Ladies and gentlemen, welcome, and thank you for joining the Wienerberger conference call, first quarter strategic update, Outlook 2024. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may click the Q&A button on the left side of your screen and then raise your hand. If you are connected via phone, please press star followed by one on your telephone keypad. For operator assistance, please press the star key followed by zero on your telephone keypad, or press the Operator Assistance button on the bottom left side of your screen. Now, I would like to turn the conference over to Sarah Salchegger. Please go ahead.
Good morning, ladies and gentlemen. I hope you are all well. A warm welcome to the Wienerberger conference call. Our board representatives today are our CEO, Mr. Heimo Scheuch, and our CFO, Gerhard Hanke. They will walk you through the presentation and are ready to take your questions afterwards. I will now hand over to Mr. Scheuch for the presentation.
Thank you, Sarah. Warm welcome from my side as well. Good morning to everybody, and thanks for joining the call. Just a couple of things before we start so that there's complete alignment on what we do and how we communicate. First of all, I think from my side, it's very important to note that we had a pre-close call a couple of weeks ago and have laid out the quarter one and the results and the outlook. So again, before we start the presentation, there's nothing new today because everything is in full alignment as far as numbers, performance, and outlook is concerned compared to the pre-close call. So there is no difference with respect to the performance as far as numbers go.
Secondly, we said clearly that we won't do a full first quarter report and publish such a report because the first quarter in our business is a very insignificant one, and we judge it as not important to have all the sort of quarter reporting issues here in the first quarter. We want to focus on the half year and the full year outlook. So this is important to note here as well. So we won't publish in the future a first quarter independent report as we did in the past. So this is just as clarification. Obviously, we provide you with all the numbers and details, and we have today a presentation that is more than just a quarter presentation. Why?
Because it's important that we share some of the strategic elements that are key for Wienerberger, for example, the capital allocation policy that we have redefined and have made even more investor friendly. So I think this is an important aspect that we want to focus on today as well, and on the M&A front, what we are doing and how we are developing. So these are things that we want to update you on also today. That's why it's a strategic update. The Outlook 2024 and the midterm outlook are unchanged and are actually underpinned by this policy of capital allocation and growth. So this is to start with very shortly in a nutshell, and then I go to the presentation as such.
As you have seen from the numbers, 2023 and the first quarter, here we have a stronger, more resilient business model at Wienerberger. So the successful transformation of Wienerberger to an innovative ecological solution provider has been done and is successfully embedded in our business model. You see it when we look over the last 10 years, that our exposure to renovation, to infrastructure, especially, have increased dramatically and will increase during the integration of Terreal when we come to the full integration, and especially with respect to our exposure to renovation. Again, so a more resilient business model than we had in the past. Also, on the innovation side, a strong focus on innovative solutions and the share of this product and solution systems.
We have here a clear target that we have reached with more than 30% in 2023, and we target for 2026 an even stronger share of turnover with 35%. So here, also full alignment with our own strategic targets, and we are progressing here very well. The third very important pillar is that we have been able, after you remember, we had a very strong contribution from self-help in the past, but also in the last three years, we had a very strong contribution with more than 160, 136 million coming from this, optimizing our business, optimizing our supply chain, and making our business more efficient throughout the whole operations. And here again, ladies and gentlemen, important to note that this 136 million remain as savings in the business.
When we look at the revenues also by region, very interesting to see even we are split throughout the regions. Obviously, Europe West is our strongest one. We have in Europe West also, our U.K. operations and our Irish operations, and the continental European operations. So this is the strongest part, but North America with 20% and Europe East, 28%, you see here a strong focus on these two areas as well. Interesting and also important for all of you to know that Wienerberger has developed, obviously, in a multi-product provider, with piping as the biggest single unit, with 35-34% turnover. The wall, façade and roof, obviously, are the more ceramic part of the business. Also interesting to note that the share of roof after Terreal, which is not in the 16% yet, will grow also, rather dramatically.
So we will have a strong foothold in different areas of applications and markets, making our business even more resilient. Very interesting also, that you see here that from an EBITDA contribution perspective, North America has become a strong contributor in EBITDA and the EBITDA margin as such, and also the European businesses have done well under the market conditions. But you see here the strong improvement. If we look a minute into the different products and applications, here you see, because some of you have been obviously always interested in the piping division, for example, that we have become, in this division, in only a couple of years, a leading company when it comes to EBITDA margin, with an EBITDA margin of 19% in piping.
The wall and facade are doing fine, and considering the depressed market in the new build, you see that we have strong contributions from these businesses. And the roof is a strong margin of 27%. Shows how right it is for Wienerberger to increase its presence with Terreal, because we have here a strong EBITDA margin coming from this business. Also very important, and this is, I think, that you keep in mind, this, this solid, forward-looking, sustainable financing policy that Wienerberger has, with a strong balance sheet. We have about 50% equity ratio. We have a solid liquidity reserve. We have done, obviously, as you have followed us very closely, a EUR 600 million financing, also very favorable terms, long term, and have here full flexibility.
The leverage target remains about 1.5 to max 2.2 times net debt to operating EBITDA leverage. Here also to confirm that Moody's has positively rerated us with respect to our performance, and has given us a very, very positive feedback with respect to our business model. Let's, based on this, focus one minute or two on the capital allocation policy, because, ladies and gentlemen, it's so important that you understand what we are doing in the next couple of years. If I look back the last three years, Wienerberger has a very high degree of free cash flow. EUR 1.3 billion in these three years coming in as free cash flow. We have a strong financial discipline, as I explained a little earlier, and a very strong cash conversion, with 84% in this period of time.
