from the group's perspective to less than 20% as of today. We have ensured and that was especially true for the first half of this year the supply and the availability of natural gas in all of our locations because we are running at full capacity. And I will elaborate and my colleague, Gerhard Hanke, more in detail how we tackle the situation currently and for the months to come. At this stage, I have a special thanks to make to all our 19,000 employees because they have done a great job, a great job this year because we are running at full capacity, as I said earlier. And we are delivering every and any product to construction site in [indiscernible] and customers around the markets that we operate in. As you have well appreciated, we have not increased our inventory level. Working capital has slightly increased because obviously, the value, value meaning the inflated value of the end product but not the volume as such. So the workers have been tremendous in the way of output and commitment to the company, being able to work full time and without any delays to transfer our products to construction sites. We have at Wienerberger transferred successfully the company to a more resilient one, one that more than 50% is active in nonresidential housing activities like infrastructure and renovation. And this is important when you look at the company's risk profile today and especially for the future. We have dealt with increasing costs due to inflation and have successfully implemented price increases. And the operational excellence has helped us in order to perform strongly through the first half of the year and will continue to do so for the rest of the year. And as another aspect, the disciplined M&A policy that we've put in place in recent times and in last years where we have bought companies at relatively low market levels or multiple levels have integrated them rapidly and especially also the ones from last year. We have clearly seen a very positive impact from such M&A [ activity ]. If we look at the cost base for Wienerberger, it has increased because of the high inflation by 16% in the first half of the year. And this is the Wienerberger increase. If you would sort of compare it to the market, it would be much higher. Higher, why? Because the market is not privileged to have such a strong purchasing department as Wiener has been able to offset these sort of activities in the past in the sense of forward-looking and the procurement at lower costs than the market. So we have been able to ensure lower prices for Wienerberger not only in energy, by the way, but in other materials as well. This puts us in a very unique position. We are able to substantially deliver as a reliable partner products to our customers and in stores in all of our markets. We have a consistent pricing policy. And with us, that people can plan their projects and can be sure that they not get -- only get the best quality but also the best price. Price increases have been in the range of 22% on the group level. So we clearly outperformed our cost inflation. When we look obviously at the current levels of activity and also the environment around us, the market, the financial market, and a lot among you see a major recession coming our way due to geopolitical instability calls for volatile times in the lack of sort of security with respect to energy supply causes a lot of headache. However, and we at Wienerberger don't sort of look away. And we see this, and we take sort of this into our consideration. However, the business as such is running well. We have strong order intake. We have changed the business into a more resilient one. We have innovated our product range. We continue to operationally work on our cost structure and improve it tremendously. And we have learned to successfully fast integrate value-creating M&A. And therefore, due to the fact that we have reassessed the situation with reworks on the sort of all the energy mitigation plans and risk plans, we are comfortable to give you a guidance for the rest of the year that is EBITDA of above EUR 900 million. So again and to basically say one word on this guidance. The guidance is, again, not a conservative one. It's the one that is to be compared to last year 2021, where we have seen growing market, where we have seen a strong business especially in the third and the fourth quarter due to the fact that we have increased prices in the fourth quarter of 2021 already. So the order intake has been delivering very high. We had mild weather in the fourth quarter and of course, as I said, growing market. This year, we foresee markets with up to a decline of about 5% in new residential houses and housebuilding. And a Wienerberger performance that is more or less in line with last year's performance. So a fairly strong statement for this year for the rest of the year. When you look at 2022, we, therefore, will focus especially on the operational business, operational excellence, satisfying the demand level, trying to deliver the product to our clients is -- essentially also in a way that they can plan and they can ensure the projects. We will continue to work on the contingency plans with respect to energy because it's very important that we manage this aspect well. And we have to do it on a plant-by-plant level in the different countries because every country is dealing with this differently. And in this context, it's very important to say that our ESG policy, long-term policy is helping us. We have clearly said we want to reduce CO2 emissions by 2023, that was 15% (sic) [40%]. We also say we want to decrease our fuel and our energy consumption especially when it comes to gas by 15% until '23. So again, a very strong statement for Wienerberger, fully in line with new policies. And we will focus on growth. We have done so in the first half. We'll continue to do so in the second half. The current market environment opens us new opportunities when we come to M&A. We see this as an important factor to grow our business in renovation and infrastructure, and we will do so. As I said, when we talk about energy, we focus not only on the energy as such, availability and the way -- the sort of certainty to get the energy to our plants. We, first of all, think, work and act on the reduction of consumption. We have done so in the recent years, and we continue to do so by investments. And you see in the presentation that we actually work on this. We use green electricity, highly efficient for the kilns, for the dryers. We integrate heat pumps in this sort of new approach when it comes to technology. We do CO2 capturing. So there's a lot of activity on our more than 220 sites that we are currently implementing. We are doing it fast. We are doing it consistent and efficiently and make here a major effort with respect to performance when it comes to energy reduction in the production process. When we talk about ESG, especially the availability of different sustainable resources of energy, be it electrification, be it also biochar or biogas or syngas, here, very differently from country to country, we focus on different aspects or even hydrogen. Again, we need cooperations with states, with institutions, with public bodies that -- or institutions that give us the possibility to have access to this. And this is something we currently [indiscernible]. Wienerberger is going to be more independent when it comes to the energy that is available to us in the future because we focus here on energy on a sustainable way and green energy in general. Our ESG agenda remains fully in place. Decarbonization is on one of our top priorities, especially when it comes to reduction to fuel in production processes. The circular economy is a major attention point for all of us, and we focus on this. We have introduced new products that are 100% circular. And biodiversity as a plan for every site is to be implemented in 2022/'23. So we have made a major step forward when it comes to our ESG performance at Wienerberger. Finally, to discuss again bolt-on acquisitions and the way forward. We do a lot, especially when we talk about solutions. The recent acquisition of Vargon, a leading provider of piping solutions for the in-house sector in Croatia, is a good example for that. We combine it with our existing walling and roofing activities in Croatia and create here a company being able to provide systems. We tackle the issue of labor shortages by prefabricated wall systems with an acquisition in Austria for a prefabricated wall plant. And we increased the exposure to renovation by acquiring a small accessory producer for roofing in Germany, Mayr Dachkeramik. On top of it, we focus on our portfolio as we said in the past and as we continue to do so. We exit and divest businesses with low margins, with low profitability rates and problematic areas where we don't see a strategic future for the business. The French piping and the Russian brick operations are a good example. So all in all, you have seen that we have again moved dramatically forward in 2022. And my colleague, Gerhard, will walk you through the different units and the financial performance.

