Wienerberger AG (WIE) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome, and thank you for joining the Wienerberger Conference Call on the Full Year 2023 Results. Throughout today's recorded presentation, all participants will be in a listen-only mode. [Operator Instructions]. I would now like to turn the conference over to [indiscernible]. Please go ahead.

Good morning, ladies and gentlemen. A warm welcome to the Wienerberger Earnings Call on our Full Year 2023 Results. Our Board representatives today are Mr. Heimo Scheuch, our CEO; and Gerhard Hanke, our CFO. They will walk you through the presentation and are ready to take questions afterwards. I will now hand over to Mr. Scheuch for the presentation.

Thank you very much. A warm welcome from Vienna to all of you. Thanks for participating in the call, and we both will walk you through, rather quickly, through the year 2023 and then give you an outlook with respect to this year. When we look at the year 2023, we can say, again, and this is important to note, that the Wienerberger business model has significantly developed over the last years. We are now much less cyclical than we used to be. We have a more resilient business model with an exposure to about 50% new residential housing, increasing exposure to renovation and especially also to infrastructure. And this helps in volatile markets, as we will describe to you, we find in 2023. Again, very strong the innovation rate, very important for pricing and very important for positioning with respect to our end markets. Also a very strong improvement on the cost side. I recall here that we have had a project in place for 3 years, and we fully met the expectations with the EUR 136 million savings. And this is not one time savings. This is actually -- we have improved our processes, especially in manufacturing, but also in purchasing and overhead structure. So this is for the long term. And also, I think when you look at our very, very strict M&A year, very proud to say that our paybacks are less than 5x after year 3 of the M&A activity. If we look at the year again in a nutshell, very important was also that we were an early mover with respect to the market. I remember very well discussions with you at the beginning of 2023. When we said we see actually a little sort of dark clouds in the sky with respect to new residential housing and we moved quickly in order to cut costs, and Gerhard will elaborate on this much more. And the strict cost management and the price discipline, pricing very strong in all Wienerberger regions helped us and enabled us to keep our margin above 19%, a very strong signal again in such declining market environment. EUR 811 million EBITDA for the whole year, which obviously underlines again, this is the second best result of Wienerberger in its history and in a very depressed market environment. I recall only, for your benefit, if I go back a couple of years, in 2017, with much higher market -- end market levels, we not even reached EUR 400 million EBITDA. So we have improved dramatically our company, our structure, our portfolio and our efficiency. ESG is part of our day-to-day management. Strong performance in the first program 2023. All the points finalized achieved and an attractive pay out for our shareholders to be foreseen as a dividend. If I go on the next slide to the market. And here, you see again the sharp drop in the European new build and new residential housing market. At the end of the day, it was a decline of 35% that we had to face in the market environment of new build in Europe, also about 20% in North America, and renovation has been also substantially down in Europe, especially. Infrastructure on the contrary was the positive surprise, came in stronger, especially in the second half of the year with good project and a good pipeline of projects in the infrastructure business. So all in all, the end markets of Wienerberger in Europe and North America were weaker than originally expected at the beginning of 2023, but and this is the strong signal and a strong message of Wienerberger, we outperformed those in a rather significant way. So if we look at the overall performance, innovation rate about 30%. Cost management, the strong cost, as I said, cost management contributed about EUR 80 million to the business. The self-help measures with EUR 46 million. This was included in the first chart when I talked about EUR 136 million of savings over the last 3 years. The price over cost, strong outperformance by about 4% and the CapEx, we obviously reduced about 32%. In a nutshell, when we look at the whole picture, and this is from a market perspective, very interesting for you to track. We go back here to 2018 and show the market development. The end market at its peak was in 2021 when we achieved about EUR 700 million EBITDA. And you see that they declined dramatically, and we are now at about 72% when you look at the index for our end markets compared to the 2021 level. So again, you see the strength of our cost structure, the strength of our business model in order to resist in these difficult times. As I said earlier, sustainability plays an important role. We have achieved all the targets of 2023 in our program, especially the reduction of CO2 emissions, circularity, biodiversity and the diversity and social commitments that we have. I think here, a strong, transparent, clear communication to the market what we are doing and within the company a strong focus on ESG as such. This led us, obviously, to reformulate our 2026 targets because we believe very strongly in this sort of medium-term programs for ESG, here you can align your whole management structure around those targets, the KPIs and have to some extent, improve them. And I just want to show you very briefly with 2 examples, the aspect of the way forward to climate neutrality for Wienerberger. We will further reduce until '26, 25% of our CO2 emissions and also include scope 3 the first time with a further reduction of 10%. So again, a clear structure, measures in place, investments in place, focus in place and technology that has been now proven in order to reduce our energy consumption and, therefore, the reduction of CO2 emissions. So I'm very confident that we are on the right way as far as climate neutrality from Wienerberger [indiscernible] meet the targets even earlier. At the end of the day, an important subject is also the products and systems that contribute to net zero energy on some buildings. And here, again, our clear aim is to improve such sort of portfolio from an impressive already 70% of the whole company's turnover to 75%. So this is also clearly measured, audited and communicated to everybody. Strategic highlights very shortly, '23. I think here, very important. We are a company that focus on progress and innovation and have put in place a very strong team within the company that focuses on artificial intelligence when it comes to all parts of the business, especially -- and I don't want to go in every detail, but especially when we talk about manufacturing and managing our manufacturing base, there were reducing our emissions, which is key to us saving resources when it comes to input raw material and others and increase obviously to optimize the output and reduce waste. So here, we have really sort of made a huge progress and will certainly increase on this basis further within a network that is increasing, M&A brings new sites in our portfolio and there we can optimize them rather quickly. Water solution measures are of key importance and exceedingly so in Europe and North America, here saving water and preventing the loss for the public transportation system of water is a key element. And therefore, here we have solutions for that, that are implemented, that are working, and we have -- that's the most important, happy clients on the public side with respect to water management. When we look at the self-help program, again, I've told you and Gerhard and myself explained to you the program 2021 to 2023, which we successfully completed. We have gained experience. We've gained here momentum, and we are happy to announce that we continue this program further and we'll have another efficiency enhancement program that is launched and is running already with an additional EUR 100 million that will be contributed to the business and tracked and communicated. And you will see here about, again, the necessary contribution coming in at around EUR 40 million for this ongoing year. When we talk about M&A focus last year, there were some smaller parts in the north of Europe and in Germany, consolidating our position, very good businesses, high-quality business, well-invested business. I draw it to your attention to a small business, Wideco. Why? Because it's interesting to see that we, in our portfolio, buy now also some smaller businesses, start-up businesses. This is a sensor business, by the way, for water leakage detection, but you can use it also for climate, in-house and heating, et cetera. So this has huge potential for us for growth and we are currently having a couple of those and recently also done some of these investments in sort of start-ups. These are very low amounts of cash contributed to these businesses. But the leverage that we can offer them, operationally speaking, when we add into our business is huge. And I do think that we will do a couple of hundred million of turnover in the next years to come out of these business. So again, I'm glad to announce that with Terreal, we are approaching the finishing line, took us a year. Actually, we were very happy to get the approval from the antitrust authorities in France, Germany and other countries very quickly. I had to wait for the secondary transaction. I draw your attention to the fact that we are not acquiring the Polish, the Hungarian, Austrian business of the ex Creaton and Terreal businesses as this goes to a Swiss company called Swisspor but confident that they have now also the necessary approvals and the Austrian authorities are the last ones to do so this week. So next week or the week after will come to a final sort of finishing line here for this process, and then we can start with the overall integration. We have here, obviously, due to a certain delay, obviously, compared to our original plan, we have put here some numbers in for your models where we show very clearly the contribution for this year was EUR 90 million. So this is the contribution that the Terreal deal will give to the Wienerberger results this year. And for the years to come, as we said, accurately and very clearly, it will contribute the EUR 150 million, including all of the synergies coming from this commercially and cost-wise to Wienerberger. Last word on Russia. You remember that we told you last year that we have organized the management buyout and everything was working fine. We assessed the situation thoroughly year-end of 2023 into this year, beginning of this year, and came to the conclusion that the political risks are too high with respect to Russia and the managing buyout and therefore, concluded a final transaction with Russian family, a very serious, very good family and not on the sanction list, et cetera, and we were happy to announce that we finally exit Russia by this way, and we have already received the funds from this transaction in Austria. So everything is concluded nicely. So there's -- the exit fully achieved. And I hand over to Gerhard to give you some impact -- some of the impacts in analyzing of this transaction to Wienerberger.

