Wienerberger AG (WIE) Earnings Call Transcript & Summary

Good morning, everyone, and a warm welcome to Wienerberger's Q1 2025 Update Call. Thank you for taking the time to join us today. My name is Therese Jandér, and I'm pleased to hosting this call from our head office here in Vienna. And I'm also joined here by our CFO, Dagmar Steinert, who is here with me in person. And I'm also super delighted to welcome our CEO, Heimo Scheuch, who is calling in from the United States today. We will begin with a brief presentation of the key developments and then the financials for this quarter. Afterwards, we will open the line for questions. So with that, I hand over to Mr. Heimo Scheuch.

Thank you, Therese, and a wonderful good morning also from my side to everybody on the call. Let me start with a general remark on the overall geopolitical and economical situation. I think all of us have been exposed to a very volatile, very dynamic start into this year with a lot of geopolitical issues left and right and also on the financial and economical side with the discussions on tariffs and other issues, especially coming out from the U.S. administration that significantly influenced the financial markets but also end markets when we talk about the building environment. Looking in more detail to our end markets. We have seen, I would say, a solid start into the year with respect to European operations, especially in the renovation part of our business. We have seen, due to our strong exposure in the roofing field, a very good start and good demand levels in Western Europe, in the U.K., also in Eastern Europe so that we can say that this is a very satisfactory environment to start with. So fully in line with our expectations. Looking to the infrastructure market, where we are obviously exposed, especially to the water and energy transportation when it comes to infrastructure. Here, we have seen a relatively solid start in the Nordic part of Europe, Western Europe also, a little lighter in Eastern Europe that has to do with subsidies, especially also with bigger projects coming through. So here, not at the level that we originally expected and a very good level also in our demands when we come to our U.S. operations in piping. When we then come to the new residential housing market, we have seen in the 1 and 2 family houses a certain pickup in the Eastern European hemisphere. So coming, and I stress this very clearly, from a very low level because obviously, these markets have suffered a lot over the last 2 years. So from this very low level, we have seen some pickup and some good sort of progress when we talk about demand and underlying business. In Western Europe, however, when we look especially to Germany and France, the market can be qualified as rather sluggish and still sort of on a weak demand level. And good signs out of the Netherlands with a certain amount of growth in new residential housing, a slight growth in the U.K., good underlying demand in Ireland. When we move then across the Atlantic to North America, especially to the U.S. first, the new residential housing market has considerably suffered, first of all, I think also from the weather conditions. There have been a rather wet start and difficult weather in big parts of the United States at the beginning of this year. But also when you talk about the underlying sort of trends with relatively high interest rates not coming down and no indication of further cuts in interest rates, here, obviously, due to this effect and also the political instability with the tariffs and the discussion -- continuous discussion about this sort of instability, this led to a decline in the new residential housing market at the beginning of this year compared to last year. So this is an underlying trend that is obviously a little different from what we have expected earlier. On the Canadian side, obviously, you are absolutely aware of the political instability at the beginning of the year. And this has obviously contributed, again, with interest rates and rather cold weather started to decline in activity when we come to new residential housing market. However, we see there that I think this trend will then reverse throughout the year and will come to the normal development of this market in Canada. So all in all, when we look at this sort of underlying development market-wise, I do believe we have shown very resilient and strong development when it comes to revenues with a growth of 15% to EUR 1.1 billion turnover. And also on the EBITDA front, we lie perfectly in line with our expectations, EUR 130 million, so a plus of 13% compared to last year. All in all, I'm glad, obviously, that Dagmar is leading the call out of Vienna. She will then go more into detail with the financial results. But we have shown, obviously, due to our strong work on the cost side from last year, and this comes into this year also the effect, good underlying trend on the self-help program. And here also, I think we will make good progress throughout the year. The continuous focus on innovation and the system solution helps us in this market environment, and especially when we talk about the roofing part of our business, we see here clear signs that our concept also under the newly acquired Terreal that made also a great contribution in the first quarter of this year is helping to improve here our results. On another note, I think it's also interesting to mention on this call that on the innovation front, we now regrouped all of our activities on the piping side. When we talk about new technology, when we talk about digital under the brand name of WIONIQ, it's the business where we sell, obviously, all these features with sensors and data management together with our piping system. And we do expect to grow this business substantially over the years because it's perfectly in the trend with the sustainability and the necessity, obviously, for the water and energy providers to check and manage their systems in a forward-looking way. So with this and with my general remarks on the underlying markets, I hand over to Dagmar, who will lead you through the financials of the first quarter of this year. Dagmar?