So it gives us a real strong basis for a capital allocation. Here we have actually different pillars. Our dividend policy and share buyback policy together, we say that 20%-40% of our free cash flow we'll allocate it to return to the shareholders. So what we plan in the future, as you have seen, is a good dividend policy, providing our shareholders with returns from the dividend, but also foreseeing the years now to come, a 1-2 percentage point of our share capital to buy back and cancel the shares in order to return also here, value to the shareholders. Obviously, this depends on the, on the free cash flow, as I said, 20%-40% and the outlook, but this is what we want to return to the shareholders in the years to come.
The company, as such, needs today a maintenance CapEx of EUR 160 million-EUR 180 million for the group. This is important because we maintain well our assets. We make them fit for the future. Obviously, this CapEx depends on the size of the assets and what sort of growth we have, but it's in this range that we need a maintenance CapEx. We have done, obviously, in difficult years with less and can do so, but this is, I would say, the forward-looking running rate of 160-180. The growth CapEx, in order to grow our business organically, including ESG and the performance for energy in the sense of reduction of energy consumption and making our business ESG conform also when it comes to our climate targets.
Here, we need about EUR 200 million, and this is also discretionary, depending on the outlook and the capacity utilization. So all in all, these are parts of the businesses have also the growth CapEx, a payback, and here, again, also very important to note that Wienerberger is here the leading company in the sector when it comes to CO2 reduction, for example, but not only also in efficiencies and improving the quality of our assets.... Then obviously the M&A, and here we have shown also in the past that we have a strong commitment when it comes to M&A. Because obviously, when you look at the return on capital employed, it's pre-tax, so that our ROCE is also comparable to all the peers in the sector.
When we take 2023, we have a 14% ROCE, and we want to grow this ROCE to about 17% in 2026. So again, ladies and gentlemen, this is the update that I wanted to give you with respect to capital allocation and performance of the business. So here, a clear set of targets that we have implemented and put ourselves as a target. When we talk now about acquisitions and the value-creating aspect of it, let's have a quick look about the track record. The track record in the last 10 years, we have done more than 40 acquisitions, all of them strongly value-enhancing and having on average a payback of 5x. So here, after the integration of these companies and realizing synergies, we have had about a 5x running rate of payback.
So again, strong focus on value enhancement and improving it. When we look today and what we have in front of us, I see a very strong and attractive deal pipeline in the same respect, so in the same sort of, performance and value creation possibilities for Wienerberger in North America and in Europe. So I'm confident that we will continue our path with respect to M&A growth in the future. Let's have a quick look on Terreal again. It has now been successfully closed, as you know, in the first quarter, and is already contributing to the business. As foreseen, we'll have EUR 90 million of EBITDA coming from the business to Wienerberger this year, gradually then growing 25 to 120, 113 in 2026, and 115 in 2027.
So everything is on track in this. The company is running well, integration is well underway, and there's nothing to report on this, running in the right direction. We have announced earlier this week also an acquisition in the Netherlands, GrainPlastics, a leading company in cable protection and water management. You see here also a very focused growth for our piping division in an area where we are very strong in the Netherlands, for example, where we can add value again. It's about a EUR 13 million revenue company with two sites in the Netherlands and fits perfectly in our network, and where we can grow in two growing businesses.
We have here the drainage, that's water management, especially for agriculture, where we have a strong growth and renovation business for the years to come, and therefore, it's a key value driver for us in the piping division in the Netherlands, and also in cable protection, because the Netherlands invests heavily in the grid, and therefore, obviously, a potential for us to grow with this expansion, increasing spending of the Dutch state and the Dutch electricity provider. So again, future growth ensured in the piping division here in this area. And this is again, a typical M&A transaction with bolt-on, which I would call bolt-on, very high synergies and good fit for the business for us and good organic growth potential.
And with this update on strategy, capital allocation, and how we move the business forward in the years to come, I hand over to Gerhard for the first quarter.
Thank you, Heimo. Ladies and gentlemen, quarter one result should be no surprise for you. We basically communicated already a big, or let's say, the major drivers during our pre-close call. But I will try just to walk you once more through the quarter one results. To start with the market assumptions, we confirm basically our market assumptions for the full year. That means that we expect a slightly lower market level than 2023. I would even say from a today's perspective, after having four months, basically of 2024, and understanding the dynamics of the first quarter, respectively, the first four months, yes, we see some positive momentum in the new build.
So, maybe even the 69, what we just have seen, maybe moving more a little bit up, and hopefully coming closer, hopefully above the 70. But let's see, we see at least some positive momentum, and this is also basically what we want to share with you. Coming to the first quarter results, the market level of the first quarter is slightly above the last quarter and basically slightly above also the second half of 2023, but still significantly under the first quarter of 2023. And keep in mind, the first quarter of 2023 was market-wise, still very strong and also result-wise. It was, I think, our record result in the company's history. So the 20.9 last year was exceptionally high, and now basically we comparing also a quarter one-...
of 2024 with quarter one 2023, where we have, yeah, significantly different market levels. I will say some words later, basically, to the end market exposures, but let me just repeat once more, and this slide is not new. We also shared it with you during the pre-close calls. Let me give you some more details, basically, on the quarter one results. First, as I just mentioned, we have, in the first quarter, significantly lower market levels than in 2023, especially in the continental Western European markets. We see simply that the market activity was, compared to last year, significantly lower. The EBITDA impact out of that is around about EUR 40 million on our first quarter results. Secondly, we had, in the first quarter, extensive standstills.
We decided to reduce inventory levels to go basically for a longer standstill in quarter one. We extended them and decided to go for basically one standstill and not for two standstill. This simply, from a cost management perspective, this makes much more sense to go for one, and therefore, we decided also left and right to have some of the plants in a longer standstill than basically not originally planned. It was planned, it was foreseen. But it has a cost impact, basically, of almost EUR 50 million. The plants which was basically affected is the plants in continental Europe and also most of them in the ceramic business in continental Europe.