Thank you, Heimo. Ladies and gentlemen, the performance of the business units, respectively, of the Wienerberger Group in the first half year as mentioned already by Heimo was exceptional growth. It was a very strong performance when we start with the building -- with the business unit Wienerberger Building Solutions. We have seen, as we heard in the beginning, in the relevant markets which is, on the one hand, the new build residential market, on the other side, the renovation market, we've seen in the new build market, a slight decline of roundabout 3% to 5% renovation market we have seen in a stable development. We at Wienerberger, and this is, I think, important, we were able to beat the market. We were able to increase the sales volume by roundabout 3%. So in total, when we look how revenue developed, which went up by more than 20%, part of the 20%, nearly 3% is considering to the increase of volumes -- of sales volumes in a declining -- slightly declining market of the new build. We were able to increase the prices roundabout 14%, a 2% mix upgrade also thanks to our Fast Forward initiatives. And we had only a slight FX impact in Europe, which partly was concerned by different developments of the currencies of Western European and a little bit slighter or weaker currencies in some parts of the Eastern European countries. We were, at any time, able to secure our supply chain, respectively, to manage our supply chain. We had at any time secured the availability of raw materials and energy. We were running our plants at full capacity in the first 6 months. And this also led to the strong EBITDA performance in the first 6 months. Next to that, our Fast Forward program was also contributing. And what we see is an extraordinary strong EBITDA margin of more than 25% and an EBITDA of more than EUR 340 million in the first 6 months. Looking to the business unit Wienerberger Piping Solutions. We see also there a very strong revenue and earnings growth during the first 6 months. Revenue were increasing roundabout 30%. We note that we had an acquisition in 2021 in U.K. and in Ireland, which contributed to revenues roundabout 9%. Pricing went up by more than 30%. And we had slightly lower volumes in the piping due that we exited last year in Greece and in the Russian business. All in all, as I said, a strong revenue development of [ up ] 30%. Looking to the operational EBITDA development, EBITDA increased of more than EUR 90 million first half year, knowing that there is also a contribution in it from the acquisition of Cork Plastics and FloPlast in U.K. and in Ireland, but also due to the management of the supply chain, having secured availability of the resins on the one side. On the other side, having a proactive margin management in place led that also the profitability in the business unit went up to an EBITDA margin of more than [ 20% ] in the first 6 months. Coming to North America. The North American business unit had also a very strong performance in the first 6 months. Market-wise, we have seen that the U.S. markets as well as the Canadian market, the new build market, which is relevant for us, was slightly declining also there. Looking to the Wienerberger performance of comparing the market development to the Wienerberger performance. Also there, we were able in the brick, in the clay business in the traditional to increase slightly volumes in a slightly declining environment. The infrastructure segment was performing still on a very high level. We kept there the volumes according to the market, market development on a stable level. But what was also driving the revenue increase was, on the one hand, the acquisition of the Meridian Brick, which makes out of the revenue increase roundabout almost half of the revenue increase is due to the Meridian acquisition. And part of it is volume development and price development. Concerning the profitability, respectively, the EBITDA development, we see that the integration of Meridian is moving -- is progressing faster than expected. We see higher costs and also commercial synergies in the first 6 months. The profitability also of the piping business is on a still high level, and we realized in the first 6 months an EBITDA of more than EUR 110 million and then EBITDA margin, which is close to 24% in the first 6 months. So all in all, basically in every business unit, we have seen a very strong performance. And it's about demand development, respectively, our