Wienerberger AG (WIE) Earnings Call Transcript & Summary

Good morning, and welcome to the Wienerberger conference call on the 2024 Q3 results. My name is Therese Jandér, and you are always welcome to reach out to me and the IR team should you have any questions after the call. With me in the room, I have our CEO, Mr. Heimo Scheuch; and our CFO, Gerhard Hanke, who will present the results and take you through the questions afterwards. And by that, I hand over to Mr. Scheuch.

Thank you very much, and a lovely good morning to everybody from Vienna. I hope all of you are well, and let's jump into our quarter call on the quarter 3 of 2024. From our side, Wienerberger side, we have obviously a very exciting year so far in the sense of growth. We successfully integrated already Terreal, our biggest acquisition in the history of the company. We'll come back to this a little later because we moved due to the subdued markets, especially in Germany and France, much quicker and faster on the integration as originally planned. On the other side, we have done a lot of great steps forward when it comes to modernizing our plant network. We'll speak about this also in a minute. And we continue our successful, call it, bolt-on M&A track with smaller acquisitions in the northern part of Europe, where we create a fantastic water business that is highly integrated and adds value to our customers from a water management perspective, especially in Norway, Finland and Sweden. And here, we see continuous growth in the business, by the way. So we move here really towards a system provider with all the support from software to smaller accessories that are necessary to build the pumping station and all the necessary software that is used for this purpose. On another note, also in Central Eastern Europe, as we say, we have a strong pipeline of smaller mid-sized bolt-ons. One of them was also in the Czech Republic, where we move forward in a very good segment for us, where we're very active in the Czech market with concrete pavers and insulation, material blocks for sound insulation. So this is a nice add-on for our strong Czech operations. And as I said, we decarbonize continuously our sites throughout Europe, especially with two examples, one in Romania, where we have completely reshaped the factory in the East and Northeastern part of Romania. And here again, with a strong decrease in CO2 emissions, but not only in CO2 emissions, but obviously also in energy consumptions as such to make the whole production highly energy efficient and obviously, from a perspective of performance, even better than before. So a very good cost structure there in this new factory, and it works perfectly well. It's a new technology that we have put in place for the drying of our bricks and which run successfully in this site. The other one is a world first, I would call it, because it's the first industrial kiln of the size where decarbonized bricks can be produced. This in Austria. We are already now in the upstart and the running process of the kiln. It will be formally opened by the end of the month. So this is obviously a fantastic new innovation by Wienerberger, by our engineering team and that will go on stream this year, and you will see how we can then roll it out through the company. But it's a 100% reduction in the kiln from a perspective of CO2 emission. So a very, very important step in innovation for Wienerberger on the technology side. I think when we summarize, we have successfully moved away from a single product producer to a multiproduct and multi-solution business. We have now a very strong organization throughout all of the Wienerberger countries, which is geared towards growth, organic and obviously, also due to the fact that we have strong organizational footprint that can integrate fast businesses. It's ready for M&A growth in the different regions. And I think when we look at our very disciplined capital allocation with a strong M&A record that we will continue to roll out in the future. But let's come now to the first 9 months of the year. I'm -- as you all know, I'm very long in this industry, and I've seen a lot of things in my life. And if I look back on 2024, it was an exciting year by all means, but also a surprising year. I've never seen so many elections, so many political changes in Europe and especially also in North America. So many instabilities geopolitically speaking. So it was a year, very difficult to predict, very difficult to feel and see the developments coming. But I think we steered the business very, very consciously and very quietly through this turbulent times when you look at, especially the new residential housing market that are at very low levels in Europe due to this political turmoil, not only due to the interest rates, but to a sort of lack of leadership in the political scene in Europe. We have also had some sort of activity drop in the U.S. because of the elections and not sure what this election outcome would be. So you saw that builders didn't build so much before the elections. But I think now, obviously, as all of these things start to stabilize and that we have, especially on the North American front, a very clear picture politically speaking, for the years to come, I'm very positive when it comes to the new residential housing market infrastructure and also renovation. In Europe also, when I look at the commissions, and I followed very closely first steps of the commission with respect to new residential housing. I see also here a better attitude towards industry on one side when it comes to the whole aspect of energy management and the CO2 and the whole sort of regulatory framework for industry in Europe that the commission has a better attitude here and also to the new housing that things are coming. Very important is obviously to view and to monitor is the German elections and must say, here also outspoken from my side. I'm happy that we have elections much before September of next year because I think that we will have in the first quarter of next year already, also a clearer position in Germany, which is important for us because it's an important market and is a driver for growth in the whole region. So this is things that I view very positively when we talk about new residential housing market for the months to come. For this year, it was obviously when we look at the activity, a very, very subdued and depressed market because when you look at the level of new residential housing construction, it was below the lowest level that we have seen in recent years. So even when I look back in the crisis, Lehman 2009, in some countries, we were below those levels. We managed well with Wienerberger. We were able to cut costs very sharply, very proactively. You see also in the presentation of my colleague, Gerhard, that we managed very well the working capital in the inventory. So I think with this strong focus on cash, we managed very well this special situation, as I call it, in 2024. When you look at the results, I think from a revenue perspective, more or less flat compared to last year. And very important also when you look to EBITDA and the EBITDA margin, especially that with about 18%, we were performing here very well in this environment. Keep in mind, when the capacity utilization of about 60%, 65% in our ceramic business and especially in some parts of Europe, even below that, we had enormous standstill costs, but we managed this well on the self-help and the cost management side with about EUR 84 million of better cost structure and savings. The Terreal acquisition contributed very nicely with EUR 56 million in the first 9 months. Obviously, a little lower than expected, as I mentioned, due to the German market. And obviously, the last couple of months, also the French market being a little down. So this in a nutshell, the first couple of thoughts on 2023, and I will hand over to Gerhard for the quarter 3.

