Earnings Call: Q1 2019

May 16, 2019

Ladies and gentlemen, welcome also from our side to this conference call on Q1 results. Vina Begga represented this on the day call are Jaime this summary by Mr. Choi focusing on the key developments of the first quarter and our outlook for the remaining 3 quarters of the year. Following the opening statement, we will take your questions. Ladies and gentlemen. Welcome from our side, Tatiana. Good afternoon to everybody on the call. This time, I rather will be very brief because we have published the preliminary numbers with the trading update already more than a week ago. So I think as you all have seen, we have had a strong start into this year with revenues up like for like 14% and a strong EBITDA increase to more than CHF 1000000 to CHF109 1000000 to be perfectly accurate. So also with nearly 90% growth compared to the last year, a strong start. It goes without saying that we feel strongly about also the net profit that has turned into the positive terrain is about nearly 27,000,000 of Eurus net profit in this first quarter. You all know that from a building material perspective, the first quarter is not the most important one, but obviously due to the measures that we have implemented, meaning also the to my station measures that we call Fast Forward. And I will come to this in a minute to the obviously good pricing that we have put in place and I will come to this also and to the strong operating performance, which is linked to a strong organic growth rate we have been able to set the tone for the 1st 3 months this year. Let me just come to a couple of items that we view as important for all of you. The transformation process of Devina Bagger Group is continuing. We talked about that. We repeatedly alerted you to the fact that we want to create out of VINA Burger, a more diversified building material company. A company that doesn't offer only products but to offer solutions and also services to our clients. And therefore, We want to grow organically in the markets where we are active and outpaced the local relevant market growth due to the fact that we put a lot of emphasis and that's what we have done over the last years on innovation. New products that we have launched in the last of years obviously contribute largely to the success and to the better pricing and therefore also the higher margins. You can see that this is not limited to one business unit and we have regrouped our business units as of this year. It is a part of all the business units and it's a strategy over the whole group. Maybe it in the Piping Solutions area, maybe it in the Building Solutions area or in North America. This is going to be a process that continues. It's not a temporary change. It's the one that will be part of Winneberg and Winneberg as development over the years to come because we are a strong believer that Winneberg is and should be a main supplier when comes to the envelope of the house and the envelope of the building and therefore offer solutions, maybe it for the roof. For the facade for the wall or for the infrastructure around it, meaning the paving or also the structural link to water and gas or electricity. And therefore, so the supply for those aspects in the housing area So we will be a complete solution provider for housing, renovation and infrastructure in the relevant market in Europe and North America. And we will sort of try to emphasis this and to deepen our market penetration in these local markets over the years to come. Let me just draw your attention to two factors, as I've initially pointed first of all, we have launched this Fast Forward program successfully last year, making an EBITDA contribution of $20,000,000 in 20 18. This year, we have successfully proceeded in this direction. We've already a contribution in the first quarter of 15,000,001,000,000 to our result. The measures obviously are as we explained already last year a multitude of 100 of small projects that we are currently implementing, be it in manufacturing, be it in sales optimization, be it also in the administrative front. So a lot of small and midsized measures that our teams currently are implementing and we are also executing the necessary CapEx with respect to this project. So we feel strongly and we have a high degree of certainty that the million that we have forecasted for this year will be realized as EBITDA contribution to the result of 2019 as we have guided you towards. The second thing that I want to mention is that I personally see also the measures that are necessary for the for 2020, meaning the 60,000,000 of improvements are also well on track when I look at the CapEx, when I look at the efforts that the company and all the employees are making, we are moving also in here with respect to this EUR 60,000,000 of additional savings and improvements in the right direction. So fully on track when we come to fast forward. When you look at the organic side of the business, we have achieved based on a rather early start into the year when it comes to the delinquency especially in Europe, that's for sure. But also when you look at the performance in the local market, especially also in the some part of Europe and in some Western European countries like the Benelux Countries and in the UK, we have seen strong growth rates with respect to our organic performance. This, especially due to the fact, as I alerted to with new products, new solutions. We are benefiting of those in our sales approach. It is a more