Wienerberger AG (WIE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for joining the Wienerberger Conference Call on the Full-Year 2022 Results. [Operator Instructions] I would now like to turn the conference over to Daniel Merl, Head of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen. I hope you can hear me well and I hope you're all well. A warm welcome to the Wienerberger earnings call on the results for the full-year 2022. Our Board representatives today are our CEO, Heimo Scheuch; and our CFO, Gerhard Hanke. They will lead you through our presentation and will discuss our strong performance in the 2022 business year. I would also like to welcome Teresa [indiscernible] the newest member of the Wienerberger IR team. She also participates in the earnings call today. After the presentation, as always, we are ready to take your questions. I will now hand over to Heimo Scheuch for the presentation.

Thank you Daniel, and good morning, from London this time and not from Vienna, to all of you. Thank you for joining the call. And let me sort of walk you through briefly together with Gerhard to the year '22, and then address your questions a little later. Let's make a little recap of 2022. If we look at '22, obviously, a lot of things have happened and geopolitically speaking, financially speaking, inflation, et cetera. But before we go into the detail, let me say one thing. At Wienerberger, we take the environment, we take the world and our planet serious and the challenges. We have worked very hard on decarbonization, on circular economy and on biodiversity, 3 of the major pillars of sustainability. And here again, we have made very good progress. We are well on track in our first program, ESG program, that comes to an end by end of '23 this year, and are well on track with the decarbonization target with minus 15% of emission -- CO2 emissions by the year-end compared to 2020. And here, again, have achieved with more than 13% already, a great step forward and we'll do so this year again. The circular economy also by 98% of our new products are 100% recyclable. So again, also here a great step forward. And on biodiversity, with nearly 70 sites of our more than 200 already with a plan of biodiversity. And by the end of the year, all of our sites will have a very detailed biodiversity plan. I'm very enthusiastic because I see a major change within Wienerberger, the attitude of our more than 20,000 people towards the subject of ESG and sustainability in particular and the progress that we make. And here again, I think when you look what we really do here in the field of technology and production, just integrated 2 examples here; a highly efficient green electricity when it comes to new kilns, for example. We are not only testing them. We are installing them in the UK and in Austria with respect to the production of clay blocks and roof tiles. And we have here a nearly 0 carbon footprint when we talk about production of the future. Heat pumps, in order to reduce significantly our energy consumptions in the production because we recover heat from our dryers and capturing of CO2 when it comes to kiln flue gas also already installed in Belgium. So, you see we are not testing technology, we are already implementing. And that makes me confident that we will achieve our very ambitious target 2030, with a 40% reduction in CO2 emissions. Electrification, as we go syngas and biochar, that we installed already in certain countries and biogas that we use, for example, in Denmark are examples how we switch away from the fuels, the existing ones, fossil ones to more sustainable ones that we can use in different countries. This will be a more local approach again, because we have local operations and here the availability of alternative fuels is very different throughout Europe, especially. There has been also some changes with respect to the ETS. I don't think you've read out of Brussels that they will change the framework when it comes to the ETS grants of CO2 certificates. Again, we have tackled this problem already. We are far ahead of our colleagues in the industry, and we'll see these things coming our way as a challenge and have already addressed them and feel that we have taken all the necessary measures in order to address this. Just one insight on this, ETS will change. We will get further reduction targets in 2024 and 2028. And then another step-up in, I think, '25, if I'm not mistaken. '26, they will sort of implement this on the European level. But as I said, we are prepared to this internally and with our measures that we implement in the company. When we look at '22, as I said earlier, a lot of things have happened and I don't want to go into a lot of detail. However, one thing is very important that we have seen a softening of the end markets already in '22, as we speak. And we have adjusted our cost base, we have adjusted our production sort of capacities in the way that we have been able to produce and to deliver to our markets throughout North America and Europe, because a lot of our colleagues in the industry have not and we were capable of doing this, and therefore, have used this operational leverage wisely and have also satisfied the demands. And we're the ones who had available products throughout the marketplace. All in all, it led to an impressive increase of revenues on the back of the softening markets with 25%, approaching nearly EUR 5 billion turnover in 2022. Also the operating EBITDA strongly up with nearly 50% to above EUR 1 billion, so that's a historical high in the performance of EBITDA in the Wienerberger history. EBITDA margin above 20%, ROCE above 18% and a very strong net result and the cash conversion that was extremely high above 85%. So again, here, I think, a very strong and a solid set of results for the year '22. When we move to the markets as such and I mentioned that Wienerberger's end markets in newbuild, renovation and also infrastructure saw its highest market demand in 2021. After the COVID crisis we had, obviously, North America and Europe, very good demand levels and they came down in '22. So when we compare this 100% market in '21, we had a reduction of roughly 10% in the end markets already in '22. And we have been able, again, organically to outperform such markets with our system solutions and with our innovation. And I think this is the strong message that we can relay to you that in declining market environments, Wienerberger is able to outperform such macroeconomic developments. And especially, when you look into '22, we had an extremely strong increase on the cost inflation side. The market, as such, when we look the overall building material market, and especially, our competition, they had sort of cost increases above 20%. And we, due to our sustainable and forward-looking purchasing policies with raw materials, with other materials and especially also with energy, we were able to come down to about 15% of cost inflation for Wienerberger. So, we were able to obviously outperform the cost inflation with price increases and the good margin management. So, this was a significant part of our success story in '22. But also, and as I mentioned earlier, we continue to perform well on the innovation front with more than 1/3 of our product ranges and products in being innovative. So less -- from a perspective of age, less than 5 years old, and we obviously roll this out in our 28 markets. So here, again, a very strong step forward in rebuilding a completely new portfolio for Wienerberger. And above all, you'll remember that we mentioned last year that we want to take some more of the system and solution market, and we increased our share to about 25% of our revenues in this field. And here, I think we make very good inroads, and we see it also on the pricing front and the margin front that we make great steps forward with respect to the solution business. Indeed, it addresses also one major concern that the industry has throughout North America and Europe, it's the lack of skilled labor, where we obviously have here with the solution business a stronger inroad and build here substantial momentum. When we look at the self-help program, you know that we are continuously now focusing on improving our cost base. We have done so in the years '21 and also now in '22, and have had a considerable contribution with EUR 48 million coming out of this. And when you look at it in a more detail innovation and organic growth, about 50% contributed to this and the rest comes from manufacturing, procurement and the general administration part. So here on track. And again, when we talk also, we will look at it very closely on the outlook front and Gerhard will also go a little bit more in detail through it. Also, we foresee for this year another EUR 45 million coming from this self-help program. So continuously focusing on our cost base and improving it further. On the M&A front, we have been active. We clearly have a very selective approach when it comes to M&A, to improve our footprint when it comes to the solution business and the system business and, obviously, to further consolidate our operations in Europe and North America. And we have been, I think, very successful in different parts of the business; piping solution, building solutions, and, obviously, also by divesting some businesses like the French piping business, and obviously, the Russian business for the political situation that we were exposed to. So, a successful implementation of our selective and very focused M&A strategy. I will come to the bigger deal of Terreal in a minute, but these are the more important sort of steps in the portfolio that we develop further. One sort of a word about our most important acquisition in North America, the Meridian Brick one, a true success story. Fast integration, very efficiently sort of bolt-on this acquisition in the different markets, in the back office and in the sales, and have led to a significant increase of not only revenues, but especially operational leverage and the EBITDA at the end of the day. You see how strongly we improved here our performance in North America and this is not on the back of a rather solid market development because, obviously, we have seen in some areas also some declines already last year, but especially due to the strong performance of management in increasing our operational leverage and increasing the activity here around the sales and creating synergies. When we look at the performance of Wienerberger, we have, obviously, used the cash last year in order to launch a significant share buyback with nearly EUR 300 million -- sorry, EUR 200 million, and the dividend, obviously, returning to investors about EUR 300 million and boosting, therefore, the EPS. If you look at our proposal of dividend with EUR 0.90 on the share, if you take the 3% canceled shares and the dividend for '22 that we foresee, we will have a 30% payout on the free cash flow, so well in line with our policy between 20% and 40% payout of our free cash flow. So here, again, a strong commitment to the return of the investments to our shareholders. And when we look at a disciplined balance sheet management, here, again, CapEx, very well maintained at EUR 135 million. On the maintenance CapEx side, the discretionary spending when it comes to special expansion CapEx and ESG CapEx, little bit above EUR 200 million, and the M&A also very well allocated. So all in all, we kept the net debt level to EBITDA at about 1.1x, so a very good and solid balance sheet for Wienerberger. When we look at the overall performance, and let me spend a little bit of time here, I think it's important that I explain where we stand as management. We have had a great run last year. We have, obviously, all of our employees 20,000 worked hard throughout the year in order to satisfy demand. We were, in this sense, well positioned to take advantage of the good demand levels in Europe and North America. We were able, considering the crisis -- and I recall only the major sort of setback with the Ukraine war starting and nobody knowing if we have energy, et cetera. So, you've seen how sustainable Wienerberger organizes the purchasing front and how strongly we can react and quickly we can react to demand levels positively and negatively, but still here we have shown the market how we can take also market share if it's possible, and this, obviously, impacted our results. And if we take now a long approach, a more sustainable approach to EBITDA, I would exclude about EUR 110 million, you might call it overperformance or one-offs. The wording is here of not so relevant. It is just to show you that we, as a management, we grab opportunities in the marketplace and this came in North America with the purchasing of raw materials, very positively impacting our business here with EUR 60 million additional EBITDA and EUR 30 million and EUR 20 million, especially in Europe when it comes to the building solutions side. So if I deduct this EUR 110 million from the more than EUR 1 billion EBITDA, we can come to a sustainable operating EBITDA level of EUR 910 million. This would -- I would take in a long-term perspective, if I may say so as a reference for 2022. And obviously, when we look at the portfolio, and this is also important to note because Wienerberger changes and is changing rapidly. You see how important now renovation and infrastructure are in our portfolio. So, we are less cyclical. We are a different company when it comes to end markets and play here, obviously, also very strongly our renovation card because it's something that we will see as a more resilient business for Wienerberger. And now with 30% renovation and 22% in infrastructure, we have a very strong base in these 2 fields of activity. Let me have a quick look also on the last 10 years, the decade. And over a decade, Wienerberger was significantly outperforming our end markets. You see it on the revenue front with average growth rate per year about 8% and on the EBITDA with 17%. So a really strong decade that we can look upon, and I'm confident that we will do so for the next decade as well. Wienerberger is well positioned to outperform its end markets as we speak. And with this sort of message, I would like to hand over to Gerhard for the financials.

