Ladies and gentlemen, thank you for standing by. My name is Jasmine, your Chorus Call operator. Welcome, and thank you for joining the Wienerberger conference call on the results for the first half year of 2016. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Mr. Klaus Ofner, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Ladies and gentlemen, welcome from our side as well to the Wienerberger earnings call on the results for the first six months 2016. Thank you for dialing in. Wienerberger representatives on today's call are Heimo Scheuch, CEO, Willy Van Riet, CFO, and Stefan Huber, Head of Corporate Reporting and Corporate Treasury. Heimo Scheuch will open the call with a summary of the key developments and the results of the first six months and speak about our outlook and goals for the second half of the year. Following the opening statement, the line will be open for questions. I now hand over to Mr. Scheuch. Please go ahead with the summary.
Thank you, Klaus. On behalf of all of us, a warm welcome to our conference call and greetings from Vienna. If we look at our half year results 2016, we can clearly say from Wienerberger's perspective, we have shown strength again on the operational front with respect to the performance of our company. The all turnover from the first half year is more or less on the level of last year's, so a stable turnover, EBITDA slightly down by 1%. Please keep in mind that from an FX perspective, we had a negative impact on the revenue of about EUR 30 million and on the EBITDA about EUR 5 million due to the FX currency effect this year, especially coming from obviously the GBP, but also from Norwegian krone and the PLN that affected negatively our results.
If you look from an operational perspective, so excluding such effects, and then on top of it that we sold last year a significant amount of non-core real estate that affected positively our EBITDA. We have organically been growing about 9% our EBITDA, so a strong EBITDA growth this year again. This, if I may use a pilot's language, not only with tailwind, but with some significant headwinds in certain of our markets that I will elaborate a little bit more in detail in a minute. From a net result perspective, again, a strong increase from EUR 6 million last year to EUR 27 million this year. Especially on a cost front, we have I think due to extensive optimization measures over the last year, a good result and good contribution here from our production from the operations overall through Wienerberger.
Let's come a little bit more in detail to the different divisions and regions. Let's start with North America. We have seen here very good development with respect to the housing market. We have foreseen and predicted about 10% at the beginning of the year. We can confirm this running rate. Actually, our businesses perform a little better than that. We have operational growth in the range of about EBITDA 36% this year. We have a good pricing environment and the volumes have been significantly up in our core markets in the Southeast and also in our Canadian operations. We foresee this trend to go on for the rest of the year. In the plastic pipe operations, you will recall that we have one plant in the south of the U.S. in the state of Kansas. We have seen volumes at satisfactory level.
However, pricing activity is not at its best at the moment, we have a rather fierce price competition, therefore results have been negatively affected in this part of the business in the U.S. Let's move over to Europe, and here we have seen, obviously in our markets, a different development over the first half of this year. The whole of Eastern Europe has shown a very strong and good operational trend. We have seen housing activity picking up from Poland to Bulgaria, positive trends, especially in the one and two-family house building environment where we are active. Our roof tile and our clay block business have been positively impacted by this business, and therefore you see also good and solid growth rate in this area.
Volumes up in this area, and also our utilization rates have been better, therefore we have obviously a better cost structure in this region. As far as the region itself is concerned, we see these positive trends to continue throughout the year. Positive impact come obviously also from governments like the Hungarian one, also the Romanian one and the Polish one, where we see positive signs as far as the house building activity is concerned. The only market to be mentioned, which we have a small exposure to, that's Russia, obviously, where we have seen a decline still in the first six months. However, also there, we see a certain stabilization trend on these low levels as we speak in the last couple of weeks. This is from an operational perspective in the especially brick segment in Eastern Europe.
Let's move to the brick and roof tile segment in Western Europe. Here we have seen, obviously starting with Germany and France, a good trend. We have seen growing housing activity in the one and two-family houses in these two markets, also positively affecting our clay block business. When we move then to the Netherlands, we have foreseen at the beginning of this year a rather strong increase in the market. I think the increase is there. We have a good dynamic in this market. However, it's a little lower than originally expected, and certainly a little, I would call it, influence from the U.K. that has affected the activity in the Netherlands or Dutch market. The Belgium one is obviously of significant importance for us, and therefore also we see the decline that has occurred in this market is, for us, important.
Obviously, we will see and closely monitor Belgium and especially the positive trends coming out of the government as far as renovation and new build is concerned recently. We see here obviously some positive trends coming through from the public and the administration. However, this year, I think we will see and confirm this decline in the Belgium housing market. The Swiss market has also been in a certain decline mode, and this is to be confirmed for the rest of the year, as is the Italian one. Let's move over to the U.K., obviously very, I would call it, impacted and affected by all the discussions around the referendum. High volatility and instability before the referendum. Some sort of buildup of stock in the whole distribution chain at the beginning of the year.