direct sales approach. Handling projects and tackling actually be a final decision maker is improving our performance in these relevant local markets. When we look at the business as such, obviously, we had anticipated and we talked about this when we talks about the guidance of this year that certain inflationary cost increases are to be provided for. And I relate, especially to the fact that the wages are increasing and that you have obviously some Eastern European countries, substantial wage increases up to 8% to 9% in certain markets in order to offset those. And obviously, there are some minor Other inflationary cost increases throughout the business we have already moved in 2018. To improve our pricing and have been doing so also at the beginning of this year. We are glad to report that obviously this price the movements were sticking and we are confident that they hold in these markets that we're operating in. And obviously, the inflationary cost increase will come step by step throughout the year. So obviously, the first quarter now was affected by the positive pricing, especially in a to a very high degree. And obviously, this will flatten out throughout the year because then obviously, the cost side will also increase as we speak in the second and third quarter. So again, to summarize very good organic performance, strong price and offsetting obviously the cost increases that we will see in the business for 2019. If we move on the M and A side, we have seen also some sort of steps in this direction. We have for the company that is offering accessories for roofs in the UK, a good company in order to bring to our business because it enlarges our portfolio and will enhance also our roofing sales. In this very market of the UK. However, also, we will implement certain of these raising our product range in Western Europe and added towards this offering and therefore grow this business. So it's a good platform to build on for our strategy, as I've told you with respect to solution driven approach on the roof. When we move now to the piping side, again, here we have seen a small acquisition, but also strategically important one when it comes the electoral part of our piping operations. You remember that we have strong footholds in this market, not only with our pre flex pipes but with also other parts for electrical applications. And therefore, the small acquisitions of ready, where we have another part of accessories that we add and components to be add to our Electro business is an important one to roll out this strategy throughout the group. So again, here, you will see us move very focused on certain targets that we have. We have quite a substantial pipeline of interesting acquisitions that we are currently working on and potential ones and projects that we pursue. So again, here, things and interesting ones to come also in the foreseeable future when we discuss about the M and A strategy of Vigna Perger. In the years to come. So all in all, again, a good performance, in the part of M And A also and And once, obviously, when you look from a perspective of paybacks, strong paybacks and they're all in line with what we communicated to you in the 6 times, for example, after integration, even lower end after synergies. So again, very strong value enhancing acquisitions that we are able to implement. I think when you look through the business for the whole year, And now I want to come finally to the outlook. I just want to re emphasis again that from a guidance perspective, we stick to our guidance with 560 and to 580. Please ladies and gentlemen, don't misinterpret me on this we remain optimistic. We are very positive. It's still a step to be, undertake and the strong and the important one. So we have a lot of work in front of us. There are certain uncertainties out there, and I'm referring only to political ones and financial market ones that we cannot manage, but on on the ground. I don't see any sort of major changes right now happening. Also, if I take into consideration, the months of April the beginning of May, we are cruising along in this directions and are fully on track in order to meet our guidance that we have provided with for this year. So I think this remains only to say with this positive outlook, I think I've made a short summary of the first quarter. And we all, as a team, as usual, are ready to take your questions. Ladies and gentlemen, today. First question comes from the line of Matthias Fifeenberger from Deutsche Bank. Please go ahead. Yes. Good afternoon, gents. Thanks for taking my questions. Congrats a strong quarter. The first question would be on these effects in terms of what has really boosted the Q1 performance or so much you mentioned it in the prelim release, maybe some some additional color on that from your side? And also related to that, you mentioned in the past you were expanding the inventories a little bit in terms of safeguarding any disruptions. Now the Brexit date has been moved and you recorded in an interview that you might drive down some of this excess inventory again. Has that also helped the first quarter in terms of expanding some of the working capital? And then related to that, I'm looking at 1,000,000,000 of net debt, I mean, not a lot of your EBITDA guidance, but what can we expect for the full year? Is it maybe below 800 you're looking at And, and that would be it for now. Thank you, Matias. I think Billy will sort of address two questions, if I may. But it boosted the