M&A Announcement

Dec 18, 2020

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the conference call on Bienenberger's latest acquisition. Throughout today's recording presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. And I would now like to turn the conference over to Anna Maria Grasgruber, Head of Investor Relations. Please go ahead. Thank you, Healy. Ladies and gents, a warm welcome to our conference call regarding the acquisition of Meridian Brick, our largest transactions in the last fifteen years and a big value creating growth step for Winner Werder. Our CEO, Jaime Scheuf, will give you a short executive summary of the presentation, which you can also find on our homepage, and we would then jump directly to Q and A and be ready for your questions. I hand over to Jaime Scheuf for his summary. Thank you, Anna. Thank you for all of you being on the call. I think we've talked in a lot in the last couple of months about strategy and development of the Wineberger Group. So I will be short. This step in North America fits perfectly in our strategy to enhance and strengthen our North American operations. It doubles in size. So we approach more than EUR 800,000,000 turnover in North America, which is actually in line with our expectations. I always said that division with about EUR 1,000,000,000 turnover in North America fits right for Wienerberger. So we are actually in one step have made here a huge development forward. It does not only represent a consolidation of the industry in North America, which we need obviously in order to improve margins and improve profitability. But and above all, it puts us in a very strong position to create the number one player in North America when it comes to masonry supply and solutions in these specific markets. North America represents for us a growth region. We do see potential for further growth in the years to come, especially in the areas in the sort of North American agglomerations where we have now strong positions and where we can sort of develop further our product portfolio, which I will elaborate on in a minute. And it puts us also in a strong perspective when it comes to ESG performance to improve our performance in North America even further. When you look at the transaction itself, it gives us also next to these opportunities two very interesting opportunities for growth. First of all, we enter the largest brick market in The U. S. That's Texas as such with the highest consumption of brick and the highest share of brick in the world. And therefore, we see this essential for Wiener Burgers growth in the future. So this base in Texas and especially in the South Of The United States where break shares are high and where we can develop our system approach further is very important for us in the future. Secondly, when we move to Canada, the very important Ontario market around Toronto is a key market for us already with our artificial stone business of Ariscraft, where we have seen strong performance over the last decade and where we have improved our footprint. And adding on the strong operations of MRIdian in Brick in this area gives us a unique portfolio in this very important region, and we are set for growth in this very particular market as well. So again, a strong footprint. We take over about 20 production locations. Most of them are very well invested, and we can integrate them very quickly in our network and add on this important network to our existing one and create here manufacturing synergies. We can obviously allocate products better throughout this network and create efficiencies. We'll integrate those sites very quickly in our optimization project that we are currently putting in place already when we look at 2023. So the performance enhancement measures will be part of this improvement program in these particular units as well. And as I said, from a commercial perspective, it puts us in a position where we can really tackle the market in these very important regions for BRICS with the sort of strengths that we have now, where we can do and continue to develop our direct distribution in certain areas and indirect in others. So it's a mixed approach, and this depends obviously on the local market. It will be different in Tennessee from the ones in, for example, Alabama or from Louisiana to Texas because this is historically grown and we will sort of use this strong brands that we have now in place with our market approach to foster our performance there. If you look in the presentation, you have a good overview on these strong, brick consuming areas of The United States where we are present now and where we have seen also a serious comeback when it comes to housing starts and the new residential housing market. By the way, and this is I think very important for this call and for you in the future, Wienerberger's exposure in The United States will not focus only on residential and newer residential housing, and this is for one and two family houses, obviously. But and this is the big sort of step forward also on commercial because this transaction and our footprint now in North America puts us in a position where we can obviously tackle this market much better when it comes to commercial applications. And this goes from hospital