Thank you. Hello, good morning, ladies and gentlemen. Let me walk you through quarter 3 results. And yes, interesting time, as Heimo mentioned. The third quarter was a challenging one. Revenue-wise, we are up with 9% EBITDA-wise, with [ EUR 200 million ] slightly below last year. We realized the net result of EUR 47 million, which is also impacted not only by a lower activity, but also by a little bit higher financing results. But still, and as we said, we have the margin, the profitability in the focus and which is with 17% in quarter 3, considering also the standstill costs, what we had during the summer on a high and solid level. Volume-wise, when we dive into the volumes of the third quarter, you see that the third quarter is impacted by lower volumes in the U.S. for several reasons, but mainly and we also mentioned that already in the second quarter or respectively, in the half year, that there are some uncertainties due to the, at that time, upcoming elections. Also consider that we had floodings in September, especially in the Carolinas where we also have our business located, which costs us also at that time some shipments, and I would say some 3, 4 shipment days. So this is something -- yes, what we see and there is no reason for the U.S. that the U.S. is kind of a weak market. We see there's a temporary weakness in the U.S., and we are positive, basically looking forward into 2025. In Europe, we are sequentially improving from quarter-to-quarter, we see that volumes are picking up. Heimo mentioned it, we see confirmed demand in the U.K. We see that East, Europe East is further improving slightly at a lower pace, but still improving and West, also improving, but still on a lower level. Looking to the revenue bridge, we are up with 9% on revenues. Volume, minus 2% in the third quarter and pricing is with minus 3% during or, let's say, along the year 2024 stable. So we keep our pricing on a stable level. As we said, there is a high focus and attention on pricing to keep the minus 3%. What we have seen already in the first quarter, we keep also during the year. And we even expect also, as we mentioned in the first half year results that pricing will slightly improve in the fourth quarter as it is mainly driven by some flexibility in Eastern Europe. This brings us to the EBITDA bridge. As mentioned, we are moving from EUR 211 million to EUR 202 million, impacted by lower utilization rates, mainly during the summer. We could compensate a big part of it by more intensified cost measures and efficiency measures so that we finally ended on an EBITDA of slightly above EUR 200 million. Let me quickly walk you through the regions. Yes, the regions are impacted also by the Terreal acquisition, mainly by the Terreal acquisition. The results per quarter, as we said, you see basically the biggest impact, I would say, in North America and in Europe West. And Europe West, it is mainly that the 2 countries, France and Germany, are still bottoming out. We see that the Netherlands recovered already in the meanwhile, and we are positive also for the rest of the year for the Netherlands. So we are focusing at the moment mainly on Germany and France in the West. For the first 9 months, we closed our books, and you heard already the results from Heimo, so I will not repeat them. I think keep in mind, there was quite some standstill costs in the first 9 months in our P&L due to the low utilization rates and the 65%, what we have seen in the first 9 months, yes, there is -- some of the plants are even running at a lower pace. But this will basically improve. And as soon as markets are picking up, we will also benefit there from the operating leverage of these kind of businesses. Let me walk you to the volumes quickly because minus 5% slightly improved for the first 9 months. And basically to see it from a more helicopter view, yes, when you look to the volume development for the first 9 