Q1, if you want additional color on it. It's because we've been able, of course, we had a very good would say climate weather environment as well with good temperatures, which has helped us also an energy consumption Yes. So we were really we're not facing anything where we are the wet climate or we had the exception of the U S a little bit, but that has helped us. So as you can see in the bridge that we've provided is both on volume and, of course, the pricing effect, with the carry forward also from from last year. And the contribution of our fast forward was with CHF 60,000,000. So all of those come into play, stocks in the UK, Matias, we had, we have a good demand there. So yes, we've been using those stocks but that's not really boosted our results. It's more that we try to keep a little bit of an extra safeguarding stock in the UK as far as but the market is driving very well and be using the product to the best extent that we can, not only in our UK market, but also in our Belgian and our Dutch market. Because these are products that can be used in all of the markets there. And thirdly, the don't forget that on the net debts includes, for the first time, the leading effect, yes? So that's, 160,000,000 roughly, which is included there. And secondly, what I look at at the year end is a net debt to EBITDA, which will still be in line with last year, with 2018, because we will, we will make cash flow. We will drive it down and we will, of course, have a slightly improved, EBITDA also from this, from the ERS additional EBITDA that we're making. So I don't see any major changes if possible, we will even get a low to a lower figure at the year end. Okay. So that's roughly 800. Thanks a lot. Yep. Next question is from the line of Amy Gala from Citi. Please go ahead. Just a couple of questions from me. The first one on the pricing effect, you had quite a strong pricing increase in the quarter. Could you differentiate between what was the mix effect of change in products that you sold in the quarter and what was the underlying price increase in the quarter? The second one is in terms of you've touched upon the increased innovative products being used. Could you give us some examples in markets where actually new products are making a bigger impact in terms of your sales mix My third question was on M And A. Could you give us some color or guidance in terms of the sort of spend that you're looking for a budgeting on potential acquisitions for this year? May I just take your last question first and Please understand me correctly. I'm not giving any guidance on any M and A this year. We will and as you have seen, from the financial flexibility that we have provided for as a company. We have room to move on certain targets. And therefore, we will certainly look at those. And as really has said earlier, we will be very, very, sort of strict to our policy of a ratio, net debt and EBITDA to net debt. So we will keep those and keep an eye on those closely. And if there are some of those potential M and As that realize, then we will realize them And I can't be more specific because these are also smaller ones and mid sized ones where you are dealing with families and things might then be delayed for a certain period and you're never sure. And a calendar year is a calendar year and something my flow over then to the next one. So again, yes, you will see us move on targets. And again, it's been in the direct as we had them in the past, but no specific guidance on amounts. Your second question on innovative products, yes, we have a number of those. And as I explained earlier on the front of our piping operations in the Electro business where we do more of the pre wired, for example, where we make a higher impact in terms of also market share and pricing and margin. And therefore, this makes a significant change there. And There were building solutions part as well when we talk about highly insulating blocks, for example, maybe it in the Czech Republic, but maybe it all in Austria or Germany where you have higher margins and these products are obviously taken now to a certain degrees more by our clients than in the past. So we have, again, growth there and better margins. So two examples for this and for the last one, we don't split really to, our guidance into the pricing into what is the mix? What is the country mix effect? That's what I can tell you is that if you compare really the growth in, you know, building solutions, we have sold more of in Eastern Europe about blocks. So These are usually higher margin products. We've also been able to sell more roof tiles. Again, a higher margin, product And on top of that, if you look into the pipes, there, we have not in total grown in volume, but as such, the mix has been completely changed there or completely has been changed there to the extent that certain of the commodity products we have not been making have been not been offering anymore. And that's the main reason why you see also there that there's certainly a mix effect in the price increase but, to strip it out to that extent is not possible, but certainly not for a first quarter. Moving to the higher margin products is clear. Yes. Thank you. Welcome. Next question is from the line of Paul Shabran from Enfield Investment Research. Please go ahead. Good afternoon, gentlemen. Thank you for the presentation. Just one question for me related to your M and A activity. So when I'm looking at it over the past couple of years, it's mostly bolt