Ladies and gentlemen, welcome to the Wienerberger earnings call on first quarter results 2017. Thank you for dialing in. Wienerberger representatives on today's call are Heimo Scheuch, CEO, Willy van Riet, CFO, and Stefan Oeber, Head of Corporate Reporting and Treasury. Heimo Scheuch will open the call with a summary of the key development of the first three months and speak about our outlook for the remaining three quarters of the year. Following the opening statement, the line will be opened for questions. I now hand over to Mr. Scheuch for the executive summary.
Thank you, Klaus. A warm welcome from all of us from Vienna, Austria. I would like to briefly present our set of results of the first quarter. As you all are very much aware, the first quarter for us is sort of a very small one. It's not a significant part of the year as far as the construction business is concerned and the building material business is concerned. However, we have seen obviously some good indications in Europe and in the U.S. Now more in detail to our, what we would call, a strong set of results. We have been able to improve our turnover by roughly 8% to EUR 660 million in the first quarter. This comes actually in light of a rather weak start into the year. Weak because we had a severe and harsh and cold winter in continental Europe, especially.
January and February have been slow months as far as building activity is concerned. Obviously, we have seen a good pickup and a good underlying business in March, and all of this has led us to a strong increase in turnover, as I said earlier, by 8% growth. The EBITDA also is very satisfactory with 15% growth coming in at roughly EUR 46 million. The net debt level rose a little bit due to the stronger business. Obviously, working capital went up. We had stronger activity, and as you are aware, we have this working capital swing of more roughly about EUR 200 million anyway in the first part of the year when we start our business. Financially speaking, a very satisfactory performance in the first three months of this year.
If we look a little bit more in detail to our different businesses, let's start with the Clay Building Materials Europe business. We have seen here, mostly through all of our geographies, a good underlying trend in new residential housing. Let's start with the eastern part here. Good growth rates in all the countries concerned where we are active in our portfolio. Good growth rates in new residential housing, Central Europe or western part like Germany also. The Dutch market saw a good trend. Belgium, after the stabilization in the last part of last year, we have seen here also a good trend forward. The French market developed nicely, and also the U.K. market has shown a strong signal of good activity in the first three months of this year. Pricing has been also on track.
It took a little longer, obviously, to get up prices in the central and eastern part of Europe because obviously, as I explained earlier, the weak start due to the weather conditions. We remain positive as far as the inflationary cost increases that we get this through to our customers in the whole business of Clay Building Materials Europe. When we look to the renovation part here, it's obviously the roof tiles that is very important to look at. Here we see the same trend as in 2016. The market is somehow a little sort of weaker because obviously there's less renovation business throughout Europe due to the issues that we have discussed extensively already last year, the lack of tax incentivization, and also the lower energy prices that influence this activity when you talk about renovation.
If we move on to the Pipes & Pavers Europe, here we have seen a somehow mixed picture. Mixed picture because we have seen a very good underlying trend in business activities in the Pipelife or plastic pipe operations in the northern part of Europe. Here I refer to markets like Norway, Finland, and Sweden. Also, the Dutch and Austrian market performed nicely. We have seen also some sort of indications. You remember we indicated Eastern Europe should see a better trend towards the later part of this year as far as infrastructure spending is concerned. Indeed, we see some sort of light, I would call it, at the end of the tunnel that we start to quote projects in infrastructure business, and here a slight pickup should be possible during the later part of this year.
In the international projects business, however, this is basically our long length pipe business and high diameter business where we do international projects and also our fiber-reinforced business. We suffered a sort of lack of projects that we have seen also in 2016, has continued in the first part of this year, and there is obviously a weaker trend. As it is a very high margin business, you see obviously a strong impact on our results in the pipe business in Europe. In the ceramic pipe business, we have obviously also as far as the export business to the Middle East is concerned, basically it came to a standstill, so we had to adjust our whole business and the whole cost structure of this, and we suffer obviously of a lack of volume in this part as well.