months, it is mainly Continental Western Europe, which is lagging behind in the new build sector, and it is the U.S., which is lagging behind, where we basically see a positive sentiment on -- for the next year when it's about the new residential markets, what we said before. Revenue-wise, we show a revenue which is on a level of EUR 3.4 billion around about. I think volume we explained. Pricing, I only can confirm once where we keep our prices stable. Pricing is in the focus. So the minus 3%, what we have seen during the last quarters will slightly improve in quarter 4. Let me do a short deep dive on inflation because we see that inflation was basically in the first 6 months. We have seen a rather strong deflation of -- you remember in the first half year, we had a deflation of our cost structure of around about 1.5%. This is moving more to minus 0.6%. And this is also what I expect for the whole year that we are moving more to a slight positive cost inflation, what we have to consume. The main drivers out of that is in the range of energy costs and granulates, which are compared to last year, see a slight increasing development compared to last year. We -- as we mentioned before, we intensified our cost management measures and efficiency measures due that we have seen more headwinds during the second half of this year. So we expect for this year around about EUR 100 million on countermeasures to support and to protect our profitability, divided between, let's say, EUR 60 million out of cost initiatives, cost management measures, mainly driven due to cost cuttings in the production and in the overhead cost structure. And the rest is out of our self-help program where we expect the EUR 40 million for the rest -- for the whole year 2024. Please keep also in mind, in the first half year, we had major one-off items of around about EUR 150 million, which is impacting our P&L on different positions. I mentioned at that time already, yes, it is the major part we have seen on cost-cutting measures or on one-off items. Yes, it is. And you see that we only see slightly, I think it is a plus EUR 5 million on one-off items, mainly on structural adjustments, which we implemented in quarter 3. And also for quarter 4, we do not expect major additional one-off items. And this brings me finally to the EBITDA bridge for the group. And you see basically that this year, results is impacted by volumes and standstill costs. which are the major driver basically for the EBITDA development. We have implemented substantial initiatives to compensate and to protect profitability. And you see that with EUR 50 million around about Terreal and all the other acquisitions are contributing during the first 9 months to the operating EBITDA of the group. Let me finalize and also summarize quickly the regions. Many things was already mentioned. In Europe West, we see that U.K. Ireland is recovering continuously, so we are positive there. We expect that France and Germany will bottom out in the next months. We are positive about the Netherlands, which is also a major market for us. And we see that also here in the Western European region that Terreal is positively contributing to our revenues and to our results. Europe East is continuously improving. We see that volumes are going up step by step, and we also see for next year basically a more positive development when it's about new residential. North America, we spoke also about was hit maybe a little bit harder in quarter 3. As we said, we see it as a temporary impact. We are positive about the next year. There is a positive sentiment about North America. So this is what we see here, this slight weakness on results for quarter 3 is nothing what we see as a kind of continuous development also for the next month. So basically, we are positive also about the U.S. And with that, Heimo, I give back to you about the outlook for this year or for the rest of the months.