ons, small deals, small deals with family businesses. No, you are looking to diversify and you start having a substantial fire power. So my question is, are you considering taking advantage of this position and maybe even re leverage and going for bigger acquisition, 1 or 2 big acquisition, or do you plan to keep dealing with smaller businesses, family businesses? I think to address your question, I you've seen and as you correctly have pointed out, we are priority lies into this sort of approach of small and midsize businesses that we can add on to our existing platforms because we can realize immediate and value out of it and create additional business. So this will be our primary focus And therefore, I don't sort of see the need for Vina Bergenau to talk about very big deals for whatsoever. If some mid sized potential acquisitions come along, we will obviously thoroughly look at it and look at the value creation and potentially also move on such. But I can, exclude at this stage very big transactions. Okay. Thank you very much. Next question comes from the line of Gregor Kulich from UBS. Please go ahead. Hi, good afternoon. I've got few questions as well. So one thing I think that has changed is, you're appreciated it's a smaller segment, but is the North America segment. I think you are guiding now for flat earnings, I think, previously for growth. I wanted to understand kind of a change, I think it's Canada. And then just maybe a slightly technical point, but Is that a guidance kind of underlying? I think you did a few deals in there. Is that kind of how we should think about it that organically it will be flattish? Is that what you're going for? And then I guess a bit more broader on, kind of cost, the price. So I think you were quite clear that the price increase in Q1 was kind of front end loaded. And I guess we should expect the moderation in the percentage growth. Correct me if I'm wrong. You actually give us what the cost inflation was? I don't know how you measure that, but if you sort of have a cost inflation for the quarter or something or indicative doesn't have to be precise. And then, finally, your, you mentioned in your introductory remarks that April and May think you said it means you're on track to meet guidance. I guess could you provide a little bit of color? Has there been any flowback from the, obviously, very strong Q1 with the mild weather? Or are you still seeing volumes increasing or is it kind of more stable now? Thanks. Well, I'd be very appreciative about your questions because obviously you look at us in a very critical way and have been doing so over the past. So obviously to put a little bit more light into this discussion that we have here is when I talk about my if you refer to my initial remarks, the April May 1 is obviously one when I talk about it, that sees volume growth. We don't see any preliminary sort of things from the first quarter that there's no more outflow. So it's a continuous positive development that we are talking about. So this, I think addresses your 3rd question. On North America, I think here, by all due respect, I think when we look at what we have been writing and what we have given as a guidance, we see in the market slight growth. That's what we are and that's what we are also guiding for for the year. We have also said that the Canadian business and that obviously a smaller chunk of the business in Canada sees some regulatory influences and You all know that obviously the Canadian regulatory authorities came in and said, obviously, we want to have not such a hot market in especially Toronto area and therefore intervened when it comes to financing. So also here, we see still good and very strong performance of our business, but we obviously caution it with respect to this regulatory measures that the Canadian government has put in place. In the U. S, from a perspective of sales, volumes main on the growth parts also when we look at the last weeks months. So I see here a good a good trend forward for the rest of the year. So we have no, extraordinary items you referred to M and A deals. So it's a purely organic driven development. And on the cost and price issue, I think I referred to the cost increases when it comes to wages and some sort of energy related cost increases. But we don't, at this stage, cannot give here and won't give any sort of deeper or more detailed guidance when it comes to this sort of percentage points to the business. So I think at this stage, we can save it clearly, and that's what I said also last year, all cost inflation will be, covered by the price increases. And in some markets, we will have certain goals. So I think towards the last quarter of the year. We can be clear on that and we will see it a better margin because we have been able to improve pricing due to a mix effect also, as I said in the beginning. I hope I addressed your three questions accurate Yes, thank you very much. Appreciate it. Thank you. The next question is from the line of Karl Umik from Petrus Advisors. Please go ahead. Yes, thanks, Vivian, Jaime, for the presentation. I have a question with regards to the acquisitions that you transacted last year. And I wanted to understand what you think the EBITDA contribution will be from these businesses this year. The second question is I haven't fully understood the issue of taxes that again had an impact on the net income for the first quarter. So you could explain that in more detail to me. It probably wasn't smart enough to understand. And the third was really to understand what you think net income will be because obviously with this massive increase in EBITDA, it looks like you're going to have a massive year in terms of money that will ultimately be potentially dividend income for us. So I wanted to understand what you thought the EBITDA that you currently are forecasting how that translates into real tangible net income for shareholders. Okay. Your first question was about M And A from last year. I think Yes, the EBITDA that's going to improve this year. In the 1st quarter, I think we have 1,000,000 consolidation effects from those. And, Claus, I think it's going to be about 7,000,000 for the whole year. From the M and A only done in 2018. So it's $1,000,000 in the first quarter. 