Thirdly, there was last year kind of a one-time effect in the inventory revaluation last year due to the high inflationary cost increases what we had between 2022 and 2023. And this also had a one-time effect of around about EUR 20 million in last year's EBITDA of 2023. And the last one is that we also have realized already the major part of our cost management savings. You remember we had communicated that we expect around about EUR 20 million on cost fixed cost savings out of the initiatives which we have initiated in 2023, and the major part, meaning 17, we have already realized in the first quarter this year.
So all in all, all these things are no surprise, are known for us already a long time ago. And I also, and not only me, most of us basically communicated that the first quarter will be significantly below the first quarter of 2023. So it is no surprise, and therefore, all these things are also factored in, in our guidance and part of our guidance, and I think this is important also to repeat once more. The numbers, we closed the first quarter with revenues, which were around about EUR 950 million, so close to EUR 1 billion. -9% versus last year, mainly volume-driven. This is basically due to the lower market levels, what we see. Operating EBITDA EUR 115 million.
EBITDA margin, 12%, and basically from our initiatives, meaning from our self-help program, contributed with EUR 9 million. As mentioned before, the cost management savings, EUR 17 million in the first quarter, and Terreal contributed with six months, basically with EUR 6 million for one month's EBITDA, and this is also considered in the EUR 115 million. Let me quickly zoom in, basically to two numbers, to two KPIs. The one is the 115, the other one is the 12% on EBITDA margin, that I think important to understand and to keep in mind, as I just tried to explain, the extended standstills.
If you consider basically the extended standstills, the impact on EBITDA of around about EUR 50 million in the first quarter, but also considering the one-off last year in the first quarter, the EUR 20 million out of the revaluation of the inventories. If you consider both effects, basically, you will see that our profitability is very closely in line, basically, basically with the profitability which we realized last year. So also that we see that, the profitability of the business, meaning pricing, cost structure, is very well managed and is, is on the way or is led, let me say, as expected. And this is also confirmed in our April results, as we already see that the standstills are going back to a normalized level.
Let's say that the operations are producing at the moment already on a normalized level, and we see that results are coming back on the expected level. Some more details on the regions. We mentioned before that we see in Europe, in the new build sector, some stabilization. We see in the European East or in the Eastern European countries, first signs of recovery, especially in Poland, but also in Czech, Romania, Hungary, we see that volumes are picking up. We see that volumes are already above prior year, which is a positive sign. And we see, as I mentioned, also the stabilization in the Western European countries. And really, I speak about the continental Western European countries, because also U.K. is developing more positive than we originally have expected. Renovation stable.
Also there we see some first signs of a slight improving activity, especially also here in the East. Infrastructure in Europe is basically the activity is on a solid level, and the demand is basically much more stable and is also there on a rather high level. For North America, new build also solid, on a stable level, no surprises there. We are on a low level, but here I think we are doing and doing a very well business. We see a very well business development, infrastructure also on a high level. Let me translate this in our numbers. Revenues, as I mentioned before, -9% after the first quarter. You see that Europe West, only -5%, but this is impacted also by the consolidation effect by Terreal.
If you take out Terreal here, you are having basically, on the revenue side, around a -13% on a year-on-year comparison. And you see in North America, a more moderate decline of -9%. The Operating EBITDA is impacted by the effects which I tried before. It's mainly the extended standstills in the ceramic business in Europe, which you see, and you see immediately also on the numbers in Europe West and in Europe East, that we are missing around 50% on a year-on-year comparison, and this is simply due to the extended standstills what we had in the ceramic business in Europe. North America, rather moderate decline of -12%.
So we see also that North America is developing on a low level, but on a very profitable and high level, basically, when it's about results. Let me do one sidestep. And we initiated in the beginning of the year already a kind of an asset sale program where we expect in the next 24 months and cash inflow of round about EUR 100 million also to additionally strengthen our liquidity, and this will also contribute positively to our financial leverage. So this is something what is also up and run. And out of that, as I mentioned, we expect round about EUR 100 million additionally cash inflow beside our cash inflow from the operational business. To continue with the outlook, and I think also there, no surprises.
As we mentioned in the pre-close call, we confirm our 2024 guidance of EUR 860 million-890 million. As mentioned before, our assumptions for our end markets are unchanged. The pricing policy develops, as foreseen. Self-help will deliver what we expect. Cost management, I expect honestly, a little bit more. We communicated so far around about EUR 20 million. I expect from today's perspective, more in the range of EUR 35 million-40 million. So here, we still see that, the cost-saving measures and the initiatives which we have implemented last year, and which we are still implementing, are, coming through the P&L, and, therefore, also will contribute in 2024 to the results or to the guidance of EUR 860 million-890 million. Terreal, we closed Terreal by the end of February successfully.
Integration is up and running, and is developing as planned. We confirm also the EBITDA contribution of EUR 90 million for ten months of Terreal scope, basically in 2024. To give you a first outlook also on the first half year, respectively, on quarter two, and I mentioned it also during our pre-close call, already. What we are seeing also out of April results and how the markets are developing during May, in the first days of May. We closed the first quarter with EUR 115 million. We expect for the first half year, round about, EUR 400 million on EBITDA, and we try to do it with different colors, basically. That you also see how the EBITDA of the second quarter will develop.
You know that we had last year, around about EUR 285 million on EBITDA. We will have a contribution from Terreal, and I also expect that our second quarter will be above the second quarter of last year. And this will bring us then to round about an EBITDA of EUR 280 million-EUR 290 million, coming up to this round about EUR 400 million for H1 2024. And this consequently means that in the second half of 2024, that we expect then an EBITDA of EUR 460 million-EUR 490 million, which is perfectly in line with our guidance of EUR 860 million-EUR 890 million. And also there, once more, just to repeat-
... is included a EUR 90 million, 90, for ten months of Terreal contribution.
