Earnings Call: H2 2016

Feb 22, 2017

Ladies and gentlemen, my colleague, Willy Van Riete, and I myself would like to welcome you most cordially to our press conference for the presentation of the results for the business year 2016. I would like to walk you briefly through the highlights of 2016. We reached all our ambitious targets in 2016, excellent operational performance, and we focused consistently on the implementation of our strategy. And in so doing, we generated significant growth. Revenues remained almost stable. My colleague later on will talk about the foreign exchange effects on consolidated revenues in 2016 later on. We achieved 9% organic growth of EBITDA. EBITDA now stands at €404,300,000 And what's even more important, particularly for the shareholders, we were able to more than double our net profit to €82,000,000 compared with €36,000,000 the previous year. So that's really a strong signal as regards operational performance and net profit. Our cash flow from operating activity now stands at more than €333,000,000 up by 28% from the previous year. So this excellent performance and also the outlook for 2017 have led to a situation in which we propose an increase of the dividend by 35% to €0.27 per share. This is what we're going to propose to the next AGM. As regards the output of the group, our products were used to build more than 160,000 houses in North America and Europe. We set more than 288,000 roofs with our products. More than 360,000 kilometers of pipes were installed worldwide, both plastic pipes and ceramic pipes. And finally, more than 12,000,000 square meters of pavers were laid, mostly concrete pavers but also clay pavers. That shows the strong operational performance of Wienerberg. When we look at the individual product groups, products for wall structures, that is mainly clay blocks, over 20% share. Roof products, clay roof tiles, also around 20% share in revenues. Facing bricks, slightly higher, particularly because of activities in North America and Northwestern Europe. Pavers, that is concrete pavers, particularly in Central And Eastern Europe is the smallest product group, 4% and pipes, a very strong segment of Wienerberger, just above 30%. So Wienerberger has a well balanced portfolio covering infrastructure markets as well as residential construction and renovation. When you look at our EBITDA figures, you will notice that the situation is well balanced. The pavers segment suffered because of investment restraint, particularly in Eastern Europe. So our industrial portfolio comprises 198 production sites operational currently in 30 countries, and we have approximately 16,000 employees. Now let's take a closer look at the group. As you know, we have a strategy which we are implementing consistently. We focus on organic growth. We want to grow on the basis of our existing business. We are making every effort to optimize, improve and further develop our business. And we also want to implement growth projects within the framework of our industrial portfolio. In 2016, we invested a great deal in research and development. A company like Wienerberger invests approximately 1% of its revenues in research and development and in digitization. So we are really forward looking and future oriented, and that helps us grow in different markets. This is a very important aspect. As regards BIM, that is building information modeling, which has become state of the art and has led to great improvements all over the world. Here are pilot projects from The United Kingdom. We are doing a lot of the work for architects when it comes to planning and designing buildings or building estates. Winebarger is well represented online. We have thousands of customers worldwide, be it plumbers, electricians, masons, designers, architects, developers, they visit our tools millions of times. We not only have online shops like Pipe Life, shown here, We also have vision apps. You can design your own image of your garden, of your patio. And we are making great progress in the digital sphere. We are focusing on innovative technologies and new applications in our roof tile business, for example, digital printing, three d printing in roof tile production is being used. So we're facing a period of profound transformation, and we are better positioned than ever before to make use of these changes. Then I mentioned growth projects. This is the second development step of Vina Berger. Last invested €45,000,000 We took over two production sites in Poland and Romania for clay blocks. We took over a producer in Finland, producer of wastewater pipes. And we built the most advanced paver plant in Austria at Bartfusslau to the South of Vienna. So those are all forward looking investments. As regards operational excellence, we want to continuously improve our production facilities at the 198 production sites. We want to save costs in production. We are focusing on energy as an important issue by 2020. We want to save another 20% in terms of energy consumption. And last year, already, we were able to achieve savings in the amount of €7,000,000 So we have highly ambitious targets for our company. When we look at the divisions, the situation is as follows: Clay Building Materials Europe, CBME, covers all our BRIC activities in Eastern And Western Europe. As