Thank you, Gerhard. And as I said at the beginning, I think it was a challenging year. It was a year with full of surprises, and 2024 comes to an end with a couple of weeks left. Actually, all of us and when I look back, it was obviously from a perspective of steering the business through these stormy waters, quite a challenge. But I think from our perspective, we managed it very well. Come to the cash flow and the debt level and all of the performance in a minute. From a housing perspective, I mean, we have -- today's split of businesses, Wienerberger has more than half of its turnover in renovation and infrastructure. So you have seen, there was much more stability in this part of the business throughout the whole year of 2024. And I see also the trend continuing not only in the last couple of weeks of this year, but also well into 2025. So this is, I think, the good news that we have now a very resilient portfolio in Wienerberger. The second one, when we look at the new build segment, I think there are some bright spots already that I would qualify as growth areas to focus on is U.K. and Ireland, obviously, in the Western Hemisphere. As Gerhard has explained, the weather and political instability for a couple of months in the U.S. were responsible for a weaker demand level in new residential housing for quite some weeks here. But I would say also into next year, we will see here a pickup of activity in this part of the world. Europe, as such, from a perspective of new residential housing, the European East development is encouraging. This is a step-by-step approach, not shooting up and skyrocketing immediately, but it's a solid recovery and an underlying recovery, as I would call it. Obviously, the countries, Austria, Benelux, Germany, France are more suffering in this new residential housing business during the whole year of 2024. We are now bottoming out in these countries. Political stability comes back in the national governments and therefore, initiatives will come through slightly when we talk into the year 2025. '24 is already basically over and done, so I think this is -- if somebody will ask me later, is the worst behind us? I would say, yes, it's behind us, and we are moving now in more stable waters when we come to new residential housing. I think very important also from a takeaway from this call is, and Gerhard mentioned it a couple of times, on the pricing front in the -- especially in the ceramic business in East and Central Europe here, stability, slightly trading up again. You remember, we told you that we deliberately were a little bit more proactive in this field. But here, obviously, we have defended our share. We have increased our position. So this was in line with our expectations. On the Terreal front, everything is running very well. Teams are integrating fast. I said earlier also, we used this time of slower demand or lower demand levels in Germany and France, especially now to integrate faster. Cost-cutting measures are put in place and restructuring where necessary are done. So this is the major focus. It doesn't change anything on the mid- to long-term trend of the business. Here, we are very well positioned, and profitability is trading up when the capacity utilizations will come as we speak. Very important, I think this is a key message from us to you. When you look at our performance of Wienerberger, it's an impressive nearly EUR 200 million free cash flow change compared last year where the strong focus has been on the ceramic business, especially in Europe, to manage inventory, working capital, but also the whole cost structure. And you see how even in these depressed markets, we are able to create a very, very strong free cash flow, which is a strong signal for a very healthy, solid and forward-looking business. This obviously, in light of the net debt development is important to note because this net debt, which I show you on the chart is including our acquisitions. If I would take only the legacy business that has delivered the EUR 200 million, we would have been deleveraging also considerably. So we were able, in such a difficult year to digest a major -- actually the biggest acquisition Wienerberger has ever done. And so I think it shows also from a financial aspect, how disciplined and how forward-looking we are managing our operations. So from -- as a summary, all in all, I think from all the headwinds and all the difficult things that I've mentioned at the beginning and Gerhard and myself were referring to have been managed, and we are now at the end of 2024, looking at a very strong cash generation, very well-invested business, focusing on the things like energy consumption reduction, CO2 emission reduction, forward-looking technology. I was not talking so much about the major innovations that we have in our water business, for example, and you have seen it at the Investor Day, some of you in October, how far we are already with integrating businesses here. So there's a lot going on in our company. We've used this time wisely to prepare the company for strong organic growth in the years to come. So this is a major focus for us. Robust demand will remain in renovation and infrastructure. We are prepared for this. And the new build, I think I'm here now, much more confident than I was 6 months ago when I look at the political environment in Europe, especially stability comes back and therefore, also the framework for investing in new build is a better one. For this year, I see that we will end it on an EBITDA side of the EUR 750 million to EUR 770 million. This will depend a little bit on some weather issues, which we -- if we hit at the lower or the higher part of the range. But this is, I think, a normal procedure at the end of the year. So from our perspective here, I think this is what we can show you and tell you about the developments of 2024 so far and look with optimism into the next months that are coming our way. So thank you very much for your attention. We are all here to ask -- to answer your questions if you have those. Yes. Thank you very much for your attention.