Right, then I will take over from Gerhard. Thank you very much. And to summarize, very quickly our presentations from today. First of all, Wienerberger has a clear, sustainable, strategy. We have KPIs on all our ESG targets. We have set a new project and program for 2026. 2023 has been successfully closed, as you know, and here again, fully on track with respect to this target. The financial strategy was clearly laid out to you today with respect to capital allocation. I think it's very important that we have in focus value creation also for our shareholders, with regular share buybacks and cancellation of shares, 1%-2% every year, that we will allocate to this and the dividend policy. And then, obviously, on top of it, maintenance CapEx, gross CapEx, and DM&A, as I have, laid out to you today.
So very important on this. I summarize in a couple of words very quickly. First quarter, absolutely in line with our own expectations. We are focused on working capital adjustment. We told you that there will be extensive standstill. This has affected us. But when I look at it, and as Gerhard has put it, numbers of April and May fall in line with this outlook line of this of the guidance, and the performance is perfectly in line with respect to what we foresee for the business. So everything is on the cost side, under control, price side, under control, and markets, as I said, also are coming slightly back in Eastern Europe on the infrastructure side, well underway. On the new build, also a little better already, and renovation picking up as well.
The U.K. and North America are doing, under the circumstances, actually very well and very pleased with the performance there. So all in all, I think financial strategy clearly in place and the industrial strategy with building on it, strong plans, performing well, and we have invested in the efficiency of our plants and keeping our strengths here as well. When we look at the midterm target here with respect to 2026, we have to see a slight recovery of the markets. We always told you from an indication that it's around 70%, we need to move up to the 86% of markets. You remember, we have the index based on 2021, so normalized margins with respect to this and coming back of the market slightly.
Not very important, actually, the recovery that we need to get up to this operational performance. The organic growth based on the paybacks of our CapEx, the innovation, and obviously the contribution of the value-creating acquisitions, will lead us to a company that will generate about EUR 1.2 billion of EBITDA in 2026. We see that Wienerberger has a very strong growth platform in the markets in North America and in Europe for renovation, for the infrastructure of water and energy management when it comes to pipes. And you have seen here the strong performance in the margin, on the margin side, and the really, really strong business in new build.
I see the potential coming also now because Europe especially, but also the U.K. and U.S., need new housing, need investment in new housing in all of the different markets that we are currently operating in. We are effectively based very well when it comes to growth potential for the future in the next couple of years. Thank you very much for this for listening in. I think from as I said at the beginning, this is a little extended presentation, goes beyond the quarter presentation because I think it's important that you understand where we are going. We've given you an update on the Terreal transaction and the integration that is running well, update on the M&A policy that we are currently running through.
I do hope we have answered, hopefully, a lot of your questions that you had on your mind this morning. I open now the floor to the Q&A session. Thank you.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may click the Q&A button on the left side of your screen and then raise your hand. If you are connected via phone, please press star followed by one on your telephone keypad. If you wish to remove yourself from the question queue, you may press star followed by two or please press the lower your hand button. Anyone who has a question may click the Q&A and raise your hand button or press star followed by one at this time. The first question is from Brijesh Siya with HSBC.
Hi, gents. Good morning. So a couple from my side, starting with the market development. And Heimo, thank you for kind of painting it that everything in MA are looking good. When you look at the numbers, compare that with H2 last year and Q1, would you say that Q1 April and May is probably a couple of % higher than Q1? And then, within that, I think you have mentioned Eastern Europe is really doing well, and if you can just throw a little bit light around Germany and France how they are doing in Western Europe. And the second question is on your pricing.
I guess, at the pre-close, you were talking about pricing is in line and no major issues. Given the market is showing some signs of recovery, are you seeing any competition pressure, anything coming through, that will be kind of, yeah, helpful if you can just show us what, what's, how is it-
Mm-hmm.
How the pricing is looking like?
Sure. Sure. Thank you very much for the two very important questions. I think from the market perspective, you are spot on with this 1%-2% better. As you have mentioned, we see this coming through. As I said, Eastern Europe has entered this decline earlier. As you remember, we are talking about two years ago, and therefore, now the recovery is also a little earlier. However, it stays still at a low volume, if I may say so. So, but we are seeing these positive signals coming through. Interest rates have come down in these countries from Poland to Hungary and Romania, so people are more positive. I think the next sign will come from also political trends, from European trends, investing more in residential housing, in renovation, and in infrastructure.
I do think that also this region will benefit very strongly from a potential, I would call it even... Don't take me wrong, right? That this sort of war thing in the Ukraine will probably come to a halt and pause a little bit, and here, positive momentum might come also to the real estate sector in Eastern Europe. So these are my expectations for the year. Western Europe, as you correctly mentioned, went later into the crisis. We have still a very low level of activity in Germany, definitely. Also, France, it has ended it. But I see France taking measures also to counter this. I spoke with some representatives, with the government, French government earlier this week. So I think some measures will come there and hopefully hit the market positively next year. This year is too late.
I would say we will go through a low activity of, of build, new building in France and Germany for the rest of the year. So this is, fully, in line with our expectations. On the pricing side, you know, when I look in the past, in all the different regions we are active, we have local competition. So there's, there might be some pricing issues locally, sometimes, and, and will remain so also when the market picks up. But generally speaking, I think our prices hold well. We are very satisfied with the pricing for, ... And we always said we cover our inflation this year and not more, and that's what Gerhard also explained. We are, we are spot on here for the, for the rest of the year.
Thanks, Heimo.
Thank-
And just on the Q1, the release, right? It is probably came a little late. Was it kind of a late decision to kind of not publish any press release or report and just put out a presentation?