I would say at this perspective, all of this has cleared out, especially on the level of stocks and the inventory in the distribution chain. I think we are now back to normal running rates. If I look at July, obviously the running rates are more in the range of last year, so one would suggest that we have digested the referendum, and we're living now in a new era. However, volatility is low in the U.K. as we speak. Positive signals come obviously from the government with a strong indication that housing will remain important for the government and stimulate the activity from the government will be one of the key items for it in the future. Obviously, there is demand in the market, and a positive impact from the government will help over the next couple of years.
However, it's too early to say what will happen for this year. We, as Wienerberger, expect the market to go down by about 5%, so this is a significant change with respect to our guidance that we had at the beginning of the year before the referendum. If we then move away from the new build more to the renovation business, you know, and you're well aware that our roof tile businesses are affected by the renovation market. There we see obviously somehow a slower trend in renovation, especially in Western Europe. I do apologize.
Western Europe, in big markets like France and Germany and, to some extent, the Benelux region because obviously there's the austerity measures from the public budget on the one side, so no major subsidies for renovation, and obviously the cheap energy doesn't give the incentive to people to really renovate their roofs at this stage. We see here a somehow declining trend within the range about 3% in this area of our business. If we move then to the Pipes & Pavers operations, here also a mixed picture. Why? Because we have obviously two areas of the business that got affected again by, first of all, public domain, I would call it, when we talk about infrastructure in Eastern Europe. A lot of infrastructure spending, especially when it comes to sewage and wastewater systems, gets heavily subsidized by EU money.
Here we have seen somehow a slower trend. A changing of administrations in Eastern Europe led to a certain, I would call it, restriction at this stage. Probably we shift the projects in the next couple of years because administration is currently changing in Poland and Romania. Two very important markets for us, especially for piping in plastic and in ceramic, where we sell obviously high volumes in these two markets. Again, here, public influence, it's nothing, I would say, to worry long-term because the need is there. We see this as a trend that is on its mid-term way to be expected and to clear out in the years to come.
On the other hand, we have obviously an exposure to international projects as far as our domestic pipes are concerned, especially to the oil and gas industry on one side and in big international energy projects for big dimension pipes. Both of these piping systems come out of our Western European piping division. Here we have obviously seen a decline in sales in both domains. Therefore, these rather profitable businesses are a little weaker compared to last year, and the order intake this year has been lower compared to last year also. On the other hand, we have seen a good development of our business in the Nordic region, especially Norway, Sweden, and Finland have performed well in our piping operations.
Also the takeover of a small competitor and a specialist in the sewage pipe systems in the Helsinki area in Finland has helped also the operations there. Generally speaking, as I said, mixed picture, good performance in countries like the Nordic, like the Dutch business and the Austrian business in the piping. Weaker so in our business also on the piping front in France, due to the local effects there with distribution and supply to the market. When we look to the paving business, that's our Semmelrock business in Eastern Europe, I would say a rather solid business in most of the countries. A little weaker, again, when it comes to infrastructure spending in Poland and also some pricing competition in Poland in this product range that we have to deal with at this stage and for the rest of the year.
When we look at the overall businesses and again, the outlook, I think here we have some markets that are performing well, especially in the new residential one, a little weaker in some infrastructure markets in Eastern Europe and also in the renovation market in Western Europe, and to a certain extent, a little weaker market in the U.K. All in all, this leads us obviously to a guidance that we maintain our operational performance with the EBITDA of EUR 405 million. However, we see this EUR 405 million as a guidance pre-currency. That means any of the currency changes and fluctuations will affect our result. We have seen a first effect half year, about EUR 5 million. If we take this for the whole year and extrapolate it's about EUR 10 million that we have to take into consideration.
This is obviously at this stage only a guess with respect to currencies. Again, as I said, operationally, we feel comfortable with this EUR 405. We also have the EUR 15 million coming from the real estate. We will feel comfortable that we get those. All the projects that we are realizing and will realize in the second half are well on track. When we look at the input costs, we have obviously the major part coming from energy. Let me just precise there as well that we have guided at the beginning of the year about EUR 6 million coming additionally from the energy side with respect to lower energy prices. At this stage, we can confirm that this will be higher than EUR 6 million. I think the overall positive impact will be more around EUR 13 million.