[Operator Instructions] So the first question comes from Tobias Woerner from Stifel.

It seems everybody else is shy this morning. Obviously, a very tough quarter. You refer to state or government programs, which are not forthcoming. I would argue that maybe the price/cost spread is slightly more worrying here or concerning when we look at publicly available data for Western Europe. Ceramic prices are down mid-single digit, roughly in countries such as France, U.K. and Germany. You show it in your price cost spread, which has gone a bit worse to minus 2.4%, if I'm not mistaken. How do you see the pricing situation developing from here on out? And then the U.S., clearly, the weather was really, really difficult in the U.S., especially below the Mason-Dixon line where a lot of your businesses are. Maybe just remind us how much of your business is more southern biased than what is elsewhere the case, and whether we should assume because of the weather that there is any catch-up effect, not just in North America but also elsewhere in the group.

Tobias, a wonderful good morning. You are never shy, and this is a compliment to you.

We all know, Heimo.

Even in this early part of the morning, so that's great. No, you mentioned two important, very important matters. I mean let's start with the weather effect. Weather comes and goes. You're right, this harsh is influences, especially in the southern part, where the majority of our business is actually. It's far above -- 50% of our turnover is in the south of the United States, but that includes taxes and other parts of the country as well. This -- in the Carolinas, Florida and all these Alabama, obviously, and Tennessee were affected by the storm as well. So it's not only a local issue, it was a much broader one. And if it's a couple of shipping days or not, it's the groundbreaking that is delayed for construction sites. You are right. There is a certain effect, obviously. And this will spill over, I would say, into the next year, especially when we talk also about Europe because the flooding, Czech Republic, Austria, also Romania, these parts take longer than to dry up and you don't start construction projects in the ground is very wet. So yes, you will see some effects. I can't quantify it, honestly but it will be some effect that we'll see beginning of next year. Pricing, I'll let also obviously Gerhard answer to this question. But honestly, I wouldn't remain or be here sort of worried about this. I think we are managing it very, very tight and forward-looking. So from what Gerhard said, inflationary cost increases that we have to tackle and to offset with price increases and all this press management, I think it's moving in a good direction, right, Gerhard?

Right. And we don't see the price pressure what you mentioned in the West. We basically -- we keep also there our price levels. For us, important is during the year to keep the prices where they are. We had, as we said, during half year, decided to go for a little bit more flexibility in the East. And also there, this is bottoming out. So I expect even for quarter 4, a slight improvement on our price year-on-year comparison. Where we are working on, and I mentioned, that is the cost inflation itself. We had in 2023 in the second half declining development of resin prices and a more stable development in energy prices. We see now in this year that resin prices on a year-on-year comparison, a little bit up and the same for energy. So it is more the cost inflation where we are working on. We are optimistic on the price level. So we -- I don't see there that we are coming under pressure. On the other side, we are preparing ourselves for next year because if you want to have price increases in the market, yes, we are going out now -- already now and informing the market that we will increase prices next year because we expect also next year, a slight cost inflation. And therefore, we are preparing at the moment everything for 2025 when it's about price setting for the next year.

Okay. If I may just follow up with two things. Terreal, likely to add EUR 70 million of EBITDA this year. You have this nice chart which shows an upward trend there, but doesn't give us a sense, but could -- or doesn't give us an absolute number, really. Could you give us a sense of what that could be next year in terms of incremental contribution roughly, if possible? And then secondly, you sort of alluded to 2025, people are already looking to 2025. And it would be good to hear what your thoughts there are from a base perspective for the earnings? And then a lot of people are also speculating about Ukraine directly -- probably a little, but indirectly, what your thoughts are there. Sorry for the many questions, but there's nobody else.

No, no, it's early in the morning and there, all of us have a lot of questions when you start the day. And sorry, no, but coming back to the serious part of your question is Terreal, I would say from the EUR 70 million, which we indicate there's a contribution this year, we will gradually move up to about EUR 100 million next year. That's what you can sort of see there or a little bit above, but that's -- but I give you the direction where we are moving. It's from a 2-digit number to a 3-digit number, yes. So this, I would say for the Terreal part. And yes, well, I mean, when you see 2025, I mean, when you look at the capacity utilization, here, we will move up this operational leverage in the business. We said some countries, regions will recover a little bit. So there's room for improvement next year, right, Gerhard?

Right. Definitely. Yes. Coming back once more maybe to the Terreal, what Heimo just mentioned, the EUR 70 million was for 10 months this year. So I'm positive that it will be above the EUR 100 million on a 12-month basis. We indicated, I think in the beginning of the year, I think, EUR 120 million. Let's see if we will reach that. I'm a little bit more cautious on the EUR 120 million, but I'm optimistic that it will be above the EUR 100 million. And yes, I think to add and to confirm what Heimo said on the operating leverage, you have seen the standstill costs, which are hitting basically this year our P&L, and this is mainly due to the utilization rates in the newbuild-related production facilities. As soon as markets are continuously, let's say, further picking up, this is, I think, the major key driver for next year, that also coverage for the standstill costs will show up.

