Standing by. I'm Timo, your Chorus Call operator. Welcome, and thank you for joining the Wienerberger conference call on the first half year results of 2019. Throughout today's recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone for operator assistance. I would now like to hand over the conference to Mr. Klaus Ofner, Head of Investor Relations. Please go ahead.
Thank you, operator. Ladies and gentlemen, welcome also from our side to this conference call on our H1 results 2019. Wienerberger representatives on today's call are Heimo Scheuch, CEO, Willy Van Riet, CFO, and also for the first time, we welcome Solveig Menard-Galli, CPO. As always, we will open the call with an executive summary by Mr. Scheuch, focusing on the key developments of the first half year and also on our outlook. Following the opening statement, we will take
I just noticed then, so I started it out.
I now hand over to Mr. Scheuch for the executive summary.
Thank you, Klaus. Ladies and gentlemen, a warm good afternoon from Vienna in Austria, and we would like to walk you very briefly through our set of results for the first half year of 2019. As already indicated by Klaus, we have a record first half year result, a very strong set of results coming through from our business. We are glad to report an increase of 8% in our revenues to a record high of more than EUR 1.7 billion. The EBITDA like-for-like is also up EUR 33 million, so a strong performance on the cost side and on the pricing side, the two major aspects that we will focus on in a minute, and very satisfactory, the net profit is up more than 100% to EUR 127 million in the first half year. Ladies and gentlemen, we have made huge progress.
Huge progress in a number of fields that we were active in over the last couple of years. We always have clearly indicated that Wienerberger is in a transition, in a transition from a production-oriented company in a more service and distribution and customer-oriented company. We have made enormous progress in our product portfolio, a product portfolio which is perfectly in line with the expectations of our customers, meeting the requirements of, on the one side, climate change, having solutions for walls that meet all standards from energy efficiency to cooling in the summer, to actually systems for rainwater management and management of water as such, sewage or drinking water, to the applications in housing when it comes to electrical supply or to data transfer. A lot of systems that we have focused on are gaining momentum in the markets that we are active in.
On top of it, and that's my second important point, is that in our Fast Forward project, we are making great progress. Great progress that we can report to you that EUR 25 million of additional EBITDA to be added to the activity in the first half. A strong set of results also coming through from this performance enhancement project that obviously touches all our processes in the company, from production to sales and admin.
When we look at the performance of Wienerberger, we have achieved this because we are focusing on our value-enhancing strategy, on organic growth on one side, on acquisitions that we have achieved also in the first half of this year, which are selective acquisitions that add to our product portfolio, deepen our value creation in the markets that we are active in by offering a broader range of products and offer more solutions to our clients, and obviously also by a self-help program to improve our efficiencies in all fields of the activity of the company. When we look at the underlying markets that we are finding, they are perfectly in line with the expectations that we had at the beginning of this year.
Actually, solid markets that we found in Eastern Europe especially, where we have seen growth throughout the first half of the year, and we will see this growth throughout the whole of this year. In Western Europe, also markets that were perfectly in line with our expectations when we come to Belgium, the Netherlands, also Germany and the U.K., obviously. The weakest market in this region was obviously France, which has remained on the level that we have estimated France at the beginning of this year, so no major change. I think this is important to mention, we will operate throughout the rest of the year in such a market environment. Again, I think you see that Wienerberger has been able to grow in these markets by a better product portfolio. We'll draw your attention also on the overall volume perspective.
To be said, one thing in this context is that Wienerberger deliberately focused also to exit some commodity markets, being in pipes, being in bricks, in order to go into more value addition products and higher value-added products. This is obviously a deliberate choice to go in this market areas and therefore increase our margin. You have seen it strongly increasing our margin in the piping solution side because we are focusing more on the solution business and the highly value-added products in all the markets that we are active in, and also in the building solution side where we are active in higher value-added bricks, for example for walls, but also in the facade systems. On the back of this change in portfolio, we were able to increase our prices significantly in certain countries.
Obviously not only because we increase prices as such, because we improve our portfolio and we add also services to it in an increasing way. We are able, obviously, to price our solutions better than in the past. This will continue on the way forward in the years to come because this is the transition phase of Wienerberger that we're currently going through. All in all, as I said, we are operating in this market environment that we are confident with, that provides us with the necessary growth for the rest of the year. That's why at the end of my initial remarks, we are guiding you towards EUR 570 million-EUR 580 million EBITDA towards the end of the year. You will remember our original range. It was starting with EUR 560 million.