daily supplies and deliveries but also our pricing performance during the first 6 months. That means on the group level that we were able to increase revenues by almost 40%. And I think the important one is that the big part of the revenue increase was done organically. And as Heimo already said, we were able to increase prices by 22%. But also there is a slight increase on volumes in it, which is mainly driven by the strong performance in our clay business unit. EBITDA-wise, we were increasing the EBITDA to EUR 545 million. Also there, I think important that a big part of the EBITDA contribution is coming from organic growth. We have here a contribution out of the Fast Forward program of EUR 27 million. And the big also there driver is also the price of the cost development, which we were able to realize in the first 6 months. The reconciliation about EBITDA reported and operating EBITDA, I think, is there are no material positions between the reported and the operating EBITDA, I think, is something what I will not further explain. I think more importantly, let us have a look on the energy position of Wienerberger on the energy forward-buying policy as this is definitely an important asset also of Wienerberger what we have in place. We have secured for this year, 2022, almost 100%, to be precise, 96%. But also for 2023, we have already secured almost 90%, and 90% is at the moment based on the output of 2022. So we feel comfortable with the positions, with the secured or with the forward [ board ] position. And this also brings us in a position to have a very controlled and stable price development also in the next year into 2023. Our Fast Forward program, as I mentioned before, is an important pillar of our organic growth also this year. The Fast Forward initiatives even outperformed basically the expectations. We have a strong set of results. And also what we see is that part of our initiative basically outperforming, overperforming, especially these initiatives, which are linked to volumes or to margins. And also here, we see that during the first 6 months that we were able to realize EUR 27 million in the first 6 months. We stick to our full year program plan, which is EUR 135 million, which means that also for the next year for 2023 that we go for EUR 45 million on EBITDA contribution for 2023. Just to remind you, our Fast Forward program is a program which we have in place, which have roundabout 1,000 initiatives in place, which we constantly measure and which are constantly also contributing to our earnings in different fields of our business model. A big part is coming from the innovation side and also a second big part is coming from manufacturing excellence. So let me summarize these financials or this strong set of financials. As I mentioned in the beginning, a strong increase in revenues, organic revenue growth, thanks to our clear and consistent strategy on innovation and systems solutions. Earnings growth in EBITDA by plus 79%, on EBIT by more than 120%, and the net result is almost 3x as high as last year. Self help contributed with EUR 27 million, and we also already see a EUR 46 million on [ MLD ] contributions in M&A. I think what is important to keep in mind, a very strong balance sheet position. We had a high core cash conversion rate in the first 6 months of more than 90%, a free cash flow already after 6 months which is above EUR 130 million. Our financial leverage, net debt to EBITDA, is with half year closing at 1.4. And according to our guidance for the whole year, we are expecting a net debt EBITDA ratio, which is roundabout at 1, which is also extremely strong and is showing also our strong cash generation and also our strong balance sheet, what we have in place. And finally but very important also is the shareholder return. You know that we have since March, the beginning of March, a share buyback program up and run, which will end by the end of September. We have spent so far by half year roundabout EUR 150 million in the share buyback program. And we're expecting to buy basically till the end of September roundabout 7.7% back on treasury shares. And we're expecting a total cash out, which will be roundabout EUR 210 million to maximum at EUR 230 million. So all in all, also there a strong shareholder return out of the dividend and also out of the SBP program, which is up and run until the end of September this year. With that, I'll hand over back to Heimo.