Again here, we see also a better trend coming through in the central and eastern part of Europe as far as infrastructure spending is concerned. The last part of this division, Pipes & Pavers Europe, is the paver business. Here we have seen a very good development on the cost side and also from March on, I think here the volumes are picking up after the bad weather at the beginning of the year. We should see, as we have foreseen, a good trend in trading for this business for the rest of 2017. Moving on to North America. North America has had, compared to last year, a rather mild winter. That means that in all of our areas where we are active, building was possible, and therefore we have seen also good trading in all the areas where we are active.
Canada and the U.S. with respect to our facing products for facade. Also here, volume-wise, we have seen, as we predicted, a good increase in activity. The pipe business has also recovered slightly, and here we see also a better trend moving forward into this year. On the pricing side in the U.S., we have seen in some areas a little bit of improvement. In others, it is still a rather strong competitive environment when it comes to prices. Generally speaking, also a good trend in the U.S. business. I think for the rest of the year, if I might come to the outlook very quickly, we stick to the overall guidance for the group. An organic volume increase and turnover increase of about 9%.
From the EBITDA front also, I think we are moving in the right direction to achieve this sort of EBITDA guidance that we have given of EUR 415 million. From this stage, as I said, it is a small quarter. We will see the confirmation of the trends that I talk about more in detail in the second quarter, obviously, moving forward to our half-year's results. We remain confident that we will be able to achieve our guidance as far as the whole overall set performance is concerned. In a nutshell, this has been the sort of overview of the first quarter. We are ready to answer your questions as far as the first quarter is concerned. 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 leave the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from the line of Yves Bromehead with Exane BNP Paribas. Please go ahead.
Hi. Just a few questions. The first one is on the U.K. Given the strong start of the year in terms of brick deliveries in the U.K. and your unchanged outlook for the full year, I think you are guiding for slight growth. Does that imply that you are expecting volumes to be flat to slightly down for the remainder of the year? Does that mean that you have seen trends changing recently? Also, I wanted to get an idea of the pricing side. You commented on U.K. pricing being up. Is that enough to cover cost inflation? Do you expect further price increases in the region?
First, obviously, commenting on the U.K., you've seen in our market outlook, when you look at our chart, we've clearly indicated that the market growth will be above 2%. The overall growth were roughly around 2%. We predict, obviously, growth in the U.K. and have so for already the last couple of months. Please keep in mind also that, again, I'm not trying to be pessimistic. Please, nobody should misunderstand me, but we have upcoming elections again in June. Nobody knows actually the accurate outcome and what this might create. We all take our assumptions, but at this stage of the year especially, let's remain with this sort of growth in the marketplace that we are predicting. On the pricing front, obviously, we have tried and are confident that we can pass through the inflationary cost increases that we see in the U.K.
For everything what we produce in the U.K., we can offset that. We, of course, will see how also the pound sterling evolves in the course of the year, because part of our imported goods, we need to compensate there. That's minor in the total picture that we have. As Heimo said, we remain on our, I would say, cautious stance on the U.K. Yeah. That's what it is.
I guess my question is also that even with 2% growth the full year, given the brick deliveries, the statistics are out and it's double digit up. It does imply that you're being rather cautious and it implies that slightly down volumes, which I want to get your sense on, basically. Are you able to comment maybe on April, would you say has the trend continued to be positive?
Watch out on also, we are restoring inventories also in the chain again. There's a lot of good activity in the beginning of the year because everybody started positively in the year, continues actually also up to now. We will see how it further evolves, and we'll take it from there.
Okay.
As you know, we do not do on micro guidance also on the market.
Just to what Willy added, all of you follow obviously our competitors listed on the stock exchange in the U.K. I appreciate very much their comments as well. I also want to add, we had a very mild winter in the U.K. as far as building is concerned, compared to last year, so everybody's very enthusiastic. It doesn't mean that we as Wienerberger are losing out on any opportunities. We have enough capacity and also can deliver from the continent. Any upswing in the market, if there is one, we'll be able to address it and improve even our performance there. I think, I call it not a cautious, I call it a realistic market view at this stage for the whole of the year.
Okay. Can I have two follow-up questions on Netherlands and Germany? The first one on Netherlands. Could you maybe give us more color in terms of what you're seeing in this market? Have the demand environment changed recently? I noted that you're being, again, a bit more cautious on the market ahead of the elections. Is that really the underlying reason, the elections, or is there something moving in the market?