We are guiding you towards the upper range of our guidance, being more positive, more optimistic with the rest of the year and the performance in the respective markets in Europe and the U.S. All in all, a very strong set of results for the first half of the year. We're confident with the remaining part of the year. There's not anxiety from us with respect to markets. It's a market environment that we face. From our perspective, I can say we didn't get in the first half year a lot of tailwinds from the markets and won't get them in the second half either. Wienerberger is growing in these markets and we are set for the growth in the future as well because as I said, we have been successfully repositioning Wienerberger in the last couple of years.
From my side, two words on the capital allocation. We have spent around EUR 50 million on M&A, very successfully projects in the U.K. and on the continent in order to improve our portfolio. We are currently looking at a number of mid-size and smaller deals also that improve our performance in the respective markets in Europe, especially and also in Eastern Europe. You will see us move on these targets, as we said, very cautiously and in a way that we are sure to create the necessary value that we request from such transactions. On the other hand, we will spend more or less about EUR 200 million when it comes to CapEx.
This includes obviously the classical maintenance CapEx, but to a quite a sizable degree also performance enhancement measures due to the Fast Forward on one side, but also debottlenecking and new products in our production lines, be it in pipes, be it in bricks or roof tiles. It's quite a substantial measure of investments that we foresee for this year, but this is necessary in order to improve our performance, especially when it comes to Fast Forward, and therefore we are confident that we will reach the EUR 40 million target for this year. This is something where we remain very confident. Also when we look at the EUR 60 million for the next year that we have foreseen and guided for, these investments that we are currently doing and the improvements, especially in manufacturing, make us optimistic that we will reach this target as well.
On the capital allocation side, on track. On the market side, on track with respect to prices and the change of portfolio. We'll obviously beef up our efforts also on other fronts like the M&A side, as I said, and get some very interesting projects also in the second half of the year. I would say from my side, this is a note of confidence with respect to the performance based on a very strong half year and a very optimistic outlook also for the next second half of this year. I think all my colleagues are now ready to take your questions and please go ahead.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question key, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from Yves Bonna, Exane. Please go ahead.
Good afternoon, gentlemen. I have three questions, if I can. My first one, could you please provide a picture of the overall sales bridge in terms of volume versus price in H1 2019? That would be really helpful. My second question is on the outlook, where you mentioned that markets have become more volatile, you now expect many of your key markets to be relatively stable versus positive on the maps that you provide in the presentation. Could you maybe help us to understand what you have identified in Q2 2019 that has changed the group sentiments on underlying market conditions? My last question is on the EBITDA guidance, which you have now raised to a midpoint of EUR 575. If I look at what that implies for H2 2019, it suggests margin decline ex IFRS 16.
I'm just trying to understand the drivers of that and whether this implies some volume decline in H2 2019. Thank you very much.
Thank you for your question. It's really varied. If you look at the sales bridge, clearly we have about a growth of 6% organic. Yeah. A majority part of that is on pricing. If you look to the individual business units, you see clearly we continue on a volume growth in building solutions. We have a decrease in the volumes on the pipes. That's something we have already alluded to, because that's because we're getting out of the commodity pipe business. In the U.S., the decrease is due to the fact that, as we already indicated, the Canadian market was going down, and also there on the pipes, we see a shift into the second half of the year. The rest is, the 2% is basically on consolidation, the majority.
To the midpoint, if you look to where we are going to, I believe it's not a deterioration, but it's a continuation of the strong margins that we see in the first half of the year, that it will continue into the second half of the year.
Yeah, if I may, on that point, that still implies margin decline versus last year. How should we think about this? Is it that you believe that you have now reached levels of margin in Eastern Europe, potentially, which are at peak levels, and you're seeing some cost pressure or the inability to pass on the costs?
No, I think I clearly can say, Yves, that there's no pressure at all as far as cost is concerned. I don't see any margin erosion in our business, nor in Eastern, nor in Western Europe. There is no sort of pressure coming from prices or such. We have continuously been able to improve the pricing, and this will continue. Obviously, we won't be able to make these major steps that we have done at the beginning of the year. It's not the same, obviously, in the second half. Again, the trends, and the underlying trends are pretty much the same. There's nothing to interpret it in the numbers as such. I think we are shooting for a very good and a very strong second half of the year. I can also confirm that when I look at the numbers of July that we have already coming in.