Thank you, Gerhard. And ladies and gentlemen, you see with the numbers that obviously in these volatile times, Wienerberger was able to improve cash flows, which is very important. Free cash flow is strongly up, the cash conversion above 90%, as Gerhard pointed out. And we have entirely financed the share buyback and the dividend by the cash generation of the first half by not increasing debt. So this is the strong statement of Wienerberger in the first half of the year, and we'll take the outlook. We see obviously that the current negative trends that we have politically speaking, financially speaking due to the financial markets and the continuous discussion about interest rate hikes, et cetera, has somehow influenced the market especially in the new build. We see on a group's perspective that our end markets in new builds will decline up to about 5% on -- depending on the individual markets, some less, some more. So this is what we see as of today. And we see that the renovation market and the infrastructure market remain stable. Stable under the definition of Wienerberger means minus 2% to plus 2%. That's where we expect the markets to be for the whole of the year. Again, as we said at the beginning, Wienerberger will outperform these markets. With all the necessary other assumptions that we keep in place, we think and we are confident that we achieve a result that is above EUR 900 million EBITDA for the rest of the year. So again, if you compare this to last year, it will be more or less in line with the performance of Wienerberger in the second half of 2021. Keep in mind, that in '21, we had stronger end markets in new build. We had a phase of strong price increases hitting the last part of '21 for '22. So here, obviously, sales that were improved strongly in the quarter 4, and we had a long period of mild weather towards Christmas of 2021. All in all, I say we're going to make a great year. We keep our margins where they are and are confident to have a good performance for the rest of the year. You see our guidance with respect to the market in one of the charts that we have addressed in the presentations that you have available. Let me just finish on a little thought on 2022 and beyond because there is years that come and after '22. And again, if you look at Wienerberger, I just want to draw your attention to a couple of things. First of all, the new Wienerberger is different from the old one. We have a strong exposure to infrastructure and to renovation, which is more than 50% of our turnover. We have a much more effective and efficient production network. We have a highly innovative product portfolio, which we increase every day. We have a very disciplined M&A track record that we find throughout the group for the last couple of years and a very fast integration that we run like in Meridian, for example, where we get cost synergies and benefits from the transaction very quickly through and especially also in FloPlast and Cork Plastics in Ireland and in the U.K. And as a company, we are much leaner, quicker and faster to adjust to any sort of changes in the demand -- on the demand side on the markets. When we look now what is going to happen, it's -- I think the fair assumption as of today is that both the renovation and the infrastructure market will stay more or less stable throughout the years to come. This is -- there's a strong demand there. There's a lot of initiatives and especially incentives in place on the EU, American and Canadian and U.K. level in order to do so to improve the old housing stock and to change the old infrastructure, especially when it comes to water and energy. On the housing front, ladies and gentlemen, we have a very different scenario compared to the past. Recent years have shown that we are not overbuilt, not overbuilt in the U.S., not in Canada, not in the U.K., not in Ireland, not in Continental Europe. There's a strong demand and pent-up demand in the countries that we're active in. There is obviously an aspect of affordability. There is an aspect of financing, and there is an aspect of land availability and labor availability. We are aware of that, and that's why we think that at this stage in August of '21 (sic) ['22], we see a potential development of about minus 10% in new residential housing in 2023 for the Wienerberger Group. And this is what we are currently working on when we look at capacity planning and planning of the availability of materials for our production. We will still sort of optimize our structure. And I think when you talk about energy, and I'm not talking about natural gas only because it would be shortsighted to do so. I understand that everybody talks about it and it is important, and we obviously work daily on this issue. But energy prices for us, also electricity and other resources. And therefore, it's too important from country to country to work on these plans that we are currently doing so in order to ensure availability of energy for our production. And this is for any aspect of energy. Our top priority is reduce the energy consumption. That's what we are investing in. That's what we are planning for. That is our target basically driving our targets. And therefore, I recall minus 15% until 2013 is -- 2023 is an important time. Obviously, 40% minus in CO2 emissions, which basically also aligns with the sort of a sizable reduction in fuel consumption till 2030 is obviously a very important target as well. We'll do it as fast as we can, as fast as technology is available, as fast as other fuels are available. And again, we have reduced the dependency of Russian gas dramatically for the group, which is under 20%. So all in all, when you look at Wienerberger today, our continuation on the proven track record and growth strategy comes from the digitalization, innovation and the system solutions. Ladies and gentlemen, when we talk about order intake, more than 70% already we do digitally. We have driven the change in the business dramatically with respect to client context, creation of leads, working with the sales force, with our clients and customers in BIM and other proven tools with respect to planning, to logistically working the deliveries, et cetera. So Wienerberger has been becoming a fully digitalized company. And this is driving our organic growth with an impressive 23% of organic growth only in the first half of this year. Performance in operational excellence, Gerhard has referred to. And he has -- humble as he is, not mentioned that EUR 180 million have come in this operational excellence program since we have started it, EUR 180 million. We have delivered every cent and every penny. And on the M&A, one portfolio optimization, we have bought companies for extremely interesting multiples. We have integrated them well. And obviously, this is also contributing to the value creation. You see that our ROCE is strongly up. It's above 12%. This comes from this disciplined approach that we will keep also in the future. We are aware that different scenarios could eventually hit us. We are not afraid of them. We see the transition of energy as a potential, big potential for us as an opportunity to distinguish us from competition, to make us stronger, to consolidate the market further. All of this is a unique opportunity for Wienerberger, and we view it likely. The performance of the first half of the year is not a performance because the markets are so good, because we have changed the company and the company is reacting swiftly and rapidly to this change. And I think with this degree of optimism in a world that is driven by negative news and by all sort of monsters to look at us, I would like to terminate our presentation and ask you for your estimated questions.