On the German one?
On the Netherlands, sorry. Dutch market.
No, I think in the Dutch one, we are not cautious at all. I think here we see the trend is progressing, and after the first quarter, we have actually confirmation from what we have been predicting as far as the overall performance of the Dutch market is concerned.
Okay.
The same applies for Germany.
For Germany as well.
Yeah.
Strong growth in the family housing construction, one and two family housing construction. Very favorable for everything which has to do with the facade and the wall. We still see an ongoing weakness in the market. That's the same thing for Germany, Benelux, basically, and France, a weakness in the renovation.
Okay. It's just that on Germany, when we look at the single-family permits, they've been going down for the past six months. I'm just trying to get a sense.
I said single and multiple family housing. It's on the housing part we see.
Are you gaining share in the multifamily?
Yeah.
Okay. Are you gaining share in the multifamily?
Yes. This also to be said, obviously, I think we spoke with you continuously about the trend towards bricks and the highly insulating products that we put into the marketplace.
Yes.
Here we see a good underlying trend here as well.
Okay, great. Thank you very much.
Thank you.
The next question comes from the line of Miguel Borrega with UBS. Please go ahead.
Hi. Good afternoon, everyone. I have two questions please. The first one is on Pipes, Western Europe. The EUR 8 million that you're missing on EBITDA versus last year, is this only attributable to the international projects business? Is this a specific project that wasn't extended, or is it just pricing pressure on new orders coming in? If you could give us a little bit more visibility on that, please.
Okay. No, it's essentially on the volume because volumes, and we are not lacking here something, but the projects are not there. We are seeing projects out there, but actually they are not materializing. Here we have clearly, as you would call a volume issue and not a pricing issue.
Q1 2015 actually was the end of a number of projects that we finalized and finished. Typically, in a situation like that, you keep on invoicing a number of additional services, not 15. Now in 2016, of course, what you see is we have virtually nothing. That makes a big difference. We have a smaller extent, we have this volume loss in the clay pipes, which we highlighted also in our comments. We have seen in France a weak start into the year, and that's it. Nothing else really which is alarming to that extent. The major part is really on the large international, as Heimo said, a lack of volume, no projects.
Given your 5% margin in Q1, could you give us a sense of your expectations for the full year?
In that market segment, we've always achieved around 8%-9%, I would say on the normal business would be a good return.
Okay. My last question is whether you already have any visibility that volumes in pipes Eastern Europe can improve in the second part of the year. Any evidence that can support this view? Maybe if you could comment on your order book trend.
Yes. As I tried to indicate in my opening remarks, we see obviously in the countries of Central Eastern Europe, a trend towards more activity in public spending and in infrastructure. Our businesses are already quoting projects. Actually we are in the phase of Situation where the public spending is probably taking place, and we foresee, obviously, in the second half, some sort of growth.
Smaller.
Yeah, smaller ones. These are not big projects. These are local community sewage and water projects that are to be installed in these countries. Generally, yes, we see a confirmation of this trend.
Thank you.
The next question comes from the line of Ami Galla with Citi. Please go ahead.
Thank you. I have two questions, please. The first one is on optimization gains. Have you booked any in Q1? Also, can you give us some color as to the nature of the projects on the optimization gains that you are talking about for the full year, and the businesses that you will be delivering those optimization gains? My second question is really on the pricing pressure in North America. Can you give us some color, which regions, which markets in North America do you see more pricing pressure because of competition?
First of all, if I might take your second question first. I'm not referring to pricing pressure in the U.S. I'm just saying, obviously, that the pricing is not moving upwards. We have here no downward trends or so. There's no global pricing pressure. As our biggest competitor now is a merged company from the biggest and the second biggest producer in the U.S. The new company is called Meridian. They're establishing themselves in the marketplace. From time to time, you see here some strong activity on pricing. It's not a price pressure, it's not global, and it's not something very worrying. I think here we don't see yet the trend upwards in the pricing as we should have, as I would say at this stage. On the optimization projects for the Yeah, go ahead.
