Wienerberger AG (WIE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. I hope you're all well. A warm welcome to the earnings call on our H1 2023 results. Our Board representatives today are our CEO, Mr. Heimo Scheuch; and our CFO, Gerhard Hanke. They will walk you through our presentation and we'll discuss our strong performance in a quite challenging market environment. After the presentation, as always, we are ready to take your questions. I will now hand over to Mr. Scheuch for the presentation.

Ladies and gentlemen, good morning. A wonderful good morning from the whole Wienerberger team, and let me walk you through the results for the first half year and the outlook and strategically where we want to go in the next couple of years. When you look at the results of our business in the first half of this year 2023, obviously, you have to keep in mind that from our site, we have seen quite, I would say, challenging underlying economical development. Why? Because obviously, when you look around, especially Europe and Eastern Europe, we have seen high interest rates, exceedingly so. When we talk outside the euro zone that means Poland, Czech Republic, also Hungary and Romania, we have interest rates north of 15% in all of these markets. So obviously, this has influenced the billing activity significantly. Obviously, the restriction for mortgage lending policy by banking institutions around Europe has been a major factor as well in sort of provoking a weakening new build and new construction market around Europe. And obviously, the outlook on the economical situation, especially in Europe has also been weaker. All of it has led to a substantial decrease in markets -- in end markets for us in Europe and in, as I said, Eastern Europe especially. However, and that's, I think, the strong message that we can give you from a Wienerberger site, we have again outperformed significantly those markets in the first half and will continue to do so. Why? Because we strongly focus on solutions upgrading our portfolio and our strong market positions in the relevant markets. Pricing from our side is very strong and will remain strong for the rest of the year so that you can see in the margins that have developed very satisfactorily over the last 6 months and will continue to do so for the rest of the year. So here, I think we are in a very good position, and therefore, the results in Wienerberger's European activity have to be seen in light of this underlying market trends that have been weaker as we have originally expected it for 2023. And in this weaker environment, we have performed very well, and we'll talk you through a little bit what we have done and what the issues are. North America has done better, and we'll come to this in a minute. When we look at the market -- the end markets of Wienerberger, this is an end market perspective, not Wienerberger's performance end market perspective, in the relevant markets of Wienerberger with new residential construction, with relevant infrastructure market and the relevant renovation market in these different areas. You have seen in Western Europe, obviously, a down trend in new residential housing, obviously, as you've seen here, that's continued in Q2. And obviously, therefore, we have to take certain measures in order to do the necessary on the working capital front and the cost front. And you've seen also a slight decrease in infrastructure. Renovation has been rather stable, and this is good news for our roofing business, especially also for our planned acquisition area. When we look at the East, obviously, here, as I said, because of the high interest rates and the effect of lacking of mortgages and the overall economical outlook for this area of Europe, we have seen a rather weak markets in new residential construction, with down trading of about between 30% and above 50% in certain of the markets in Eastern Europe. Also renovation has been down and infrastructure because these countries receive at this very moment less from the European unit as originally expected as well. So this is, I think, a critical remark from one on the front of Eastern Europe. But you will see in the presentation of my colleague, Gerhard that we have very strong margins in this business in Europe, and we obviously perform well in Central Eastern Europe. North America, as I said earlier, trading well and continuing as sort of good half when it comes to the different markets, renovation, infrastructure and new build. Especially in our area, I would draw to your attention that we are in the south of the United States. And here, due to regional effects, immigration and others, we have a positive trend in new residential housing. So the general performance of North America is a good one, a strong one and contributing very satisfactory to the overall performance of Wienerberger. When we look at the first 6 months, obviously, you remember, we gave you a full sort of general scenario for the whole of the year with certain market expectations and our overall expectations for the operating EBITDA, we can tell you from this perspective that the markets, as I said earlier, are weaker than originally expected. However, our performance due to the measures that we have already taken with respect to cost cutting, with respect to self-help programs that are very much on track and obviously, also active working capital management, we have outperformed again the underlying market. We continue to see these markets at this very level as far as we are concerned for the rest of the year. And therefore, we have taken and take proactive measures in order to manage our cost structure. We give you under the view of this decreasing market, a firm guidance. So that's the first time that we give the guidance as a company for this year, EUR 800 million to EUR 820 million. Remember, if I compare this to the beginning of the year, that means actually an increased guidance, if you want me -- or an increase sign of profitability for the whole year and considering the underlying weak market of Wienerberger. So EUR 800 million to EUR 820 million is a very strong message from Wienerberger in this general market environment. And this means also that we grow in the relevant markets of Wienerberger. When we look at the numbers a little bit more in detail, for a little bit above EUR 450 million EBITDA -- operating EBITDA, it's a very strong number compared also to the record year last year because if I were to exclude, I would say, this extraordinary effects from last year, we would be on a sustainable level 2022 of about EUR 490 million, and so even considering the down trading in the end markets that I've explained to you in detail, EUR 450 million is a very strong number. You see those -- on the EBITDA margin front where we are slightly below the record year last year, but considering the developments, I think, here, very good. And as I said, firm on pricing, I'm very sort of positive about the rest of the year as well with pricing and we keep control of the costs, especially also when you take inflation into account. Very important, and this is strategically very important that we keep our clear focus on innovation. More than 30% of our turnover comes from this innovative products and solution products more than 25% of our turnover. This helps us significantly in pricing and in margin going through this more difficult time as end markets are concerned. Cost management, as I said, from our perspective, very important. As management, we take proactive measures. We see obviously the individual markets going down the end markets. Therefore, we are cutting, obviously, production. What does it mean? We're cutting production shifts where last year, we were still producing 100% or even more in our factories because there was strong demand levels. We are cutting back on that right now and as we speak and have done so in the second quarter as well in certain areas of Europe already and manage this effectively. You see here the strong efficiency of Wienerberger cutting its overhead and cutting fixed cost and flexibilizing it in the maximum way in order to adjust to market demand. And this is the major focus of management right now. Inflation is still at the level, I would say, around 8% for the whole year, it will come down a little bit because first half was still certainly a little stronger compared to the second half. But I would say, from the first half per se if it's around 8%. The self-help program, again, very, very positive contribution with about EUR 22 million through the performance. Here, again, innovation, manufacturing and excellence plays an important role, and we are fully on track to deliver the full sort of capability that we have here in the self-help initiatives. And last but not least, when you look at the numbers here, again, from a perspective of market -- end market, you see here the strong drop in the first half of 2023 compared to the years before, record year as end markets are concerned, has been 2021 where we have set the 100%, obviously, as a reference, and you see how the down -- what movement took already place last year and especially this year. And in the light of this, I think here, Wienerberger shows clearly, and this is what we have already told you that we are able to outperform the underlying markets, outperform on the performance as far as sales are concerned, and especially margins when we talk about the solution and the business of innovation that we put in the marketplace. So all in all, I think a very satisfactory the first half year. And to analyze it a little bit more in detail, Gerhard will walk you through it now. Gerhard?