But that we will be on an EBITDA level -- I mean, I'm not giving a guidance for 2025. It's much too early, and we will do this in at appropriate time, but that we will be well above EUR 800 million is for sure.

And the next question comes from Gregor Kuglitsch from UBS.

It may sound a little bit repetitive, but I guess I'll push again. So this year, I guess it's probably fair to summarize, yes, volumes were disappointing, but obviously, price cost was negative. I guess you've kind of suggested in your answer before that you're looking for more positive pricing into next year. I don't know if that's a fair summary. And if not, perhaps you could just tell us what your sort of stance is on pricing. Are you going to try to sort of cover cost inflation next year because clearly, this year, that didn't happen?

No. Sorry to interrupt you, but you are spot on. That's what our message is from a pricing perspective.

Okay. And then regarding the standstill costs, I appreciate the material. But principally, those don't change unless volumes recover basically. So what you're saying is you need more volume to absorb those kind of fixed costs basically. So it's just, in essence, then a call on volume delivery. Or is there any one-off, I guess, is my question this year in the numbers that we can think about that falls away mechanically?

Mechanically, what falls away is an impact out of Terreal. We took over on the day -- on 1st of March basically relatively high inventories. And so we were also on the Terreal side on the lower production output, and this will basically fall away. And this, I would say, is a kind of a one-off because we have to bring down inventories on a more normalized level, which fits to our Wienerberger standards. And that means also that we will see -- we have seen the major impact this year, but we will see also something next year.

Okay. But that's, I guess, relatively immaterial. So there's no -- in the core business, in essence, it's been down to volumes coming back.

Volumes, yes, it is the major driver. Inventory-wise, you have seen that we are basically running our plants at the moment on a rather low level. We optimize our inventory levels till the end of the year to have the right inventory levels by the end of this year for the next year. So yes, there is some impact. And also keep in mind, the restructurings, all the restructuring measures, what we did in the second quarter, you also have some implementation time, which generates some inefficiency. And this basically should disappear next year.

Okay. And then I saw...

But Gregor, I wouldn't call them insignificant. There is certainly some -- your question goes in the sense that if we assume stable volumes, are we doing better next year or not? Yes, that's what you're saying.

Yes. Yes. So I'm trying to figure out, okay, you did, whatever, EUR 760 million, add EUR 30 million for Terreal and maybe whatever is one-off. So you're already telling me you're a bit above EUR 800 million. And then I guess [indiscernible].

I think we are right well above EUR 800 million. But I think here, obviously, yes, there is obviously these measures that Gerhard was alluding to, the optimization measures, et cetera. So they are all coming through. So there is -- even in the unlikely event that the numbers and volumes would stay stable on the demand level in the ceramic business in Europe, then obviously, we would have quite a significant contribution on the EBITDA.

Okay. And then maybe sort of a detailed question. I was just looking -- or maybe this is a coincidence in this quarter. But it seems like your -- I think in -- well, certainly in the European regions, the pipe business is actually doing worse than the ceramic business from a volume perspective. And I guess it's not very intuitive, right, because it's sort of supposed to be the most stable bid with infrastructure. Do you have any views why that is? And maybe it's just the quarter. And it doesn't really matter, but...

Yes. I think it is. Don't focus too much on the quarter itself. I think we have seen some trends. We have seen also some, I would say, with the weather extremes, with some impacts which was influencing basically the stand-alone quarter, so I would be careful not to conclude too much out of third quarter as there was some impacts from the elections, with the weather. So it was a little bit different and challenging quarter itself. So I think we have to be careful not to conclude too much out of it when it's about volumes.

Okay. And then final question. So some of your peers sort of had, I think, the DOJ knocking on their door in the U.S. PVC segment. And I think you're one of the defendants. I want to just understand what your position is on what's going on, I guess, with regard to the U.S. plastic pipe business.

Yes. I think you are right that some of the major players in this field have been hit, and there's an investigation running. From our perspective, as you know, we are a single-unit or a single-location producer in the South. So we are not so much affected by the overall development in this industry. As you know, we have very tight policies when it comes to these issues like market pricing and et cetera. But -- and so from ours, we look relaxed in this sort of investigation.

And the next question comes from Axel Stasse from Morgan Stanley.