Thank you, Heimo. Right, the Russian business is closed. The sale of the Russian business is closed in beginning of February. So what you will find in the financial statements of 2023 is only some notes under the subsequent events. But from an accounting perspective, you find the transaction back in our quarter 1 numbers. This is, I think, important to keep in mind. In the quarter 1 numbers, 2024, the financial implications. What we will have is that we will see a gain from the disposal in the range of EUR 9 million. And you will also find the recycling of our FX reserves, the Ruble reserve. When we initially invested in the Russian business, the ruble was around about 45 to the euro. You know that the ruble now is more in the range of 100. These movements in the FX reserve, you basically digest during the other comprehensive income during the year, but if you exit, if you deconsolidate the business, you have to digest it via the financial results. That means you will find, from a bookkeeping perspective, a noncash effect of EUR 40 million via the financial result in quarter 1. This brings us to the financials. Just to summarize once more the strong financial performance, what we see for 2023. Let me focus more on the cash flow position and on the financial leverage. The numbers are in line with expectations where we are slightly above is on the net debt position, which is linked to the working capital, but I will basically come back on that once more later this presentation. But all in all, a strong set of numbers considering the harsh environment, which we are in currently. Looking to the regions of 2023, how they developed and we mentioned it quite often that when we start with the Eastern European region that, yes, the environment was strongly influenced by higher financing costs, respectively, by high interest rates, linked to the high inflation rates. We see that since the second half more or less that a more stable development on inflation rates and on interest rates, respectively. Inflation is already coming down since the second half. So this was impacting strongly the year 2023. As we mentioned earlier, Europe East was affected more strongly in the first half of 2023 and was stabilizing more in the second half of 2023. While we have seen in Europe West the declines -- the market declined stronger in the second half of 2023. North America was more or less developing as expected. We expected in the beginning of the year, last year, minus EUR 20 million. And basically, we confirmed also looking back that new build market developed with minus EUR 20 million. I think what was a positive development, what we have seen, is the infrastructure business, which started up in 2023 rather weak and which improved during the year, and we have seen definitely some positive development, slightly increasing market developments in the second half of 2023. When we look to the quarter 4 development, and I think important is that we have seen no surprises, neither from the market perspective nor from the financial result perspective. From financially, the quarter 4 expected -- or developed as expected. We materialized -- or we realized an operating EBITDA in the last quarter 2023 of around about EUR 150 million, which is perfectly in line also with our expectations. What helped us definitely is that a major part of our cost-saving initiatives materialized in quarter 4, we realized an EUR 80 million, as Heimo mentioned before, during 2023. And out of that, EUR 30 million materialized only in the fourth quarter. Looking into the regions also there, what was impacting the quarter 4 development, financial development was that there was, yes, the winter came a little bit earlier than compared to last year. We had already some snowfalls and harsh weather conditions by the end of November. So yes, this we have seen, and this has also not so much an impact on our financial performance or on our EBITDA performance, more an impact basically on our inventory levels, which are slightly above than we originally had planned. So quarter 4, no surprises, as I mentioned. We have seen in Eastern Europe, as I mentioned before, a more stable development. Western Europe, the new build came down, especially in the second half. So this was continued also by the fourth quarter. And in North America, also there, no surprises in the last quarter. Volumes and EBITDA developments in line -- I would say, even slightly better than we originally have expected. Looking to the full year revenue bridge. We went ahead of net revenue. We ended up with revenues around about EUR 4.2 billion, which is around about 14% to 15% below prior year. We have a volume decline of around about minus 20%, price increase, as we announced earlier, of plus 8% and then mix effect, mainly from U.S. and British pounds and Turkish lira and some Scandinavian currencies, which are impacting basically also our top line. But all in all, we were able also by strong pricing to compensate part of the volume decline, what we had during 2023. EBITDA-wise, the operating EBITDA developed to EUR 811 million. You know that in 2023, we have seen some exceptional items in our P&L. We see 2022 from a sustainable level, more from EUR 900 million and not from the EUR 1 billion, but anyhow, we ended up with this exceptional items last year, which brought us to the EUR 1 billion. I think important to mention today is that the minus EUR 200 million, what you see on operating EBITDA, there are sustainable countermeasures in it. Heimo mentioned them, there is a cost management contribution of EUR 80 million in it. There is a self-help contribution of EUR 46 million and there is a strong contribution of price-over-cost performance of more than EUR 150 million. So we gained almost EUR 300 million on countermeasures which we implemented and which compensated the strong market decline, which we realized in 2023. I mentioned it before, cost initiatives, fixed cost savings. We took out on a full year basis an EUR 80 million and definitely, what was helpful looking back, and we announced that we started implementing already first fixed cost initiatives in the second half of 2022. So we were able to realize this big part of fixed cost savings of EUR 80 million in 2023 and we expect another EUR 20 million out of these initiatives, which we have implemented in 2023 also in 2024. So the whole program of 2023 adding EUR 100 million on fixed cost savings. The reconciliation on EBITDA and operating EBITDA and reporting EBITDA. I think here, once more, you see that from an operating EBITDA perspective that we lost only EUR 100 million, which is keeping in mind in which market environment we are in, which is a very strong financial performance. We had also to digest some of the restructuring. So as we mentioned, we had some mothballing and also some shutdowns of our capacities. And this is also shown here in the line of structural adjustments, which then leads finally to the reported EBITDA of around about EUR 780 million. From a balance sheet perspective, I mentioned it before, net debt slightly above our expectations, which is around about EUR 100 million. This is directly linked also to our working capital. And there, maybe when you look to the working capital KPI, we were moving from 16% to 23%, whereby you know that in 2022, working capital, especially inventory was significantly too low. Therefore, we had also planned a certain buildup of working capital in the range of up to 20%. We arrived on 23%, which is mainly driven that in the inventories we had higher levels of higher inventories, especially on the raw material side, and the second impact, what we had is also that our trade payables ended lower than we originally had planned. And these 2 effects basically also led that working capital to revenues was not around about 20%, was around about 23% compared to the target what we have set. To summarize once more, Heimo, if I hand over to you for the 2023 year.