you can see, Vina Berger is oriented towards Western Europe. We have a strong basis in the Western European countries, which are highly profitable. But through the acquisition of Tondag and further activities in Eastern Europe, we also have built a strong pillar for our activities in Eastern Europe, which is also profitable. Pipes and pavers in 2016 suffered because infrastructure investments were sluggish in Eastern Europe, co funding from the European Union in the region was scarce. This is due not least to the political transformation in Poland. Infrastructure activities were down by approximately 20%. So we're not talking about minor percentages, but considerable amounts. We take it that there will be a catching up process in the coming years. As regards Western Europe, in Norway and The Netherlands, we are engaged in international business, major projects for the oil and gas industry and for the energy sector. And these activities were muted, subdued in 2016 compared with previous years. In North America, we recorded a growth in revenues and earnings following up the developments of previous years. Now if you we look at the individual activities. In Europe, we are seeing and have been seeing diverging regional developments. Housing construction has recovered in Germany. France has also seen an improvement. The Benelux markets, particularly The Netherlands, very good growth. Belgium, after a slight downturn, stabilized. And The United Kingdom, after the Brexit vote has recovered during the past few months as far as new residential construction is concerned. In Eastern Europe, Romania, Hungary and Poland reported positive results in the residential construction and renovation market, and we expect that this is going to continue. In Western Europe, we also benefited from lower energy costs, but we also felt the impact of the fact that fewer support schemes are available for renovation, for thermal insulation, in particular. So our volumes sold were down slightly. So revenues increased only slightly, but earnings were significantly higher despite the fact that we suffered particularly from the pound sterling. So the result is indeed a very good one for 2016. As regards plastic pipes, we saw diverging developments. A decline in infrastructure business in Eastern Europe and a decline also in our international project business. But at the same time, an excellent performance in Northern Europe, particularly in Norway, but also Sweden and Finland, we were able to record high growth rates. And also in our basic business, that is water and wastewater, we were performing well in Western Europe. When we look at our ceramic pipes, wastewater pipes in particular, again, we decline of activities in Eastern Europe simply because there were lower sales, particularly in Poland and Romania. So we felt a decline in revenues and earnings. And there is another thing. We have a considerable market share in Saudi Arabia. But in 2016, major infrastructure measures were no longer implemented in Saudi Arabia. So our exports to Saudi Arabia were discontinued. As regards concrete pavers, a decline because of low infrastructure activities, but we were able to compensate for that almost completely through our sales in Western Europe. As regards North America and in Canada, we saw excellent demand in the Toronto region. And in The United States, new housing starts, that is single family homes, particularly in the Southeast Of The United States, was picking up again, and we were able to benefit from that. We also have a small infrastructure pipe segment in The United States. And there, we felt competitive pressure, which also put our prices under pressure. But overall, we're quite satisfied with our results, a 5% increase in earnings in this division. So we are doing quite well also in North America. And with this, I'd like to hand over to Willy, who is going to elaborate on the individual results. Good morning also from my part, ladies and gentlemen. I'd like to walk you briefly through the main headlines of our 2016 results. As Jaime said, at first glance, flat development of revenues, hardly any increase. But when you analyze that in detail, you will see that in an environment that was characterized by diverging developments, we did increase our sales volume by 1%. Although markets in Eastern Europe were sluggish, we performed rather well. Prices also increased by 1%, and I'm proud of this 1%. We are operating in a low inflation environment. People do not expect price increases in such environment. But nevertheless, we were able to market new products and achieve a 1% increase in prices across the group, which is really more than the inflationary pressure we had on production costs. The consolidation effect is 1%. The new acquisitions from 2016 contributed 1% to revenues. Those are so called bolt on investments, things that can be directly integrated into the existing portfolio. And then the negative FX effect. Foreign exchange differences, we do sell out products outside the euro area. We sell approximately 20% of our products in The UK, and there, we suffered from the devaluation of the British pound. In the course of 2016, the British pound lost up to 15% of its value. The pound recovered again later, but the Brexit vote had a severely negative effect. And also