7 for the whole year. Our income taxes are in line with our particular guidance between 20% 25% for the first quarter of 2019. And if you compare that to last year, Last year, we had minus we had $7,000,000 of taxes, and that was because of taxation in those areas where we had profits. And do we have any tax losses carried forward still? Because obviously, there was a period of rapid expansion that caused those money. So are we not able to use any of these? Or are they open? Most of them in those areas where we pay taxes, we have used them, obviously. The larger bit of cloud capitals carry forwards we have in the U. S. And we have in Germany. And there, we are getting into the profit zone and we're starting to use them, but we've also booked them as a profit carried forward. We are also booked them as a deferred tax asset. So then we'll start eating a lot of stuff. So there's no positive effect on those in this figure that is focused. And net income because we just realized that there's a $16,000,000 contribution from cost savings in Q1. That obviously, as we, we cannot annualize this, but it looks you're substantially ahead of guidance in terms of your cost saves. Is that the correct impression, or is it just that measures came quicker and you're still, from the way that we're still guiding for a 40,000,000 on the full year, yes? We are cautious because we will see some inflation creeping in during the quarters as we've entered to already. So yes, we take, of course, already the low hanging fruits we have taken already. And now we have to see because cost will definitely increase. So we are there. If something is still leftover above the 40,000,000 we hinted, we will of course take it, but it will not be, to the same extent that you can certainly not extrapolate what we've been doing in first quarter for the full year. And to the net profits, we have not given a guidance. We've said on the AGMs. We've given a guidance and I think that's still a fair guidance for where we see where we will go into. Is that related to the to the best forecast we put forward. Yes, that'll be key because we all know that obviously things can be quite adjusted, especially the EBITDA. I think you should stop doing that, and, adjust less and just show it as it is. And then we can all make, conclusions from that, but thing is really to understand where you think you're going to guide the business in terms of net income and dividends. So that would be our wish, but we'll see how you're developing and the rest of this year. Thank you. But if just one thing, if you look indeed into the first quarter, there's virtually no adjustments at all. Because like for life and reported is virtually the same thing. Okay. Thank you. The next question comes from the line of Eve Brahmahead from Exane BNP Paribas. Please go ahead. Good afternoon, everyone. Thanks for taking my question. My first one is actually on the guidance, which you haven't changed, but when I look at the run rates, a nice trip out the incremental benefit of cost saving to come until the end of the year. This implies a very, in existence underlying earnings growth from your businesses in pipes and in the building solution. So I just wanted to understand is, what is not driving this guidance, are you willing to see the trend in Q2 and then come back to the market? My second question is on cost inflation. You mentioned that you haven't been impacted yet by cost incitation, sorry. So does that suggest that a larger part of your hedging strategy is based on Q2 forward curves? And given that energy actually rose significantly during Q2, does it also mean that you're not going to see any type of decline in gas and electricity as for the recent spot prices? And lastly, if I may, Some of your peers have actually published very strong numbers in Eastern Europe, but manifested a slowdown recently in some markets, including Poland. You maybe give us more color on markets where permits are turning down such as Belgium, Poland, France, especially on single family? Thank you very much. Well, to start off with the energy, we've hedged forward into the year, and we have hedged forward different tranches. And yes, we see higher tranches coming in the course of the year of cost implication. But, and therefore, you already marked about spot prices is usually is not applicable to us because we don't do not have that much business basically on spot. And that's why we know that part of the cost inflation will still come but not to a large extent as Simon said earlier on, and we still feel very comfortable to be able to offset that with our price increases and to pass that onto the market. To your guidance to your question about the guidance, we have seen a first