Thank you, Heimo. Happy to report, I think, quite a strong and a solid set of numbers for the last 3 months of the year despite this quite challenging environment and also these declining end markets, which we have seen. Revenues in the last quarter up by 5%, above EUR 1 billion, EBITDA above EUR 200 million, up with 10% plus, and I think which is remarkable, an operating EBITDA margin in the last quarter, which is close to 18%. Looking a little bit closer to the last quarter of the year, we see revenue-wise this 5% growth, 3% organically. What we have seen in the declining end markets that also we have declining volumes across the group of around about 14%, which we have seen, whereby, we see stronger volume declines in the piping segment despite some lower or softer volume declines in the ceramic business, more or less a minus 10% in Europe and in North America and a slightly higher volume decline in the piping segment. We will also speak about later on about for the reasons why we have seen different decline on volumes in the same markets. This volume decline has been overcompensated by a strong pricing performance, so it was offset. We have still seen in the last quarter price increase in average of plus 70%. So, this basically led also to a 3% organic increase in revenues. And we had also, due to the strong dollar, a positive FX impact during the year of around about EUR 11 million. And out of the acquisitions what we did in 2022, we also had a contribution on revenues, which brought us finally to this EUR 1.1 billion for 2022. EBITDA wise, we increased by around about 10%, the EBITDA, to the EUR 200 million, which I mentioned before. What was driving the 9% organic growth in the last quarter? As we mentioned earlier, we were running our operations more or less on the high level close to full capacity. This led also to very favorable production costs still also in the fourth quarter. I think what is also important to mention here that we were able to protect the gross margin, to protect basically the gross margin of the business, especially in the ceramic business that we did with our cost management or respectively keeping the efficiency of the fixed cost high and thereby, offsetting the volume decline. And I think this is something, which is also then reflected in EBITDA margin, which is around 18% in the fourth quarter. And this brought us then also to the EBITDA of EUR 200 million in the last 3 months of the year. For the full year, as Heimo mentioned, we were able to bring revenues close to EUR 5 billion, which means 25% revenue growth organically. This means a plus 15% we had out of the M&As from 2021 strong contributions from the Meridian deal. So, you see here 9 months in the scope impacts from the Meridian deal, 6 months from the FloPlast and Cork Plastics deal, which we did in 2021, and also the impact out of the acquisitions and divestments what we did in 2021 and 2022. Organically, the 15% plus, as I mentioned before, we had a strong development on the sales price development, which could offset basically the volume decline. Across the group, we have seen in the year 2022 a volume decline, which was around minus 6% across the group, and this was clearly offset by pricing, which was around about the 20% across the group and along the year. EBITDA wise, exceptional strong EBITDA, EUR 1 billion, what we have seen before and also where we see that there are some exceptional items in it, which are not sustainable, the EUR 110 million what Heimo just mentioned. But still when we look to the organic growth of 34% of the EUR 236 million, this is driven by a strong performance in our production operations by the strict cost management and also by our forward-looking procurement activities what we are doing on the energy and on the raw material field. So, this helped us and supported the strong organic growth of around about 34%. Scope wise, we see the EUR 77 million. Here, a strong driver is simply the M&A activity what we did in North America during the year 2021, which is the main contributor here in the scope impact of EBITDA 2022. This brings me to the reconciliation or presentation basically of EBITDA -- of reported EBITDA to operating EBITDA. You see there are no exceptional items in between. We have like the years before some asset sales, so the sale of some non-core assets in it of close to EUR 20 million, which we deduct and we also had some structural adjustments in the sense that we had some restructuring costs for optimizing our plant network, which was around about on the same level like it was in 2021. And this then finally brings us to the EUR 1,021 million for EBITDA -- on operating EBITDA for the full-year 2022. Looking to the income statement, respectively, to the primaries, which we also announced today. Just taking out some lines of that. I think we spoke about the revenues, we spoke about EBITDA. I think also a strong development on EBIT, up with more than 70% the financial result, which you see is significantly better despite an increasing environment -- interest environment, so meaning higher interest rates. But still on the one hand, we had last year a one-off in the EUR 46 million in the financial result in it. And this year, we had also some positive currency effects from the U.S. dollar, which is also supporting the EUR 33 million on financial results. On the income tax, I think nothing special to report, slightly higher than last year, slightly above 17%. Last year, we were also close to 17%. On the long run, I expect also that income tax rate -- effective income tax rate will move a little bit to 17%, 18% more in the range of close -- coming close to 20% in the future. This brings me to the -- basically to the cash generation of the business. We have heard it before already that there was a high conversion rate, above 85% free cash flow, which is exceptionally high with almost EUR 600 million, which is 40% above. We have seen net debt, which is basically in line, even slightly below the year 2021. You know that the main cash outflows what we had is the share buyback program, which was around about EUR 200 million, we had a dividend of around about EUR 80 million last year and we had also some growth CapEx, which was slightly above the EUR 200 million. And this finally brought us to this free cash flow of EUR 600 million. Working capital management, I think very solid with 16% in line with prior year. The working capital increase what we see is mainly driven by higher value and inventories. And it is in fact, really the value, which increases. Volume wise, we are still, I would say, on a low level. You see it also here on this slide, the 17% increase in the inventory is mainly driven by the cost inflation by plus 15% and only 2% driven by a volume increase of the inventories on stockyard. And still we have some of the countries where we want to improve, basically, also the inventory level in the next years. This brings me to the cash flow statement. As just mentioned, exceptional high gross cash flow. The change in the working capital of the EUR 155 million, what I just mentioned is mainly driven by an increase of the inventories. And here, as mentioned, due to the cost inflation, a strong impact here what we have to report, a free cash flow of the EUR 600 million. And as I mentioned before, the free cash flow was mainly used for growth CapEx, for M&A activities of EUR 50 million around about, the share buyback program, which was around about EUR 200 million and the dividend, which we distributed in 2022 for the year 2021. And with that Heimo, we move further with the acquisition of Terreal.