Thank you, Heimo. Ladies and gentlemen, as Heimo mentioned, the second quarter was a rather tough one. We have seen a strong drop in the end markets. And when we look separately to the second quarter, we have seen mainly the Eastern European end markets which were below expectations. It was there -- the new build which we have seen basically across Europe, that new build activities are below expectations, but also in Eastern Europe, we have seen a lower demand in renovation and also in infrastructure. So we see that the affordability, the high financing costs due to the interest level is somehow depressing the purchasing power basically of Eastern European markets. In Western Europe, we see stable demand in renovation. We see that the energy-efficient renovation is further gaining importance. So we see that there is a stable demand in this field, so that -- countries like France, like Belgium and Netherlands, we see a strong demand when it's about our roofing business. In North America, in line with our expectations, profitability is strong. I will further explain -- I will more explain that later on. But the North American business is developing in line with our expectations. This brought us finally to revenues in the second quarter of EUR 1,150 million, which is 19% below prior year. EBITDA-wise, at EUR 245 million, which is 23% below prior year. And you see already, if you look how revenue developed and how EBITDA developed in the second quarter in the strong declining markets that we are working hard on the operating leverage basically by initiatives on the price and on the cost management side. Revenue development, as I mentioned, minus 19%. We see due to the market decline in the second quarter that the volume -- that the market -- or the revenue decline is mainly driven by a volume decline, which is in the range of 25%, 26% in volumes. Prices are up still in the second quarter year-on-year comparison with 10%. Looking to the EBITDA impact, we see that EBITDA is moving down from EUR 320 million to EUR 245 million. Please also keep in mind that second quarter 2022 was basically the strongest second quarter in the history of Wienerberger. We also had last year some exceptional effects in our last year results. So keeping that in mind and also considering all the measures which we have initiated, you see that the minus 23% is a moderate basically decline compared to prior year. When we look to the first half year and when we're also diving into the regions, the Western European region, if we start with Western Europe, as I mentioned before, we have seen a strong development, a stable development still on a high level in Western Europe, especially from the renovation segment, in UK, Belgium and the Netherlands. Also there, we have seen that the new build activities in the second quarter were coming down, were slowing down. And infrastructure is, I would say, on a stable level, what we have seen during the second -- during the first half year, which brought us to revenues, which were coming down by minus 10%. And volume-wise, this is roundabout minus 20% in the first 6 months and price-wise, a plus 15%. And you see already basically based on these parameters that the roofing business is developing strong in the first half year and is also supporting not only the EBITDA development which is more or less in line with prior year, but you see it also directly in the profitability. We were able basically to improve our EBITDA margin by 2 percentage points to 19% in the first 6 months. Eastern Europe, as mentioned before, we have seen the hardest decline in the markets in Eastern Europe. We have seen there that not only the new build activities, but also the renovation activity is further declining -- was further declining in the second quarter. What we have seen by the end of the second quarter that Eastern Europe is stabilizing. So we expect also there that we have seen basically a kind of a stabilization in the Eastern European markets. But in the first half year, looking to our numbers, we see that the revenues dropped by minus 23%, which was mainly driven by lower volumes, which was around about minus 30% and pricing still strong with a plus 12% on a year-on-year comparison. What we have done is also we initiate and I think this is something that we already communicated earlier, have initiated and started already last year. As we have seen that Eastern European markets are slowing down already in the second half of 2022, we already initiated the first cost management -- cost-cutting initiatives in the end of last year, but also in the beginning of this year. So we already have implemented measures in the sense of taking out fixed costs, flexibilizing our fixed cost structure, adapting -- as Heimo mentioned before, adapting shift patterns, taking out fixed costs in personnel, in material costs, et cetera, to optimize and to keep the profitability of the business in Eastern Europe on a good level. And by the way, 19% is also still a level which is a strong profitability in Eastern Europe for the first 6 months. North America, the North American business is developing, as we said before, more in line with our expectations. We see that even in the second quarter that we see even positive signals from the market, especially from the southwestern part of the market we see positive signals. We see a higher volume on mortgage lendings. We see also that basically the volumes in the Southeastern part, so meaning Texas, Oklahoma in these new markets for Wienerberger are picking up again. So we are positive for the North American business. And you see also -- I mean, we look to the revenues, they are down still by 10%, yes. But comparing it to the market, we still see North America to be strongly outperforming definitely our markets, especially in the U.S. but also in Canada. And this results finally also in EBITDA, which is even above the EBITDA level of last year. And as mentioned already earlier, it is that the synergies partly came faster than we originally have expected. And they are basically materializing in a way that profitability of the brick business is going up steadily and also very consequently, and we still have a high level of profitability in the piping business. And this, as you see, the improvement or the increase in the operating EBITDA margin by 3 percentage points is mainly driven by the strong performance of our brick business. For the first half year, looking to revenues, as I mentioned before, revenues are going down by minus 14%. Yes, it is -- the minus 14% is driven by the market decline, is driven by lower market developments. It is around about 25% lower volumes. And it is -- pricing still strong. And as Heimo mentioned, we expect to keep the pricing level also for the rest of the year. We have a strong market position, have a strong pricing position. So this will also support basically the profitability -- the high level of profitability also for the second half of the year. And EBITDA-wise, in the EBITDA, we had an impact out of the volume drop, as I mentioned. We worked hard on the cost structure which we started already last year. So there is a strong impact in it out of our self-help program, which contributed was around about EUR 22 million, cost management was EUR 29 million. And yes, we still perform significantly with our pricing above our cost inflation, yes, and this is also supporting our EBITDA development of EUR 454 million for the first 6 months. So summarizing the first 6 months is the EUR 454 million we believe a strong performance for the first 6 months, considering this difficult and challenging, rather weak market environment where we are in, high profitability. The high profitability is strongly supported by our initiatives which we are driving. Meaning, the self-help initiatives, the cost management and that we successfully outperformed the cost inflation what we see. So all in all, a strong performance for the first 6 months. Heimo, by that, I'm handing over back to you.