another point concerns currency translation. That only means that the earnings we generate in a country like The United Kingdom, we have to convert that into euro. We call it the translation differences. We're not suffering a loss. A loss would only be generated if we sold in a country at different prices. So it's really a conversion difference, but nevertheless, it depresses our revenues. So we have a flat or stable development of revenues. When we talk about organic growth, what does that mean? It means that you have to adjust earnings not just for one off effects but for things that are not related to our operational business. And then you can make a valid comparison. You know we have a program to sell noncore real estate. The program ends this year. We have already generated the €100,000,000 we had planned for, and we generated €17,900,000 proceeds through real estate sales. In The United States, we optimized our portfolio. We closed down one production site at the beginning of the year, and we sold two production plants for concrete products, and we generated added value on that basis. And then we have a 1% contribution to revenues from our acquisitions and 1% contribution to consolidated revenues. But if you really want to have a like for like comparison, you have to compare €395,000,000 And there is one point which I haven't mentioned yet, that is the currency translation factor. It cost us €12,800,000 in terms of EBITDA, almost €9,000,000 of which from the pound sterling. Nevertheless, we have achieved a good result. So in a like for like comparison with the previous year, we can see that we generated €395,000,000 EBITDA on the basis of our organic business. Last year, it was €369,000,000 So that is a strong performance of the group, which is also reflected in the 2016 income statement. EBITDA, plus 9%. Depreciation, slightly higher than last year, euros 4,000,000 EBIT, 197,000,000 Impairment charges to goodwill, 7,000,000. And as Jaime said, our ceramic pipe activity was significantly depressed last year, but nevertheless, we closed the year with €190,000,000 EBIT, up by 17% from the year before. The financial result, minus €32,000,000 compared with minus €56,000,000 the year before. Why is that? So we have made much better use of our cash. We rely on short term funding. We've redeemed long term expensive long term debt. Our funding structure is much better than it was in the past. And the cash flow position of the group has improved significantly, and all that is reflected in the financial result. Euros 158,000,000 profit before tax, plus 48% profit after tax, an increase by 65% to €115,000,000 We do pay taxes because we are a company which pays taxes in the countries in which we operate. We're not like Google or Amazon. We pay taxes in the countries where we earn money, euros 115,000,000 profit after tax. We have to deduct the hybrid coupon and a small part for a noncontrolling interest, So that results in a net profit of €82,000,000 which is more than double the previous year's net profit. Let's take a look at free cash flow. This is my hobby horse, as you know, and it's important for a company because it tells you where the money comes from and what drives our business. Gross cash flow, $317,000,000, a steep increase. Working capital, we managed working capital even better than the previous year. We generated a change of €15,900,000 quite a bit of that from The United Kingdom because we thought that the market would decline after the Brexit vote, which it didn't, but we cut down our production in some plants, and that helped us better manage our inventories. Normal CapEx, that is investments in our normal business, that includes maintenance and improvements of the existing plant structure, 137,000,000, the same figure as in the previous year. We're clearly below the €200,000,000 depreciation every year. So we really were prudent, but we did what had to be done. And then divestments and other, this is the noncore asset sale program, which generated €50,000,000 and we also released provisions, which we had set up in 2015 in order to provide for the restructuring. $246,000,000 free cash flow. What does that mean? That is the cash flow available for value driving projects, that is for growth investments or for payments to the shareholders or the holders of the hybrid bond. We spent €61,000,000 on that in 2016. The net cash flow is €140,000,000 That is what remained after 2016. And that tells you clearly when we pay out a dividend, we pay out the dividend from our net cash flow, which we generated. And we are retaining much of that cash in the company. A buyback of the hybrid bond, you may have been following that. In December already, we renounced that we would buy back one of our hybrid bonds. Now a hybrid bond is recognized as equity. But when we pay it back, equity is converted to debt. And that's the only reason why our debt position was higher at the end of the year. If we hadn't done that, then debt would have been €140,000,000 lower. We would be below 400,000,000 That, again, is a very good performance. We can afford this reclassification from equity to debt through the buyback of the hybrid bond. You will remember the hybrid coupon costs us €6,500,000 per year. We funded that from our own cash and partly from a long term