It's a good underlying business. I think, and I just want to make clear for everybody. As I said in my initial statements, Wienerberger deliberately made the choice to go out of some commodity markets and low margin business. From a volume perspective, we are actually not growing that much because we did this step, but this is part of our strategy. Obviously, therefore, you see that margins are going up because we are focusing on these new segments that we want to build, and there, obviously our growth rates in these segments are strong ones.
To your EBITDA, I think when you look at the market as such, I think from a perspective of today, to make a strong statement that we will reach the EUR 570 million-EUR 580 million shows clearly that we are confident in it, that we are, from a market perspective and from the self-help perspective, we are making the necessary contributions. Your last question was on market sentiment. I said in my initial statement, I think Wienerberger had clearly the vision for the whole year that certain markets of ours in Europe and in North America, if I take Canada, for example, will be somehow weaker. Weaker because of intervention from governments, from state bodies when it comes to Canada or as in France, as you perfectly know. We have not seen any different trends.
You shouldn't interpret from our way of saying that there is something dramatically that has changed. No, the markets are as they were and are continuing to be, in some areas, strong or very strong. Let me just say one word, we are far away from any, whatever you call peak levels, because peak levels for me were probably in the late 2007, 2008, whatever. I think here we are in a very, we'll call it solid and robust environment, where we still see good demand levels in all the markets that we operate in, where we have actually very low interest rates when you see the financing for real estate, et cetera. I think where we are operating in a fairly favorable environment when it comes to infrastructure, to renovation, and to new build. Thank you very much.
The next question is from the line of Paul Chabran of On Field Investment Research. Please go ahead.
Good afternoon, gentlemen. Thank you for the presentation. I have a couple of question. First of all, I'd like to go back on pricing. Your comment suggests that pricing was up 45% in Q2. I was wondering if you are seeing this momentum moving forward in 2019. If you see it moving forward, it suggests that there might be an EBITDA improvement beyond your guidance. What are the key risk for you in H2 that will explain that the guidance was not raised further than that? The second question, can you talk a bit more about the mix effect? There seems to be a substantial acceleration in the share of value-added product in your sales. Could you maybe share some detail about what type of higher value-added product you are selling?
Do you see further room for improvement in the second part of the year and in 2019 regarding this product? Last question regarding innovative products. In 2018, the share of innovative products in your sales was around 30% of your sales. What level do you see in 2019? Maybe if you could share with us some type of outlook on the medium term for the innovative product.
Thank you very much for your three questions. I think if I may start with your last one on the innovation side. We have focused a lot during the last years in bringing the share of these sort of solutions, product, systems up to a 30% level. As we speak, we are developing new ones. We are working on new ones. We are rolling out existing ones in new markets. I think a share around 30% is a very ambitious one for Wienerberger. Obviously, we won't shy away in the future if we see new potentials to improve it even further. I think it's too early to give you a new target. You remember that we had this target of 30% and we achieved it a little early obviously. It was originally planned for 2020. We have moved very close to that.
I think strategically, I can tell you that obviously we would like to have even a stronger share of these products in the next years to come. We'll clearly give you an update on this on the Capital Markets Day on the 16th of September in London when we are talking about this. On the mix effect, again, let me be clear on that. I think it is in a group like ours with thousands of products and thousands of different solutions that we offer from electrical components for installers to plumbers to brick and roof tiles and all sorts of accessories. Here, I can only give you a very sort of strong overview saying that obviously these new products that the 30% of turnover contributes obviously to a stronger degree on margin and profitability, and that's why we are driving this part of the business.
Clearly, and I think this is when we talk about commercial excellence, when we talk about new positioning of Wienerberger, we have taken the clear strategy to exit low margin businesses. I think this is an important message to give to you that we are not going on with those businesses because they are not contributing what we want. Your last question on risk. Yeah, please, Willy.
On pricing, if you remember, we set price increases in the market already in the last quarter of last year. We continued doing that in the first quarter of this year, and we are still holding on to those price increases which we have put into the market. We do not see any reason why that pricing increases should weaken. What we will see in the course of the year, of course, and we hinted to that in the first quarter as well, is some of the inflationary cost increases will come through slightly. Yeah. That's about it. We will also still endeavor to put also towards the end of the year to put further price increases into the market.