Thank you, Gerhard. And let's have a quick look at our sustainability program, which I think has been successfully implemented in the company. As you are well aware, we have one program currently running from 2001 to 2023. With all the different targets, I just draw your attention to a couple of those decarbonization with minus 15%. We are well on track on that, circular economy also by durability of our products. And obviously, the degree how we can integrate all products in the production processes, again, by diversity and other targets that are clearly communicated. So we have received a very strong feedback and good feedback from all the investors and the rating agencies have been upgraded. Also, very importantly, in this respect and belonging now to the top-notch in the building material industry. And Wienerberger is not running the sustainability program as a separate one. It's embedded in our corporate strategy. It's embedded in our management and obviously, all people are incentivized throughout the company. So this is a very important thing that is forming and will influence the business of the future. We have learned from this program. We have analyzed it. We've talked to stakeholders and especially also internally, and have come up with a program, again, a 3-year program, leading us into '26 where we integrated and all the aspects and feedbacks that we got from all the stakeholders and have integrated in the existing one, things like revenue from products supporting net-zero buildings, water management, waste management and health and safety. So these are the central ones that we have added in the new program. And the new program, again, has ambitious targets that we will communicate today to the outside world, but also then internally. And again, we have set ourselves initial targets and ambitious ones with respect to decarbonization further, bringing down again, with another 10% CO2 emissions up to '26. So we are well in line with our overall plan to bring it down in a very considerable way until 2030 with measures and not just talking, but there's underlying measures in the company. And here, we have long-term place -- sort of policies in place that are fully integrated in our CapEx plans, et cetera. So here, again, a very strong message to the market. Decarbonization is top of our agenda. Circularity, I think it's very important, and it's rare that the company can say this about its own products and solutions that 80% of these ones have a durability of more than 100 years. So there's a very strong and positive message that we can recycle the major part of this products and solutions and reintegrate it in our production processes. And from a biodiversity aspect, that we increase biodiversity around our sites, on our sites, in the future and have clear plans to do so. So here, again, a strong message of Wienerberger that we are not standing still. We are moving. And obviously, also on the other fronts, like water management and waste management with clear targets. And by the way, I want to draw your attention also to the fact that more than 70% of our products contribute to net 0 buildings. So again, here, I think Wienerberger is setting a trend here with a portfolio that is innovative and modern. So here, I think we have a strong basis for future growth within the company. Also, important and very, very key for the future success of Wienerberger is training and development of our own employees, but also our stakeholders and the installers. Here again, we have set ourselves clear targets. So 2026, so new sustainability policy in place that is part of our strategy and the development of Wienerberger. Let me give a short update with respect to our Terreal transaction, a very important one. And as you see and as you have appreciated during the presentation, renovation is a more resilient business, and therefore, Wienerberger's strategy was always to get here a stronger foothold. And with Terreal, we get here a very strong presence on the roofing market and especially in renovation in Europe. We have now achieved, I think, a great step forward. We have regulatory approvals in Germany and France, the biggest two markets that are obviously affected by this transaction. So without remedies. So this comes with a great satisfaction to us because we can integrate Terreal as a whole, benefit from all the employees, the production sites and obviously, if I may say so in this setting also from a maximum of synergies in these two countries, which is very important for Wienerberger. We are still waiting for a couple of minor things that have to occur in the next weeks, but I think we can anticipate the closing probably end of October, beginning in November this year. So here, we have -- I think, we have set nicely as far as the integration of this business is concerned. I draw to your attention also that this business is not included in any of the guidance that we have given to you, EUR 800 million and EUR 820 million for this year nor have we given you any indications for the future. But let me tell you, when I walk you through the future that this business will -- and is on track, the parameter that we take over to make about EUR 100 million also this year under the circumstances. So I would say, it's a fair assumption to have about EUR 100 million EBITDA to be integrated for next year when we talk about the performance of Wienerberger. So again here, a strong step forward for us as a company. Let me come to '23 and the outlook. Ladies and gentlemen, when we look at the general economical environment, as we have tried to explain to you and our underlying markets. Where are the major differences? The major differences are in Europe only, not in the U.S. U.S. is