to schools, from other buildings where we have obviously an excellent product range to satisfy this market as well. And this is, I think, also a very important aspect for you in the future as well, the renovation market with our sort of unique positioning of thin brick solutions that we can use on the facade, on the inside, or on penalization when it comes to bigger and quicker and faster building segments, especially in the commercial market. So again, here, a very strong set of products and solutions that enables us to create a much more performing business in The United States and in Canada. If you look at the potential synergies that we will really realize among the two businesses, it's obviously, as I mentioned already, in the plant network. We'll put some plants together, close down some of the plants of the older ones and therefore not have the maintenance costs and the maintenance investments to take place in these old plants. We will reduce overhead, especially because we merged the two companies. Our head office is in the in the East Of Tennessee, where obviously labor costs are lower and where we have strong loyalty and therefore and a credible strong performance when it comes to the back office where we can optimize structures throughout the business and concentrate here here within the lean back office all the operations. We can obviously also from a commercial standpoint of view, as I said earlier, streamline the operations and focus on direct distribution in certain areas and indirect in others. So here, obviously, we have substantial potential to grow our performance in this area again. And over the next three years, we are confident to realize about EUR 20,000,000 of synergies between the two businesses, which we see EUR 5,000,000 in 2021, 15,000,000 in 2022 and the full package of EUR 20,000,000 in 2023. Obviously, in the first year, and this goes without saying, you have a certain sort of restructuring cost effort that you will or we will put in place with around USD 10,000,000 in order to restructure and integrate the businesses. So this is a onetime effect in 2021 to take into consideration. As I said, very important, strong commercial business, strong also road in the renovation market with the current offering. We have a lot of trading products that we can add on, on our existing product portfolio and the digital tools that the two companies have created now in The U. S, especially we can merge them and enhance therefore our competitiveness in the local market. A strong local footprint, which enables us to keep hauling short in the sense of not too much logistical cost, which is important these days also in The US, and where we create a very strong local masonry solution provider. So when you look at our business in The United States or in North America, financially speaking, we have here from the two businesses, which are more or less the same, Meridian is capacity wise and sales wise a little bigger, but from the profitability weaker. And here, we see potential obviously to bring up these operations to the level of ours. So obviously, see improvement here to be made in the next years. So the potential here is also to create a business about EUR 50,000,000 of EBITDA and EUR 20,000,000 of synergies on top, which will then without any market development because I sort of keep this out of the equation right now, I assume stable markets. So I see here a potential of more than US120 million dollars EBITDA of the two businesses without any sort of additional market developments or organic growth. So this is, I think, the way forward. We've given you also a first glance at how we see this development, EBITDA wise, over the next three years, '21, 2022 and 2023, to reach this €120,000,000 potential. And again, I stress here, this is a potential without organic growth and market growth because we'll give you, as always, on the Wienerberger side, an update year by year and a clear guidance in this market. We have realized this transaction for a very attractive purchase price, EUR $250,000,000. Keep in mind that this is a price which includes non operating real estate. We've identified in this transaction non operating real estate of about EUR 60,000,000. So if you take this in consideration, we are short of $200,000,000 of purchase price in U. S. Dollars of this of the ongoing operations. This obviously, with this high potential of EBITDA, creates no goodwill on the contrary. So we have here, I think, strong a basis for further growth in the future. All in all, I think it's an exciting story for Wienerberger. It's a story that brings us forward, which closes the gap that we had in North America. And realizing these days, I think a transaction that has a transaction multiple at the end of the day after realizing the integration and realizing the synergies, which is below five is, I think, an excellent multiple. And if I may say this on a personal note, I'm excited to work together with the team in North America to take on this challenge and to realize these synergies and develop Wiener Burger further in The United States and in Canada to be a leading company when it comes to masonry applications and obviously also when it comes to ESG performance in the both markets. So all in all, I think