Time being in the first quarter, we have none, because this is a startup of the operations another year again. Typically, we realize most of our optimizations in Q2, Q3, and then Q4, continuing with the time of production that we have. We see a good production, I would say, leverage and optimization throughout the year. In Q1, not yet, because that then diminished by the startups that we have. In general, where we do we see the optimizations, we do not have big programs running. We have individual smaller programs running. We are very much in track to realize the EUR 10 million that we have put forward, that I can see from what I see on the tracking instruments that we have.
As my colleague, Philipp pointed out, it is all our business areas that where we are active in with our projects. All of them will contribute to this EUR 10 million of optimization gains for the whole year.
Okay. Thank you.
The next question comes from the line of Tobias Woerner with HSBC. Please go ahead.
Yes, good afternoon. I would like to ask four questions. I keep them short. Firstly, can you give us some color of the net effects that you've expected to have seen in the first quarter from the negatives from the harsher winter, and the positives from the working day effect, whether you can give us a feel for that. Secondly, you mentioned in Pipes & Pavers Western Europe that the Q1 had a particularly tough comp. When would you expect the comps to ease more towards Q3 or already fully in Q2? If you could give us an update on your growth projects planned in 2017, if something has already started in the first quarter. Finally, a financial question. The income from associates might be negative this year, whereas here last year, a small positive figure.
Has it something to do with the winter, or is it something else that we should read into that? Thank you.
Okay. Let me start with your last one. You answered it yourself. You know our associates sit in Germany. We had a harsh winter in the beginning, in the quarter in Bavaria. That's only related to that. We expect that to pick up, and of course, that will be fully in line again by the end of the year. On the Pipes & Pavers comps, they will improve as of the second quarter, because we will see there the effect of at least no large activities anymore in the international pipe business. That effect we should see. I'm now 20 years in the business and trying every year to calculate the effect of winter or summer or whatever. I've not succeeded yet in that. The only thing I can say is the effect of the working days is basically 2%-3% on volume on the full quarter.
I think that is fair to say. What we have gained on working days compared to last year, we will lose them again in the second quarter because the number of days has not changed. That's more or less there.
On the projects, just one word on that. We have, I think, a good pipeline for Growth projects for the year. As you will appreciate, we are discussing with certain potential sellers of interesting projects that fit within our current portfolio. It's nothing that I can report about in detail today. Nothing has affected the first quarter. If something comes through, I wouldn't overestimate it anyway for the second quarter either. I think here we will probably see some of these projects materializing in the upcoming months, but no major impact on our results or our figures.
All right. Thank you.
The next question comes from the line of Markus Remis with RCB. Please go ahead.
Good morning. Sorry, good afternoon. Just two questions left from my side. First of all, regarding the price increases. I think you indicated in your opening remarks that there has been a kind of momentum building up over the course of the first quarter into March. If you could elaborate a bit on the markets where you see best momentum and how that developed into April. That would be the first question. Secondly, regarding the U.S. and the potential tax reform, I would be interested to hear your thoughts on to which extent you could be impacted positively from the lower corporate tax rate or whether you pay the taxes locally or in some sort of group tax scheme. You know, the Gruppenbesteuerung.
Yep.
Thank you.
I'll take the last question first. You know our history in the U.S., we've been building up some tax losses. We have sufficient tax losses available for not paying taxes in the U.S. We also do not never capitalized those on the balance sheet, there's no effect basically on it.
Okay. Right. Yeah.
The only thing is that our tax losses, because they are unlimited in time, we can utilize them very long now.
Okay, when you say long, it means for the next, what, five years?
It depends. How fast the profit increases again in the U.S.
Yeah.
I think what Willy was trying to indicate, there's enough availability there in order to offset potential profits as far as taxes is concerned.
Take it at least for the next five years.
Yeah.
Okay.
On the price increases, I think, what I was trying to say, that as we indicated at the beginning of the year, our major goal is to offset all inflationary cost increases. I'm talking now about the clay building side, first of all, in the U.S. and in Europe. I think here we are on good track. We are confident in Eastern Europe, in Western Europe, and in the U.S. to offset this. The momentum is good, is okay, and we are confident obviously that this holds also in the upcoming months. In the piping business, I think it's a little different because we have seen here some trends as far as raw material is concerned, that we see some increasing prices here on the raw material front, which we have still to put through in the market.