pretty much on track and will deliver a very satisfactory result for this year, and we anticipate also that it will stay on this level for next year. So no major changes on the North American front. On the European one, we have seen in new build a decline. Yesterday, ladies and gentlemen, it has been a strong decline in Eastern Europe. Gerhard and myself have drawn your attention to the fact that we have reacted quickly, fast because -- to our style. We see already a stabilization in these countries. Obviously, there's a state of shock in the first half of this year. People were confronted, as I said, with this high interest rates with the lack of availability of mortgages and the political instability. So all in all, I think we have seen the worst in these countries. We will see a stabilization, probably next year, even a slight growth again, when people have adjusted to this situation. Renovation, more stable in Western Europe, as I said, a little down -- more down in Eastern Europe due to the affordability and the lag obviously of financing here again. And infrastructure, strong in Western Europe and for the reasons I mentioned weakened Eastern Europe. Ladies and gentlemen, the question will come. Is this the new reality? No. It's not a new reality. It's a -- matter of fact, it's a, I will call it, a crisis that has been provoked by a very severe impact from the interest rate side and obviously some regulatory issues as well in certain countries. East Germany going to perform minus 40% in new residential housing for the next 5 years? No. It's this year that it's the worst. We therefore, prepare ourselves for this. And we have taken measures in order to address this situation. The inflation side of the business is about, as I said, lower than 8% for the whole year, probably in the middle of 6% to 8% for the whole year if we can give you here a guidance. When you look at our guidance for the whole year, EUR 800 million to EUR 820 million means compared to our scenario that we have prepared for you at the beginning of the year actually that we increased our expectations as far as profitability is concerned because it's much weaker markets than we originally expected. So it shows you clearly that we are able to adjust and digest such crisis scenarios very quickly at Wienerberger and deliver a strong set of results already this year. So you can be sure that we will do our utmost to achieve this. It's going to be a challenge, but we are doing this because we -- in the second half, some of you will come with arithmetics and Maths, I understand that, because you will say EUR 350 million EBITDA in the second half is not enough. But ladies and gentlemen, keep in mind that we will manage actively working capital. That's very important in our business, and we therefore will be extended standstills. We will manage obviously, our production capacities significantly down in the second half, not in order to say that this is the new reality. No. Ladies in gentlemen, it's about managing it actively because we don't want to go into next year with too high stock levels. It means that we are well prepared and we do it now because it's faster, cheaper and better to do it right now. So that means that the second half of this year will be affected by this active working capital management and cost cutting. This means that we will end up at the end of the year about EUR 800 million to EUR 820 million. Again, a very strong set of results when you look at Wienerberger's performance. Compare it, please, to the sustainable EBITDA that we have given you for last year 2022. You remember, it was EUR 910 million EBITDA. So only about EUR 100 million or less, as a minor performance considering that the markets are down from about 90% to 74%. So we digest actually nearly 20% further decline in markets with such a performance. So again, I think for this year, a very strong set of results. The question will come also what's next, and I can tell you from the experience that we have and the estimates. When we take now 2024, there won't be a lot of changes in the underlying market. That's what our assumption is. We said Eastern Europe is stabilizing probably a slight increase for next year. Western Europe also on this level, for example, in North America, let's take for an example, the state where they are right now. So this result is achievable next year as well, EUR 800 million to EUR 820 million. So there's no new reality for the second half to take this as a measure. So it's the EUR 800 million to EUR 820 million. As I said earlier, we will take over Terreal in the last part or the later part of this year. So EUR 100 million will come on top. So we will end up for next year above EUR 900 million. So I think, again, you will see that Wienerberger even in this depressed market scenario will show some strong growth next year. And I think we are well set for a good performance, as I said, this year and next year. Important, and this is, I think, the key message to you. We manage these sort of crises very well, very actively, proactively and also and above all, pricing remains very strong and margins very strong throughout this cycle. So again, ladies and gentlemen, this is the message that we can give you for the year, the outlook and the performance of the first half of this year. Thank you very much for your attention. As it's been a little longer than usual, but it was important for Gerhard and myself to explain the overall situation to you very well so that as usual, you are best informed about our underlying markets and our performance. So we are ready, obviously, to take your questions.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And we have the first question from Brijesh Siya from HSBC.