Yes. Thank you, Gerhard. And ladies and gentlemen, I think you've seen here from what Gerhard and myself has explained the teams at Wienerberger were very quick in adjusting and adapting to this new situation. Cost cutting, cost measures and efficiency enhancement were the key in order to drive results in 2023. I'm very proud of the teams at Wienerberger. And keep in mind also that in such a strong decline when it comes to new builds, especially in certain areas of Europe, Germany, but also Eastern Europe, we have not lost a cent to bad debt or something like this. So very well managed. There were a lot of bankruptcies in the sector, but Wienerberger didn't lose a penny. So again, very strict and disciplined management. The numbers themselves speak, I think, out and we've commented enough on this. And also, I think when you look at the significant shareholder return that we have created over the years, now it's in line with the expectations that we always have provided you with in sense of return as much as we can to the shareholders. From a dividend perspective, share buyback perspective. And we are obviously open to all of these measures if and in the event, necessary and the right opportunity arises. So we will recommend to the general assembly in May of this year a 90% dividend. It shows the confidence in the business model. It shows also the confidence in the way forward. So I think it's in considering these circumstances, these volatile circumstances that we are living in, a strong signal from the Wienerberger's side. Let me come now to the outlook. We are living already in '24. It's going to be a very interesting and challenging year for all of us. Geopolitically speaking, I think, we can all agree that it's going to be characterized as unstable and continuing to be so. There's a lot of political changes due to elections coming up and a lot of different sort of outcomes that might -- sort of hit us in the other -- one or other market. So there's, as I said, volatility around, inflationary threats and trends. I think we have managed them down and there's less risk on this side and also from an interest development side, obviously, it's unsure. But from what we understand and what we feel, it's trading down, not up this year. So as I said, lower inflation gives us rise to optimism. The absence of interest rate hikes has also brought momentum to the market. And you see it also that people are more willing to engage in projects already and slowly thinking about it. There is -- and this is the strong, strong and very positive signal from us to all of you. There's a huge demand in housing in all the markets that we operate in. So there is no oversupply, there's undersupply. There is especially also undersupply in social housing, where a lot of our products go to and I think also with the regulation and with energy-efficient buildings, et cetera, we are very well positioned for this. So on the midterm, I think here, a very bright outlook for Wienerberger. The first half of this year, however, we'll see compared to last year, a lower activity volume, that's for sure. That's, I think, clear for everybody that the comparables are such that we will be in activity end market lower than last year. And as I said earlier already, for the second half, we expect an upward trend. However, if something better comes and you have seen it from the presentation of Gerhard, our cost base and our innovation rate is such that we will do certainly much better than the market. So any time there is an upswing coming or something that we don't foresee right now, I think we will outperform this market development. As we speak, we see the following market trends with respect to our end market. Let's start for a change with infrastructure. Infrastructure in Europe and in North America should be stable to slightly up in a lot of areas. I'd say slightly up because there is some political tension that moves away in Eastern Europe. So the Cohesion Fund will bring money to this area again. So I see here the one of our other positive trend coming through in infrastructure, especially also in North America. So we are ready for this growth and can satisfy such growth. Renovation should be stable, slightly up in North America. In Europe, still in certain areas down because one of the other big country in Europe will not be as active in the renovation as it used to be, and I talk here about France and especially Germany. The New Build sector, and here we see again, and that's what I told you earlier, the first half of the year will be weaker. So therefore, you have the downward trend, it will be a couple of percentage points. Some of you will ask me immediately after this call, how much. So that's why I'm sort of saying to you, we will be in the range of about 3% to 5% depending on the market in Europe and below 5% in North America. So this is what the range that we currently see and where we are operating so far the new year. Let's move on then from the market side to the cost of the business. We see here inflationary cost increases by about 2% to 3%, and you have here split out from personnel cost and raw materials to granular. Obviously, the bigger part comes from the personnel cost. Keep in mind that wages have been up strongly, especially in Central Eastern Europe. So this contributes obviously to the cost inflation heavily. We will need a 1% to 2% sales price increase to cover this. We are confident again to put this in the market and be successful in getting the price increases through. So in an overview when we talk about '24, we see here effectively managing our cost base again, very important and a strict focus of management as I said earlier, the self-help program that we put together, again, to roll it out, contributing about EUR 40 million again in this year. So