Yes. Thank you, Heimo, and a warm welcome from my side as well. I will give you an overview about our results. And as you can see on Slide #10, yes, quite a lot is already said, but our revenues for the first quarter 2025 reached EUR 1.1 billion. And that is a 15% increase compared with previous year's quarter. Our operating EBITDA also grew by 13%, reaching EUR 130 million. And our EBITDA margin -- operating EBITDA margin more or less is on the level of previous year's quarter. Of course, we have benefits from our cost savings. And we always, of course, increase our efforts to deliver there more. As well, we have seen a positive contribution from our Terreal business, not only in sales as well as in operating earnings. Coming now to the next slide. On this slide, you can see our volume increase of 5%. As already mentioned, as Heimo said and gave you some overview about our end markets, it's mainly driven by ceramics in Europe. And as you can see, overall, Europe contributed plus 6% to this volume increase. North America is a little bit down with minus 3%. And it's already mentioned that we've seen bad weather conditions in North America. And of course, Heimo already elaborated about our end markets, ceramics, roofing and infrastructure across the regions. So I don't want to repeat everything here. With that, I would like to come to our revenue bridge. And we have a strong, solid performance in our first quarter with this 15% increase, and we are able to show 4% organic growth. And that reflects our good performance in the first quarter, especially in Europe. And out of our scope, that's, of course, our M&A activities, this EUR 101 million contribution, mainly contributions from Terreal, which we have, of course, included completely in this first quarter. And in the last quarter -- in the first quarter 2024, it was just 1 month. And with that, I would like to go a little bit deeper into our operating EBITDA. And there, you can see our operating EBITDA bridge. And overall, this 13% increase in results, which is, of course, on the one hand, driven by this positive volume impact, what we have on the sales side, and we see a 2% organic growth. Why is it just 2% and not 4%? Well, we faced a little bit higher inflation costs as originally expected, and that is mainly driven by higher energy costs, personnel costs and slightly higher material, raw material costs like polymer prices. On the other hand, of course, we benefit from contributions from our self-help initiative and have there, of course, cost savings as well with our ongoing cost management. Overall, we benefit as well in the first quarter from a higher utilization compared with our first quarter 2024, what as well is reflected in our volume increase. If you look now a little bit deeper into our operating segments into our regions, I think regarding the sales increase, more or less everything is already said. But looking a little bit deeper into our earnings position into operating EBITDA, you can see that the increase in operating EBITDA of 48% in Western Europe is driven by some factors. We have higher renovation volumes that plays, of course, a significant role, particularly in the roofing segment. And we have seen a strong demand in the Netherlands and Belgium. Of course, the integration of the Terreal business contributed positively and added substantial value through these established market presence and product offerings. Cost savings from restructuring measures, which were implemented in the previous year, have further helped our performance. And therefore, we show an increase in operating EBITDA in Western Europe by 48%. The increase in operating EBITDA in Eastern Europe is significant as well with 24%. Of course, we see here as well a benefit from increased volumes, especially in the new residential housing, particularly in clay blocks. And of course, Terreal as well added some value to our business there. North America faced several challenges in this quarter. We saw these severe weather conditions where we also had some disruptive production. And North America overall is a little bit challenging. And therefore, we couldn't increase our operating EBITDA. We see there a decrease in 30 -- by 34%. With that, I would like to come to some KPIs from our strong balance sheet and just giving you a little bit more overview about our working capital and our net debt development. Our working capital is below previous year's quarter, and that is a very good development because we increased our volume by 5% compared with previous year's quarter and managed to stay below the previous year's absolute working capital figure. Of course, it is higher compared with the year-end, but that's just the normal seasonality, what is typical for our business. Working capital to revenues. This figure by the year-end, it was 23%. We see here now at the end of the first quarter roughly 28%, a much better figure compared with previous year with nearly 34%. And therefore, of course, I'm very confident that we will see by the year-end a much lower percentage. And that, of course, counts as well for our net debt, what is, of course, a little bit burdened in the first quarter by the increase of our working capital. But I'm very confident that we will bring that number down by the year-end to our target 2x net debt to operating EBITDA. Another information I would like to share with you, if not already seen, that we finished our most recent share buyback. And we successfully bought back about EUR 30 million shares between December '24 and February '25. And we already made the cancellation of this share capital in March. And that, of course, is something where we are very proud not only to deliver dividend payout, what we just approved in the AGM last Friday but as well to add or deliver value to you by doing share buyback programs. And with that, we come to our ongoing business, our assumptions for 2025. That is unchanged compared with our assumptions we made with the full year presentation of our figures in March. The only maybe a little bit new thing we added is, of course, the tariff topic, which came from the U.S. But regarding tariffs, we have not a direct impact. It's more or less indirect or limited impact. And therefore, it's not -- we don't see it as a major downturn. Regarding our action plan for 2025, that is unchanged. Of course, we want to increase our revenues from system innovations. We already mentioned that for the full year, we see depreciation by EUR 380 million. And we have a CapEx in total of EUR 290 million, and that's more or less half, split between growth CapEx and maintenance CapEx. Overall, of course, we want to expand our operating EBITDA margin to 17.5%. And with all that, of course, based on a more or less overall stable development of our end markets through the remaining year 2025 and further interest rate cuts, mainly, of course, the long-term interest rates, we estimate for the full year 2025 EUR 800 million operating EBITDA and confirm our guidance, which we gave to you in March 2025 when we published our full year figures. And with that, to sum it up, we've seen very solid, good performance in the first quarter 2025. And we are confident to reach our full year targets. And I'm very confident that we will see more positive moments in the markets and not some downturns. With that, I would like to finish our presentation and hand back to the operator.