this puts us in a on a new level when it comes to the performance in North America, but also as a group, it shows clearly that we are determined to close gaps and fill the sort of points where we need to improve quickly and move rapidly and have also the right patience in negotiations to get the best deal for Wienerberger. And I think now I'm after this short introduction and an overview of the transaction, I'm obviously more than delighted to take your questions. Session. And the first question is from the line of Matthijs Feisenberger of Deutsche Bank. Please go ahead. Hi, Barbara. Hi, Jaime. Thanks for taking my questions. Thanks for the call. I have a couple of shorter ones. Firstly, on the plant network. Now a couple of the areas here, they seem quite dense with a couple of maybe too many plants. You mentioned some restructuring, some closures. Is that all baked into the EUR 10,000,000? And will that all be done in 2021? Or can we expect some more later staged actions, too? Answering this question very quickly, yes, they're all packed into this €10,000,000 that will sort of clean up the situation as we wanted. For the moment, please remember that we are also running in certain areas already with certain capacity utilizations. That means higher than 75% to 80%. So again, here, I think we are in good shape. So the older one will be taken out and the EUR 10,000,000 are sufficient to address the current market demand level. And the timing of the non operating sales, is that more back end loaded? Or is that opportunistically basically? And what is it? Is it land? Or is it Real estate. Can you maybe It's real It's real estate in Canada and The U. S. We will sell it off as quickly as possible. It doesn't depend only on us because Matthias, as you well aware, it depends on the potential buyer, and we don't want to give away the real estate. So we will certainly work on this to get the maximum value out of it, but it's not back end loaded. And when you say the EUR 50,000,000 is a targeted performance or operating earnings level, is that 2020 basically? Or is that 2021? Because you also say there's no market growth. No, said yes, I said basically, I take from a hypothesis or assumption based the performance of 2020, yes? And then obviously, our performance is, as an example, of 50%, and their performance is obviously substantially lower. And over the two years, we want to increase their performance to the level that I've indicated, yes? Okay. And on top of that, there's the synergies, okay? Correct. Then last one, housing starts, I mean, has been quite a very positive development over the last three Read a couple of articles on the working from home, people moving out of New York and moving to Rochester and buying, I don't know, four bedrooms for 300,000. Is that kind of a bit of a, I don't know, temporary benefit that might fade in the future? Or is that really a new momentum there in The U. S. Housing market? I think, Matthias, two things. When you look at The U. S. Housing markets, we can't say that over the last decade, it has been overbuilt. You remember the billing rates were always below around €1,000,000 We have now sort of achieved 1,300,000.0 You know all the statistics, the discussions, how they how the market is moving, how people are moving around The US. I think, obviously, in certain areas, and that's why I stress it, in certain areas, you will see tremendous growth because people are moving to these areas. Texas is one of these. You know that Texas is a very favorable tax situation and also business oriented situation where a lot of Californian people move in because they are tired of of the government there about taxes, So again, you see certain areas of The United States and especially the ones where we are operating in with our operations will take benefit of it. You will have growing areas like Metropolitan Toronto area because obviously of economic reasons. So I think we what I'm trying to say, we are well positioned for all these growth areas that we will see positive developments over the next decade. I'm sure that this is a trend that is long term and not short term. Obviously, you will have short term trends of moving out of cities in certain areas because it's cheaper, it's more healthy for the people, they can have a better living. And obviously, our way of working has changed dramatically. So I think it is certainly not a short term, but a medium term trend that we see also in North America. Okay. Thanks a lot. Congrats, and I'll get back in line. Thank you, Matthias. And the next question is from Yves Gomaher of Exane. Please go ahead. Good afternoon, everyone. Congrats. It seems Christmas is a bit ahead this year for you guys because it's quite a milestone. I guess just a few questions from my side. Number one, I would just like to understand what was the driver for this acquisition right now because it seems that you're essentially going to benefit from all the restructuring angle that they haven't finished, but it seems that they had already started this. So is it just correct to assume that Boral was a bit of a distressed seller and you actionated this kind of this process now? My second question is just on trying to understand how you think you can get from the current