To start with the volume side, you kind of pointed out as the weakness in Q2, which is kind of accelerated from Q1. But when I look at the H1 volume, it's -- the market you're indicating is down 24%. So basically from 97%, it came down to 74%. And your volume are more or less around that. And you have been telling us that you are going to outperform the market. So I was just wondering how much outperformance happened in H1? And what should we expect for full year? When you are guiding, the market will be down close to 20%. So from regional and local perspective, how much outperformance you can do in the market or rather you will perform in line with market?

That was your first one. Can I take the second?

Sure. So the second one is on the cost inflation. You have fully guided for the full year 6% to 8%. Can we -- just a little more about 2024. You haven't given those hedging numbers for this time around. But if you could give us what's the hedging for next year? And within that hedging, can you give us how much it's basically implying, either inflation or flat for next year? And so that will be helpful and how you are going to price to the market? And if you compare those hedged pricing with the spot market pricing, so -- whether you are below, ahead or in line? So that would be helpful. And the last one is on the cost savings you have done around EUR 29 million. Can you give us how much cost incurred to achieve those EUR 29 million? And what's your plan for second half, whether furthermore to come? And what will the cost to achieve those savings?

Sure. Thank you very much for your questions, and Gerhard and myself will start with that. Gerhard?

Maybe start with the last one. You mentioned the cost savings, as we said, we had the EUR 29 million in the first 6 months. There will be a much bigger share that will come in the second half of this year. We had in the beginning of, let's say, in the first half year, around about EUR 5 million on one-off costs basically to generate this EUR 29 million on cost savings. Also in the cost savings of the EUR 29 million, there is also a lot of fixed cost flexibilization needed. The second one, maybe on the cost inflation side, you were asking basically what is the hedging level already for 2024? What do you expect on cost inflation for next year? What do you expect on pricing for 2024? Our assumptions, as of today, as we see that markets basically on a lower level than we originally have assumed. We are on hedging level or we have fixed above 90% already on our energy -- expected energy consumption. When it's about cost inflation, we expect the cost inflation which will be around between the 4% to 5% for next year, which means that pricing of plus 2% to 3% of next year, what we foresee as of today.

And the energy prices are below spot.

Right. And this is, I think, still our level. We feel very comfortable with the prices what we have fixed. We expect also for the next months, again, slightly increasing energy prices on the market. And we have a very favorable pricing level or cost level when it's about energy costs also for 2024.

And your first question was about outperformance. And from our perspective, the outperformance comes from a mixture of volume and price. Because as you see, the margins are very strong at Wienerberger, so we are shifting also in our portfolio to solution business and to more innovative products. Otherwise, if we were to stay only in commodity products, then, obviously, our results would look very different. And you can see this in the history of the company when we were still a commodity producer, by the way. So here, again, this outperformance is there, and we obviously stick to what we said that we do at least 2% better than the market. It's what we have -- we keep saying and that's what we will do in the future and also this year, at least 2%.

The next question is from the line of George Speak with BNP Paribas Exane.

So I think Gerhard mentioned protecting operating leverage with price actions. Can I just clarify if that comment applies to just Eastern Europe or if we should expect weaker pricing in other markets? That's the first one. And then just on the U.S. Do you think the stabilization or the recovery in new residential construction looks sustainable? Clearly, mortgage rates are still at 7%, and we haven't really seen the labor market soften yet. So is it a bit premature to give the all clear on the U.S.? That's my second question.

Thank you. The second one first, if I may, from a North American and U.S. business, we don't take the assumption that we see an increase. As I said, from myself, it's more stabilizing at this level and continuing at this level. That's how we anticipate it and as you clearly said, it's too premature to make any conclusions. We are ready, if there's more demand to satisfy. But for the moment, we are sort of anticipating the performance as is, no major volume increases. And to the other thing, I think you need to clarify, a little misunderstanding.

