Ladies and gentlemen, welcome also from our side to this conference call on Q1 results. Wienerberger representatives on today's call are Heimo Scheuch, CEO, and Willy Van Riet, CFO. As always, we will open the call with an executive summary by Mr. Scheuch, focusing on the key developments of the first quarter and our outlook for the remaining three quarters of the year. Following the opening statement, we will take your questions. I now hand over to Mr. Scheuch for the opening statement.
Ladies and gentlemen, warm welcome from our side of Vienna. 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. 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 EUR 100 million, to EUR 109 million to be perfectly accurate. 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 EUR 27 million 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 optimization 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 first three 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 the Wienerberger Group is continuing. We talked about that.
We repeatedly alerted you to the fact that we want to create out of Wienerberger a more diversified building material company, a company that doesn't offer only products, but to offer solutions and also services to our clients. Therefore, we want to grow organically in the markets where we are active and outpace 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 couple 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 part of all the business units and is a strategy over the whole group.
May it be in the piping solutions area, may it be 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 one that will be part of Wienerberger and Wienerberger's development over the years to come, because we are a strong believer that Wienerberger is and should be a main supplier when it comes to the envelope of the house and the envelope of the building, and therefore offers solutions, may it be for the roof, for the facade, for the wall, or for the infrastructure around it, meaning the paving or also the infrastructure linked to water and gas or electricity, and therefore also the supply for those aspects in the housing area.
We will be a complete solution provider for housing, renovation, and infrastructure in the relevant market in Europe and North America. We will try to emphasize 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 out. First of all, we have launched this Fast Forward program successfully last year, making an EBITDA contribution of EUR 20 million in 2018. This year, we have successfully proceeded in this direction. We have already a contribution in the first quarter of EUR 15 million, EUR 15 million to our result. The measures obviously are, as we explained already last year, a multitude of hundreds of small projects that we are currently implementing, be it in manufacturing, be it in sales optimization, be it also on the administrative front.
A lot of small and mid-sized measures that our teams currently are implementing, and we are also executing the necessary CapEx with respect to this project. We feel strongly, and we have a high degree of certainty that the EUR 40 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 2020, meaning the EUR 60 million of improvements are also well on track. 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 million of additional savings and improvements in the right direction. 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 bidding season, especially in Europe, that's for sure. When you look at the performance in the local market, especially also in the eastern part of Europe and in some Western European countries like the Benelux countries and in the U.K., 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 and our sales approach. That is a more direct sales approach, handling projects and tackling actually the final decision maker is improving our performance in these relevant local markets.
When we look at the business as such, obviously we have anticipated and we talked about this when we talked about the guidance of this year, that certain inflationary cost increases are to be provided for. I relate especially to the fact that the wages are increasing and that you have, obviously, in some Eastern European countries, substantial wage increases up to 8%-9% in certain markets. In order to offset those and obviously order 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 these pricing movements were sticking, and we are confident that they hold in these markets that we're operating in. Obviously, the inflationary cost increase will come step by step throughout the year.
Obviously the first quarter now was affected by the positive pricing especially, and 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. Again, to summarize, very good organic performance, strong pricing and offsetting obviously the cost increases that we will see in the business for 2019. If we move on the M&A side, we have seen also some sort of steps in this direction. We have bought a company that is offering accessories for roofs in the U.K. 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 U.K.
However, also we will implement certain of these accessories in our product range in Western Europe and add it towards this offering and therefore grow this business as well. 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 a strategically important one when it comes to the electrical part of our piping operations. You remember that we have a strong foothold in this market, not only with our Flex pipes, but with also other pipes for electrical applications, and therefore the small acquisitions of Reddy S.A., 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.
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 work on and potential ones and projects that we pursue. Again, here things and interesting ones to come also in the foreseeable future when we discuss about the M&A strategy of Wienerberger in the years to come. All in all, again, a good performance in the part of M&A also, and ones, obviously, when you look from a perspective of paybacks, strong paybacks, and they're all in line with what we communicated to you, the 6 times, for example, after integration, even lower end after synergies. Again, very strong value-enhancing acquisitions that we are able to implement.
I think when you look through the business for the whole year, now I want to come finally to the outlook. I just want to re-emphasize again that from a guidance perspective, we stick to our guidance with EUR 560 million to EUR 580 million. Please, ladies and gentlemen, don't misinterpret me on this one. We remain optimistic. We are very positive. It is still a step to be undertaken and a strong and an important one. We have a lot of work in front of us. There are certain uncertainties out there. I am referring only to political ones and financial market ones that we cannot manage. On the ground, I don't see any sort of major changes right now happening.
If I take into consideration the month of April and the beginning of May, we are cruising along in this direction and are fully on track in order to meet our guidance that we have provided you with for this year. I think this remains only to say with this positive outlook, I think I have made a short summary of the first quarter. We all as a team, as usual, are ready to take your questions. Thank you very much for your attention.