[Operator Instructions] The first question is from the line of Yves Bromehead with Exane BNP Paribas.

I'm afraid I'm going to be a bit more short term, sorry about that already. So my first question is on demand. I just wanted to know in anticipation, sorry, of your 2023 initial thoughts already in terms of that minus 10, could you maybe break down some of the markets that you're more worried about compared to maybe some of the markets where you think it might be more resilient? My second question is on energy. And here, I just really wanted to understand sort of your contingency plans and whether you've already done sort of a sensitivity, if there was a complete gas shortage in Germany and Eastern Europe, how fast and realistic is it to assume that you can use sort of other energy sources? What can you do in that scenario? And what would be sort of the earnings impact or the revenues impact? Have you done that work already? And can you communicate on that? And lastly, on the U.S., you've obviously reached a record high margin, and the margin is actually above the European Building Solutions division now. So I just wanted to know where the U.S. brick margins stand today? Have you already been able to bring it above the 20% threshold?

To your first question, Yves, and thank you for the questions, by the way. The markets will be very, very different. We have seen it already this year. This year, obviously, due to interest rate hikes, to the strong link to Ukraine and the exposure there, the Polish market has seen the strongest decline in the first half of the year. The Polish market is certainly down double digit. I don't want to sort of surprise you, but this is a matter of fact. So we have to deal with it. Is it going to be down another double-digit number next year? Potentially not. But it has seen obviously a huge impact this year. The Hungarian market has seen a strong uplift this year. Why? Because of initiatives by the government, tax ones and other subsidies that they have bumped into it. The Czech market has done very well also this year. The Romanian market has been suffering, especially in the project one because interest rates are highly up and therefore, project developers have refrained from doing some of the project work. Is it going to be down next year in the same degree? Probably not. You were referring to markets that are more resilient. Dutch one, Belgium one will be more resilient because they have not been overbuilding either in the last couple of years. The French market probably going to be a little bit more down, why? Because government is changing regulations and rules. So some of, as you know, very well permits have been up. And people have been trying to build or start building process rapidly to fall under the old regulation and not to the new one. Is the U.S. potentially going down substantially? I don't think so. The demand levels are strong, and this distinguishes us from the former crisis in the construction or in the new housing segment. If you take some numbers, housing starts, housing completions before the crisis in 2008, '09, obviously, we'll say high model was different. But at least we have some of this track record. More than 2 million housing starts in the U.S., we are far off this. The U.S. has underbuilt for numerous years as you are well experienced with. And then this year, we have built a little more last year. Have we overbuilt? Definitely not. Certainly not in the areas that we are active. And do we see a little slowdown? We see that American national track builders probably don't start whole subsections in one go as they probably did a year ago. I mean 10,000 units or so. They basically start a couple of thousand units because half of it or more than half of it is already sold. And that would be also the same approach than, for example, a German or French developer, does it these days. So they wait till more than half of the project is sold and the apartments are sold till they really start it. Have we seen a major change in the U.K. market? Not yet or nothing indicating. Obviously, it will get a little slower, slower because there's lack of flavor, there's lack of availability of material still. And obviously, the cost part also plays an important role. So I think I'm not so worried that markets will drop off a cliff or something. Actually we will have a certain adjustment, and that's why I come to my best guess and of markets. And I hope I gave you a little color to your first question. To the energy mitigation, you see, again, it's very different from region to region. We have, in the U.K., a very different mitigation plan or a plan of availability than for Norway and for Austria and Hungary, for example. So yes, we have dealt with this, the availability. We have discussed with national institutions, et cetera. I give you a couple of very important elements. First of all, the EU has decided that our industry, the ceramic industry is not to be an industry to be shut down immediately. So not in Phase 1. So they have