Earnings Call: Q3 2019

Nov 7, 2019

Ladies and gentlemen, thank you for standing by. My name is Emma, your Chorus Call operator. Welcome and thank you joining Vivina Bega Conference Call on the Results on the Third Quarter of 2019. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed I would now like to turn the conference over to Mr. Claus Orfner, Head of Investor Relations. Please go ahead, sir. Thank you, operator, and also a warm welcome to the Vigna Bagger earnings call on future results from our side. Vinne Becca representatives on today's call are Jaime Schoig, CEO, Eli Van Rui, CFO, and Solvay Minazkali, CPO, At the beginning of today's call, Jaime Shores will summarize the key developments in our financial performance in the 1st 9 months and speak about our expectations for the remainder of for the executive. Thank you, Claus, and a warm welcome to all of you from Vienna. Thanks for being on the call. Going into our set of results, we're obviously very satisfied with the performance during the 1st 9 months of this year. We have achieved, a strong increase in revenues about 6%, which led obviously to a potentially increase in EBITDA by 27 percent to nearly a little bit more than SEK 450,000,000 and an impressive growth of net profit to more than SEK 200,000,000. So all in all, I think a good set of results, satisfactory considering also the market developments in 2009, which I would consider throughout the Vienna Burger group and the activities where we are active in the in countries of a more broadly flat market environment. We have been able to do so mainly for three reasons. First of all, we have continuously focused on our self help program, which is contributing in a very satisfactory way, the 1,000,000 during the 1st 9 months to this set of results. So the continuous efforts that we've put into our fast forward program are paying off, and we are confident for this year to reach to EUR 40,000,000 as predicted. Secondly, and this is, I think, obviously of a major importance also. Venaburger has been focusing during the last couple of years in improving and developing it product portfolio and turning towards more innovation in its product, the, assortment and to provide more solutions and services to our customers. Therefore, it is possible also in such market environments that we are currently active in to grow our business I think that's the strong message that's been a bigger sense across. Thirdly, and finally, obviously, we are continuing focus on M And A. You've seen us doing some smaller deals and recently also in the north of Europe with respect to our brick operations. So these are strongly value enhancing M and A activities that we want to pursue. We have still a good and strong pipeline of such potential deals in front of us. So if we look a little bit into this, and I would like to elaborate on three items before we go into the discussion. As I said, and I draw upon your attention to the fact that Fast forward was delivering the 35,000,000 during the 1st 9 months. So the program is well on track. We are focusing on all the different projects in different work streams around the business. And it's not only the that we are confident about the CHF 40,000,000 to that we will achieve this year. We are confident also that the CHF 60,000,000 that we are aiming at for 2020, we are well on tracking, preparing all the projects for achieving such target for next year. So I think here a confident message on our self help program within the company. During our Capital Markets Day in London in September of this year, we focused also on our portfolio and we looked carefully into our portfolio and indicated that we have businesses in the range of about 350,000,000 turnover with a lower margin than the group margin and significant the lower, by the way, and that we are, very determined in either turning those businesses around by reposition them, adding certain aspects in efficiency to them. That's mainly due to fast forward projects or also to reposition them by a means of M And A as we did in certain countries like Germany and Austria. And the final one is obviously if we don't see any option in developing such businesses to sell it as we did last year with the Austrian Paper business. Coming to this, and I'm glad to announce again that we have been able to, at and then conclude and finalize the transaction in Denmark, where we put ourselves in the position to have around roughly EUR 100,000,000 of such turnover, it was underperforming. We were able to find a right good target where we can improve our market position where we can grab synergies and where we can bring where we can bring efficiencies towards such a business in order to improve our position and our operations. So this is a clear example for turning around our business and making it a better performer and a performer that is in line with our group margin. Second very important item that I would like to draw your attention to is again our CapEx policy and how we handle CapEx within Biena Burger. We have given a clear guidance, and this is, I think, important to note that Venaburger has maintenance requirement, maintenance CapEx requirement, around 120,000,000 to 140,000,000 a year. By the way, this year, it will be around roughly EUR 135,000,000. And then we have discretionary CapEx, which we call special CapEx that we put into the business for different reasons. The and reasons for him, as we said, the performance enhancement measures for organic growth measures or also for stronger digitalization or innovation in our business. This year, this will be EUR 120,000,000 that we put into this business it will have a certain payback in the future, by the way, a very good payback. So this is the growth aspect that we focus on in lean bigger. And thirdly, we have M and A activity and you've seen our track record over the last years. And again, a very disciplined and discretionary way of going into this M and A field and this year up till now it's about roughly 34,000,000. And obviously, the