eight year loan that costs us 1.2% annually. So for the future, we are going to have an even better cash position. Here, you can see the effect of the reclassification of the hybrid from equity to debt, and it was redeemed already in February. So that's a thing of the past. Here are our maturities. At 2017, we are going to cover more than we need by undrawn credit lines, all liabilities in all maturities, including the hybrid bond, and maturities are very low in the years to come. Again, a very positive picture for the future. Net debt, way below the 2x net debt to EBITDA, which is our internal target. What we need for our covenants, our bank covenants is to be below 3.5%. And even including the hybrid bond, we are way below upgraded us to a positive outlook at the time of the payback. The dividend is going to be increased by 35%. We always look at the free cash flow. Can we afford to pay out a dividend? Yes, we can. We certainly can afford to do that. The liquidity plan for the coming years allows that. We have no major maturities coming up. And we have growth projects in mind, but they will not lead to a deterioration of our liquidity position. And this is why we intend to increase the dividend from €0.2 to €0.27 So we are going to pay out €31,600,000 That's a good signal that goes out to the market. We are confident as regards the future, and we wanted to express that by increasing the dividend. Thank you very much, Willy, ladies and gentlemen. Let me now come to the outlook. As Willy has shown, Viner Berger has a strong financial position. We can pay back our debts within two years, and we could double our profit last year. 2017, ladies and gentlemen, we live in turbulent times, and this is going to continue. We have gotten used to handle this situation. Of course, interest rate fluctuations, foreign exchange rate fluctuations, are something that we are confronted with. We still are confronted with consequences of the Brexit. Also, there is the Greek sovereign debt crisis that has come up once again. Other issues will also come up. How much are we going to invest in new construction and infrastructure in North America. There will be elections in Germany, in France, and in March, of course, in The Netherlands, very important. And in autumn, there will be elections in Austria, no, in The Czech Republic. This was just a joke. So there will be elections in Europe, and there will be a number of other topics that we will be confronted with. Altogether, however, we are optimistic as this year as far as this year is concerned. There will be a growth when it comes to new housing construction, particularly in Germany and France. We see a positive trend in the first half of the year. At least this is our perspective as of today. We cannot make forecasts for the entire year, but at least for the first half of the year. And, there will be strong incentives in the housing market. We'll see how things turn out. In The Netherlands, there will be additional further growth, but at a lower level than previously. This, again, is the result of elections. We see a positive market environment in Eastern Europe, as I've already mentioned. Measures taken in Eastern Europe are positive when it comes to new construction. And you can see, this in the graph here, where all these countries are shown in green. The outlook for pipes and pavers. Here, again, we are optimistic for 2017. You can see the countries that are stable or show slight growth. So we can say that, there has been a change in trend. Altogether, the outlook for North America in the regions where we are active, and you could see the markets where Wienerberger is represented, we are confronted with a challenging environment as regards prices and local competition. But there is a positive trend when it comes to one and two family homes. Let's take a look at the financial development, the development of our performance. We expect that there will be improvements and growth of revenues and earnings. So given the savings from operational excellence in the amount of €10,000,000 which I've mentioned before, we will see a sharp increase from operational activities. And we will, reach, €45,000,000 Foreign exchange effects, of course, is something that we cannot predict. Acquisitions or sales from our portfolio. Something else, also, this does not include the sale of noncore assets and portfolio optimization. So we are talking about organic EBITDA. For 2017, we expect negative foreign exchange effects and a positive earnings contribution from the sale of noncore assets. So these are our expectations for 2017. We expect a clear increase of earnings and organic EBITDA of $415,000,000 So we have a clear strategy. We are consistently working to achieve our targets. We focus on innovation as regards the overall group, and we also focus on operational excellence. We want a continuous cost and process optimization. And of course, we will also, have selective bolt on projects in the core markets. Ladies and gentlemen, so much for a brief summary of the results of 2016, and we are optimistic as far as 2017 is concerned. Thank you very much for your attention, and we are available for questions. Thank you very much. Thank you very much. You have doubled your earnings. An increase of the dividend by 35% is not really