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 queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question. First question comes from the line of Matthias Pfeiffenberger from Deutsche Bank. Please go ahead.
Yes. Good afternoon, gents. Thanks for taking my questions. Congrats to a strong quarter. The first question would be on these effects in terms of what has really boosted the Q1 performance so much. You mentioned it in the preliminary release, maybe some additional color on that from your side. Related to that, you mentioned in the past you were expanding the inventories a little bit in terms of safeguarding any disruptions. Now that Brexit date has been moved, you were quoted 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? Related to that, I am looking at EUR 1 billion of net debt. It is not a lot of your EBITDA guidance. What can we expect for the full year?
Is it maybe below EUR 800 you're looking at? That would be it for now. Thanks.
Thank you, Matthias. I think Willy will sort of address the two questions, if I may.
For the boost to the Q1, if you want additional color on it's because we had a very good, I would say climate weather environment as well, with good temperatures, which has helped us also on energy consumption. We're not facing anything where we had a wet climate with the exception of the U.S. a little bit, but that has helped us. As you can see in the bridge that we provided, it is both on volume and of course the pricing effect, which they carry forward also from last year. The contribution of our Fast Forward 2020, with EUR 16 million. All of those come into play. Stocks in the U.K., Matthias, we have a good demand there. 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 U.K. as far as possible, the market is thriving very well, and we're using the product to the best extent that we can, not only in our U.K. market, but also in our Belgian and our Dutch markets, because these are products that can be used in all of the markets there. Thirdly, don't forget that on the net debt includes for the first time the leasing effect. That's EUR 160 million roughly, which is included there.
Secondly, what I look at the year-end is a net debt EBITDA, which will still be in line with last year, with 2018, because we will make cash flow, and we will drive it down, and we will of course have a slightly improved EBITDA also from the IFRS additional EBITDA that we will be making. I don't see any major changes. If possible, we will even get to a lower figure at the year-end.
That's roughly EUR 800. Thanks a lot.
Yep.
Next question is from the line of Ami Galla from Citi. Please go ahead.
Hi, good afternoon. A couple of questions from me. The first one on the pricing effect, you had quite a strong price increase in the quarter. Could you differentiate between what was the mix effect of change in products that you'd 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 newer products are making a bigger impact in terms of your sales mix? My third question was on M&A. Could you give us some color or guidance in terms of the sort of spend that you're looking for, or budgeting on potential acquisitions for this year? Thank you.
May I just take your last question first. Please understand me correctly. I'm not giving any guidance on M&A this year. We will, as you have seen from the financial flexibility that we have provided for the company, we have room to move on certain targets, therefore we will certainly look at those. As Willy has said earlier, we will be very strict to our policy of ratio, EBITDA to net debt. We will keep those and keep an eye on those closely. If there are some of those potential M&As that realize, then we will realize them. I can't be more specific because these are also smaller ones and mid-sized ones, where you're dealing with families and things might then be delayed for a certain period and you're never sure.
A calendar year is a calendar year, some things might flow over then to the next one. Again, yes, you will see us move on targets. Again, it's been in the direction 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, as I explained earlier on the front of our piping solutions, it's in the electro business where we do more of the pre-wire, for example, where we make a higher impact in terms of also market share and pricing and margin. Therefore, this makes a significant change there. In the building solutions part as well, when we talk about highly insulating blocks, for example, maybe it's in the Czech Republic, but maybe it's also in Austria or Germany where you have higher margins, these products are obviously taken now to certain degrees more by our clients than in the past. We have organic growth there and better margins.
Two examples for this and for the last one, we don't split really to our guidance into the pricing into what is a mix, what is a country mix effect. What I can tell you is that if you compare really the growth in our building solutions, we have sold more of, in Eastern Europe, clay blocks. These are usually higher margin products. We've also been able to sell more roof tiles. Again, a higher margin product. 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 changed there to the extent that certain of the commodity products we have not been making, have not been offering anymore.
That's the main reason why you see also there, that there's certainly a mix effect in the price increase. To strip it out to that extent is not possible, certainly not for a first quarter.
That's what we'll do.
Moving to the higher margin products is clear. Yes.
Yes. Thank you.
You're welcome.
Next question is from the line of Paul Chabran from Onfield Investment Research. Please go ahead.
Hello. Good afternoon, gentlemen. Thank you for the presentation. Just one question for me related to your M&A activity. When I'm looking at it over the past couple of years, it's mostly bolt-ons, small deals with family businesses. You are looking to diversify, you start having a substantial firepower. My question is, are you considering taking advantage of this position and maybe even releverage and going for bigger acquisition, one or two big acquisition? Or do you plan to keep dealing with smaller businesses, family businesses?