transaction in Denmark will add to this in the 4th quarter, but we will, as you see reasonably spent money there and money that will enhance our value. So these are the items that I briefly wanted to talk about. There's nothing special to report in the different segments of our business. You see the numbers. You have the numbers in front of you. So a strong set of results, the margin improvement obviously in, especially also the pipe area is impressive and strong. It confirms that we are working in the right direction with with respect to our pipe business, value enhancing product and also the discipline on the cost side. If we look for the whole of 2019 with the focus on further enhancement of our product portfolio, a strong focus on innovation and, as I said, to focus on the performance enhancement measures we are confident to reach the 570,000,000 to 580,000,000 I'm perfectly aware and I anticipate some questions from you on the call that you will sort of say that probably there's some more to be done in quarter 4. But, obviously, I think we not that we are prudent, but the quarter 4 is always a weather issue and winter comes and projects might come to a standstill. So there's still a significant effort to be done by Winaberg and by all of us to achieve this target. So it's not a home run. Some might say in the U. S. On the football perspective. So it's still some serious effort that we have to put into the business. So we see this 5.70 to 580 an ambitious target still for this year. As I said, the maintenance CapEx will be around 135, special CapEx around 120 for this year. So in a nutshell, very satisfactory development, the strong improved man of our results, I think, yes, we have guided them at the beginning of the year is achievable. We have put all our efforts and all our teams are working hard in order to achieve it. And as I said, in this environment, I think it's a good and satisfactory set of results. So this is a short summary of our quarter 3 results. And I will hand over to Claus the questions. Operator, we're ready to take the questions. Next question comes from the line of Eve Grommet with Exane BNP Paribas. Please go ahead. My first what is impacting the building industry. And if there has been any progress recently on trying to mitigate, these measures given permits are down high double digits now. My second question is on the UK, where some of your peers and some distributors have been commenting on a much more bearish view on the overall market. Can you also hear maybe comment on what you're seeing and if there has been a deterioration in Q3? If you expect that to continue? And my last question is on Eastern Europe, where margins aren't already very high levels, probably not far from the last peak. Or above, how should we think about next year, given some markets are a bit weaker now? Thank you, Ike. Well, as a Belgium, I'm always happy to report on the Netherlands. That's good. But First of all, the Dutch government as far as I'm informed is coming out tomorrow with, announcements on how they will mitigate this issue about nitrogen, it's about that. The issue for those who are not aware of the thing is that has been a high court in the Netherlands who have ruled that nitrogen consumption at the total had to decrease, especially around some of the natural preserved reservations they're having in Netherlands. And it has nothing to do as such I reiterate that with our products or any of our products, it is just about the processes and how can you make sure that you do not issue nitrogen in the construction industry. Secondly, the biggest nitrogen issue is within the agriculture and not in the construction industry. So they're released a smaller thing. And it has been recognized by the Dutch government that they do not want to stop construction in the because that would hamper a market which is very sound and still in high demand of housing as well in the Netherlands. So we are very we are waiting for the measures to be announced tomorrow, what we have read in the press and what we have heard already on the market is that they will alleviate the concerns and certainly in the construction industry, probably remove part of that. So we look forward for a further sound touch market with a good demand in products. On the UK, if think what we have seen in quarter 3 is also in line with our forecast and our expectation we've seen the demand levels being more or less in line with what we have seen the month before in the new residential housing construction and in renovation. So no major changes in the residential part of the business. So for the rest of the year also, I don't see any major change as far as we can see and what the visibility we having in the UK. So demand levels on a level that we have seen throughout the year. And Eastern Europe has also after the summer stated expectations from at our levels. So again, I think here, we you're rightly pointing that the margins have been up, but please be aware the margins have been up mostly also by means of our own self help and our discipline, not only in pricing, but also on the cost side in Eastern Europe. So I would say that we, as Vina Vega will put all efforts in, obviously, also in this part of the world, to keep the margins at this level. I don't glued that we have obviously some wage increases in Eastern Europe that are definitely high and some pressure from this the next year because you all know and are all aware that these pressures on wages are high end as part of Europe. But as I said, we will manage and try to do our best in order to offset this with price increases. This is a little early to say we'll see this in to them, as I said, in February of next year, but as we are working right now, we are confident to achieve the numbers that we have indicated to you for this year. Okay. And just on the UK, can you confirm whether the volumes are actually down year on year as Q3, because I mean, the industry was up in H1 'nineteen. So just so I understand clearly what you mean by in line with your forecast I'm sorry if I may interrupt you. I can't confirm that the numbers are down in Q3. Sorry, say again? I cannot confirm that the numbers, the volumes are down into in Q3 in the UK. Okay. Thank you. Next question comes from the line of Paul Chabrand with Hello, good afternoon gentlemen. Thank you for the presentation and thank you for taking my question. 