you see how strongly we are focusing on this aspect. Again, when we talk about the cost management side, the day-to-day costs and Gerhard explained that we have already done EUR 80 million last year. We'll do another EUR 20 million this year. So here, again, a very strong focus in this aspect. Inflation and cost increases and price increases are very important for us, as you know, to keep our margins. So there will be a strong price discipline throughout the Wienerberger business for '24 in order to keep the margin at the level that we have currently. So here again, when we look at the guidance and we put the bridge for you together to -- and I would like to walk you through. If we take last year, '23, we have seen an end market index, as you have seen in our charts earlier of around 72%. This is the end market index, all markets, end markets combined. We see, as I said, a certain decline. You see it on this chart here to about 69% index for the overall exposure of Wienerberger. So this would obviously lead to about [ 85 ], including the Russian disposal that Gerhard has mentioned, of EUR 5 million. So this is what we see as a potential sort of downward trend when we talk about volumes and then obviously, cumulated into EBITDA. Then obviously, on the positive side, the self-help, the [ support ], the [ 20 ] on the cost side and the scope coming from the Terreal transaction with about EUR 90 million. So this, all in all, adds up to about EUR 860 million to EUR 890 million. As I said, if the markets start to pick up, we will do much better than that. If they are as they are, then we will be more or less in such a range. And if you look with me again to the next [indiscernible] the guidance for 2024 with respect we see the overall EBITDA structure over the last couple of years and the index, you see again that even in this downward trend still and now stabilizing out at this level for this year, we will have a strong increase again in EBITDA. So you should -- you see the resilience of the Wienerberger model. You see the overall strong performance when it comes to proactive cost management, to the pricing discipline and the innovation rate in our business. So all in all, I think here, a very, very strong way forward. Let's not forget also the midterm because obviously, we are currently living through a rather difficult market situation as we speak, especially in Europe. But if you look at Wienerberger and its end market, we have a wonderful place to be in because here, there's so much demand coming from the infrastructure side, from the new build side and from the renovation side. And Wienerberger is well geared for this. We have a strong industrial base around Europe and North America. We have the right product. We have obviously energy-efficient products. We have the sort of approach in the CO2 reduction that is on the right track. So all the regulatory requirements we meet and obviously, with such strong brands that we have in the end markets we are here, certainly of the position to take a strong advantage. We are helped, obviously, in North America with the increasing presence of our businesses in the North American markets, Canada, especially Ontario, the Southeast of the United States and also Texas, a strong exposure to the right growth markets. And here, we can obviously take advantage of this demographic developments, the positive ones in Canada and North America and the U.S. as well. So if we look at the overall performance, we ended up last year about EUR 811 million. So there is obviously a clear road to the EUR 1.2 billion that we showed to you, EBITDA-wise in last Capital Market Day with all the necessary measures in place on the CapEx front, the gross front, the M&A front, and I will comment on this in a second. But I think here, from an underlying business perspective, Wienerberger has never been better positioned than now with respect to its cost structure to tackle this growth potential that we have out there in the market. And obviously, I mean, if somebody will ask me, Heimo, is EUR 1.2 billion -- this EUR 1.2 billion in the next couple of years because we have such a strong base for growth. Ladies and gentlemen, if you look at the strong cash generation of Wienerberger, you've seen it also last year and Gerhard had talked to you about it and how quickly and how fast we can digest the transaction like the [indiscernible] cash-wise, financing-wise, et cetera. We are optimistic about the pipeline of deals that we can do. Why? Because this difficult time provides us also with unique opportunities, businesses that are in turmoil, businesses that are in financial difficulties and also succession problems because people come to their edge where they want to dispose their businesses. So on both sides of the Atlantic, in Europe but also in North America, we have a strong pipeline of potential deals. And I say this loudly also because I've seen in the sector, people buying businesses at huge multiples. And we are not going to do this. You have seen us very disciplined on this front, and we will remain disciplined because our main goal is to deliver value to our shareholders, either by growth or by sort of buying back shares in the marketplace if there's not the right opportunity for growth or if there is another financial issue in the sense that the market is weak. So here, again, I think Wienerberger all in all, well geared for growth, very happy about the results, very confident with respect to this year, considering the certainly difficult and volatile market circumstances. But with this sort of sound degree of optimism we go into this year, the team out there fighting every day, and we will certainly come back to you at the end of the year saying it was a great year for Wienerberger again. Thank you very much for your attention.