Thank you, Gerhard. Ladies and gentlemen, obviously, we announced this takeover is an important one at the end of last year. We are actually very enthusiastic with respect to this deal because it brings us forward in the growing renovation segment, and especially on the roof because here we create and this is, I think, the exciting story for Wienerberger in the years to come, the expert for the pitched roof throughout Europe. So, we are actually moving along nicely and growing our presence in France and in Germany, the biggest markets in Europe. And here we see, obviously, huge potential for us to grow. The group that we will take over is not all of the operations of Terreal. We are not taking over Central and Eastern Europe, just focusing on France and Germany, Italy, and, obviously, the United States. And here, obviously, it will be about EUR 740 million of turnover that we take over, roughly EUR 100 million of EBITDA. So a 6x multiple when you look at this deal. And in the roofing business, this is a very attractive multiple that we are here paying for this business and which will create immediately value for our shareholders. We target about EUR 150 million coming from this acquisition after synergies because we create here a platform, not only on the cost side with efficiencies in production, technology and also the back office, but especially also when it comes to sales because we can bundle more products and sale over this -- increase sales over this platform. So, a huge potential for Wienerberger in the years to come. And when you look at the financing of such transaction, as Gerhard has put it, you see our solid balance sheet, you see our cash that we have available. And we have agreed with the shareholders that we will pay them also the shares in Wienerberger about 6 million of shares that we have available in treasury shares at EUR 26 a share. So, here, again, we think we can create value. As far as the transaction as such is concerned, by the way, we got a positive approval by the unions, the French ones yesterday. So on this side, we are cleared. We have also some clearances already from antitrust authorities like the German one very quickly. We are now dealing with the French and some other jurisdictions, but we already have foreseen that it will take a little longer in France. So, we see a clearance of the transaction towards the third quarter of this year -- end of third quarter of this year, and obviously, are prepared to then integrate the business very quickly. You have seen us doing this in the United States with Meridian and we can do more or less the same here in Europe, move very quickly, put it on our software bases and the IT bases and then run the business as a fully integrated one in Wienerberger. And this will bring us, obviously, again in an even stronger position. You remember, I told you earlier that renovation was growing, and this will grow above 30%, to be correct, 34% and therefore, being a major part of our business in the future. And here, I think we have created a strong Wienerberger, a very resilient business. This leads me to give you a little bit of insight on '23. '23 is going to be a difficult year to predict. We are a little bit into it already, but as you all will agree with me, it's an instability that we still face up and down and with all the ongoing instability, politically speaking, financially speaking, still high cost inflation with about -- above 10% in certain areas of the world where we operate in, and especially, the increasing interest rates that we are facing obviously. This has an impact on our end markets. And it's without any doubt that I need to say that these end markets will soften further in 2023. How much? We don't know. I've put here a scenario for you and this is not a guidance. It's a scenario that we currently are sort of looking at, with about 15% down in newbuild, 20% in the US. I just come back from the U.S. and had conversations with our leading customers. And from their perspective, they see not such a decline right now. They're more positive and especially when you look at the Southeast and the southern part of the US, except Texas, they see a much more positive trend. We will see and we are prepared at Wienerberger for all scenarios. And we would like to give you this one just as a sort of a hint what can happen if the markets go down in this direction that we are prepared for this. And that we obviously do all the necessary and measures that are necessary to tackle these issues. So in Europe, you will see also, in the newbuild, a decline. We have seen a significant declines already last year in countries like Poland, like Hungary, Czech Republic also and a little bit in Romania. But we will see certainly some declines also in Western Europe and in the U.K. this year in newbuild. So, this is a fact, and I think we don't know right now how much they will be, but I'm just saying softening and it's difficult to assess the size of this. In renovation, more or less stable, slightly down in both sort of end markets North Europe -- North America and Europe. Infrastructure also little bit down in Europe, especially because, obviously, the financing in Eastern Europe for this coming from the EU is on hold for countries like Poland and Hungary. And in the US, obviously, size wise, the investments will sort of come in from this public institutions. But we will see a little bit of decline due throughout the year. And when we look at the inflation side, it will be significant under the inflation that we had seen last year. We at Wienerberger think it should be around 10%, coming very much actually from the wage side, personnel costs side. We have here increases throughout Europe and a little bit also in the US, but show that you get a feel for it in the range of 6% to 9% or so in the wage side. So, this is what we have to work with and, obviously, some other inflationary costs that we have to digest. However, and this is, I think, the strong message that we give you at the beginning of this year, the price increases of Wienerberger for the solution and for the products will cover such cost increases that we have to digest. So if we look at the energy again, here, as I said at the beginning, a solid sustainable purchasing policy that brings us in a situation that we have ensured already the volumes at prices that are very competitive for this year, 93% of the volume that we can actually buy forward. We have done so. Recall only for those of you that don't follow us that closely, that in some areas of the world, we can't do this because of its regulatory. Some countries, I'll give you an example, like Serbia and Bulgaria, this is not possible. So, this is on spot market that we have to deal with. But the rest, as I said, is covered buy forward. And you see also that in '24 and '25, we have already a significant amount of this insured by forward buys. When we look at the different aspects of innovation, system, again, we tackle and the work on our targets. This will continue this year and make the necessary contribution as far as margin is concerned. And as I said, at the beginning, the EUR 45 million coming from the self-help. We are confident that we will achieve this as well throughout the year '23. And if you look at the disciplined capital allocation, Gerhard gave a good overview of 2022. When we look at '23, EUR 140 million will go into maintenance, EUR 5 million more than last year. But you need to appreciate that the asset base has, again, come up and is strong and more important than compared to last year. So, we are very disciplined on the maintenance CapEx with EUR 140 million. And the discretionary side is obviously on the growth front with ESG CapEx, reduction of energy consumption, self-help program and others that we put into the business. This year, you need to sort of count about EUR 160 million. We always say that the payback here is a very strong one and the good ones average about 4 years. And then on the M&A, we will certainly continue, and obviously, you see Terreal on our list that we have to then to close this year. So, we can't give right now a guidance on this. But keep in mind that on the average, we have a 5-year payback here on these investments. And again, the dividend, as we proposed it, with EUR 0.90 a share falls perfectly into this payout ratio for free cash flow. So a very disciplined approach when it comes to capital allocation. And when we take this scenario that I've mentioned to you, and please don't see it as a guidance. I just want to give you a hint where this can go. You see, obviously, the market development. We come down at about 80% of the markets that we have seen in 2021. So again, here a strong performance for Wienerberger, considering the softening of the markets with a good performance throughout the businesses and we will outperform such markets due to our sort of better innovation rate and system approach and the margin management, not to forget also the cost side of the business. So, here again, I think from a perspective where we look at, we digest such market trends well and Wienerberger has improved its cost base significantly. Because you see, if you compare those markets, we will be, in '23, with respect to the scenario that we are showing you here under the markets that we have seen in '19, for example, or even in '16, but -- '18, sorry. But here you see the better performance of Wienerberger in such market environment. This is to show you how we have improved the cost base, and this is the major message that I would like to give you. On the upside, obviously, better markets, and if they come, then I think we are ready for it. Gerhard has told you that we, obviously, look very carefully to have enough inventory to satisfy potential higher demand. Remember that we did so also during the COVID crisis where we took the benefit of doing this in '21. And I think here we are ready for both sort of potentials upside and downside, but I think we are protected more on the downside here with this scenario that we showed to you. And finally, a word on the future. I think from the outperformance, you've seen clearly over the track record, the last 3 years that Wienerberger consistently outperforms its end market that we focus on the gross margin by strict cost management and proactive margin management, and the contribution as far as M&A is concerned. You've have seen it from Meridian, you've seen it from the smaller deals that we do and we'll continue to do. And you will see it also from Terreal Group that we will integrate, as I said, towards the end of this year with another EUR 100 million coming from this business pre-synergies. So, I think Wienerberger is well set also for this certainly instable market environment that we face currently, and we will see as the winter goes away, and hopefully, the spring comes, a little bit more and better visibility coming towards us for the rest of this year. Thank you very much for your attention. It has been a longer presentation, but I think it's worthwhile to walk you through the different aspects of the business. And we are ready to take your questions. Thank you.