I may say it loud and clear, I take the blame on me. I thought we communicated it clearly. I am sorry if we didn't do that, and you can blame me for that because I'm the CEO, and I should have done that probably earlier. But I thought it was clear for everybody that we won't do a report and press release on this. So it's, but there's nothing to hide, actually. I thought everything was clear anyway. That's why I was so relaxed on this. Sorry, and I apologize.
No, no, no problem. And Q3 will be as usual. Q2 won't be like this.
You mean the Q2 numbers will be basically report-
Q3, Q3, Q3 press release. And, I mean, you will have Q3 press release as well as report.
Right.
And, uh-
Right. Basically, what we wanna change for the future is only Q1? As it is, as Heimo said in the beginning, it is for us it is so early in the season that it is basically from the information content on rather low level, we believe, and therefore we concentrate on first half, Q3 and Q4. Basically, these are for us the relevant quarters, and therefore in the future we will do less information on quarter one numbers.
Yeah, exactly. And I, I think if you listen to this call today, we, we gave much more than only a quarter one. When I listened to my colleague, Gerhard, he has given a guidance on quarter two. So it was very clear for you all that the picture was a, it was a very clear one for, for the performance of Wienerberger for the rest of the year. And I, again, I, I say with all clear transparency, I thought everything was clear anyway after our pre-close call and, and also the information that we have provided you always. So the only difference, I, I say it loud and clear, was that we didn't issue a press release in the morning and, and a, and a presentation.
But actually, we thought, as everything was clear anyway, so we did it in this call. And I wanted to make sure that all of you have the same amount of information at the same time. That was, for me, important to treat everybody equally. And especially when we talk about capital allocation policy and, and the strategic elements, I wanted to make sure that everybody has it. So that's it. So thank you very much for being so comprehensive.
No problem, no problem. I just a suggestion, if you can publish the presentation little early, before the call, it will be helpful just to go through, and if you have any questions, you can basically come up in the call and ask.
Point, point well taken, and we will consider that. Yeah, absolutely. Thank you.
Thank you very much.
Thank you.
The next question is from Tobias Woerner with Wienerberger.
Yeah, thank you.
Tobias, you're not on our pay list. Sorry, I need to clarify that.
Excellent. Yes, it's Tobias Woerner from Stifel-
What an introduction. Thank you, Tobias.
Yes, yes, excellent. I know now. Maybe I've entered it. Okay, so back to the questions. Thanks for taking them. Three, if I may. Number one, you didn't give the sales impact for Terreal in the first quarter, so that we just get a like for like, or maybe you can give us a like for like in any case, in case there's anything else. The second question: Just to double-check or confirm your assumptions as you set them out for the full year in terms of cost inflation and price increases are the same, or have you marginally changed them somewhat? And yeah, let's leave it at those two for the time being.
Maybe let me start with the, with the last one, Tobias. We, from the price increase, we communicated, I think in the beginning of the year, that we strive for a 1%-2% price increase and the 2%-3% cost inflation. At the moment, we are working hard on our cost inflation. We see that in North America, we are basically further increasing prices. In Europe, we are stable at the moment, maybe slightly above, and we are with our cost inflation more in the line of 0%-1%. So what we are focusing at the moment is really on the cost inflation and keep the prices in continental Europe stable. As said, in North America, we are able still to increase prices.
For the full year, I expect around about 3%-4% even, yeah.
All right.
The second question was the sales impact of Terreal, or the revenue impact, which is out of my mind, roundabout, I think, EUR 40 million-EUR 45 million in the first months. Which means it's somewhere, 4%-5%, something like that, what is basically the scope impact of the revenues.
Okay, great. And then, the third question came back to me. If I look at your income statement, which you also published this morning, you have a EUR -41.4 million other financial result in the P&L, and then you have in the cash flow, another non-cash income and expenses of +EUR 42.4 million. Can you elaborate on those two things, please?
Yes. Basically, both of them relate to Russia, to the sale of Russia. I explained it to you during our full year result call in the middle of February. We had to recycle an FX difference, which we had in our equity. If you exit a country, if you deconsolidate, basically, then you have to recycle via your financial result. This was EUR 40 million in the financial result, which is a non-cash item from an accounting perspective, and has to be considered in the financial result. And this you find back in the cash flow statement, as a neutralization, basically, of your operational cash flow.
Therefore, you add up again, the EUR 40 million, and as you just explained, it is in the line, other non-cash income and expenses. There is a position of EUR 42 million, and this is exactly this neutralization of this, FX recycling, what I explained earlier this year.
And just to ... I should know, but, it slipped my memory. The maintenance CapEx or the CapEx guidances you've given, I looked just now in the full year presentation, I couldn't see any there. Is that a new guidance, as is the return on capital employed 17%?
Basically, two things: the CapEx, what we guided in the beginning of the year, was just increased by Terreal, by the Terreal impact. We had at that time, and you remember, for the maintenance CapEx, EUR 125 million, excluding Terreal, and we had gross CapEx between EUR 150 million and EUR 200 million, excluding Terreal. Knowing now, considering Terreal, I expect that with Terreal, we will show on maintenance CapEx for this year, around about EUR 125 million-EUR 130 million, and we confirm the gross CapEx, they will stay in the middle of the EUR 150 million-EUR 200 million. So somewhere in the range of EUR 180 million from today's perspective. So no change is there, even including the Terreal scope.
The last one, I think, Tobias, was on the Return on Capital Employed, I think. This is
Yeah, the different target.
Right. This is the target for 2026, and, as you have seen also, we published the calculation method, so the formula basically what we use. We're going to a pre-tax return on capital employed. We realized the 14% in 2023, and our target, also what Heimo mentioned, which is linked to the EUR 1.2 billion on operating EBITDA for 2026. We also linked an ROCE target to that of 17% on ROCE before pre-tax, basically, yeah.