[Operator Instructions]. Our first question comes from the line of Brijesh Siya with HSBC.

I have three questions, one for Heimo and two for Gerhard. To start with the guidance of EUR 860 million to EUR 890 million. And you tell us that you expect the underlying market to be down 3%. I'm just curious to understand if a 3% decline would kind of trigger an EUR 85 million EBITDA cut, which is roughly 10% decline, if we exclude Russia. When I compare with last year, it's kind of, yes, it's around 11% decline on a 9% volume decline. So curious to understand what -- how you see the market. And you have been saying that you're outperforming the market. So should we assume that you will be outperforming the 3% decline, which you are guiding for the market. So that's first one. And two more for Gerhard. The first one is on inventory. If you could give us the split between the EUR 1.1 billion of inventory into what's the raw material and finished good split in that? And if you could compare that with last year, how it was. And the third one is on the net debt guidance for 2024 of EUR 1.5 billion. If you could walk us through the different dynamics from EUR 1.2 billion of this year to next year EUR 1.5 billion.

Do you want to start, Gerhard, or should I?

Maybe you start, Heimo. I will look in the meanwhile for some numbers...

Yes. Sure, no problem. From my side, you see, when you talk about the performance and the market, its underlying market development. The numbers that I gave you for this year -- for the ongoing year is a scenario. I have no accurate numbers because it's so volatile, the environment and such. As I said, we're confident that we will outperform even this year, our markets -- our end markets, that's for sure. However, as I said also that in the first half of this year, the markets -- the underlying markets, especially in the new build will be weaker than last year. That's why we come to this decline in the marketplace in Europe and North America. And this is something because the comparables, when you look at 2023, come -- the first 6 months have all still being advantageous because there was an overspill of 2022. So the market was better and the projects are still coming through, and you saw the decline in the second half. So that's why I said at the beginning of my presentation that we always are in the building material world 6 months later when it comes to developments like decreases or uptick. So this is the major thing from my side. I hope I addressed your point here.

Yes. And just a follow-up on that. In November, you said to us that EUR 400 million is possibly the run rate you would expect for 2024 in half 1, half 2, and that's probably the absolute level you do it. Now considering what you have seen and what you are telling us for H1 2024, would you say that, that EUR 400 million is more looking like EUR 300 million, EUR 350 million in H1 and possibly a higher number in H2.

You are splitting the EBITDA already. Yes, I can't guide you in all the details, but you're moving in the right direction, if I may say so, with your assumption. Yes. And I now hand over to Gerhard.

Let me start with the net debt development. Let me walk you through the net debt guidance of around about EUR 1.5 billion, including the Terreal deal. We started -- or what we will start basically is with the EUR 1.2 billion, what you see here also in the slides. We expect gross cash flow of around about, let's say, EUR 600 million, the Terreal deal. So the net cash out will be around about EUR 0.5 billion. We foresee CapEx of EUR 0.3 billion, dividends and a release of working capital, which basically net out together. So the dividend is around about EUR 100 million, and we also expect that the raw materials, what I mentioned before that the working capital is around about EUR 100 million too high. This will come back as we strive, as we mentioned, for a 20% working capital to revenues also for 2024. And if you add these numbers up, you end up around about of EUR 1.45 billion on net debt including also the Terreal acquisition.

And Gerhard, when you say EUR 600 million of gross cash flow, does that include any component of Terreal coming in that as well?

That includes, sorry?

Does that include Terreal's 9-month contribution?

Right. This is including also basically the Terreal, so the EUR 90 million, what we mentioned before. So this is based on the guidance of EUR 860 million to EUR 890 million on EBITDA. That's the first one. The second one, on the inventories. As I mentioned, as I tried to explain is I think in the first step, inventory levels was, by the end of 2022, too low. So we had anyhow increased during 2023, especially on the roofing side because there was such a strong business development by the end of 2022 or in the second half of 2022, which brought down finished goods levels, basically, especially on the roofing side, which was too low. So we still had another strong development in the first half of 2023. And we are fine when we look to our finished good levels. Where we simply slightly too high is on the raw materials, on the resins, on packaging costs, on spare parts. Why? As also, we basically brought down the plants, the capacities, the operations, especially in the fourth quarter. So also the activity was basically quite low. And also if you have a low activity in your operations, basically, it also means that you have a certain impact on your inventory development in the fourth quarter. And therefore, this EUR 100 million, what we're speaking about is mainly -- is in the first step related to the raw material side. On the payables side, as I mentioned, also there, you know that we save some CapEx and that we had -- also out of that, we had lower CapEx than the year before. If you have, if you invest less, basically, that means also that you have less straight payoff spending and they were [indiscernible] slightly higher. So these 2 indexes basically driving the slightly higher working capital in relation to prior year.

Understood. And would you be able to split it into raw material and finished goods?

I don't. I just was looking if I had the number with me, but round about think 50-50. Yes. If you basically had finished goods, then basically you consider all the raw materials and basically, [indiscernible] what we have, the packaging. So everything which is around inventory, I would say this round about half-half.

And similar period last year, it would be around 60-40 towards raw material.

Yes, this is almost, I would say, almost too aggressive, I would say, but it was finished goods was last year by the end of 2022, slightly lower. As I mentioned, we had in 2022, a very strong market activity, which brought inventory levels and finished goods side on a too low level, basically what we normally foresee.