You remember we indicated always that with a time lag of, depending on the market, to three to six months, we'll put these prices through. I think here our management, as it has done in the past, will try its utmost to do that. In some markets, it will be quicker, faster, or more successful on the short time, I would say in others it will take a little longer this year in order to get it through to the customers.
What's the scope for raising prices beyond input cost inflation? That's your normal wording, so no margin squeeze for cost inflation. Shouldn't we look for more pricing power, actually?
Let us say the following at this stage. I think when we look at the overall picture, and you will appreciate if you look at our outlook and what the markets are doing. I would say let's have a look how this whole picture then materializes in the first half of the year. Please don't misunderstand me. If we see a stronger momentum in one or the other region or country, we'll certainly not shy away from an additional increase of pricing. On the other hand, if it holds out like it is as of today, I wouldn't overestimate the potential to put stronger or additional price increases through.
Very clear. Thank you.
Ladies and gentlemen, if you would like to ask a question, please press star followed by the one on your telephone. We have a follow-up question by Tobias Woerner with HSBC. Please go ahead.
Yes. Just want to ask you're also mentioning in the report that France has been weaker for the pipes business, and if I recall correctly, you already restructured here last year. Is there, let's say, a risk that you need more restructuring in the French market? In that regard, could you also give us a feel for the extraordinary write-down that you have taken in the P&L, for what this was for?
Okay. Listen, on France, we will look at and evaluate the situation and see how it is. Of course, what we had in France is we had
Two bad months on weather like as well, which is not to be neglected in a big market. We have a bit of, I would say, instability in the market as well. We will evaluate it and then see, and then report on that later on. I think up to now, we take the factories as we have them, but we are slow in getting the results out of it. That's also why we said we were slightly ourselves disappointed about our own performance there. It's a question of beefing that up. Second question.
Write-down.
The write-down is on, we have some purchased CO2 rights, which we value at the lower of the cost of the purchase price, and we adjusted therefore the market value. I think roughly we had a value of EUR 6 per ton last year. We're now at 4.5, it's 4 point something. That's something that will fluctuate.
Okay.
This is a non-cash item, basically, in the amortization.
Yeah, all right. Okay, thank you.
Thank you.
We have another follow-up question from the line of Yves Bromehead with Exane. Please go ahead.
Hi again. Just a quick question. Could you maybe give us what is the level of utilization rates in your clay business across Europe? Just to follow up on that, are you able also to tell us where volumes are right now in your main markets? Looking at France, Germany, Netherlands, and Poland, where they are in terms of rigor now versus pre-crisis. Are you able to give us a sense of where we are? Thanks.
I think I don't want to sort of frustrate you. After the first quarter, We are in some countries and some businesses, we have maintenance during the winter, We start up our factories either in January or in February or even in March. Utilization rates after the first quarter do not make sense. We need to be a little bit further down the road into the year to give you here a better indication. Generally speaking, you remember that we said for the clay business, we are moving up to about roughly 70%, I think, or even in areas a bit higher than that, 70% utilization rates for this year. I think we're again confident that we'll come to this utilization rate.
When we talk about your second question, which is levels of volumes of bricks pre-crisis, we are still in all of the countries that we're talking about rather significantly under the high volumes before the crisis. We are talking here up to 30% in certain areas and markets. Still in the double-digit zones when you talk about volumes.
Great. Thank you very much.
There are no further questions at this time. I hand back to Mr. Ofner.
Ladies and gentlemen, thank you for your questions and for dialing in today. We hope that you will join us again for the release of our half results on the 17th of August. Additionally, I would like to remind you of our upcoming annual general meeting, which is scheduled for the 19th of May. We invite all of you to participate and to make use of your voting rights. The meeting agenda, as well as the comprehensive information material, is available on our company website, wienerberger.com. All that is left for today is to thank you for your attention and to wish you a nice day. Goodbye.