clarified it, so for all member states. We are, in a certain sense, system relevant. So we stay running because of our kilns and about our infrastructure throughout the first phase. So that's, I think, a very good statement. The second statement is in the second phase of emergency, we can be considered as an industry to be cut or not off, but cut with respect to supply, not cut off entirely. Obviously, then in Phase 3, it's a different story because then, obviously, as you are well aware, only hospitals and others, and the whole industry goes down. But at the end of the day, what we have seen up to now good supply. Every site has sufficient supply. We have in certain countries where we are now able to stock, and Gerhard can elaborate on this a little bit more. We can also stock for the winter months. We have also, in our plan, made a very clear assessment that we run full speed right now. We've not stopped in the summer months for maintenance. We go through till the winter months, it would be November, December depending on the country and then go down for maintenance. We usually go down in a plant for 4 to 6 weeks of preparation. And that's the yearly sort of record that we have. So we will do it during the winter months. This gives us the opportunity, first of all, to provide the state or the institutions that need the gas from -- with our gas, so they will be very happy and see it positively. And it's not about money. It's about also the contribution to the local system. Secondly, it will give us the potential to see how the markets develop in beginning of next year, how strong they are, how sort of they will start up and then be able to start up after the winter break either in February or March depending on the demand levels. So here, again, I think we are in good shape with alternative fuels. We can use coal. We can use heavy oil. We can use also liquefied gas, et cetera. We have tracked this. We have tracked availability. We have tracked investments that we are -- would be required to do in certain countries to switch over permits that we get or not, tanks that we can install. So all of this has been assessed. And step by step, when we have a critical installation, for example, where we see that there is a potential risk, we'll move on this investment rather quickly in order to ensure supply. But for the moment, actually, we have a list of things that we can do quickly, but we have not started anything of this because we have no indications yet that we will have to do it. So this is important that you know, but we have everything in place, and we can move very quickly. Now the last, I think I touched a little bit on the U.S. market and how it performs. Yes, we have improved the margin, but this was also necessary because they have been on a low level. We have potential to grow further. And I think the 20% is reachable when we talk about the brick margins because obviously, here, I think with the consolidation that happens, with the performance in production and the operational excellence projects that will now follow under the direction of Gerhard will come there gradually. But very important, the track record of the integration or the expectancy of profit and EBITDA coming from this and the integration is moving much faster than expected.

We are not there yet, but we are in a very good way. And we still have -- we know where we can get the last synergies out to reach the 20%. So this is our clear goal to reach the 20% margin in the brick business. And we simply keep consequently implementing the integration, working on the supply chain and the plant network, on the logistics, on profitability in the sense of pricing. And we are positive basically to come there and also bring it on a 20% profitability in the U.S.

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

I have 2 questions. The first one is on energy again. Now looking at your availability and the previous question you answered about you have a lot of options in terms of alternative energy like coal and others. If you could just give us how much time it takes for you to kind of shift from one to another for gas to other alternative one? And what's the cost associated with it? And the longer-term question is about your ambition to move towards a clean energy or green energy per se. So how -- with this scenario of gas shortage, how are you planning to accelerate those CapEx efforts? Would we see a change into your CapEx numbers in terms of the green CapEx, which you are planning to spend earlier? Do we see an acceleration in the coming 2 to 3 years? Now the second one is on the Meridian, right? That's been a pretty good, what you call, performance. And obviously, it looks like it's been much better than expected. But looking at the 24% margin in North America, would you say that all the Meridian synergies has already been kind of fully delivered much ahead of your 3-year target? Or is there anything left? And are we kind of more confident about retaining this 24 margin in the medium term at least?