[Operator Instructions] The first question comes from Markus Remis, ODDO BHF.

The first one relates to the guidance. And excuse me if I'm too picky, but I noticed that this word estimated is added to the target. I mean this is not the usual notion you add to the target. Just to clarify, it's an unconditional reiteration of the EUR 800 million target? And related to that, if I may ask, is it fair to assume that kind of the U.S. performance or North American performance is kind of deviating to the downside from the budget, but on the other hand, Europe is, well, ceteris paribus, performing a little bit better so that in total, this EUR 800 million is still intact?

Dagmar, sorry about that, but can I come in very quickly?

Yes, of course.

Thank you. I think being picky on words is the right expression because Dagmar clearly said we reconfirm our guidance, and that's what we do also. That's the first point. Secondly, I think you have very well understood that after the first quarter, you follow us for a long period of time already, the first quarter doesn't give a strong indication for the whole year because it's from the experience that we all share. It's rather sort of, from a volume perspective and business perspective, a smaller quarter. But you are correctly summarizing it, and I have clearly pointed out that the American U.S. business, new -- the underlying new residential housing market is weaker than expected and will continue to be weaker because obviously, there's no signs of change. Interest rates are extremely high, and there's no anticipation from anybody to cut the long-term interest rates. So this will affect the new residential housing market for mainly the rest of the year, I would say. So coming back to what you said about -- and I confirm our guidance also with EUR 800 million. We said it's not an unconditional because you remember that I clearly said this is based on 2 major assumptions that the end markets stay more or less stable and that we have the interest rate cuts that were contemplated in the market at the beginning of the year. So to summarize it also as you did on the European front, you have some positive news coming out on the rate cuts also on the loan side. However, we don't -- we are not really seeing this materialize. I referred to Germany, for example, but we are hopeful that this goes in the right direction. The markets as such, especially in renovation and infrastructure, are slightly better. And on the U.S. side, you're right. Here, we have a residential housing market that is weaker as expected, but we keep our guidance at EUR 800 million. So I think this is a clear summary of the underlying markets and the trends that we see.