I think there is no pricing actions or basically, what I tried to explain is that we keep our pricing up and secure profitability. And as I mentioned, it is not only the strong pricing what we try to confirm, it's also about cost management. So we are taking out capacities. We are taking out costs. We are consequently performing our sales end program. And this is what I meant to secure or to protect basically our operating leverage. And there is no price campaigning or that we come down with pricing the other way around. We keep the prices up. As we simply see, as I said, we have a cost inflation of around about 8%, in Eastern Europe slightly higher, and we still stick to a price level for the first half year which is on a level of plus 12%. This already shows how strong the price positioning is and it is also key for the second half.

And I think this is a key point to all of you listening to this call at Wienerberger. In this market environment, a price increase of 12% is a very strong message. And I think this shows, as I said earlier, that the shift in product and innovation and solution helps us to set to this sort of strong pricing. And by the way, pricing is strong throughout the group from North America to Eastern Europe.

The next question is from the line of Cedar Ekblom from Morgan Stanley.

I've just got one question on inventory and cash flow. In H1, you had quite a big increase in your inventory despite the fact that volumes were down and you've alluded to the fact that your H2 will be impacted by that inventory normalization. Can you talk about what's happened as it relates to inventory and working capital and why that should unwind in H2?

I think, as we said in the beginning, Cedar, we have seen that markets are dropping significantly sharper or faster than we had expected in the beginning of the year. So we started already in the first quarter basically to slow down the output and to take out capacity, but we also see that we have to do basically to end up with a normalized inventory level by the end of the year that we have to take our production in the second half. And this will have an impact roundabout on our second half results, roundabout EUR 40 million to EUR 50 million. So it is a significant demand, and it is not that we basically were surprised, but we have simply seen that the markets in the second quarter are dropping harder than we originally have assumed in the first quarter of this year. And therefore, we see, as you said, maybe it seems like a shift between the first half and the second half, but it is also due to this rather sharp market drop what we have perceived in the second quarter.

If I may come in at this point, if you take the EUR 50 million, EUR 60 million that obviously Gerhard is mentioning coming from this reducing working capital and you add it to the EUR 350 million that you imply, leads us to EUR 800 million or so from the currently EUR 450 million, you end up anyway where we were at the beginning. So I think it's very clear and very transparent from our side, what we are doing in the company. And this is a proactive measure. And as I said, it prepares us well going into the next year.

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

So maybe a follow-up question on this inventory situation. So if I understand properly, when you are increasing your inventory, it has a positive impact on your costs. But when you are destocking, it has a negative impact on your margin, and you're expecting a negative impact on EBITDA of something like EUR 40 million to EUR 50 million in the second part of 2023. Is that correct?

That's absolutely correct. It's more EUR 50 million than EUR 40 million, if I may say so.

So if we were looking at your cash -- your EBITDA generation in H1, excluding the destocking, it would be closer to EUR 400 million. And in H2, excluding the destocking, it would be closer to EUR 400 million [in H1]. And in H2, your EBITDA, excluding the destocking would be also closer to EUR 400 million. Is that correct?

Right. This is very well explained.

And then maybe a second question on the volume. It looks like -- if your pricing was up 12%, it looks like your volume were down like 30% in the second quarter of 2023. Is that correct?

He was referring obviously to Eastern Europe. So that was a very specific regional approach in this area, yes.

But the pricing at the group level is more -- is therefore more than 12%?

It is 12% for the group, yes. And it is roundabout between the region plus/minus; in Western a little bit higher; in North America slightly lower, and in Eastern Europe, plus/minus in line with the group pricing level, yes.

Okay. And I think last question would be on the pricing development. Because when I look at this pricing development, it suggests that at the group level, there was a little bit of sequential pricing deterioration in Q2 versus Q1. Is it just because of the mix effect between region? Or can you -- or is it because of your piping, your plastic pipe business where you've got a little bit of a pricing deterioration or...

You have to consider that last year, and it is more arithmetic, I think we had last year in the second quarter, still a price increase. So on a year-on-year comparison, even if you have this year, a flat price, you see if you compare quarter 1 pricing and quarter 2 pricing than it is slightly lower. But it is -- it has to do that we still have [indiscernible] in the second quarter, and I mentioned it before, the second quarter 2022 was one for us -- it was the strongest quarter what we had in the history of Wienerberger, where we still increased basically in starting falling markets, the pricing level. So it is -- we have a stable pricing also in quarter 2, this is important.

Then the last question maybe to continue on pricing. So we've seen the volume decline of maybe 25%, 30% in the second quarter. It's very difficult, especially in Germany, in Eastern Europe. At the same time, gas costs and electricity costs are down considerably compared to last year. Do you see any of the small independent brick and pipe manufacturer cutting prices and giving back the cost deflation in some of your markets?

Listen, we have always -- we are operating in 28 markets with a lot of sort of local competition. So some of these people are doing certain things and try to probably do some price actions. But we clearly, as the market leader, we are firm on this. We have good relationships with our clients and customers long term. So we are not so concerned about this. So this might be a very local thing from time to time, but it then tends to go away.

So would you say that you're confident that the situation of 2010, 2009 will not reproduce where you had to cut prices, which significantly impacted margin?