Our next question comes from the line of Markus Remis, RBI.

A couple of questions also, please. Firstly, [indiscernible] related to the pricing side. You're flagging quite a decent discipline in 2024. I was wondering if you could shed some light on the -- how should I say, on the pricing environment on a segmental or on a product level. So maybe some qualitative comments, which pockets of your business will be perceived as stronger and where there's more pricing pressure emerging? That would be the first one.

Well, I think from a pricing pressure perspective, you have always in certain regions, as I said, throughout the whole year of 2023, you have family businesses that are active, you have competitors that are active. But from our perspective, as the market did in ceramic material in North America and in Europe, we are also here a firm believer in a very disciplined price management. So that is going to continue for this year as well. And keep in mind that the mix as such is trading upwards. So therefore, I'm confident, as I said, and that's the most important and the key message that I can give to you that from a pricing side, we are in a terrain where we'll get the prices up in order to compensate cost inflation for this year. So this is very important because this is the margin that is otherwise at risk and shows the strength of the Wienerberger business model. When you move to pipes. Pipes is a different animal altogether because obviously, you have the granular prices that drive the pricing as such. And here, you have seen that they are trading down, and we have in certain areas, obviously, downward trend in pricing, not as quick as we have sort of planned. So it was good that we could keep prices up in certain regions last year. But you will always see here from a pricing perspective because the transparency in the market is such that people and customers understand it when granular prices go down, we give this onward to the clients will go down as we speak this year. But it's not a pricing pressure as such. It's the way the business is structured, yes.

Sure. Okay. And then on Terreal the EUR 90 million contribution that you expect in the current year, can you shed some light of how much of the synergies are baked in? Or in other words, and compared to the point in time when you announced the consolidation, how could this business develop organically? Can you shed some light please.

I think it developed more in line with our business, especially when you talk about the French business, which is the major contributor of EBITDA and to this EUR 90 million. And what we will hear when I look into '24 is again the same mechanism as I talked to you with respect to the end markets when renovation and new build are slightly down, it's the same trend for Terreal. So that's what we have built into the contribution expectations. And from a synergy perspective, I think when we start, you can count on us in April or May to work on this because that's the time that you need to -- when we integrate and start integration, then you have part of the synergies this year and the full package next year. But as I showed you in the slide, we will be on spot with all the synergies. So it's indeed in the EUR 90 million included some of the synergies. Not the full amount. I think in the first year -- so there's not going to be the full EUR 10 million this year. But this is -- and obviously, next year will be more than EUR 10 million already.

All right. Very clear. And then a topic, which is probably less in the limelight at the moment, but the cash reserves that you've secured in [indiscernible] was in 2022. Some of your fellow Austrian industrialists had to take revaluation charges in their recent results release. Was there anything comparable that you had to book or is that just any figure of relevance.

No, nothing because our one was very small, very, very small indeed, so to be neglected, and obviously, consumed [indiscernible]. It's nothing to worry about. It's nothing to account.

But it's still -- you still keep that reserve and kind of working reserve now less than -- rather than a strategic reserve. How is that treated?

Let's put it this way. For us, it's no need to have a strategic reserve. It was not at the beginning either. So we did it because we were kindly asked to do so.

The next question comes from the line of Harry Goad with Berenberg.

I've got a couple of questions, please. Firstly, Terreal and maybe, if you could answer because you don't own the business yet. But if I look at the run rate you've talked about for that business, I think it's about EUR 100 million of EBITDA in the last 2 years and then you're talking about EUR 110 million in '24. Can you give us any insight in terms of what the volume and price trends are there? I mean, is it right to think this is a business that hasn't seen volume contraction in the last couple of years? Or is there volume contraction that has offset the pricing power? And then the second question was around the U.S. And I can see you're obviously guiding to some further weakness in housing market, which I think is maybe a little bit surprising. Have you seen evidence of that already coming through in terms of further contractions at the beginning of the year? Or is that just you being conservative, yes, after a tough 2023.

Thank you for your two questions. I'm ready to say it doesn't come as a surprise in the U.S. because we have seen it in 2023 that the market as such has contracted. So it's not a surprise by no means. And what I said also here that it is continuing into this year as we speak and there's nothing to worry about. It's the normal things that I see here. And if and in the event, obviously, you have here a change in interest rates and the approach of people in the market and in financing, especially then obviously, we have a strong uptick because the inventory levels in the U.S. when it comes to new homes are very low, very low. And therefore, there's a huge pent-up demand, so people will build immediately if the customers, the potential customers, the clients can finance it. So that's the issue here. It's more a financing issue. And when you talk about Terreal, let us do the following. When we are in the -- after the first quarter and then obviously in the midyear, we will give you a clear picture of Terreal because here, obviously, it's too early to talk about this. Keep in mind that obviously, a roofing business has a strong exposure to renovation, so it's about 60% of its business growth into renovation. So it has been more resilient in the last couple of years. And therefore, the performance was good. So as I said, the contribution of the business overall is about EUR 100 million and on an ongoing basis. And obviously, it will, as I said, contract a little bit due to the decline in renovation. That's normal. That's how I guided you all and gave you the necessary information on it.

The next question comes from the line of Gregor Kuglitsch, UBS.