Right. Very clear. Second question relates to the political situation. We've seen a couple of elections, Poland, Romania presidential elections, government formations in Austria, Germany. Can you maybe summarize your expectations on whether kind of the clarity on the political front in this market is likely to have some sort of an impact on the underlying demand development?

Yes. I would add to this. I mean the stability will help in order to come back to a stronger market, especially to infrastructure and to new residential housing. However, with the caveat that I say, it is -- I'm hopeful that this government survive also into next year because this year, the impact will be minor. I take, for example, the Austrian example. Both of us know it very well. We have a new government in Austria. Stability is slightly coming back to the political landscape. Things and measures, decisions and other items that they have on the agenda are currently discussed. Some of them are in the phase of approval. So they will not have an immediate impact on the business this year, but for the next years and especially the next year, this will help. The same goes for Germany, for example. The big measures that are under discussions will be then eventually also be approved in detail, more details through the Bundestag this year. They will help us in the next years to come. I wouldn't count on them on the short term.

All right. Last question, I think, going into detail. In the last year, there was quite an income coming from the disposal of CO2 certificates, more than EUR 50 million. Can you remind us of the scheme and the allocation that you get for free and how much you will think this will have an earnings impact in the current year? Kind of from a year-on-year perspective, you will be able to generate a similar high income from CO2 certificate?

First of all, let me say that the scheme as such is very, very strictly regulated and determined by the EU Commission. We get allocations year-by-year in the different countries where we are active, but they are continuously reduced because that's our target setting that we got from the institution in order to reduce our CO2 emissions. We have a certain amount of inventory when it comes to these CO2 rights. We have -- we don't use them to speculate or to sell on the contrary, we are long term -- with a long-term perspective with respect to this. Last year, that was different because obviously, the market downturn, the reduction of especially working capital and the shutdowns of certain plants and mothballing had the effect that we obviously sold something. This is not a regular event and will not take place in a regular way.

The next question comes from Axel Stasse from Morgan Stanley.

I have 3, if I may. The first one is on the EUR 800 million operating EBITDA guidance that you provided. Should we still expect a price/cost spread which should be flat in 2025? And then perhaps how much volume are you assuming to benefit and basically to reach the EUR 800 million? That's my first question. And I will do one by one. I think it's easier.

Well, as I mentioned, in the first quarter, we faced slightly higher inflation costs than originally expected. But price-wise, we have a solid performance. And we've seen already slightly price increases coming through in the second quarter, which just didn't materialize in the first quarter. Therefore, we are working on covering these slightly higher unexpected inflation costs.

Okay. That's very clear. And then I think you delivered minus 1% pricing in Q1. Could you perhaps give us per region how this has been reflected? Was North America weaker because of ceramics and piping, for example? How basically should we look at this?

Well, sales prices are weaker in North America. That is absolutely right, of course, due to the difficult overall market conditions and the weather in North America. And there's, to be honest, not really much more to be said about that at the moment. It's just the first quarter, and it's the start into the year.

Okay. And then my last question was about the self-help cost program in 2025. How much contribution should we expect in 2025? Should we still expect around EUR 15 million, EUR 20 million contribution, as mentioned in the last analyst call? Or is it lower after 1 quarter now?

No, we reconfirm or we confirm that number will be still that amount.

[Operator Instructions] The next question comes from Tobias Woerner, Stifel.