This is absolutely the case. And as I said, we are a completely different company, and I think this I need to underline 3x because when you were referring to this very difficult period 2009, we were a commodity producer. And from a commodity perspective, it's very difficult to distinguish that to your competition. That's first -- the first reason. So we have changed our product portfolio dramatically. And keep in mind, the second one is obviously that the competitive landscape has changed dramatically because due to the crisis 2009 to 2011 or '12, depending on the market that you're in, we have seen a complete change in the competitive landscape because a lot of competitors have left the market. So we have completely different supply demand level in these areas.

The next question is from the line of Markus Remis from RBI.

Firstly, a clarification. I didn't quite get what you said on 2024. It sounded like you were indicating EBITDA of more than EUR 900 million, including carryout? That's what you said?

Correct. You got me.

Okay. So in that sense, I mean, you would be probably roughly flat organically. So I mean, based on what volume price assumptions, is that a figure built on?

Listen, I think we are very early to give a -- I'm not giving a guidance for 2020...

No, talk indication.

Indications, yes. I said basically if there's no change -- no, I'm just -- sorry, I just want to make it clear. I said if there's no change at all in the underlying market, EUR 800 million to EUR 820 million is achievable for us next year as well. And I added EUR 100 million so that we have here at least general perception because otherwise, some people think that next year will be even worse than this year. That's what I'm trying to say. It's not a new reality. It's something we are building on. I'm saying there can be also some growth. We will see in 6 months' time or 5 months' time what '24 will really bring, yes. You might see initiatives by the EU. You might see initiatives by local countries. And this dramatically then changed the overall sentiment and the performance. So again, just saying, keep in mind that Wienerberger will show independently what's happening in EBITDA higher than EUR 900 million next year.

Okay. Then a question from Terreal and its earnings development. In the current year, you said EUR 100 million, that would be about flat of the run rate mentioned upon the publication of the transaction for 2022. So I was wondering how Terreal managed to keep profit flat in arguably lower market? And then also when you guide for EUR 100 million accretion next year. I mean, is that built on the assumption that the kind of cost savings and synergies will compensate for a potentially lower market? Or is that also based on a flattish market development?

No, based on a flattish market development, we don't put anything in this. It's too early. But coming back to what you said, if you look at my chart on Western Europe, you see that renovation is about staying flat end market-wise. And the major part of the business of Terreal is in France. And France has performed pretty well on pricing and then on volume in 2023 and continues to do so. So the best assumption at this case -- at this stage is to say flattish. And if it's flattish, then it's EUR 100 million contribution.

Okay. Very clear. On your capacity adjustments, can you maybe shed some light if that rather kind of comprises take out of shifts or is it curtailments of plants or production lines? And are you expecting any one-off costs related to that in the second half?

We have already some one-off costs in the first half, by the way, and Gerhard, it's about I think, EUR 5 million or so million.

What we -- they will be significantly higher in the second half. And as you described, it is -- when we speak about cost management, it's taking out as fast as possible fixed costs. So to flexibilize fixed costs, it begins with the shift patterns with taking out temporary work, lease workers, et cetera, up to basically mothballing or finally closing production locations. And yes, this is what we are doing. And this -- we basically also intensifying this for the next weeks and months. So we are adjusting the cost structure very fast, basically to the market environment where we are in. And it is -- so I think it's probably what we already explained you. By the end of last year, we already have seen that the new build markets are coming down in the second half of 2022. And so it is something where we already started last year.

Right. Okay. So significantly higher restructuring costs in H2, that's understood. I mean, on the mothballing or closing, is that -- I mean, can you kind of ring-fence that to certain regions? Is it more CE than Western Europe related?

I think when you go through the business as such, obviously, Eastern Europe will be most affected and the standstills, extended ones, winter ones that start earlier, I mean, as early as October, beginning of October for the winter. This is things that we will do. Shift patterns that will change. These are things that will kick in as we speak, basically. This is what's going to happen. And ring-fence it, yes, it will be certainly mostly in Eastern Europe, to some extent in certain areas of Western Europe like Germany as well, obviously.

Okay. A final question would be on the -- also related to the cash preservation you want on the CapEx side. Is that also an area where you want to adjust your plans to the lower market development? Or in other words, what would be like the guidance for the current year?

We will -- also concerning the liquidity, as we said, we will bring down inventory levels, working capital levels, this will bring in, in the second half quite some cash flow in the second half of the year, and we will cut our CapEx program by around about EUR 30 million that we consider a lower production output, especially in the East, with around about EUR 15 million in the maintenance CapEx and around about EUR 15 million on the special CapEx side and we will take out EUR 30 million on CapEx this year.

So that means, spend something like EUR 280 million on [indiscernible] level? Is that correct?

Right. Right. This is what we are basically [indiscernible].

The next question is from the line of Gregor Kuglitsch with UBS.

So maybe just to summarize very quickly, I know this was answered before, but the fixed cost and the sort of stock build absorption, roughly, you're saying EUR 50 million tailwind H1, EUR 50 million headwind H2, therefore, neutral at the full year stage. Is that -- and therefore, not a headwind into next year, just to be 100% clear on that. I presume the answer is yes. The second question is on working....