I think an additional EUR 7 that will come from this area of cheaper energy costs, especially gas, obviously. Here we see this positive inflow coming in on the cost side. However, I have to state that we look cautiously, obviously, to the markets like the U.K. and Belgium, where we will certainly adjust in the second half our production in such a way that we bring down capacity and then adjust to market demand, and therefore, if I may call it, they will compensate these EUR 7 million in savings on the energy side, our higher costs of idle capacity in these areas of the business. There will, however, be, and we don't see any need of restructuring or closures of plants in bigger magnitude in Western Europe. I think here we are well-positioned in order to manage such intermediary downturn in these markets. We maintain our plant network.
We don't see that there's a need of capacity reduction because in both countries, especially in Belgium and in the U.K., there is important demand to be foreseen for the future, and our plant network is well positioned for the local market. We will make this, if necessary and required, this very quick and fast cost adjustment if required in the second half, but they won't have a major impact, as I said, on the overall cost side because we have this EUR 7 million coming in from the lower energy costs. On the project side, meaning growth projects, we are well on track this year. We have realized, as I said, this takeover of small competitor of sewage specialists in the Helsinki area. We have taken over a brick plant in West of Poland, which is well on stream already.
Romania, we have taken over a plant in clay blocks also near Bucharest or in the greater Bucharest area. We have finished our concrete paver plant in South of Vienna, and this will be on stream also in the next couple of weeks. The major part of our growth spending will be achieved, and the contribution from these projects will be minor this year because obviously we are in the phase of realizing those projects. We'll see coming in the benefits of this early next year. On overall spending, I think we are obviously keeping an eye on our spending side, but the foreseen EUR 145 shall be sort of the target that we will have here for this year. On the pricing side, we have seen price increases on an overall group level of about 1%.
You can see that obviously, even in such environment, we are able to increase our prices and offset obviously the inflation and cost increases, which we see due to the fact that there's a lower energy cost coming in about 1.1% for the whole of this year. When you look at the second half of the year, obviously, we have a challenging second half of the year ahead of us, but we are confident that we can realize our targets. Please also, when you make your estimates or calculations, keep in mind that last year we had a one-time restructuring cost last year in the second half of about EUR 17.5 million that we won't have this year. You keep this also under consideration when you make your estimate.
I think I've probably covered very quickly in a nutshell, a lot of points, but I think Willy and myself are now ready to take your questions, please. Thank you very much.
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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift 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 is from Mr. Matthias Pfeifenberger of Deutsche Bank. Please go ahead, sir.
Yes. Good afternoon, gents. A set of questions on U.K., please. You mentioned the minus 5% market growth rate that you expect. Can you maybe elaborate a bit on H1 versus H2? You mentioned July volumes flat, Brexit almost digested. Is it a fair assumption to assume that you might be flat because you always outgrow the market? What are you expecting for market growth in the second half, and how could you outperform that?
I will jump in rather quickly. I think from our perspective, first of all, I just want to make one thing clear. When you say Brexit digested, we don't see a Brexit. It's the referendum that is digested. For what the future brings, I think nobody right now knows, and this will continue for a while till the U.K. government has figured out what it wants to do. I'm just saying that normality and stability is back in the market, and that running rates are more or less flat compared to last year in July. The visibility is obviously such at this stage that we can't say it's three or four months. We are living by the month right now in the U.K., and therefore, you can also confirm the assumption that we are more or less flat for the rest of the year.
May I remind you, Matthias, when we guided after the first quarter, we remained our guidance that we've been given in the beginning of the year because after a first quarter, there is not really visibility. At that moment, we already hinted that the plus 4% may look overstretched to us, and that was still at the time before the referendum.
Yeah. That's my point. I mean, Q1 was probably up. Q2 was probably already down.
Weaker and now we're more at this moment for the month of July, we're on the level of last year. Maybe we are a bit overcautious, but I think we'd rather be cautious than anything else.
What I want to get at is that you actually imply a very steep decline in the second half. Is that correct? For the market.
No. Because I think the plus four was already a bit overstretched as well. Yeah.
Okay. Still, if it was more or less flat in the market in the first half, the minus five doesn't look very great for the second half, right?
It is a decrease from a flattish market as we saw in the first quarter to a slight decrease in the second quarter to what is now to be seen. What we have seen as a first reaction after the referendum at stake is confirming rather a flattish market.
Okay.
That's what it is at the moment. Yeah.
The minus five could turn out too conservative in the end if, let's say, this flat environment persists.
There's at the moment, no guidance at all about the U.K. market. The CPA, we usually give guidance, has now postponed its next guidance to next year, which is easy. Yeah. I think we are looking at what we believe is coming, and we're trying to guide the market to something. At this moment in July, it's not there yet.