Be assured we are not losing our momentum on pricing on the back as Heimo hinted on new products that we put into the market and also on our, if you want to, our pricing powers into the markets.
All right. Thank you very much. That was very clear.
The next question comes from the line of Ami Galla of Citi. Please go ahead.
Thank you. I have two questions here. The first one is on the optimization gains that you have delivered in the first half, which is EUR 25 million. If we compare it to the level that you delivered in the second half, is it right to assume that sequentially optimization gains have increased by about EUR 5 million and there's a bigger step up that we should be expecting in the second half? My second question is if you could give us a guidance on the structural cost that we should be expecting to be charged in the second half, that would be quite helpful. Just one broader question on the guidance. I remember in the Capital Markets Day last year, in the broad bridge of the EBITDA from 2018 to 2020, you had assumed the step up in organic EBITDA growth of about EUR 15 million each year.
Now at the end of H1 2019, you have over exceeded that level. Given the sort of guidance that you're giving here, are we expecting a flat organic development for EBITDA in the second half? Thank you.
Thank you. I just want to make clear that I got your second question. This was about structural costs? Yeah. Restructuring, right? Yeah, exactly. Okay, good. No, sorry. I just wanted to clarify. Yeah. The first question will be answered by my colleague, Solveig, our colleague on the board.
Hello. Pleasure to be on the call this time for the first time. As you know, let me briefly recap. Our optimization program called Fast Forward 2020 is a three-year program that we set up based on speeding up our efficiency gains in our internal operational excellence. We started this program based on 2017 baseline, and we are going step by step through the whole program with the different streams. As said before, it actually hits and covers all areas of the organization. We made a clear plan, what are the steps that we can take year over year. We had already last year delivered EUR 20 million on step change improvement on optimization. For this year, the clear guidance is to reach EUR 40 million.
I want to explain to you once again that this is not a linear stepping up and linear calculation because what we do here is a number, quite a big number of single initiatives. Particularly in the manufacturing area, we do have a certain lead time for this project. You need to go, especially if you go into automation, you go in with a project team. You have also some temporary upfront project costs that you need to cover before you can go to the structural step down of the cost base. This is what we factor into this year's result and this year contribution out of the program.
We are fully on track with the planning and all the projects that are currently ongoing to fully deliver the EUR 40 million improvement this year, but then also be ready for the next step, because remember, we have a full year program, full program contribution of EUR 120 million envisaged, which means it will deliver next year another EUR 60 million of structural improvements. That's what we are working towards. I hope that clarifies a little bit the approach that we take.
Thank you, Solveig. The other two questions have been relating to restructuring costs. I can allude to that in the following way, that this will be a single-digit million EUR number at the year-end for the whole group. That's our prediction at this stage. Your last one was referring to organic growth. If you take actually our upper range of the guidance that we provide you with for the whole year, you will see that there's some organic growth included in this. To answer your question, you will see some organic growth in the second half of this year. Thank you.
Ladies and gentlemen, if you would like to ask a question, please press star, followed by one on your telephone. The next question is from the line of Gregor Kuglitsch of UBS. Please go ahead.
Hi, good afternoon. A few questions from my side. Can I just come back on this commodity and you kind of shrinking parts of the business. Can you just give us a sense when that started? Perhaps it's a journey you've been on for a while, and perhaps we haven't quite seen it because of the overall market strength. If you could just give us a sense, how much revenue you ultimately just want to exit. I appreciate this very low margin business, but for our purposes, so we don't have that in expectations, so we don't perhaps get disappointed by lower top line as you exit these businesses. That would be really helpful. The second question is just looking at Q2. I think Q2 had a percent of organic growth, obviously, a sort of a shift from Q1 to Q2.
What's your sense for the underlying run rate? I appreciate there's trading days that obviously went against you. There's probably winter effects flowing backwards and forwards between Q1 and Q2. I want to get a sense what you think the underlying growth is. You mentioned July there, if you're back on track, I guess, in July. In the slide pack, I don't think you talked to it, you did a few slides on the U.K., I believe. I would be interested to get your summary thoughts there. Obviously, most of us sit in the U.K., quite close to the market, I'd be particularly interested in how the sort of trade flows matter for you and the foreign exchange, I think you're importing a meaningful amount into the U.K.
I'd be interested how the economic exchange for you if sterling is at 105 or 106, which is where it is now compared to maybe a year ago, or is it too small to matter? That would be it for me. Thank you.