I think to address your question, as you've seen and as you correctly have pointed out, our priority lies into this sort of approach of small and mid-size businesses that we can add on to our existing platform because we can realize immediate value out of it and create additional business. This will be our primary focus. Therefore, I don't sort of see the need for Wienerberger now to talk about very big deals or 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. I can exclude at this stage very big transactions.
Okay. Thank you very much.
As a reminder, if you'd like to ask a question, please press star followed by one on your touchtone telephone. Next question comes from the line of Gregor Kuglitsch from UBS. Please go ahead.
Hi. Good afternoon. I've got a few questions as well. One thing I think that has changed is I appreciate it's the smallest segment, but it's the North America segment. I think you're guiding now for flat earnings, I think previously for growth. I wanted to understand what changed. I think it's Canada. Just maybe a slightly technical point, is that a guidance kind of underlying? I think you did a few deals in there. Is that how we should think about it, that organically you'll be flattish? Is that what you're going for? I guess a bit more broader on cost v price. I think you were quite clear that the price increase in Q1 was front-end loaded, and I guess we should expect the moderation, the percentage growth, correct me if I'm wrong.
Can 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 indicative, doesn't have to be precise. Finally, you mentioned in your introductory remarks that April and May, I think you said it means you're on track to meet guidance. Could you provide a little bit of color? Has there been any flow back from the obviously very strong Q1 with the mild weather, or are you still seeing volumes increasing or is it more stable now? Thanks.
I'm very appreciative about your questions because obviously you look at us in a very critical way and have been doing so over the past. Obviously, to put a little bit more light into this discussion that we have here is when I talk about You referred to my initial remarks, the April and May one is obviously one when I talk about it that sees volume growth. We don't see any full preliminary sort of things from the first quarter that.
There's no more outflow, it's a continuous positive development that we are talking about. This, I think, addresses your third 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 a slight growth. That's what we are, and that what we are also guiding for the year. We have also said that the Canadian business, and it's obviously a smaller chunk of the business in Canada, sees some regulatory influences. 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.
Also here we see still good and very strong performance of our business, but we obviously caution it with respect to these regulatory measures that the Canadian government has put in place. In the U.S., from a perspective of sales, volumes remain on the growth path, also when we look at the last weeks and months. I see here a good trend forward for the rest of the year. We have no extraordinary items in it like you referred to M&A deals or so. It's a purely organic driven development. 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.
We, 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. I think at this stage we can say that clearly, and that's what I said also last year, all the cost inflation will be covered by the price increases. In some markets we will have certainly also, I think, towards the last quarter of the year, we then can be clear on that and we will see a better margin because we have been able to improve pricing due to a mix effect also, as I said at the beginning. I hope I addressed your three questions accurately.
Yes, thank you very much. Appreciate it. Thank you.
The next question is from the line of Klaus Umek from Petrus Advisors . Please go ahead.
Thanks again, Heimo, for the presentation. I have a question with regard 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. If you could explain that in more detail to me. I probably wasn't smart enough to understand. 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.
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. Yep. Your first question was about M&A from last year? I think
Yes, the EBITDA that's going to contribute this year.
In the first quarter, I think we have EUR 1 million consolidation effect from those. Klaus, I think it's going to be about EUR 7 million for the whole year, yeah?
Okay. Mm-hmm.
From the M&A only done in 2018. Yeah?
It's EUR 1 million in the first quarter, EUR 7 for the whole year.
Okay.
Our income taxes are in line with our regular guidance between 20% and 25% for the first quarter of 2019. If you compare that to last year, last year we had EUR 7 million of taxes, and that was because of taxation in those areas where we had profits.
Do we have really any tax losses carried forward still? Because obviously there was a period of rapid expansion that cost us money. Are we not able to use any of this or they are gone?
Most of them in those areas where we pay taxes, we have used them obviously. The larger bits of tax loss carry forwards we have in the U.S. and we have in Germany. There we are getting into the profit zone and we're starting to use them. We have also booked them as a profit carried forward. We have also booked them as a deferred tax asset. You start eating that up as well. There's no positive effect of those in these figures at this point.
Net income, because we just realized that there's a EUR 16 million contribution from cost savings in Q1. That obviously as we cannot annualize this, 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 EUR 40 million on the full year. Yeah? We are cautious because we will see some inflation creeping in during the next quarter since we've hinted to already. Yes, we take, of course, already the low-hanging fruits we have taken already, now we have to see the cost will definitely increase.
We are there. If something is still left over above the EUR 40 million we entered, we will of course take it will not be to the same extent. You can certainly not extrapolate what we've been doing in the first quarter for the full year.
Mm-hmm. Okay.
To the net profit, 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 were going to. Is that related to the best forecast we've put forward?