3 questions, if I may. The one on the price increases. So it looks like at the group level that your price increases in Q3 were higher than expected and actually maybe tell me if I'm wrong, but somewhat higher than in, than in Q2. But during H1 results, commented about the fact that we should see erosion of price increases throughout the year. My question is actually simple. There any reason for which we would not see the same price momentum in Q4, the same price momentum that in Q2 and Q3? One question on the USA, it would be really helpful if you could comment on what you're expecting in terms of pricing for the full year 2019. And finally, if you could an update on your M and A pipeline? Is there any sizable deal in your pipeline? Well, I will start with your third question as my colleague will take over then after that M and A activity as I said, in my introductory statement, we are working on deals. And as you know us, we are very disciplined. So we are not aggressively wing on deals. And as they are more or less deals that we do with family businesses, they tend to take some time. So it is not by calendar year or by quarter that we can announce something So sometimes if I take this Danish 1, we work for more than 5 years on such deal in order to complete it. So what I'm trying what I tried to say is that we have very interesting deals out there that the pipeline is very nicely filled. But as I said, we are moving at our speed and our pace. And the most important thing I think is to create value with such transactions and not to do it in a speedy way. So I think you will count on us that we will deliver M and A activities throughout the years to come also and especially at values that are very interesting and value enhancing for So this is on the M and A. And then if we move to the U. S? Yes. On U. S. Expectation, I think it's a good, at the moment, good market. So we see a good momentum on both volume and pricing to continue for the rest of the year in the absence of any adverse weather conditions. And on your question about price erosion, I don't think we hinted to price erosion. What we've said is throughout the year, of course, the comparatives are getting tougher. If you remember, we had last year a price increases throughout the year. And that's also what I went into too. If you look to Q4 last year, we already had price increases put in the market. We will try the same thing this year. What we will what we had in the course of the year, of course, is more pressure from certain costing inflations, which came through, being energy and being a little bit on wages. And that's actually what is going against that. We have our fast forward measures that work. And of course, our own, the performance of the group as a And at this stage, also the product mix that plays the role and obviously continuously, I think you will see this in Biena Biena Biena Biena Biena Biena as we move with our product portfolio to more value adding products and systems that obviously the pricing is better. I agree. My question was related actually to a product mix. I was trying to understand if we could see the same benefit in Q4 that we seen in Q3 and actually in H1. And as I said, as really, I just want to restate what really said it's going to be to a lesser effect because the price increases last year have kicked in obviously in a rather significant way in Q4. So that's fine. Okay, thank you very much. Thank you. Next question comes from the line of Markus Ramos with RCB. Please go ahead. Good afternoon. Firstly, a question related to your energy bill, if you could provide some granularity on how it will develop for the full year 2019 and kind of given your hedging policy, if you could already give us some ability on your expectations for next year? That will be the first one. And then secondly, looking ahead into the 4th quarter, should we expect more restructuring charges and also if you expect more of, asset disposals or to which extent asset disposals will impact 4Q earnings? Thank you. On energy on this year, we have in total, I think a figure of close to about 10,000,000, which is on a price and volume increase. Yes. Both of the energy bill is a plus. At this moment, I think I would refrain from giving further guidance into 2020. I would like to package that together in the full guidance for the full year. But as you know, we hedge forward. So we are not open to spot prices and whatever. So we have already moved into 20 20 to give us a certainty also on the pricing. Q4, I can on restructuring, I can reiterate what we said earlier. It's going to be a double digit, slower than double digit, figure. For the full year. So I do not expect at this stage anything major to come along. Okay. And on the asset disposals? Asset disposals, not really as a contribution. What you're trying to figure out is how much would we have for the like for like, comparison. I see no larger things on the agenda at this All right. Thank you. Maybe one question, for clarification in the report, you referred to the further implementation of optimization measures in Germany, Austria, Switzerland. So that just the implementation of already kind of conclude or agreed measures? Or are you mulling plans for a further kind of restructuring already going into next year? Okay. The next question comes from the line of Klager Kroglitsch with UBS. Please go ahead. The privilege seems to have withdrawn his question. We move on to Anigala with Citi. Please go ahead. Thanks guys. Just two questions from me. The first one is really a clarification or a follow-up on the pricing questions. I mean, I was wondering if you could