Thank you for your 2 questions. And I think from an energy perspective, it depends a little bit what sort of energy you're moving towards. If you're moving towards, for example, biogas, as we did in Denmark, then it doesn't need a lot of time, and it doesn't need a lot of CapEx, yes. So this is a couple of hundred thousand euros per plant and nothing to worry about and can go rather quickly. If you move to light oil or light oil burners, if I may say so, it's also -- the burning has to be changed, the availability, the tanks have to be installed. Yes, you are not talking about millions of euros here again. And you can do it rather quickly. It's more a permitting issue. It's more an issue of the local authorities granting you to do so. If you then move to completely different ways like electrification, that would make a difference and cost you so much more. But -- and as I said earlier, let's not draw too quickly conclusions what is green and what is not because I think we need our time to prepare it, to assess it. First of all, we reduced the energy consumption because gas will be available also next year. We shouldn't be worried about that. We should be more focused on reducing it and getting it at the cheap rates. That's what is important. And then step by step over the next years, you will see us moving in different sustainable, that's very important, sustainable and available energy resources. Because today, some people think that it is sustainable, but it's probably not. So we will see. I mean I'm talking like this because it is no use to go to hydrogen that is made out of gas installations that make electricity, for example. This is not for me a sustainable way of producing hydrogen. So that's my comment. So yes, we can do it on a small scale investment in certain areas. And when we move big time, then it is a change, and this is a major change. And we will do and address it accordingly. So giving you CapEx on a big change is not possible today because we have not assessed it. It's in a test phase. When you talk about Meridian, you say it's a pretty good acquisition. I would -- tendency with my voice, I would say, it's a very good acquisition because the payback is very quick, and this is a very strong one, yes. And from my perspective, it's not yet all the synergies there, yes. The North American operation consists of piping end of bricks. So obviously, in the piping, we have for the reasons that we have explained already a lot of times a very good margin. And therefore, I think as your caller before has pointed out, we are gradually moving up the ladder when we talk about margins in the brick business, and there's still more to come in the future.

The next question is from the line of Pfeifenberger with DB.

Yes. Congrats on the results, really impressive. The first one is on the minus 2 to minus 5 versus the minus 10. So you're mentioning that some markets are already at minus 10 run rates. So the minus 10 for next year is that basically implying the assumption that you expect markets to not decelerate further from the current exit rates? And is that the realistic scenario when you look at, for instance, U.S. housing stock increasing as we speak?

Listen, I'm not commenting what is realistic and not, Matthias. That's -- I'm not the type of guy who speculates. What we are doing right now, we are assessing markets, we are assessing the demand level. There are so many issues out there like interest rates, political instability, geopolitical events still that might play a role. I think from -- I call it a best guess at this stage that what we are implying that some of these markets will certainly decline more than others. And for a group level in new residential housing, we have assumed a minus 10%. Yes. That's what we have done for the moment. And we would like to provide you with the thinking of Wienerberger.

And just maybe for clarity is in the first half year minus 2 to minus 5. In the second half, minus 5. So 2022, we expect a minus 4 to 5. And on this minus 4 to 5, we expect, as Heimo said, this is really a best guess from today's perspective, up to minus 10 in the new residential.

Okay. And the second one is really on price cost spread. I still remember when I asked you, are you approaching clients with your hedged costs or spot cost increases? This was maybe 2, 3 quarters ago. You said definitely with the hedged cost increases. Now looking at the spread plus 22 on the top line versus plus 16 on the cost, which is only like -- is obviously less than 100%. Then what was the key source of the surprise here was EUR 150 million positive price cost spread. So my question is, I mean, I guess it's fair to price towards the spot increases because maybe your competitors are doing it. But how sustainable is that in light of 2 things: decelerating demand and obviously higher hedged gas costs next year and beyond? So will you stick to those prices, will you have to give back? It seems like a lot of windfall profits that at least we haven't seen any time in the last [ 15 years ] for Wienerberger.

No, no, no. I think I strongly oppose the term windfall profits. Nothing to do with it. I think the 16% increase in inflation is a Wienerberger increase, Wienerberger only. We are very transparent with you guys, Wienerberger. And nothing to do with what the market -- it's much higher the market, yes. The market actually would hit us much higher if we had not this forward buying. And we are not talking about energy. Everybody's talking about energy, but we have a lot of other input costs also. So here, again, 16% on a group level, all input costs, yes. That has been up 16% in the first half. And we obviously wisely and we have not outpriced us for many sort of competition or the market or such because actually some of them are much higher than [ 22 ] because if we were on spot in any of the products from steel to other materials, mortar or whatever, we would be much higher than 22. Again, I think we were very reasonable. We are looking long term, and we are obviously, as you can see from a market perspective, minus 2 to minus 5 in the first half as Gerhard has pointed out correctly. And we were growing with 3% volume, as Gerhard said. So you see that we have really positioned us well for the volume growth, yes. And again, here, there's no windfall. This is nothing to worry about. These are defendable margins that we have put in place.