[Operator Instructions] First question is coming from George Speak from BNP Paribas Exane.

So my first question and I'll just take 2. Could you just give an idea of the current volume trends? So are you still seeing slowdown accelerate or are there any signs of stabilization?

Shall we answer this or do you want to give us the second one as well so we do it all in one.

Let's do that one first because it's sort of related. Let's do that one first.

Okay. I think from our perspective, as I mentioned it from my trip to the U.S. and also the numerous trips around Europe, I think we don't see here a trend that is more negative. We are more in line with what we have seen in the fourth quarter and that what has been explained by Gerhard.

The fourth quarter, as we said before, was already quite -- I mentioned this minus 14% little bit lower on the ceramic business side and a little bit higher on the piping side. What we have seen from the January and February numbers, we are in line basically with the fourth quarter numbers volume wise.

Okay. That's really helpful. And so I guess related to that, clearly capacity utilization coming down in that environment and gas costs are now back to 2021 levels. So how sustainable do you think pricing is in the market more generally at its current level and do you have any expectation that you might have to give up pricing gains in any certain markets or certain products?

And I think maybe not speak only about pricing gains. I think what we managed very well is that we adjusted our basically operating leverage or that we are able to keep the cost efficiency of our fixed costs high and by that also offsetting basically the impact of the volume decline. And I think this is why we also were able to secure the gross margin in the fourth quarter and also keeping EBITDA margin on the 18% what we mentioned before. I think this is also our clear ambition for the first quarter or basically for the year 2023.

I think I can only confirm what Gerhard has said. And keep in mind that obviously when you talk about pricing, there's inflationary cost increases for all industries and also for the colleagues in our industry for this ongoing year coming, as I said, from wages and others. So not all of them will be in a position to adjust very quickly their pricing. You're right that energy price has come down, but they will take also some time to come down in the sense because it's not the gas price as such, it's the distribution costs and others that are related to it. And don't forget also the ETS that I tried to mention at the beginning that plays an important factor as well for them.

Can I just take you up on that last point actually? Are you able to quantify at all the EBITDA impact on Wienerberger from the ETS scheme?

Yes.

Would you be able to disclose to us on that?

Sorry. Then I misunderstood you. I don't see it as a major impact is what I am saying. Sorry about that.

The next question is coming from Matthias Pfeifenberger from Deutsche Bank.

Congrats to the results. It's basically volume and pricing follow-ups. So you're saying the piping business was down more than 10% I guess that's correct so looking at something like minus 20%. Is that also including some destocking or what's happening there and how does that really fit with the minus 5% you're putting out there for infrastructure? I guess the weak part might be, I don't know, oil and gas, desalination, something like that on the pricing, we had pricing up 22% at some stage this year. You mentioned an average of 20% for the year and an exit rate of 17%. Is that all higher pricing base last year or is that already like-for-like price declines? And on the gas prices, maybe you could just tell us directionally if you're still competitive versus spot prices for this in next year?

Taking up your third question immediately. Yes, very competitive. Very competitive on this one for this year and next year so this I think gives you a good answer to your question. And on the first one when you talk about piping volumes, just keep in mind, Matthias, that we exited the low margin business in France quite a huge volume. Obviously you have some volumes also from the exit in Russia and Greece in it from a comparable standpoint of view. So volume wise yes, you're right, it has been quite down. But it was low margin businesses that we exited it here. So on the front of international project business, long lengths and also for the oil and gas industry, we have seen on the contrary a very positive development trend in '22. So this I hope addressed you a little bit. Infrastructure was down obviously because of this hiccups with Poland and Hungary especially in Eastern Europe and here also I think this will continue this year as I tried to explain. And we are deliberately, as I said, also on a long-term perspective exiting step by step the low end of pipe production. We are moving into more high end with accessories, et cetera. So this is a logical development for the piping part.

So what you say underlying without your deliberate mix, it would also have been down maybe something like 10% in terms of piping volumes rather than more than 10%?

It's I would say yes, below 10%.

Please keep in mind, Matthias, that basically, as Heimo mentioned, we exited some markets and the volumes what I mentioned for the fourth quarter are definitely not representative for the whole year. We have seen in average volume decline, which is more in the range of the minus 10% comparing basically or looking at the whole year and also what we did especially in the second half that we also choose left and right for price and not for volume and this also led to maybe a slight underperformance on the volume side. But definitely overcompensating our margin development when we look for the full year of the piping business.

Okay. And on the pricing question?

Just help me once more. The question was the pricing impact was plus 20% across the year basically what we realized?

I think in Q2 you had 22%, now I think 20% on average for the year and the exit rate was 17%. So my question is are there any like-for-like price declines already happening or is that just a higher pricing pace velocity in terms of year-on-year perspective?

I think what you have to keep in mind is also the pricing impact of the North American piping business, which is also quite volatile and is also coming down a little bit and this is also impacting basically the average price of the piping business and also consequently of the whole average price of the 17% what we mentioned before for the fourth quarter. For the whole year, as we mentioned, we had plus 20% and we reported after half year 22% and I think after the first 9 months 21% and for the fourth quarter 17% and this brings us to the 20% what we report for the full year pricing development.

So no like-for-like price declines from peak levels in bricks and roof tiles and so on?

No on the contrary, no, no.

The next question is coming from Brijesh from HSBC.