We answer, yes. We answer, yes. Gregor, as you said, it is like that.

Okay. And then in terms of working capital, you're actually guiding for below 20% of sales. I think last year, you were like 16% or 17% with the lower revenues. So what does that actually imply, I guess, for working capital cash out to the extent there will be any year-end net debt, let's say, before the Terreal deal. I appreciate that will obviously add something like EUR 450 million?

Yes. What we are striving for is a 20% on working capital. This is how basically our second half is planned and forecasted at the moment, 20% on revenue and working capital. And the second question, Gregor, you had was?

The net debt, I guess, maybe pre-Terreal, I guess it will add for...

The net debt -- and we will end up with 1.4 around about pre-Terreal. But 1.7 to be clear, yes, just to be clear on financial leverage.

1.4x, okay, okay.

Right.

Yes. Okay. And then can you just actually tell us, as things stand today, I guess, you have a pretty good view, what would be the year-over-year price impact in half 2, I guess, if prices are stable?

Right. Prices will come down, not basically the price level, but arithmetically. On a year-on-year comparison as basically still prices were slightly going up in the second half of 2022 and the price level of the second half of 2023 will be more stable. So you will see a slight decrease for full year due to arithmetics, just to be clear. So we keep prices stable. That this is our clear assumption for the full year. But due to the arithmetics, you will see basically not a 12% -- little bit more in the range of plus 7%, 8% for the full year there.

Okay. And then can you just actually help us roughly reconcile the EUR 800 million to EUR 820 million to the -- like roughly what you're thinking of the segments? In other words, how much do you think North America, Eastern Europe and Western Europe each roughly contribute? I appreciate there's a bit of a moving feast. But just so we get a bit of an idea. And the reason why I ask this is because in North America, there was always this thing around the pipe business kind of over earning, I think, to the tune of EUR 50 million, EUR 60 million. I want to understand if that's already unwound in your guidance, I guess, this year?

Well, I think if you allow me and not my colleague, CFO, to answer this question because he can blame me then anyway, but at the end of today, we will roughly have about -- little above EUR 200 million coming from the U.S. or North America and about the same amount from the East and the rest comes from the West. So I gave you already, I think, a very sort of detailed analysis.

Absolutely. So and in North America, the pipe business has now normalized or is it still -- appreciate maybe there's ups and downs, but do you think it has normalized largely in these numbers?

It's still -- infrastructure spending and you follow the U.S. policies, it's really strong still, and I think we're taking full advantage of it. So I would say we are still in a very good terrain.

[Operator Instructions] And the next question is from the line of base of Tobias Woerner. Excuse me, I just saw you withdrew the question. And so far -- sorry, he's back in the queue. Tobias, please go ahead.

Just sort of to round off previous questions. Two if I may. So the 12% price increase, just to be absolutely clear here, this is Q2. This is not H1, right?

This is H1, Tobias. The 20% for the group is year-on-year. And please also keep in mind, yes, there is also a carryover from last year logic-wise, so it is a 12% year-on-year first 6 months versus the first 6 months 2022.

Okay. So in the first quarter, it was 15%, right?

Right.

Okay. So the momentum is slowing in that context if you adjust, if you look into...

As I said before, we have a more stabilized pricing level. But as last year, we have seen an increasing trend in the pricing from quarter-to-quarter. Arithmetically, also the 20% is basically decreasing, yes.

Okay. Understood. And then Heimo, referred to, I understand '24 indications in terms of the second half, not being markedly worse and pointing to sort of a stable level on an organic basis at the EBITDA level at EUR 800 million, EUR 820 million as well. Is that how I should have understood it? And the follow-on question to that is, when you look at the last 3 years, your improvement programs delivered on average, about EUR 45 million. Would that be prior to such a program? Or would that be after such a program? Or have the programs come to an end now effectively because you only pointed '23?

Yes, we, indeed, Tobias, we have pointed '23, we have not come up yet with another program. And I think you need to give us a little bit of time. We will have a Capital Markets Day in October, where we will certainly address this in more detail. I just wanted to give a clear message to all of you that we should not take the second half of this year as a new reality. That was my clear message to all of you that we are actually in a more than a quarter-by-quarter approach and the mid- to long-term one is obviously that Wienerberger grows and Wienerberger can manage very well such difficult, such challenging, such weak market environments in the sense of high profitability and increasing market share. So I think this is the key message that I wanted to give.

And maybe, Tobias, one addition to the pricing what I explained before. Please keep also in mind before you take any conclusions on profitability that also cost inflation arithmetically is going down in the second half. As Heimo mentioned, we expect the cost inflation, which will be clearly below the 8%. So that means the same effect what we see on the pricing, we also see this arithmetic effect on the concentration side in the second half.

So far, there are no further questions, and I hand back to Daniel Merl for closing comments.

Thank you, operator. Ladies and gentlemen, thank you very much for taking the time of dialing in today. The next conference call will be held on the November 9, 2023 when we release our results for the first 3 quarters of 2023. For today. I wish you a nice remaining afternoon, and goodbye.