EBITDA of EUR 20,000,000 or whatever from American to 50,000,000. Just trying to understand what's the pieces of the pie here, just more granularity on that. And finally, I appreciate you're always relatively cautious, but the endpoint of 2023 would imply quite a small double digit margin. I think the last time you spoke about The U. S, you often referred that this market could look more and more like Western Europe. Can it actually look like The UK? Is there enough of a consolidation after this for potentially the BRIC markets in The U. S. To look like The UK? Thank Thank you, Yi, for your question, which I appreciate very much. And Christmas, I as a child, if I may remember with my old age, I looked at Christmas of when I got a present. This is obviously some work that we get. And you're right, a unique opportunity, but we are no, we are glad and we are happy. We actioned this because we thought that we are the better owner for this business. And obviously, the current situation that Boral is going through and Lone Star cleaning up its funds was the right moment to do so. And I think they when you look at the purchase price, is an acceptable level and is for us, obviously, a value creative one and for them an acceptable one. So we have a win win situation. They have correctly what you said, they've done the basics. They've invested in the plants, which was very important. They've done the right things. But now obviously, putting the businesses together, realizing the synergies is now our job. And I think our management in North America and we, as experienced team out of Europe, can assist, can help, can steer, can mentor it and can exercise it and realize it rather quickly. So I think it's the best moment that we could imagine to get the business at the right price. And therefore, I must say, if I've been myself two weeks ago in North America, I have traveled there and have visited all the plants or mostly what I can, where I'm allowed to go to from a regional perspective. But I see, obviously, and I was able to see with my own eyes the potential there because, obviously, when you take these plants that have not been yet optimized at the level that our plants are and with the expertise and the strong sort of knowledge that we have to put in these plants, we can realize substantial improvements. That's why I'm confident that we, from the mid-20s to the 50s, can improve the EBITDA from the current run rate the planned one. So it's a mixture of, obviously, better performance, better utilization rates and some investments that are needed to improve it and then obviously also from a commercial standpoint of view to run this more efficiently in an efficient way. This addresses then your third question, Yves. The U. S. Is from a regional perspective very different and cannot be compared to Europe or The Or UK. But and there comes my big but, if you look at the taxing market, you can certainly have margins like The UK, that's for sure. Probably in Kentucky and in Iowa and others, the margins will be a little lower, if I may say so. And therefore, you have a mixture and an average rate that is not at the levels of certain very highly performing European or Western European markets. But I will say at this stage, we are certainly going to improve them. When I gave you it's not a cautious approach. It's the one that you can sort of evaluate and sort of appreciate yourself that we base ourselves not on sort of future looking and forward looking estimates on organic growth. It's a very simple, straightforward, down to earth approach where we say improvement measures that we can do ourselves. It's our homework. It's our self help, if I may say so. And this leads to this 120,000,000 So I think you will appreciate that at this stage of a transaction and at the very early stage, I think it's a strong commitment from us and gives you a good insight in how we operate businesses and gives you a very transparent picture what we want to achieve. Okay. Maybe just a quick follow-up on that last point. I mean, in The U. S, if I look at your previous reporting lines, pre crisis, clearly, you were at about 20%. I mean, with this level of consolidation, I appreciate you're saying flat market development into your outlook. But if we were to see housing starts going to about EUR 1,600,000.0 or whatever, with the current structure, is it fair to assume that the pre crisis levels of EBITDA margins are reachable? This is a fair assumption, yes. Thank you. The next question is from Cesar Ekblom of Morgan Stanley. Please go ahead. Thanks. I've got one housekeeping question and then just a question on the potential for market improvement again. So the first question is, can you just touch on the competition process that you're going to have to go through and if you think that there is potentially any remedies that we need to think about? And then the other question is when you look footprint of your assets and Meridian's assets, I think it's Slide seven, it looks like you don't really have a presence in Texas to start with. And yet, we're focusing on Texas as a market where there's potentially quite a lot of upside. Would it be fair to say that in order to get the upside in the Texas market, it's really just about running those assets