I've got a few questions. So the first one, maybe this is a 2-part question. Firstly, on gas, can you remind us sort of where roughly you're hedged? Because I believe, at least, I think when you last disclosed this, you were basically bought out nearly for this year. So are you still competitive with the current TTF pricing, so you come down a lot? And then related to that, are you seeing any evidence that competitors are sort of starting to pass that lower gas price to the customer? Or I guess, you sort of said no, but I want to just confirm that that's the case. The second question is coming back to Russia. Can I just confirm, was that already out of the EBITDA? Or is it an incremental EUR 5 million scope out this year just for the avoidance of doubts. And how much cash did you actually receive. And I don't know if maybe that's somewhere I may have missed it. And then on the EUR 40 million that you flagged, that's -- I presume that's a charge, just to be clear. Maybe the third question, Terreal, can you confirm what you now expect the payment, the enterprise value consideration to be? I think at the time you said EUR 600 million, but I don't know if that's changed any sort of adjustments in the interim. And then maybe a fourth and final question, which is on North America and specifically on the pipe business. I think a few years back, you kind of flagged that this is an asset that kind of may be overearning. Can you just actually tell us how much the pipe business made last year? And where do you think is a normalized run rate for that business sort of once the cost price spread perhaps normalizes?

Well, a lot of questions, but we'll walk through them. The piping business in North America, yes, we talked a lot about it, and it has been a very strong performing business not only from a volume perspective, but as you correctly pointed out, margin perspective. Normalized EBITDA are difficult to tell because now after 3 years, with very good EBITDA contribution, we can say it's the normalized EBITDA. But as you are well aware that the U.S. special projects, when it comes to roads and the spending, is obviously boosting the business as such and the whole market in the U.S. this year quite -- very strong. So I would say contribution of the business is slightly above EUR 100 million EBITDA, right? And it's -- a normalized one is probably 20% lower, and then I'm very accurate with you as always. Yes. And then when we talk about the Terreal side of the business, you were asking about the enterprise value, right?

Yes, what was the final -- or what will be the final consideration like growth.

The consideration will be around EUR 500 million.

Net of the share issues, yes?

Yes. Net of the share issues. Correct. Then you had Russia on your list, right?

Yes.

And the EUR 5 million is EBITDA, right? It's still included in 2023 and not included in '24.

Right? And the FX is a charge, as you said, Gregor, it is basically from a bookkeeping perspective, what you have to book out because it was handled so far by the other comprehensive income. So it was basically something what you see as a movement in the equity. If you deconsolidate, you have to book it out via the financial result. So the EUR 40 million will be a financial expense, a noncash expense in quarter 1.

How much did you receive for the business, in terms of cash?

We've gladly receive the money, and that's, I think, the good news. We were to get out of Russia. And it was a satisfactory amount with a single-digit multiple. And we have it on our bank accounts. That's was the most important one.

Everything is in. I think converted in euros, so everything is in and fine and Russia is closed finally now. This is the most important. The last one, Greg, on the hedging levels, we basically maybe we start with the prices, yes, we feel comfortable. Yes, we are aware the prices are down, but still with the hedging levels what we have or with the volumes and with the prices what we have fixed, we are still in the money, which is important. For 2024, on the gas side, we are round about 80%. And also there, for that moment, we feel comfortable with the volume, what we have fixed and also with the prices what we have fixed. Market-wise, we don't see any pressure when it's about the lower energy prices, what you see on the market that this leads currently to some price pressure due to the energy costs. So this not what we basically see on the market.

The next question comes from the line of Nitesh Agarwal with Citi.

Actually, most of my questions are already answered. Just one remaining on the new build volumes this year. So basically, if we look at the building permits in Europe last year, they were down approximately 20%. So taking about 50% new build share in sales, that would mean year-on-year volume decline of about 10% this year in Europe, if all else remains flat. Is that assumption more or less correct?

No. This is too conservative. That would be too concerned.

What we expect is more a low single-digit number, as Heimo said in the beginning, which is definitely lower for the U.S. We expect here on a year-on-year comparison on the new build sector, somewhere around 3%, 4% in Europe, a little bit higher. But we don't speak about or we don't expect 10% on a full year base, definitely not. And you have a kind of a dynamic between first half and second half of 2024 on a year-on-year comparison.

Perfect. That's very helpful. And actually, one question on your energy costs. So you talk about minus 3% for this year in your presentation. And I think the last year gas consumption that I remember from our discussion during the first information last month was about 6.6 terawatt hour, around that level. So assuming that stays flat, more or less, so is that the consideration that you are taking in this minus 3%? Or is there something else at play? I mean, of course, there is some price benefit as well. But if you can give me some kind of a distribution between the total amount of gas consumed and the price that is leading to this minus 3%.

Right. So the volume, what you assumed this 6.5 terawatt are fine. This is what we also foresee from today's perspective, and it was in 2023 is slightly higher losses. So I think, as you said, 6.6, 6.7 in this range, but we foresee around about the same level of gas consumption what we had in 2023.

The next question comes from the line of Tobias Woerner with Stifel.

Three, if I may. Number one, with regard to cost inflation, I was looking through the report, but I couldn't find a number, maybe I missed it. In Q4. What was it? You talk about a price cost rate of 4%. I think it was about 4.5% or 4% to 5% in Q3. So just to get a sense of how that unfolds. And then secondly, when you look at your guidance, actually, when you look at the market outlook, the 3% differential between '23 and '24 as you said, there will be a skew towards the second half. Could you give us a sense of that 3% on balance, i.e., should we assume that it should fall, let's say, 5% in the first half and then less so in the second half? And then the third question, the structural adjustments, again, I may have missed it, EUR 38 million. Can you give me or us a better sense of how that breaks up and what it exactly is?

The structural.

Right. It is exclusively basically restructuring costs. There are some mothballing of capacities in Germany and basically and then across Eastern Europe also. So it's a termination cost also for personnel, what you basically release when you shut down or when you mothball basically a capacity. Also here in the headquarter, we had also to do some restructuring cases. So it's mainly basically personnel costs, what you see in the EUR 38 million.

And if I could follow up on this, please. What is the headcount which was reduced?