appropriate. You've been very modest in this regard. Obviously, in view of repaying the hybrid loan upon bond. Is that true? Yes. Willy has shown you that one of our priorities, of course, is securing financing of our operation and the performance of the overall group. You've seen that thanks to our strong organic growth and the cash flow, we could repay the hybrid bond. This is a very important aspect that we have to keep in mind. On the other hand, it is obvious that our target is to pay out 10% to 30% of our cash flow as a dividend, and this is what we are doing this year. A second question. Talking about 2016 and in your outlook, you mentioned growth in new housing construction and reticence when it comes to renovation. In the coming years, the trend, of course, has to go towards renovation. Yesterday, we heard about decarbonization in relation with the Paris result. It was pointed out that nothing has happened when it comes to transportation mobility in Austria. And, activities in this regard in the construction sector have been insufficient, growth of less than 1%. Now is Wienerberger going to follow this trend? What about your plans regarding acquisitions for the purpose of revitalization? Or isn't this a topic for you? Well, it is an important topic for us. These are two important pillars for our company. We are working hard not only in Austria but also in Belgium, in The Netherlands, in Germany, in France and Northern Europe. Everywhere, we are cooperating with the local and regional decision makers in order to find solutions. Let me point out that the Belgium government, two three weeks ago, passed a new law, which is very future oriented. And this will provide incentives not just for renovation, but for replacement of old buildings. It's wrong to talk about renovation only. Very often, the wrong buildings are being renovated, buildings where the energy efficiency is far too low. Measures will last only for fifteen years, and these are wrong investments. People's behavior patterns have changed. We no longer live in family structures, as they existed fifteen years ago. Our everyday behavior Family life has changed. We need apartments that are different from what they were fifteen years ago. So this is a message to Austrian decision makers. In particular, we should not talk about traditional renovation only, but about replacing buildings as well. This is a topic that, has been taken up in The United Kingdom, in France and also in the Benelux countries. Now this, of course, is a political issue. I'm not a politician. I'm not a policymaker. All I can say is that we talk to policymakers. And for us, it's an important topic. We try to make it clear that we want to reduce CO two emissions, and we have to think, in long terms. We cannot just renovate an old building, which does not improve energy efficiency. And this is obvious. Just look at the discussion about passive buildings, which started in February. The result was that more energy is being consumed in these new buildings than would have been the case if, one had done it right. Now actually, I was referring to what you just said. You said we are not politicians. But what are you doing with regard to policymakers? Well, as an enterprise, as a company, we provide products to the market and solutions which actually helps to reduce energy consumption. Low energy buildings, active energy buildings that can be built at low cost. One of the best examples is Siegstadt Aspen, where we are constructing a multistory building. And, this is a sustainable project, which, will last not for a few years, but for decades. So this is a positive contribution. So I plead for a more objective, unbiased discussion rather than an emotional discussion that will solve the problem only for one or two years. Your presentation clearly showed your focus on core markets, Europe and North America. I remember that not long ago, Wienerberger also considered the Far East learning by doing on the spot. What are the results of this learning process? Well, in Russia and in India, we have brick manufactured plants. All three of them are profitable. And in recent years, we have definitely learned a great deal. Of course, as you can well imagine, this is not one of our top priorities. We need, to make progress also in our core business. But I can tell you that in India last year, we acquired additional we increased our capacity because sales had improved. So we will also increase our productivity there, our production activities. Activities in Russia are low, but we are trying to introduce new products on the market. So these plants are part of our portfolio, which are satisfactory and positive. You mentioned growth projects in the amount of 44,000,000 last year. Will this year's figures be similar? Or do you plan additional increase? Well, we have do not have a precise guidance. We can't do that. We will invest more or less what we did last year. Normal CapEx will be more or less similar when it comes to projects, growth projects. We expect something like EUR 25,000,000. But it may be more. It depends on what opportunities arise. As Mr. Van Riette pointed out, it is possible that there will be additional growth. Well, if there are no further questions, thank you very much for your attention, and have a good day. Thank