I have 3 if I may. The first one is just a clarification in terms for your scenario number of declines which you've put in by end market. Could you just split that out between Western Europe and Eastern Europe, what kind of assumptions in that scenario or in terms of newbuild volume decline?

Not really, I'm sorry, because obviously we have seen last year a stronger decline in Eastern Europe when it comes to newbuild. You remember the Ukraine crisis led immediately to a downturn in Poland and especially Romania and Hungary. This will be a little bit less important this year. However, we have had also very strong interest rate increases that affect this year negatively. The project development mark [Technical Difficulty]

Ladies and gentlemen, there is some issues. They are back. Please go ahead.

Sorry. So there has been a technical interruption. But I was trying to say it's very difficult to give you a clear indication Western/Eastern Europe for the year and I think, as I said, it's a scenario and with this scenario we work.

Okay. Fair enough. And just coming to the split. I mean from EUR 1 billion, you kind of ticked up EUR 110 million as the nonrecurring as such. But if I look at it's really the EUR 60 million, which is the forward purchase in piping that's kind of not continuing. But I mean the market share gain as well as the EUR 20 million in terms of production efficiency, those are kind of embedded into your volume decline assumptions. So from where I'm coming is kind of I'm trying to marry this number with what you are guiding EUR 800 plus million. So are you saying that from EUR 960 million, you're going to EUR 800 million, that's EUR 160 million delta which is predominantly with your volume decline if you beat a bit, but still that itself is fully then price cost is neutral. That's how you're thinking?

Well, I think you are to some extent right. I mean the EUR 60 million in the U.S. is something, which is a onetime effect and you are absolutely right to point this out. When you talk and I don't want to argue too much on the EUR 20 million and EUR 30 million with volumes and better capacity utilization. Obviously you will appreciate if I say if you run your factories above 90% capacity utilization, you have a very good cost base. And you run them because some of your competitors are out of production due to the high energy costs. What I assumed is that some of these competitors come back and are in the market again when the energy costs go down and therefore, these market share gains are not 100% achievable again in the future. That's what I did for the assumption purpose for this scenario. So you can take it as you wish, I mean it's up to you. But at the end of the day, you are right. A certain degree of market decline in this we have put it in this scenario if it's EUR 20 million in the U.S. on newbuild and EUR 15 million in Europe, I mean it's only now mathematics and excel sheets if I may say so. But obviously they lead to a certain decline in margin and obviously in volume so at the end of the day more on the volume side, if I may say so, which brings you in the range of about EUR 800 million plus EBITDA, you're right.

Okay. But just to confirm that you do expect to beat your overall 10% market decline with a lower volume and you expect to cover your cost inflation through price increases?

It's absolutely confirmed to you on the price increase and cost side and also on the operational performance. Yes, indeed.

Okay. All right. I just have 1 last on the Terreal acquisition. So the EBITDA margin which Terreal is currently generating is around 13% and if I look at your roofing business, which is having around plus 20% EBITDA margin. So it's clearly much below the group level and I appreciate you were kind of giving EUR 150 million EBITDA guidance by 2026. If you could just split that EUR 50 million into self-help and I guess it's all self-help or anything else you're building because from the face of it, it looks like EPS dilutive rather than accretive?

Not really, no. There I don't agree with you. Sorry, if I say this directly. And on the other front from a perspective of performance enhancement, obviously when we are in a position to take over the business, we will immediately start by improving its performance technology speaking, cost efficiencies and also especially on the energy consumption front. I think these are the biggest ones and you will see us doing this and we will, as we did in the past for all of our businesses, transparently report on the targets and how much we achieve. At this stage, I think it's assumptions that we base mostly on the platform, as I said, grows with additional products and the platform.

The next question is coming from Gregor Kuglitsch from UBS.

I've got a few questions too, please. So the first one if you could help us I guess on pricing. Just sort of the scenario I guess that pricing holds where it is today, what do you think is the year-over-year increase you get in '23? Appreciating that you had sort of sequential increases throughout last year, correct me if I'm wrong on that. And then I guess the related question is how much more pricing do you think you sort of have to implement on average to sort of get to your I think prudently price cost neutral, which is I think what you're guiding for? Coming back -- I mean I don't know if you want to take that first or...?

Yes. I will take this first, if I may. And I think you see us and you have followed us that closely that you understand we have done already the price increases and are working on that. So I can say from our perspective it's a single-digit number. It's in the range of about 6% to 7% where we position ourselves these days where we can sort of pass on the cost increases to the market and I would say at this stage we are very successful in doing that.

Okay. Can you remind us how much the North America pipe business actually made in terms of EBITDA so we can put the EUR 60 million reduction into perspective? I mean I think that's not unexpected. The question I guess is where does it come from, where is it going? And do you think once that EUR 60 million unwind is done that that's sort of a sustainable run rate? Because I remember looking back here, this used to be business making EUR 20 million, I reckon it made well north of EUR 100 million last year. So I want to understand sort of the sustainability of the pricing stream.

I understand and I think we need to clarify this for once. Usually I'm not that direct, but this time I think I will give you some numbers so that you can work with. You were saying the EUR 20 million was the usual run rate, but we improved the business. We obviously expanded our capacity also. So from a perspective of additional margin, we were above EUR 100 million in this business so above EUR 100 million. And the EUR 60 million that you deduct then leads you to a more sustainable run rate, which is little bit above the double of what you have indicated from a historical perspective.

And you think that happens in 2023 so that's happening now?

Yes, exactly. We are getting into a more closer to performance to a sustainable one now.

Okay. That's clear. And then sort of final one I guess on maybe sort of longer-term sustainability of profitability. I mean if I read you correctly, you're saying EUR 900 million would be the number if markets were stable. Markets are now going down so, therefore it's going to EUR 800 million. But in principle you don't feel that there is more unwind coming in due course because I don't know if hedges helped you out or something like that. Is that the right way to interpret what you're saying?