give us some color as to what was the mix effect within the sort of price effect for the 9 months period. The second one is if you could give us some more color on the regional split of the fast forward benefit that you have accrued so far? Again, are there any additional businesses or divisions which are looking to in terms of the restructuring side of things? I will hand over to Solvay who will answer the path forward question. As we explained, fast forward, is it? That's correct. Is a program that goes over 3 years. So we have a full program, set it up in the different streams that we do with a focus on commercial excellence, manufacturing, procurement also supply chain and administration. The 3 big ones are commercial excellence, manufacturing, and procurement. Obviously, in commercial excellence procurement, it's not about restructuring, it's about optimization, how we do things and how we enhance our efficient see how we improve our product portfolio instead of our sales force on the commercial side and procurement is really how we do our supplier relationship management, how we bundle contracts on a group level and how we optimize the way we do this. And of course, there very much countermeasure, inflation rate on our input costs. So now the area in where it's really about optimization, considering also FTEs is the manufacturing part. Of course, there's an element in it with automation that we do, but this is not a specific region or any this is across all our 200 plant sites. So this is what you need to do. The very broad initiatives we go in all sites with analyzed them very deeply on what's the cost structure, what's energy, what's scrap rates, what are process inefficiencies and we take them very structured out. And that's what we do. So then there are left and right, of course, reduction people, but not on a board scale. Ma'am, for the pricing, really? For the pricing, as you know, we're running our business on a regional scale. Yes. And the regional scale means that you follow there, the mix of how things are going. If you would guide you on a group level on the mix, it would be wrongly guided because you then have to consider what reached. So you're selling certain products more, and we would have to start getting a mix of countries and products, and that would not be correct. So Gerardo's, not misguide you to anything mix effects. Can I have a follow-up on the fast forward question? I mean, is that fair to assume then that the $35,000,000 of benefit is evenly spread across the Building Solutions And the Piping division? It's spread according to their share. Obviously, the Building Solutions vision is much bigger and heavier also in terms of assets and number of sites that we have. So obviously, they have a bigger share than the other people. The next question comes from the line of Aastasia Solonitsyna with UBS. Please go ahead. Hi, sorry. It's actually Greg Acute. I pressed the wrong button. I hung up instead of unmuting So there you go. So I've got three questions, please. So the first one is, could you just actually tell us what the volume and price effect was for the 9 months for the group, I think you gave 0.06 percent for the first half, if I'm not mistaken, at what the sort of 9 months trend is. And then just coming back on the guidance, I know you kind of preempted the question, but on my math, it kind of suggests flat to even down EBITDA for the fourth quarter, kind of excluding the impact from M and A and IFRS. I just want to understand, is that is my math right? And I guess why would that be? Is it because last year had a good end to the year? Are you just trying to make sure you don't miss because of an early winter as you kind of suggested, which is unpredictable? And then finally on CapEx. So this year, if I take the 2 CapEx lines together, I think you're 255, can you give us sort of a direction of travel into next year? Will that be down, flat up? Just I appreciate you're not guiding specifically, but just could just give us a directionality, that would be helpful. The third one on the CapEx front, I would say it's a little down. So not not certainly not up and not flat, but down. I hope that's enough for this stage and you will bear with me hopefully till February to have an accurate guidance, but so you have the 1st field. On the guidance to quarter 4, I'm not arguing against your math. And but we had last year, we had a fantastic season up to the very end of the quarter with uninterrupted delivery in nearly all the markets where we are. I'm not going to forecast any weather or anything, but this was really fantastic run. Yeah. I was good run. Also, we also said that very clearly last year. Understood. Volume and price? Volume and price, we said we're not going to guide. So No, no, just the 9 months, just what you actually, the history? No, the 9 months. You you've seen what the evolution is and you know that the contribution of both FX and M and A is, lower, not as percent, not big as a percentage. We hinted for flat markets, there you have your We have a follow-up from Mr. Broomhead, Exane BNP Paribas. Please go ahead. Yes. Hi, sorry again. Just a follow-up actually on the previous question on the energy cost this year. Willie, I think you said that you had 1,000,000, of cost inflation on energy and that includes price and volume. Is that correct? Yep. Sorry, but would that imply that in H2, you're actually looking at some energy costs decline already? No. I said we have a hedged, we are hedging forward. We are not spot, yes, we're not open. Excuse me, Mr. Orfner, there are no further questions at this time. Thank you, operator. At the end of today's call, I would like to look ahead and invite you to 20 again for earnings call on fully results, which is scheduled for February 26 next year. Orders is left for today is to thank you for dialing in and to wish you a good afternoon. Ladies and gentlemen, the conference is now concluded and may disconnect your telephone. Thanks for joining and have a pleasant day. Goodbye.