Just to be clear, you didn't, you didn't give us that before, that number, right?
No, it is-
That's the new content of, I think, the important one today.
Right.
Absolutely.
Right.
You are a very important piece of information, Tobias, you're right. The 17% pre-tax ROCE is the new one. The capital allocation policy and impact also when we say we want to buy back shares 1%-2% a year and cancel them is a very important information for you, as well. And as we said, the capital allocation with respect to maintenance CapEx on an ongoing and forward-looking basis, especially also growth and M&As also for you an important piece of information.
Okay, much appreciated. Thank you.
Thank you.
The next question is from Markus Remis of RBI.
Yeah, good morning. Couple of questions have been answered. I would have a few more specific cases. Firstly, on the asset disposal program, can you shed some light on the scope, where you're gonna or in which regions, which business areas you're gonna sell the assets? And, if you can also provide a bit of a granularity on the book value and if you think that will have a material earnings impact. Thank you.
Yes. The real estate is—this is non-operating real estate, and as I always said in the past, we're working on those disposals, trying to get the permit, and some of them have been. We were working on a couple of years now. So the major parts come from the U.K. and North America. These are currently in the process of getting ready for disposal, so that's why we say in the next 24 months, we expect those inflows from about EUR 100. And some significant ones also on continental European basis. But I would say the more important ones are coming from the North American than the U.K. operations.
So one is obviously you have seen us being very active in M&A, and this positively puts a light on the Meridian transaction again, because we get a lot of money in this one again, and also in the U.K. some very good transaction in the past where we can materialize now the impact. On the P&L. I give you it will have a material impact also on the P&L. It will be significant double digits.
Right. We will also, it is basically something what we anyhow will present and explain separately as it is. It will be, if the sales basically materializes, anyhow, we will basically explain it, and we'll show it separately, yeah.
Right. So just to get it straight, that's excluded from the operating EBITDA target?
Absolutely. Absolutely.
Yeah. Okay, good. Yeah. Okay, that's what I thought.
Yeah.
Then, on the capital side, the share buyback policy, 1%-2% of the capital annually, is it fair to assume that there are certain, how should I say, price thresholds underlying that? Or, is that a kind of, regardless of the price or implied valuation of the shares that you will buy back this 1%-2% every year?
I think we will look carefully, obviously, at the valuation of our company, but we see at current levels that this is achievable and can be done. Yeah. And that's what I said, it's a matter of looking at the overall shareholder return. You appreciate if I say this, some investors are also listening to this call. Some prefer dividend, others don't, because for tax reasons. And so I think we give us the opportunity as a company to look as a overall return, and here, the share buyback and the cancellation of shares is a good perspective also to be utilized. Yeah?
Okay. So it's an optionality as it was the case in the past. It's not-
Yeah, but it should-
It's not-
I would call it more than an optionality. It's more... Because when you say it as management in a policy, then you clearly commit to this. Yeah?
Yeah.
This goes for that optionality.
Okay. Okay, get the point. And then, but yeah, the last question relates to the 2026 EBITDA target, because on the, on the slide, just scrolling forward, it says that the contribution of value creating acquisition. So, I mean, that, of course, raises the question, how much is baked into that number?
Well, you are referring to slide 34 of the presentation, and
Right. Yeah
... I fully, I fully appreciate that, and I think it goes without understanding that, for example, a Terreal transaction is fully, yeah, included. Yeah?
Yeah.
Yeah.
Of course.
And-
Okay, but that's not including future acquisitions, so to say.
Not in the size of Terreal, but if I... I've explained to you also, for us, an important step is like green plastics that we have.
Yeah.
It's a smaller one, but these are included, to be-
Right
... very transparent. Yeah.
Yeah. Okay. Thank you. That would be all for myself.
Thank you very much.
The next question is from Yassine Touahri, On Field Investment Research.
Yes, sir, good morning. Just a couple of question about the end market. I think you discussed about France, Germany, Eastern Europe. Could you give us a bit of color about what do you see in the Netherlands, Belgium, and the U.K., and maybe the Nordics as well? Do you see the activity still under pressure? Do you see a recovery? I think some of your one of your peers H+H mentioned that the U.K. is picking up. Do you see the same? And do you see or and do you see. Like, it would be great if you could give us a bit of color on those markets. And then second question on the second quarter results, it looks like you're expecting a 15% increase in EBITDA in the second quarter.
Is it fair to assume that it means that your underlying EBITDA is relatively stable, and that the 15% increase in EBITDA is going to be mostly driven by Terreal? Those would be my two questions.
Let me start with the markets, and Gerhard will take over on your EBITDA question. Indeed, we see very satisfactory development in the U.K.. As you say, some of our competitors have communicated as well, and we can confirm that, that the underlying market is positively developing, so picking up slightly. In the Nordics, I would distinguish between infrastructure, which is running well, and you know, our major exposure of Wienerberger goes into infrastructure in the Nordics due to our piping activities. New residential housing is still somehow depressed and in the major economies, Denmark, Sweden, Norway and Finland, we don't see yet a pickup here in the new build. However, please keep in mind, our exposure is here minor.
When we move to the important markets for Wienerberger, Netherlands and Belgium, here, I think, both markets are, I call them, more stable than, France and Germany, but have seen also declines, in both markets in the new residential housing. Our exposure there is obviously stronger due to our strong brick, operations. However, I would say that, when you look at these two countries, there is a strong underlying demand in both of them, especially in Flanders and in the Netherlands. I'm sorry if I say Flanders and not the whole of Belgium, but that's the region that is economically the strongest, and therefore here the underlying demand is strong.