I think you're absolutely spot on. From our perspective the little bit above EUR 900 million is the run rate as we call it and I think we have established this sort of business. We have taken the outperformance the more than EUR 100 million to be above EUR 1 billion this last year. And if you base yourself on the sustainable EUR 900 million and obviously the market declines, how strong they are or how sort of pronounced softening of the markets will be? We don't know yet and that's why we gave you a scenario to work with. We at least think that we are well hedged with such a scenario if I may say so.

Well prepared and we will do our exercises what we have to do and adjust our cost structure accordingly to the declining end markets to support those margins.

And your assumption is absolutely right if the markets don't move, then obviously the EUR 900 million is a clear sort of run rate.

Then a final point because you made a point of it on the ETS. Can you remind us in the ETS scope sort of what are your emissions and sort of how much short are you now? I guess you're imbalanced now, but can you just tell us what your actual emissions are so we can calculate ourselves what sort of the potential impact is if the free allowances get reduced?

For the moment actually we are not short. I mean we are well covered. And what I'm trying to say was it's roughly around 2 million emissions that we have the CO2 base tonnage. Then you need to -- that's what I'm trying to say. The European Union has not published yet the final set of regulations that they want to change. But the further reduction targets that they want to implement till 2030 and obviously doing away with free allocations we have, we are well prepared for that and we are completely in line with our reduction targets here. That's what I'm trying to say. It will not further impact anything on the result.

Okay. So you're trying to match the reduction in free allowances that's coming down the pipe.

Yes. Correct.

The next question is coming from Tobias Worner from Stifel Europe.

Probably we have a technical problem and Tobias is not connected.

Tobias maybe not here anymore. We can take the next question from Pam Liu from Morgan Stanley.

I have 2 questions, I'll ask them 1 by 1, please. The first one, Heimo, you already touched on the competitor landscape earlier. Can I just check are you currently seeing any competitors cutting price hard or coming back to the business because the gas cost position is getting better for them as gas price fall? That's the first one.

And a clear answer to this one, no. It's a short one, I'm sorry.

Okay. So the second one is obviously the strong results in Building Solutions Europe we're seeing here clearly demonstrate the benefit of having a diversified market exposure with a good market share. So if we apply the same principle to your U.S. business, I think on the market share front Meridian has been progressing very, very well. So am I right in thinking that perhaps the next task there is about more exposure to renovation and more solution selling. And if so, could you tell us more about how to grow, how to penetrate into the renovation market there and how quickly can that be done?

You're absolutely spot on on this one and I think our homework has been done on the front of the newbuild side so we have consolidated our position. That was our first target. And now we are moving into next one. And solutions one hand is on the facade with the integrated panels. For example, when we talk about syn brick, you glue bricks on a more sort of panel system and here reinforce our position on not only residential but commercial and also on the renovation side. So this is 1 part of it. And the second one will be the small acquisition for U.S. standards of the Terreal business in that they have only 1 roofing factoring in Ohio, but it brings us the platform to actually enter the very interesting roofing market in the U.S. And if you see our performance now in the newbuild segment with respect to facade and facade bricks and solutions, to add on the roof in the U.S. will be the growing subject for us because they have also a lot of pitched roof as you know, they have different materials. But still I think here we can make good inroads. It will be over the next years that we will grow our exposure to this and you are right that we want to have here also a more balanced portfolio in North America.

The next question is coming from Markus Remis from RBI.

Most of my questions have been answered. One is remaining on the topic of share buyback. I mean post the cancellation of couple of weeks or months ago, are you just thinking about kind of stepping up the buyback activity again? And then the second question centers around kind of your energy hedging strategy given the recent decline we've seen. I mean is there any kind of more opportunistic that is now capitalizing on the lower gas price and how should we think about your own gas storage? Is that to be kept or will that be kind of more of a trading aspect to that as well?

Well, I think no. First, let me answer this very clearly. On the gas side we're not speculators, we're not trading things. We are trying and as we have been in the past ensuring the supply. That's very important for us because we continually produce so the supply is very important and to have it for competitive prices. And as you have seen in the charts, we have done so also for the years '23, '24 and also partly '25. You will see us now in the market for '26 onwards because the prices are coming down and we are capable of ensuring good volumes at very competitive prices. So this is we will re-enter, if I may say so, our strategy and buying forward. So this is on the energy front. And on the share front, I think we have used and you see now the full picture because we have related to you, Gerhard and myself, that we have overachieved our results and our own targets with more than EUR 100 million. We used the cash already buying shares also last year so you have seen how we quickly will move on that, but we have also announced a major deal for us and that grows obviously. So we see that here growth for Wienerberger is important. So we need to digest the Terreal acquisition first. And I think opportunistically you will see us probably a little bit in the market, but not at the scale that we have done in 2022.

All right. That's very clear. And final question, I mean just thinking about the expected volume decline. I mean at which level you would start to consider taking out bit of capacity or is that already needed in the framework of the current market expectation?

No. We clearly said also when we did our planning for '23 this winter sort of standstill where we do maintenance and where the production is the most expensive especially when it comes to bricks or it's clay blocks or facing bricks. So we are right in the middle of this at the end of February so we will decide market by market when we start production again. Roof tiles I can already relate to you this is running full speed already because the demand levels are strong. And then in facing and fixing, clay blocks will come back as needed and in certain countries probably the standstills will be 3 or 4 weeks longer. So this is what we will adjust and how we will adjust production capacities.

The next question is coming from Yassine Touahari from On Field Investment Research.

Yes. Can you hear me?

Perfectly well, Yassine.

So I will have couple of question on prices and then on 2023 and then a little bit more long term. So first, did you manage to increase prices already in January 2023?

Answer is yes.

We see basically the prices which we have announced have fully arrived in the P&L, respectively, on the market.

And in order to achieve the 6% to 7% price increase in 2023, do you need to increase prices further or does it assume price stability today?

The later one, right, we expect price stability. And from a today's perspective, no further price increase needed.

And in January you've increased prices by what a couple of percent because you already had a lot of price increase implemented in 2022 so I can imagine that you had a good rollover effect from the price increase from last year.