Yeah. 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. The key thing is really to understand where you think you're going to guide the business in terms of net income and dividends. That would be our wish, but we'll see how you develop in the rest of this year. Thank you.
If just one thing, if you look indeed into the first quarter, there's virtually no adjustments at all because like for like and reported is virtually the same thing.
Yeah.
Okay.
Thank you.
Thank you.
As a reminder, if you'd like to ask a question, please press star followed by one on your telephone. The next question comes from the line of Yves Bromehead 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. When I look at the run rates and I strip out the incremental benefit of cost saving to come until the end of the year, this implies a very inexistent underlying earnings growth from your businesses in pipes and in the building solutions. I just wanted to understand is, what is not driving this ongoing guidance? Are you waiting 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 inflation. Does that suggest that a larger part of your hedging strategy is based on Q2 forward curves?
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 per the recent spot prices? 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. Could 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. Yes, we see higher tranches coming in the course of the year of cost inflation. Therefore, your remark about spot prices is not applicable to us because we do not have that much business basically on spots. That's why we know that part of the cost inflation will still come, but not to a large extent, as I almost said earlier on, and we still feel very comfortable to be able to offset that with our price increases and to pass that on to the market. To your question about the guidance, we have seen a first quarter. A 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 first months that we've closed in April, and we see May, how it is progressing. There's still quite a bit of time, before we actually see how much is coming in. I do not feel that it's overly cautious. It's in line, I think, with previous guidances that we've set. Yep. 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, there we have seen, but there 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 Till Hufnagel from Petrus Advisers. Please go ahead.
Hello, everybody. First of all, congratulations to what looks a great first quarter and very good progress operationally. I just had another question following up on Klaus' point regarding the savings. Let's just understand that you had the impact of EUR 15 million from the savings program. Typically, we would expect that something like that actually can be annualized, because once savings hit, they shouldn't reverse. You would expect to impact this at least EUR 60 million. As a matter of fact, it should be more because presumably you are working on more measures that haven't been implemented yet, and the EUR 15 million impact would point to, let's say, EUR 80 million to EUR 100 million run rates, way beyond the EUR 40 million that you have in your assumption.
If you could shed a little bit more light on what was happening here, what measures have been implemented, and why we cannot annualize, actually more than annualize it on a run rate basis, that would be helpful. Thank you.
First of all, I appreciate the question and all of you are extrapolating the first quarter. The first quarter is, on the cost side, it is not purely cost. It is a mixture of measures that we have put in place. 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. Here, I think we have made also clear that over this period of time, we will see some effects also coming later in the year with respect to inflationary cost increases. That is what I would like to do, too. We are starting with our plants. We are doing our diagnostics in our plants. The things we can immediately address, we are doing.
On the other side, we still 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. There, the costs will come in.
Okay.
Based with the EUR 15 million we have, those we will keep, of course. Those against that, we will see some increase in some costs in the remainder of the year.
You're saying part of the EUR 15 million, you will give up again in the rest of the year because otherwise you would get at least EUR 60 million. That is because you have to temporarily invest in the new measures, and then it will come back in 2020, or is it all because you assume that you lose a net pricing effect in the rest of the year, that's why it will net only be EUR 40 million for the year?
If I may jump in here quickly, you're trying to just take your 15 in Q1 and now times 4. We are saying that the EUR 15 million will continue to positively impact our cost position for the rest of the year, that is true. We said last year, we want to generate the EBITDA improvement out of the Fast Forward of EUR 40 million incrementally against 2018. Of course, now we have achieved already EUR 15 million as a first step, which we will keep, that is clear. Now we also will see in the rest of the quarters that there will be additional improvements we want to realize from all of the six work streams that we reflect to the market, may it be manufacturing and even down to supply chain management and administration. We are saying, don't take it just times 4.
That would be too easy because then we could claim victory already. We are very fair and transparent, saying now, step by step, we want to further tackle and realize additional incremental savings. That is our guidance and that is our way forward for the rest of the year.
Just to be clear, as an investor, we have already seen EUR 15 million. If you say it's EUR 40 for the year, 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 EUR 15 million cannot be taken. Either you have done it or you haven't done it, or you've done it and you lose some, but you cannot keep EUR 15 and not go to EUR 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. Yes, the net movement will not be as big anymore in the next quarters to come. That's basically the message we're giving.
Okay. The message I give you, I understand that there will be negatives in the quarters to come because otherwise the math doesn't work. That's at least my conclusion from the presentation.
I'm happy to take it up with you separately, but that's.
Good idea. Mm-hmm.
Yep.
Excuse me, Mr. Scheuch. There are no further questions at this time.
Okay. Ladies and gentlemen, thanks again to all of you for dialing in today. At the end of this call, I would like to already look ahead and invite you to join us again on August 13, when we will release our half-year results. All that is left for today is to thank you for your attention. Have a nice day, and goodbye