Round about 1,000 in 2023.

That's a big number.

The cost inflation -- if I may follow up, cost inflation in the fourth quarter was the question, I guess, so?

Right.

And only really on the fourth quarter on a stand-alone base for the fourth quarter was plus/minus 0, yes.

So basically, the price effect was 4% in the fourth quarter. The like-for-like declined 17%, I think. So the volumes would have fallen 21%. Is that fair to say?

A little bit too much. We have 19% volume decline in the fourth quarter. Prices are up with 3% round about and then you have a cost inflation of plus/minus 0.

And the split first half, second half in terms of that market adjustment scenario you painted, and I appreciate that it's beginning of the year and it's a scenario.

Indeed, it's a scenario and this -- we will be able to give a much more -- or better sort of outlook after the first quarter. But this today, it's a little difficult to say how it will turn out.

We have a question coming from the line of Yassine Touahri, On Field Investment Research.

Yes. Can you hear me?

Yes.

I just wanted some clarification on the debt increase that you are planning for 2024. I think it's approximately EUR 300 million. So on the working capital, I understand that you want to reduce your working capital as a percentage of sales. Do you expect any working capital inflow in 2024?

Sorry. Just keep going.

That would be just like 1 element. Then in terms of cash interest paid and cash tax paid, do you expect any substantial increase because of, for example, like the acquisition of Terreal and a change in the tax rate or a change in the interest rates because of your banking relationship. That would be the second element. And then on CapEx, if I look at your CapEx, do you expect an increase in CapEx in 2024 compared to 2023? And then the last point is that you were planning to sell 6 million shares, treasury shares. What is the price? I think I remember it was EUR 26. And I don't come to the EUR 500 million of EV after the sale of treasury share. I come to something which is a little bit lower. So maybe there is something wrong with my calculation. I'd like to understand a little bit better the split between the EUR 600 million of EV that you're paying and the cash that you expect to receive from the shares?

We don't -- sorry, there's a misunderstanding here when we talk about the transaction. We are not selling the shares. It's part of the purchase price.

So the purchase price would be EUR 500 million to the cash -- what would be the cash outflow excluding the shares?

The EUR 500 million. So what we communicated before, what we explained before, is a EUR 500 million of cash out plus shares of around about EUR 150 million. And this basically brings you back to the, I think, slightly above the EUR 600 million, what you have in mind, basically as enterprise revenue.

Okay. On the working capital, tax, interest and CapEx?

Maybe, I'll walk you through once more, but we basically ended the year with EUR 1.2 billion. As I said, we expect a gross cash flow of around about EUR 600 million for 2024. For Terreal, we expect, as we just said, of EUR 0.5 billion. We expect CapEx of EUR 0.3 billion. The dividend will be around about EUR 100 million, and we expect EUR 100 million cash inflow from working capital. And if you add these numbers up, you end somewhere between EUR 1.4 billion, EUR 1.5 billion on net debt for 2024. And this is also what we have mentioned here in the presentation around about EUR 1.5 billion by the end of the year 2024.

So but it could be EUR 1.4 billion to EUR 1.5 billion, like the EUR 1.5 billion is a little bit cautious. It could be closer to EUR 1.4 billion, it seems. On the contribution of Terreal, the contribution on the cash flow is going to be limited in 2024. Is there anything specific that could improve in 2025, the cash flow contribution of Terreal.

The synergies, what we explained before, we're expecting already in 2025 higher rate of synergies. This year, as we basically have around about 9 months, what will contribute to the EBITDA of Wienerberger, we will realize mainly cost synergies. These are the EUR 10 million, which we mentioned before. This will be maybe slightly a little bit below. But let's say, the commercial synergies, the synergies out of the supply chain of the network will be more or less starting in 2025 and ongoing. And then finally, ending up to the EUR 150 million what we have also communicated so far.

And just a very last one, to understand the gross cash flow development. So in 2023, you published a gross cash flow of EUR 609 million. And you're suggesting that the free cash flow -- the gross cash flow would decline in 2024 despite an increase in EBITDA -- despite an increase in EBITDA from EUR 810 million to let's say EUR 875 million.

It will not decline. It will be even slightly above. I'm only using basically cautious numbers. And therefore, as you said, the EUR 1.5 billion is on the cautious side, let's say, that we have.

But is there any way to imagine that because you're guiding on an increase in EBITDA of approximately EUR 60 million. But at the same time, the EUR 600 million of gross cash flow suggests that this increase in EBITDA does not translate into any incremental cash flow. Is it because it's early in the year and that's you want to guide conservatively? Or is there something that is a concern.

Definitely. But also keep in mind that our financial results will be slightly higher. Financing costs are higher than in 2023. We had a very favorable financing costs in 2022, still in 2023. Keep only in mind that we have issued a sustainability-linked bond with a coupon of [ 4.8 ] so this will hit or this basically what we will see back for 12 months in 2024. So you have also [indiscernible] impact from the financing costs, which will be higher than in the past.

And is it something that you kind of quantify? Is it like when I do the calculation, I get approximately EUR 20 million increase in financing costs?

I would assume a little bit higher. I would see it more on the EUR 30 million.

On the EUR 30 million. But if you're delivering your EBITDA -- the EBITDA increase of your guidance, again, the EUR 600 million of gross cash flow might be on the cautious side and the EUR 1.5 billion of net debt could under be naturally lower than EUR 1.4 billion.

Absolutely right, yes.

That was the last question. I would now like to turn the conference back over to Ms. [indiscernible] for any closing remarks.

Thank you, operator. Ladies and gentlemen, thank you very much for taking the time and dialing in today. Our next conference call will be held on May 16, where we will release our results for the first quarter 2024. For today, we wish you a pleasant day. Goodbye.