I have two, if I may. Can you quantify the pricing element per region, like Eastern, Western and North America in Q3, to better understand the price cost spread here? And then my second question was about 2025. You mentioned the pricing increases. Can you elaborate a bit more on this? Can we expect a 1% to 2% price increase next year? And actually, a follow-up on this. If you think again about the cost saving plan, do you expect to further work on this and announce another one next year? If so, to what extent can we expect another cost saving program?

Well, on the cost savings side, you see, Axel, we will continuously optimize our business. And as we grow and integrate businesses, there's room for further optimization. Not per se we will announce a plan, but this is part of our ongoing business, right, Gerhard?

Right, it is. I think your question on the pricing across the region, and I think we mentioned it also that we have -- the minus 3% is divided by around about minus 5% in the East. And West is, I think, minus 1%, and North America is plus 1%. So it is mainly driven by the East. And also, keep in mind that the cost inflation, I'm speaking now about labor costs or personnel costs, here, we have also a higher cost inflation basically in the East. And therefore, price cost spread or the pressure on the price cost spread is definitely in the East higher than in the West. And I'm speaking now about Eastern Europe and Western Europe, no issue in North America. And as we said, in Western Europe, we are keeping pricing level. We see some turn from deflation into inflation. But I would say, from the inflationary development, when we speak about regional development, you see the stronger development when it's about inflation definitely in the East. And this is also driven strongly by personnel costs as we simply have there a higher pressure on labor costs still in 2024 than in other parts of Western Europe.

And what about 2025? Can we expect then a 1% to 2%?

For next year, I would say yes, you can think in this range. I expect for next year cost inflation, which is around about plus/minus 3%, 3.5%, I guess. And I would assume a price development which is between 2% and 3% in this range what we will -- what we plan to materialize. We'll come out with more clarity on that in our February meeting anyhow.

And the next question comes from Yassine Touahri from On Field Investment Research.

So the first one would be just a follow-up on a question of Gregor. So if the volumes were stable in 2025, what you're suggesting is that you would increase prices by a couple of percent. That would offset inflation of 3%, 3.5%. Otherwise, it would have no impact. Then you would have an additional impact of Terreal, which would be an extra, let's say, EUR 30 million or maybe a bit more. So it would come back -- if I look at the midrange of your guidance, what it means is that you would have only an EBITDA of EUR 790 million, maybe EUR 800 million. So it's not well above EUR 800 million. I think you are not very clear on the impact of inventory. And is it something that you can quantify? I think a lot of investors are a little bit conscious about the volatility of your results between Q2, Q3. And if you could just really help us understand what is the number excluding this destocking effect, that will be very helpful. Because when I look at what you're mentioning, I can get to an EBITDA of a little bit less than EUR 800 million, but I cannot get to anything higher assuming the volume have been stable. That's my first question.

I think the -- your assumptions, what you took, your assumption was stable volume development, I think what you just mentioned. We expect, as we have seen this year, the markets are continuously further improving because we see that from quarter-to-quarter volumes are picking up. And this is something what we also expect for next year. And I'm speaking now about the residential new build markets in -- especially in Western Europe and in the U.S. But also, keep in mind that 2024 was a transition year where we have still seen the first half a little bit -- a weaker development, which we are picking up constantly during the year. It was improving. So next year, even with stable volume developments, we will basically hit the EUR 800 million. Just also what we said before, yes, we will have cost inflation covered. We will have a contribution from Terreal, I would say, of EUR 30 million plus. And I would say, don't underestimate and please also understand, it is also difficult to quantify. But the inefficiencies, what we had in this year due to the restructuring measures, definitely, will support the development -- the EBITDA of next year. We generated also with the restructuring measures, which we implemented in the second half savings, which will materialize next year on a 12-month basis. Please keep this also in mind, and this is something which is a material amount.

Is it an amount that you can quantify or even if it's a range? Is it something -- could it be like EUR 30 million, EUR 50 million of additional EBITDA that you're considering?

Yassine, you quantified yourself when I said earlier, we will be well above EUR 800 million and you make your math on your things that you assume right now. Then you get to this amount.

And my second question would be on the margin in Europe West. So there is -- the margin was -- you had quite a substantial decline despite, I think, the volume were not surprisingly weak. But the margins were quite weak. Is it -- is there a mix effect because of Terreal that didn't do a very good quarter and that's a negative -- that is diluting margin? Or is there something which is due to just like some very -- or a lot of restructuring cost or special effect? I'm a little bit conscious that the margin in Europe East being quite okay despite pricing pressure and the margin in Europe West being under heavy pressure despite pricing being relatively resilient.