quarter. The first quarter is a very small quarter. We see a positive trending of the business. We see a continuation of that not to be the same magnitude in percentages in the 1st months that we've closed in April, and we see may, how it is progress. But there's still quite a bit of time before we actually see how much is coming in So I do not feel that it's overly cautious. It is not, it's in line, I think, with previous guidance is we've said. Yes. And then on the individual markets, we've not seen any slowdown in Eastern Europe, to the contrary. We see still it's very buoyant. We see also Belgium still on a good level, yes, France, that we have seen, but that we have hinted to as well is a weaker market in the whole of the markets that we address. Thanks. The next question is from the line of Phil Hofnagull from Petro Advisors. Please go ahead. Yes. Hello, everybody. And first of all, congratulations to what looks a great first quarter. It'd be very good progress operationally. I just had another question following up on Cloud's point regarding the savings. So let's just understand that you had the impact 1,000,000 from the savings program. And typically, we would expect that something like that actually can be analyzed, because when savings hit they shouldn't reverse. So you would expect the impact is, at least $60,000,000 as a matter of fact. It should be more is presumably you're working on more measures that hasn't been implemented yet and the $15,000,000 impact would point to, let's say, $80,000,000 to $100,000,000 run way beyond the 40,000,000 that you have in your assumption. So if you could shed a little bit more light on what's happening here, what matters have been implemented and why we cannot analyze, actually, more than analyze it on a run rate basis. That would be helpful. First of all, I appreciate the question and all of you are sort of extrapolating the first quarter. The first quarter is, I mean, on the cost side, it's not purely cost. It's mix of measures that we have put in place. And when we talk about operational excellence and sales excellence, we have also a number of measures that we have put in place in order to improve our pricing. And here, I think we have made also clear that over the period of time, we will see some effects also coming later in the year. We respect to inflation and cost increases, that's what I would like to six in our plants, the things we can immediately address we're doing. But on the other side, we still need to know that for a number of actions we will make additional costs and those costs are not completely there. We still need to build up some of our teams on certain parts as well. So there will the cost will come in. And with the $60,000,000 we have, those we will keep, of course, But then those against that, we will see some increasing some cost in the remainder of the year. You're saying pound to 15,000,000, you will give up again in the rest of the year because otherwise you would get to at least 60,000,000 And that is because you have to temporarily invest in the new measures. And then it will come back in 2020, or is it all is you assume that you lose net pricing effect in the rest of the year and that's why it will net only be 40,000,000 for the year? If I may jump in here quickly, I mean, you're trying to just take your 2015 in Q1 and not 4, we are saying that the CHF 15,000,000 will continue to positively impact our cost position for the rest of the year to true. But we said last year, we want to generate the EBITDA improvement out of the fast forward of CHF 40,000,000 incrementally against 2018. Of course, now we have achieved already $15,000,000 as the first step, which we will keep, that is clear, And now we also will see in were extremely reflect the market, may be manufacturing and even down to supply chain management and administration So we are saying, don't take it just time for. That would be too easy because then we could claim victory already. We are very fair in transparency now step by step. We want to further tackle and realize additional incremental savings. That is our guidance and that is already forward for the rest of the year. But just to be clear, as an investor, we have already seen 15,000,000. And if you say it's 44,000,000, that means you have a negative impact or what you do is not sustainable. That's why we are struggling with this concept that the $50,000,000 cannot be taken by for either you have done it or you haven't done it and if or you've done it and you lose some, but you cannot you kind of cheat 15 and not go to 60 unless you give up some of it. The movement is on a net basis. That means we do have some positives now, and we will make some additional costs in the course of the year. So yes, the net movements will not be as big anymore in the next quarters to come. That's basically the message we give. Okay. And the message I just do, I understand that there will be negative in the quarters to come because otherwise the math out of work. So that's at least, my conclusion, on the presentation. I'm happy to take that up 32 separately, but that's That's a good idea. Excuse me, Mr. Oscar, there are no further questions at this time. Okay, ladies and gentlemen, and thanks again to all of you for dialing in today. At the end of this quarter, I would like to already look ahead and invite you to join us again on August 13 when we will release our happy results. All that is left for today is to thank you for your attention. Have a nice day. 5.