And I would say that, we have seen here the bottom building already in these, in these markets, and, a slight upward trend for the rest of the year will come. Infrastructure spending and, business in both, areas, with respect to piping is good. Renovation. Also, the renovation rate is now, turning positively from a negative trend last year in a more stable, slightly upward trend. So all in all, I would say the, the picture is here in these, economies, not gloomy, but is slightly positive also. And now I hand over to Gerhard.
Right. Your second question was about the second quarter results. And maybe let me walk you through what we see from today's perspective on development. We closed the first quarter with EUR 115. We had last year an EBITDA in the second quarter of EUR 245. I expect for Terreal a contribution of round about EUR 30, and I expect from the legacy business a plus 10-15 above last quarter on, let's say, quarter 2023. And this adds up to the ±EUR 400 million. So we expect also that the quarter two will be without Terreal above the quarter two of 2023.
Thank you so much for those answers.
Thank you.
The next question is from Gregor Kuglitsch of UBS.
Oh, hi. Good morning. So could I just probe you, and maybe the answer is simple, but just to give us sort of the volume price for Q1, please, just for the avoidance of doubt. Secondly, question on H1, I mean, maybe we're splitting hairs, but I thought on the pre-close you were suggesting EUR 400 ex-Terreal, now it's inc-Terreal. Maybe I misunderstood, but just maybe, perhaps you end up at the same place for the year, but just to sort of clarify there. And then on Terreal, so I was looking at the cash flow statement. It looks like you, in the end, paid 595. Well, I don't know if that's all Terreal, but 595, right, for, for acquisitions. I'm guessing that's net of the, treasury, so just your cash out.
If you can just explain, I think there was a bit more, maybe there's some adjustments. Just explain to us, please. And then related to that, I think your debt was a bit over EUR 2 billion, net debt, I think, as of Q1, but maybe you can give me the precise number. Can you update us what you now expect or where you expect net debt to go, you know, to head to, but let's say by the end of the year? Maybe ideally in an absolute figure, if possible. Thank you.
Let me maybe start already with the last one, Gregor. We are now close to EUR 2 billion. We are, I think, with EUR 1.95 billion, somewhere there, close to a EUR 2 billion roundabout. Net debt after the first quarter, we expect for the full year a net debt position, which will be between EUR 1.5 billion-EUR 1.6 billion. We stick to our guidance when it's about EBITDA development. We will work on our working capital, where we also expect a certain inflow. And yes, M&A, when we maybe switch already here to M&A, the EUR 594 million is basically the major part, yes, is including Terreal. There is also basically some other ones. We acquired this year, in the beginning of the year, Maincor.
We did a small acquisition in the US. And also keep in mind that there was also a working capital mechanism in the Terreal equity bridge finally, so that the purchase price was between EUR 500 and EUR 550, somewhere there. We are still basically working on the final purchase price. This will be basically closed by the end of May. So we paid based still on the preliminary purchase price. So there will be a purchase price adjustment by the end of May. So the final purchase price you will see for Terreal or will be explained in the notes by the first half year numbers.
Okay. So just to be clear, does your guidance obviously include some bolt-ons that you've done, including the one that you've just announced? So I don't know, are we talking EUR 100 million there?
Right.
Does it also include the sort of 1%-2% buyback that you've announced today?
Right.
Correct.
Right. Right.
Yeah.
Correct.
Okay.
This is all factored in, right?
Great. Thank you.
Then you had your questions on price and volume and H1, right?
Correct.
Yep.
Basically, it is, as I said before, the major part is from volume. Volumes are down in the first quarter with around 12%-13%. As I mentioned, we have around the scope impact out of around 4%-5%. Pricing is flat, slightly 0.5%, but this is, yeah, I would say flat in the first quarter.
Okay.
The H1 guidance includes Terreal?
It is included, and I think it was a misunderstanding. Gregor, we said EUR 400 million, including Terreal. Yeah.
Okay.
It was.
Perfect
... already in our pre-close call. Yes, we know. We spoke about it. It was included. Yeah.
Okay. Thank you.
Thank you, Gregor.
The next question is from Harry Goad of Berenberg.
Yeah. Hi. Hi, good morning. I've got a couple of questions, please. Just firstly, on cost, I think I'm right in saying that the 2%-3% inflation number was confirming what you previously said. Can you just remind us what the moving parts of that in terms of the bigger cost items? I guess I'm particularly thinking wages and energy costs, and just an update where you're at with natural gas more generally and forward purchasing. That's question one, please. And then the second one is the U.S. market. I think you talked about sort of signs of stabilization in new residential. Do you think we see any sign of growth, or can you see any sign of growth going through in the second half, or is that more of a 2025 issue? Thanks.
Thank you, and, I will pick up on the second one. I would say it's fair to assume that we will have a good run rate, up to the elections in the, in the U.S., the presidential ones. I think that the market as such, will remain more sluggish for a couple of months after, till the new administration gets together, and then we might see some growth into next year. But I would say now the market is still working fine. I, I'm not American, I'm not a U.S. expert, but in the sense of politics, but my sense is or my best guess is that if we approach the elections, then the market will slightly sort of stabilize or, or not move much for the rest of the year. That's how we have put, our expectations together.
Right. The first question, Harry, was about the cost inflation. Yes, we are today striving to a lower cost inflation. The 2%-3%, what we communicated in the beginning of the year, was already, at that time, mainly driven by labor costs of round about +5%, and this is also what we confirm from a today's perspective. Where we are working on is energy. We see, we expect for 2024 lower energy costs, the same for the resins. We also expect lower resin prices compared what we originally had expected.
When we speak about all the raw materials, the packaging, et cetera, we have considered +2%, and we are today more in the range of 0%-1%, and we are basically trying to reach 0% for that. Which adds up to a total cost inflation for this year, and this is really an ambitious one of around 0%. Between 0% and 1%, and this is basically what we try to reach. So we are working much more intense, basically, on the cost inflation to bring it down in the range to, yeah, close to 0%, basically, for 2024, for the whole year 2024.