You have the rollover effect for sure. But we also basically assume from a today's perspective to do a onetime price increase, which we announced already by the end of last year, which is effective or which was effective by the beginning of January and this one we see. This arrives in the P&L. They are already so from today's perspective if we keep going and the cost structure stays as we said that the cost inflation is around about the 10%, we also see that the prices which we have announced and implemented so far are basically the one which we will keep for the rest of the year from a today's perspective. It depends definitely how basically cost inflation develops and also how the market further develops.

So is it fair to assume that the 6% to 7% pricing, it would be half the rollover effect from last year and half the price increase that you've announced in December, January?

You get the rollover effect, right, from last year, which is most probably half is yes, this would fit basically. So I think it is a fair assumption.

Then do you see a risk of price pressure in the second part of the year if you've got energy prices that continue to fall benefiting the smaller brick producer or if PVC prices continue to decline?

I think basically when it's about PVC prices, we already see today already in the fourth quarter that PVC prices were coming down. Basically the resin prices were coming down in the fourth quarter and also we see that resin prices are further softening also for the first quarter we expect that we have to see. We also see that the production output from the resin producers are also limiting their capacity, respectively their output. So from a today's perspective, we don't expect a strong decline in the resin price development for the whole year of 2023. And for the other part of the business, for the ceramic part of the business, yes, there will be some more price pressure than what we have seen in 2022. Simply also as we mentioned before that some of the competitors will restart when we will see, it is most probably after the winter. For the moment it is still, let's say, quiet on the market.

What you're suggesting is that you would try to keep the prices stable and expect to get back a little bit of market share.

This is definitely at the moment our approach to keep profitability to go for price not for volume and this is kind of a basic approach where we move into the year.

And then when we look at the medium term what we see is that if I look at the price of cement or lime, it's increased quite dramatically over the past couple of years and it's probably going to increase much more in the next 5 to 10 years because the cement plant will use up their free allowance. So does it mean that the price of higher rated concrete and calcium silicate could increase at a faster pace than clay blocks and tile and does it mean that you could gain market share over this product?

I think, Yassine, our strategy is not that we will try to gain market share fighting over price because this is certainly not the way forward for us in the future and we have not done so by the way in the last couple of years. It's more on proposing the market a long-term solution, efficient solution. You have seen that we have changed our product portfolio so high insulating blocks or facade systems or as I said on the roof, more system approach there. So again here it's more the solution approach that we favor than price competition per product. So this is the way forward for Wienerberger. I fully reckon that some of the colleagues will have input costs that differ from ours and they will differ even further in the future. But this is their problem not ours, if I may say so, and we will certainly position our product more as a very long-term solution, lifecycles above 100 years is important. Technical high in energy reducing solutions that we put in the marketplace and therefore ask a different pricing.

Very last question. If you see that other products such wood or for example in the U.S. you were talking about working asphalt. If you see that some other product are quite interesting, could you change the portfolio of Wienerberger and diversify into new products?

Yassine, I think we have done so in the past. I think the move of Wienerberger that we moved away from clay blocks into roof on 1 end even if they are clay and then after that into pipes now will make more sense for all of you because you understand that Wienerberger views the building holistically. For us it's important not to see just the product, but the solution to the roof, to the facade and to the wall. So this includes obviously also, Yassine, other products and we do so already today. We bundle things and for example if you take the 75 million square meters that we will sell of roof tiles in Europe in the future, we sell obviously in certain areas already insulation with it that we don't produce by the way. But in the future we might even sort of produce certain things ourselves and/or make acquisitions in this field. So I think here the platform for Wienerberger is a very different one than it used to be due to our high competence on the sales front doing project sales and being very fast and very early in the process when projects get developed and designed. It gives us the opportunity to sell different products, bundle them and sell it as a solution.

Next question is coming from Matthias Pfeifenberger.

Sorry to extend this call. Just 2 follow-ups more on the longer term. Now you're showing us 3 years plan. My question is will '24 definitely be a year of growth in newbuild residential given we're still in the upward cycle on rates and there might be a substantial lag for this to be reversed? And the second one, your scenario on renovation deteriorated a bit. What's the underlying development? Is that more in the piping or is that really also on residential renovation in the ceramics?

Matthias, if I may start with a joke. Sorry if I do this, but it's [indiscernible] as you know and additional questions cost a little bit more. No, I'm just joking. Thank you very much for this very valuable questions. And I think what differs today from past scenarios and I refer probably to 2008, '09 and '10; the underlying markets and especially in the newbuild, North America and Europe, you still have a lot of demand. We have a need of housing, we have a need of new apartments and there is good level of demand. Even today we have inquiries throughout all of our markets that are strong. They don't result in permits or in activity obviously because people are waiting and probably pushing a little bit back projects because of higher financing costs and instability. But the need is there and this I think is very important that we keep this in mind. So we have not overbuild and in no markets we have a situation for example right now so we I think are confident that the demand levels in all of our markets will remain strong. So that's why I'm saying I give you only a scenario for '23 because actually we don't know how this will play out in the later part of this year. And in 2024 it's even too far away for me to make any predictions. But as I said, there is a good underlying market. Renovation, the decrease is also mostly related to financing and also related to the affordability in the sense of labor, do we have skilled labor around Europe especially and also in the U.S.? This is I think things that matter more right now in the renovation side. Again demand is huge. There is an important factor there. But if I look alone on the roof for example, we lack today thousands of roofers in Europe in order to implement the project. So this is I think a serious concern that we have.

The next question is coming from Tobias Worner from Stifel Europe.

Operator, I think if Tobias can't make it, we will take his question after the call.

Okay. I'm sorry for that. We have no further questions and I will hand back to Daniel Merl.

Thank you, operator. Ladies and gentlemen, thank you very much for taking the time for dialing in today. As a little reminder, on the 27th of March we will publish our combined Annual and Sustainability Report for the business year 2022 as well as our online Annual Report. For today, I can only wish you a nice remaining afternoon. Stay safe and goodbye. Thank you.

Ladies and gentlemen, the conference has now concluded. You may disconnect. Thank you for joining and have a pleasant day. Goodbye.