The next question will be from the line of Pam Liu with Morgan Stanley.

I have 3, please. The first one is about your market share gain demonstrated in the first half. So I'd like to understand how permanent these are. So to what extent are you seeing competitors unable to operate in today's perhaps cost or volatile environment and simply can't have business, therefore, perhaps some of these sort of market share gains are more permanent than cyclical? The second question is on your target to reduce energy consumption by 15%. Can you tell us how much of that comes from savings in operating your buildings and plants? And how much of it coming from the actual saving on energy requirement for manufacturing? And if that is significant, how should we think about that impacting your production output? And the final question is, I understand that the percentage of gas sort of reliant on Russia is less than 20%. Is that possible to understand the percentage of revenue that runs on assets that run on Russian gas?

The percentage of assets run on Russian gas or on turnover, I would call it more better if we can agree on turnover, is probably, I would say in the range of about 10% or a little bit above 10%, yes, if we say this today yes. All right? On the market share issue, the longer this inflationary scenario lasts, the better for us, yes, because obviously, at this high cost inflation, others have a difficult time to produce, to be there and to be competitive. And again, I think this helps us. And here, we can gain market share not only to our direct competitors but also indirectly. Keep in mind that, for example, timber has been up dramatically this year. Timber prices, there's a shortage of timber and people have moved away in 1 and 2 family houses from timber when they build new houses. So again, here, we have quite some good indication as far as market share gains in the clay blocks are concerned. In the roofing material, it's an issue of availability. We are running at full speed. So actually, today, we might not be even able to grab additional market share because we are already at full speed in the roofing segment. And in the clay facing brick segment, I think it's more or less the same. We are running at full speed. And here, we have the market share that we have. So from a perspective of additional one, I think we are probably limited by the capacity. So any little dip in demand level helps us because we can digest additional market developments or work harder on gaining some momentum in the market. And then I had the second question was about the saving of energy. Would you like to comment on that?

Yes. Just to be sure, Pam, the minus 15, we have realized after -- we are comparing the minus 15 always compared to the year 2020. And we realized so far, I think minus 8 already now it is half time. So we have positive basically to realize also the rest, what we are aiming for, the minus 7 in the next, let's say, 1.5 years. We are in a good way. So we keep going with the minus 15% as a target. And your question exactly where have you pointed on the energy saving, Pam?

Oh, yes. So my question is, I was just wondering whether that further savings were mostly coming from having your own building swapped to a heat pump, et cetera, or actually coming from some sort of energy reduction from your manufacturing, whether it's increasing energy efficiency or since we reflect a [ not pure ] outcome, what you think that the [indiscernible] is going to be?

I think what Heimo said in the beginning is important that we will go also, I think in the first step, it is a saving also the consumption. So this is also what we said. We are running at the moment on full speed. We will keep going, most probably till October, November, but thinking then about in the beginning of December to go for a standstill for a maintenance standstill. So we still have to do that. We have not done that so far due to the strong demand, what we have seen in the first 6 months. So we will also reduce basically part of the consumption simply that we go for maintenance standstill. We will most probably shift this from December to January and also seeing how the winter is climate-wise and also how demand starts up next year. We will most probably start again especially on the new build dependent clay block and facing brick business, most probably in January, February depending on how market and how weather is. So there is -- part of it is simply also consumption-driven. And for the rest, we are simply consequently investing in our carbon neutrality road map, bringing the CO2 and the gas consumption down. So as you said, the results we keep going with heat pumps. We go -- we keep going with the investments in energy [indiscernible] . We keep going with investments in electrification. So basically, it is a mixture out of that. So part is consumption and part is simply alternative energy sources.

But you're right, the most part come from the initiatives that we are doing.

The next question is from the line of Yassine Touahri with One (sic) [On] Field Investment Research.

Firstly, I'd like to get a bit more color on the cost inflation that you are expecting for the second part of 2022 and maybe a first view on 2023. Would you continue to expect 16% cost increase approximately in H2? And then I understand that you've hedged most of your energy costs for next year. So what kind of inflation do you envisage or would you consider realistic for next year? That would be my first question.