Okay. Thank you.
Thank you.
The next question is from Patrick Steiner of Kepler Cheuvreux.
Hi, good morning, it's Patrick speaking. Two questions left from my side. Firstly, why is the operating margin so much better for the roof-related product offering compared to wall or façade in the presentation? Is this more of a snapshot effect from weak end new build in 2023, or should we view this margin advantage as a long-term dynamic? That was the first one. And the second one, can you give us more info on this kind of larger discrepancy between operating EBITDA in Q1 and Q2, and could you give us also some more details on the source of the one-off expenses related to the standstills in Q1? Thanks.
I think I will take the first question, and then I hand over for the second one, with the operating EBITDA to Gerhard. The margin in roof is always better. Why? Because you have a 60% exposure to renovation. Therefore, here also from a pricing perspective, it's a product that has another sort of positioning in the market and always used to be different. Yeah. So and this is something that you will see going on forward, yeah. The, the difference or we will have a higher margin, EBITDA margin, in the product group roof. Yeah. We sell obviously also more accessories here in this and higher value-added product. So all in all, we have more system approach in the roof part compared with facade and with wall.
Keep in mind that façade and wall is mostly driven by new build, and here, obviously, the effects of capacity utilization plays an important role. So the margins that you have seen for the whole year of 2023 are obviously considering also standstills and this sort of non-utilization of full capacity costs that if you have to incur when you run these businesses. So this is the major difference from the roof to the other ceramic businesses.
On the EBITDA margin, when I understood you correctly, Pete, Patrick, is that the EBITDA margin in the second quarter is basically always higher due to the run rates, basically, of our operations. In the first quarter, the EBITDA margin was impacted by these extensive standstills, what I explained, and therefore, also I zoomed in in the presentation once more to the 115 and the 12%, which is impacted basically by these additional standstill costs of 50. We see, as mentioned before, that in April most of the plants were already up and run, basically in April. In May, everything is basically operational again. And therefore, automatically, you have higher EBITDA margins than you have in the first quarter.
Even if I exclude, basically, all the one-offs, what we explained before, it is due to the seasonality of our business model. You have, also a seasonality, if I may say so, in the profitability of the business model, which reaches its peak in the second quarter and in the third quarter.
Mm-hmm. Okay, thanks. Understood. Can you just give us a bit more details on the one-off expenses related to the standstills? I think if I remember correctly, it was... You labeled that with EUR 50 million. Where exactly did this come from?
It is uncovered fixed costs, yeah. It is simply if you have, if you're in a standstill and you are not terminating the contract of the employees, or you don't get simply Kurzarbeit subsidies from the state, then you have fixed costs, which are not covered by operations, by your running machines. So that means as soon as if you start up again, basically, you capitalize your fixed costs, yeah? So these costs basically has nothing to do with our cost management initiatives or all the other things. These are simply costs which we keep due that the plants are not operational, and as soon as we start up again, we capitalize them. And this is the impact of this EUR 50 million.
Mainly, this is standstill costs, or let's say, uncovered fixed costs due to the standstills, or also inefficiencies in the fixed cost coverage due to lower utilizations or lower run rates of the plants. So these are the two major effects, how these EUR 50 million comes together.
Okay, understood. So we should view this more as some kind of underutilization effect?
Right.
Correct.
Lower utilization.
It's a one-time effect. Yeah, exactly.
Okay, perfect. Thank you very much.
Thank you.
The next question is from Nicolas Kneip of Wiener Privatbank.
Hi. Thank you for taking... Can you hear me?
Yes.
Yes, we can hear you.
Perfectly fine.
Yeah. Thank you for taking my question. Two more left. One, first one, concerning your Q1 EBITDA, there is a delta of around EUR 10 million from your operating EBITDA to your reported EBITDA. Where is this coming from, and what do you expect there for the second quarter, and from today's perspective, also for the full year? And then secondly, just to confirm about the reporting going forward. So if I understood correctly, for the third quarter, you want to release a press release and a report again, and going forward, for the first quarter, you're not gonna release a report. Is that correct? Thank you very much.
I repeat this. I answered the question earlier during this call. I clearly said we will have all the necessary information that are required, including a report for the quarter three, yeah, or in the future. And for quarter one, we won't have a special report out there. That's the only difference in the future. Yeah?
Thank you.
Press releases are not for the financial market, they're for the media community, and that's a different story. But we will feed you with the reports, as discussed, half year and quarters and full year.
Okay, thank you.
Yep.
The position, which is the EUR 10 million what you just mentioned, is mainly yeah restructuring adjustments in our plant network, which is 10 in the first quarter, and we expect for the full year between 20-30, roundabout. Yeah, only out of this, let's say, network adjustments for the full year, which we also show in this line. What we discussed before is if we do a sale of non-core assets of real estates, then basically this will also shown in the line of structural adjustments. So it is basically when you go from reported EBITDA to operating EBITDA, you have mainly two adjustments in it.
The one is the sale of non-core assets, mainly real estate, and the other one is restructuring in your mainly in your plant network, or if you have basically restructuring in your overhead, all these things basically shown there.
Okay. So basically, from your guidance for the operating EBITDA, you can deduct EUR 25 million-EUR 30 million to get from today's perspective to the reported EBITDA.
Uh, right.
Okay. Thank you very much.
Thank you.
Ladies and gentlemen, anyone who has a question may click the Q&A and Raise Your Hand button or press star one, followed by one at this time. There are no more questions registered at this time. I will now turn the conference back to Sarah Salchegger 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 the fourteenth of August, 2024, where we will release our half-year results for 2024. For today, I wish you a pleasant day, and goodbye.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.