Keep in mind once more, it was Europe West. We are still finalizing our restructuring measures. We -- all what we did last year in Eastern Europe, which is now contributing to the profitability this year, basically, we have now the impact in Western Europe this year results. And this is also what I mentioned before. You will see the benefits of our restructuring measures, what we are doing this year in Western Europe, mainly in Germany and in France. This will materialize in 2025. And yes, we have basically booked and announced our restructuring measures in the second quarter. But still, you have some efficiency by implementing the restructuring measures in the second half. So you have seen that we had rather high standstill costs or inefficiencies in the third quarter, and they were mainly allocated to Western Europe. And this is related as we are adjusting basically the network, the plant network in Western Europe. So it is also logic that we have a lower margin in Western Europe as we had also last year in Eastern Europe during the restructuring phase. So this will basically pay back in 2025 if we have basically these inefficiencies out and benefiting from the savings. And this is also, I think, answering your first questions. Yes, this will help us and will contribute to EBITDA of 2025.

And just to understand a bit more like concretely, what does it mean, standstill related to restructuring? Is it like you're shutting down a plant permanently or you're shutting down a line? And then while you are shutting down the line, you still have some fixed costs with no revenue. And then as soon as the plant is permanently shut down or permanently restructured, those fixed costs goes away. I'm just like trying to understand concretely, what does it mean, these standstill costs? If you look at an example of a specific plant or a concrete example, that would be very, very helpful.

Yes. It is most of them, what you said, is this temporary standstills. But also, if you stop and restart a kiln, you have inefficiencies. And also, when you basically focus to optimize your inventory levels at the year-end, yes, you also bring down the speed, the push rate of a kiln. And this is influencing basically your profitability. And you have to keep in mind that this inefficiency you have to restructure your plant...

But Yassine, to explain it very briefly to you, first of all, you have the option that you restructure a business and close an operation down, meaning a plant site. So closure, that means that you actually cut fixed costs, and then you have restructuring costs, and you book this out of your asset base, yes? That's it. So that's gone, what we are referring to, Gerhard and myself. And this year was complicated for us to adjust to this slower markets and to the markets that were very volatile, our ceramic business in Europe to these market demands and by 2 means. First of all, you have a running plant, and you go down with capacity, cut shifts or temporary close it for a couple of months. That's what Gerhard is referring to. And you don't lay off the people, but you keep them. You keep the site, obviously, but you are out of full production for a 3- or 4-months period. So this is obviously, from an inefficiency perspective, a rather terrible moment because you go down with the kiln, and you go down with the whole production, and you have to restart it. And these are the inefficiencies. And if you have these inefficiencies at a couple or a few sites per country, this obviously influences your results dramatically. Second is the mothballing. If we see that, for example, capacity is not needed for a certain amount of time, meaning more than 6 months, we mothball a plant there. We cut cost also from a fixed cost perspective to a minimum, but we keep the plant maintained and keep some people on the site. So you have a lower level of fixed cost, but you still have the plant available. So these are the three things how we adjust our capacity to market demand. 2024, as I alluded to, was a complicated year in all of our regions because of this volatile demand level. And that's why we have these inefficiencies that both of us talked about that we think and we believe strongly it will go away in 2025.

And just maybe -- I'm sorry to insist on the -- just a clarification on the situation. If I understand well, your level of production was lower than your level of shipments because you had to reduce your inventory. And as a result...

The ceramic business, you are right, yes, in the ceramic business, yes.

And in the ceramic business, and this means that you had to do some mothballing and some temporary shutdown. That means that will -- and if next year, you don't need to reduce your inventory anymore, your level of production, even if volumes are stable, your level of production will go up, and your fixed cost absorption should be better. Is it the way to look at it?

Yes, correct, absolutely right. This is what it is.

And you don't see any -- do you see any need to further reduce inventory? Or you will be -- when you look at your inventory today, you're happy with your working capital?

We've done the necessary steps in order to adjust it to the right level now, yes.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Therese Jandér for any closing remarks.

Thank you. And thank you very much for taking your time dialing in today. Our next conference call will be held on the 26th of February next year, 2025, where we will release then the full year results for 2024. With that, I wish you a pleasant day, and goodbye.