Tobias here. Just 3 questions, if I may. Number one, when I look at your action plan for 2025, it seems that you've dropped a couple of those guidances, which relate to tax rate and the interest charge. Is that something we should note and factor into our spreadsheets? Or is that not of importance here? Secondly, when I look at trends, both on the volume and the pricing side, there's a clear change, a clear inflection from Q4. We're moving up volumes-wise to 5% from minus 3% and prices minus 3% from minus -- to minus 1% from minus 3%. Would you assume that this continues and -- for the rest of the year, i.e., not those levels but that the trend change continues? And if you could give us a little bit of color on that. And then just lastly, thirdly, when I look at historical data going back whatever decades, whenever volumes fall sharply, your pricing starts to weaken. But at the same time, equally, when volumes start to stabilize, pricing tends to stabilize and then thereafter move up. Is this something we should expect here as well?

I would start with the action plan for 2025. Yes, we put out 1 or 2 topics, but not because it's changed. It's just it's not relevant for the first quarter to refer to a tax rate or interest result for the full year. It's unchanged.

And for the second part of your question, let me add to this. I think as I said at the beginning of our conference call, we are exceedingly living in volatile times. So making strong statements about volume developments and how markets develop, I get exceedingly also more cautious because we have so many external factors that play an important role. It is very difficult to predict. We take, as Dagmar put it very -- with great satisfaction, the trends on the volume front. It's, from our perspective, too early to say. And first quarter is, as I said, a relatively small quarter volume-wise to make here prediction per market where the thing is going. But the good thing, and what Dagmar also confirmed, is pricing-wise, we have stability here. And we trade pricing-wise slightly up due to the inflationary cost increases that we have. So this is how I would say. And we will obviously very, very, as you know us, in a very agile and proactive manner, manage our capacities, manage our production in the months to come to see what the demand level is. Summarizing, the roofing segment will do in Europe well because here, the underlying trend, renovation is a good one and continues to be. Infrastructure will also -- and the new residential housing market is currently determined especially by all sorts of external trends.

The next question comes from [ Ethan Cunningham ] from [ OnField Investment Research ].

Just 3 from my side. Could you give us some more color on the revenue development in April and May? Are we seeing the same trend as in Q1 with an organic growth of around plus 4%? And do you already have an indication of the EBITDA that you could generate in H1? Do you believe that you could deliver something close to half of your full year guidance of EUR 800 million? And lastly, you guide on margin of 17.5%, which implies a revenue of approximately EUR 4.6 billion, which is only up 1% compared to last year despite Q1 being up 15%. So is it fair to assume that you're erring on the side of caution given the global macro uncertainty and that you could deliver better results if the organic sales seen in Q1 continues throughout this year?

If I may, Dagmar, I start with the last question. And I just want to say I use my English words in a very humble way. Our guidance and the guidance that Dagmar confirmed with the EUR 800 million is not a walk in the park. As I said clearly, the underlying trends, especially coming out of North America, are not the ones that we originally planned with or anticipated. So I think there's some homework still in front of us, and we will work hard to achieve that. So I don't view, by no means, that the EUR 800 million target for us is conservative or has a lot of sort of additional potential in it. I think it's a number that we really have to work hard to get there. So this is my clear statement when we talk about the full year. And from a volume perspective, as I said to your colleague, it's a tough call these days because things are changing rapidly, so many external factors. And if you have especially a very active President in the United States right now that gives an agenda business-wise, financial-wise and geopolitical-wise, it changes dramatically from time to time. It's a difficult one to predict, especially when we talk about the sensitive new residential housing market. But then I hand over to Dagmar.

Yes. Well, our start into the second quarter, April, May, of course, I know the figures for April. But I would like to remind you that in April, there are a lot of bank holidays, Easter holiday. We have 1 working day less this year compared with previous year. And the strongest month in the second quarter is always June and maybe the second half of May. Therefore, we are in line, and we will see how we will finish the second quarter.

Ladies and gentlemen, that 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 all for joining us and for your questions. As always, we truly appreciate your continued interest and engagement with Wienerberger. We look forward to staying in close contact with you as the year progresses, and we hope to welcome you again to our next results call, which will be on the 13th of August. Until then, take care and goodbye from all of us here at Wienerberger.