We will share the questions here, Gregor, among Willy and myself. I would like to say one thing on the U.K., if I may, before Willy intervenes. We remain confident on the U.K., as you have seen from our presentation. We just wanted to make two things clear. First of all, we are prepared to any sort of legal changes that might arise from Brexit and the whole sort of Brexit situation. We are prepared and trained for this now a couple of times in the company, so everything is lined up. I think this is just that you can tick your box. Wienerberger has done the homework from the logistics side to all sorts of other aspects of the business. The underlying business in the U.K. has been strong. The first half we have made, again, good progress. Good progress in volumes and in margin.
I think this is a good news for you also that you can see that our business is developing very well in the U.K., and we are making good inroads. Again, this is not only due to the fact that the market is supportive, but we have actually outperformed the market again with our solution approach and with different angles like the digital services that we provide to our clients, et cetera. On the logistical side, one thing, Gregor, is clear that most of our products are U.K.-based and produced ones. The ones that we bring in from the continent, namely Belgium and the Netherlands, we have optimized our logistical side. We have, obviously from a cost side, very attractive cost prices and cost structures on the continent. We are highly competitive.
On top of it's a unique product range that we have there, and that makes very good inroads and still does in the U.K. because we are continuously innovating it. I think on the foreign exchange, really, if I may hand over to you.
You will never hear me say that something is meaningless. It does not make a big difference in the total picture.
Okay.
We try to hedge first. That is one thing. Secondly, of course, when you see the pound getting weaker, we have something new now as well. We have a business that we acquired on the U.K., which is on roof accessories, which will be exporting some of its products into the continent. We get a little bit of a, I call it a natural hedge there as well. Secondly, if you look at the total build cost of a house, bricks are still about 5%, and that's typically what we talk about in the U.K. The bricks we import or we bring out of the continent to the U.K. market are in the higher end of the housing. I think it does matter. It may take off a few percentage points from our pricing, but not more than that.
It's not really a big meaningful thing. Mind you, we do have our improvements also in productivity on the factories that are producing those bricks. I don't see a big issue in that. If I come to your question about the underlying markets and market sense, I think you described it very well. It shifts between the quarters. You can start talking about number of days in activities. Yes, like most of the industry, we saw a weaker month sometimes, and then you pick it up afterwards. The underlying trend in the first half of the year is exactly as we expected for it, and it's continuing, and it's giving us the full confidence also for the second half of the year. That's a very clear statement on that one.
Your first one, Gregor, was on what we call the lower margin business and how we sort of structure this approach. It is obvious that this is something we started a couple of years back, this transition phase and this transfer. You can't do it in a month or two. You need to prepare the market for it. I want to give you two examples, basically. You remember that we indicated that we want to restructure our pipe operations in France. France has been very much centered on pure commodity pipes for infrastructure with very low margin. It's a very low single-digit margin EBITDA. We clearly said this is not going to continue. We exited from a production perspective. We had the restructuring costs, and therefore, we are now concentrating more on agricultural products and some sewage pipes.
Here it's a transition that we started two years ago and actually which we see now kicking in. The same goes for the ceramic pipes where we had our closure in Germany and where we go out of some of these commodity type markets. In some brick countries as well, we leave certain very sort of standardized commodity bricks and move more into highly insulating infill blocks, et cetera. Gregor, if you don't mind, I take up your question, and we will sort of give you a more color to this on the Capital Markets Day in a month's time, because I understand that it is important that you understand where the company as such and the group as such is moving to. I just wanted to give two examples to get a better feel for that.
Helpful. Maybe one final question. You had EUR 8 million, I think, contribution from acquisitions in the first half from your slides. Can you update us where that's supposed to be for the year based on the deals you've concluded so far?
A little bit above EUR 10 million.
Thank you.
Thank you very much.
Thank you.
Excuse me, Mr. Ofner, there are no further questions at this time.
Ladies and gentlemen, thank you for your questions and for dialing in today. At the end of this call, I would like to bring to your attention our upcoming Capital Markets Day. We'll host a management presentation in London on the 16th of September, and we will follow up with a management presentation in New York on September 17th. If you would like to obtain more information about these events or you would like to register at the location that's most convenient to you, please contact the IR team. All that's left for the day is to thank you again for your attention. Have a nice day, and goodbye.
Ladies and gentlemen, this concludes the Wienerberger conference call. Thank you for joining, and have a pleasant day. Goodbye.