better and that actually the sort of market synergies come more from your assets in the Southeast and in Canada? Would that be a fair conclusion? To your second question, yes, we will run them better. You're absolutely right. And that comes out a substantial part of improvement from the manufacturing. But I'm confident after I've been analyzing with the team the tax and operations of Meridian that we can also do better in on the commercial side. So there's optimization also there. On the synergies side, you're absolutely right that on the commercial side, there are more synergies in the Southeast and in Canada. You're correct, and I confirm. And I think that hopefully addresses your second question, right? Yes. Now the first one is about the sorry, if I sort of it lapsed a little bit to me. Anna? The open process. The open process. The yes, the antitrust situation. Antitrust situation is such in Canada, we have no approvals required. So this is an easy one. And in The US, we will have sort of our filing will take place in the next days or so. However, we, with our lawyers, are confident that it should be rather sort of straightforward approach. But I'm always cautious with this as a trained lawyer myself that I must say when you are in the hands of administration, then you sort of need to look at this. But we if I say this with my own words, we are not sort of foreseeing any remedies at this stage, but that's our personal or, if I say so, our analyst analysis at this stage, yes. Okay. Helpful. Thanks very much. Thank you. The next question is from Markus Ramiz of Parkinson Bank International. Please go ahead. Yes, good afternoon. A few follow ups, please. Firstly, on capacity utilization. Can you give us a figure for Meridian as it is at the moment? And how much do you intend to reduce the capacity in the wake of the plant closures? Not yet because let us make here more detailed analysis. The capacity utilization in Meridian is substantially lower than the one on General Shale Wienerberger side, that's for sure. And this is obviously one of our points that we want to address. And this has to be addressed regionally. It's not it's no use to talk now overall because it's a regional thing, and therefore, the closures of some plants will help us tremendously and will address the situation clearly better. It's a clear target from our side to come to an overall capacity utilization in North America around 80% rather quickly. Okay. And coming back to this targeted Meridian performance. I mean the CHF 20,000,000 from my perspective, the synergies, looking at the combined cost base, that looks more than feasible. But how did you do the differentiation between Meridian stand alone improvement and synergies? Well, I mean, if you look at Yes, please. Go ahead. Sorry, go ahead. No. I mean, you compare yourself with a competitor. You look at your own cost structure in the plants. You have a much higher purchasing power as a company. You have a much higher degree of efficiency when it comes to overhead also in manufacturing. You look at your sales part where you can do better things. Obviously, you have to distinguish between synergies, but also on the other hand about the underlying performance And if you run the plants more efficiently and get out here more from the manufacturing side, the overhead side and as I said, the cost side, especially when you talk about purchasing, then you get to the sort of improvements that we see there. And if you run certain areas with undercapacity or, for example, make smaller investments to optimize them and bring them from an energy consumption level to the level that we are having currently, then you get to these numbers that I've indicated to you. Okay. Okay. One bookkeeping question, please. Can you provide us with a figure on the depreciation level? Is that comparable to what you have in North America? Or is it mean the Meridian one? The Meridian, yes. It's lower than ours. Okay. And last question on your further M and A endeavors. I mean are you now going back to like the bolt on type we've seen in recent years? Or are you still looking for, say, targets in the triple digit million range? No, it's not. I think we will take it and I'm saying it's not opportunistic, but we address certain blank areas or areas where we see potential for improvement. I could obviously tell you also that or it's logic that Meridian It's a big bolt on because we are already there, and we integrated in our operations. But at the end of the day, you're absolutely right. It's a midsized for Minnebago standard. It's historically, I think, a bigger transaction. But still, when I look at from a now bigger perspective, in a bigger mid sized M and A and mid sized M and A, and I think it's a logical one to do. It doesn't mean that we do this every two weeks, not at all. We will certainly, when we look at future M and A, look at opportunities that we see mostly in Europe right now because North America, we have now addressed for a while, and they need to work on performance improvement. But in Europe, as opportunities will arise and they will arise in Piping, they will arise in the on the Billing Solutions side, and we'll continue to pursue those as they come. Okay. Thank you very much. Thank you. The next question is from Yaseem Chewari of On Field Investment Research. Please go ahead. Yes, good afternoon. Just a couple of questions. First, what kind of additional CapEx do you expect following this acquisition? I think you probably will have some additional maintenance CapEx. And you also suggested that you want to make some of those plants more efficient. So that would be my first question. And the second question would be regarding the fuel that those plants are using. Are they running on gas? And do you have any view about their hedging policy as they are buying spots? Or are they hedged for 2021? Thank you for your two questions. I think when you look at hedging policy and gas, I think we need to sort of analyze this in much more detail for the moment. Obviously, they have also brought forward some of the gas. Are all on gas as well, so there's now a difference to ours. And as I said, when you look at synergies and cost efficiencies, you will realize them over three years, so certainly not everything in 2021. So this is a process that develops, and I'm not in a position today to give you a clear answer there on every detail yet. You need to bear with me because, obviously, we are coming out of a due diligence process, but not in the detail what in every plant, obviously, the hedging policy is at this stage. But we know what our potential is and when we will sort of realize it that what we have tried to give you in our synergy and improvement analysis. Secondly, on the CapEx front, as I said, the plans that we want to keep are well invested. And if and in the event we want to optimize it, we will certainly do so. It will be then in a very straightforward and transparent way. You recall that we have have guided from a group's perspective, the EUR 80,000,000 of special CapEx for the whole group in the next years, every year for three years. And I think when we look at Marine, and this will be roughly included, probably in some years, probably a little above this. But at the end, it plays out with maintenance and special CapEx. So nothing to worry about dramatically. Thank you very much. Thank you. The next question is from Anastasia Solanitsyner of UBS. Please go ahead. Hello. Thank you for taking my questions. Two, if I may, please. Firstly, can you please give us some color on the exposure to end markets in terms of percentage split between nonresidential and residential? And the second question is, do you consider any tax loss carryforwards you can use from this business going forward? Thank you. Sorry, I understood the first question, which I will ask answer immediately. The second one, you were a little bit cut off for me, so you need to repeat it. The first question was about Residential and Commercial. Meridian has an exposure of around 30% of its turnover to commercial. Okay. That's clear. Thank you. And the second question was about tax loss carryforwards you can use from this business or not? Thank you. This, I need to sort of investigate a little further as a second step. But I can tell you that we have so many tax losses carried forward from our own business so that there's nothing to worry about for quite a while, if I may say so, already. Okay, good. Thank you. Thank you. And we have a follow-up question from Matthias Weisenberger. Please go ahead. Hi, me again. You mentioned logistics a couple of times. Now the plant network is obviously more dense, and you said you're going to maybe take a direct route rather than maybe external. So is this the plan? Is this also part of the improvement? And also on pricing, Borale, I think, undermined your pricing some years ago, then it became a bit more stable. And now you have basically the power in your hands, so will you raise prices basically? As this is a public call, Matthias, I will not answer the second question. And you understand we are in procedures, and it is always difficult to address this. And the market will decide what happens. And I think I must rest my case at this stage. And you appreciate that. Thank you. And on the other end, yes, we will obviously optimize the allocation of products to different plants and therefore reduce the logistical cost moving products around. Okay. Thank you. Thank you. And we have a follow-up question from Markus Ramis. Please go ahead. Yes. Just a quick one. The CHF 10,000,000 restructuring, that's, I guess, just the cash costs. Do you consider any impairment needs in case of plant closures and so on in the restructuring process? You're absolutely right. The EUR 10,000,000 are cash costs. And from the plants that we acquire, we don't see any need of any asset impairment. So that's one thing. And if we were to close one of our plants, it would be also a minor one, I think, from an It's asset impairment, yes. Thank you. Thank you. I don't more questions in the sorry, Hedi. Go ahead. I don't see any more questions in the line. Thank you very much, everyone, for dialing in. I think that was it before Christmas and for that year. We wish you a very lovely Christmas season despite the lockdowns and everything that we are facing. I hope you have some rest, and we can see you soon again in 2021. Wish you good afternoon, and thank you for dialing in. Goodbye. Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.