Okay.
If you look at also at our competitors that have given their guidance, recently, that you well monitor. All of us say the same more or less, that we see over the last couple of weeks a flattish trend. Before and around the referendum, there was a higher degree of volatility because nobody knew what's going to happen. As I put it, we all have not the visibility for the rest of the year. I would say it's a fair guess that the market will to some extent decline compared to last year. Yeah.
Would you think there's also some lag, the people that just started or were about to start did go ahead, and then now with all the uncertainty, it might be Q4 that's basically the tide?
Yes. That depends then on the confidence rate in the U.K. Here also, when you ask people from different institutions, you get all sorts of answers.
Again, visibility is low at this stage, I would say we prepare ourselves and we are prepared for any sort of scenario. We can produce bricks as much as possible and needed very quickly. On the other hand, we don't want to build up inventory either in the U.K., we'll monitor it on a, even say, weekly basis.
Okay, great. Then maybe an add-on to that. You mentioned capacity cuts are being initiated, but in the call just now you mentioned that those would be ready if necessary in Belgium and U.K. I guess since you are running flat or even better still, are you already taking measures or not? What would those be? Would it be reducing exports, reducing utilization, or even mothballing?
We are taking measures now or preparing to take measures in the U.K., where we will take out some shifts in selected factories. Not everywhere and not minor, but adjusting capacity with a few percentage points. The reason for that is to be proactive in our inventory control for the event. I think that's the main reason why we do it. We do not at this moment are enacting anything on the Continent, but if necessary, we will do it. That's the usual way we react, pretty quick and pretty flexible.
The last one U.K. would be on pricing. All your comps have also announced capacity measures. How is pricing looking in the U.K.?
Firm.
Just a housekeeping one. The guidance now excludes FX movements, but it's called operating EBITDA. Typically we assume FX to be an operating item, but how can we think about the guidance going forward? Would you say that this one was more extraordinary because of the referendum move in the sterling and that going forward this might again be included, or will you switch to something called underlying EBITDA?
Where we will go to, I don't know yet. That will depend on, I think, what the Brexit also took us, to be honest, a bit by surprise.
Yeah
especially the strong sterling devaluation which took place. That's half of the whole thing is only on sterling. On top of that, we have also seen that we have still weaknesses in quite of some of the Eastern European currencies, which normally we would not separately guide for. I think this time we thought it was too strong to call it just forgive it. Just take it as a part of the operating bit.
Okay.
As from next year, we'll probably be on equal terms or whatever, because we see there's more and more volatility in currency markets.
I think it's fair to agree, Matthias, this took all of us, not only Wienerberger as a surprise and this impact on the referendum and then the currency market is a substantial one this year. We view it as extraordinary also.
May I just add one thing? This is only translation. Yeah. Whatever we export from the Continent to the U.K., we fully hedged at pre-referendum exchange rates.
Yeah, I get it. Fair enough. Thanks, gents.
The next question from Mr. Yassine Touahri of Exane. Please go ahead, sir.
Yes, good afternoon. A couple of questions. My first question would be on the margin evolution in Western Europe for your brick and tile business. In the second quarter, you had margin pressure when you had a margin expansion in the first quarter. Is it mostly because of the decline in the British activity where you have higher margin?
It is in the British, but also in the Belgian activities. The Belgian activities is purely related to the market, where we already hinted in our guidance that the market would go down by 6%.
What is happening in Belgium exactly? Is it consumer confidence? Is it the incentive on the housing? What is explaining the decline in the market?
We've seen a slump in housing permits, which is taking effect now. Since February, we've seen housing permits are going up again, we are getting more positive on also what is coming for maybe the remainder of the year and certainly for what is following. It is consumer confidence. Mind you, the country has been hit by various events. That is one thing. Secondly, there's been, and it's a very typical Belgian thing, but unfortunately, it's true, this is a market which is very conscious of whatever fiscal measures are announced. There has been, again, uncertainty on whether certain renovation, especially, it is mainly in our roof tile business, whether renovation subsidies would still be available, yes or no. It has been confirmed now that they are available, so we might see business picking up again.
The same question on your Pipes & Pavers business in Western Europe. The first quarter margin expanded substantially but came under pressure in the second quarter. Is it mostly because of a deterioration in your international project activity where you got higher margin that's for the rest of the business?
Yes, you're very right. We hinted to that already in our full year guidance. Of course, what we still did, we still have delivered and invoiced some of the projects that we already started in 2015 that flew over in the first quarter, which is a low quarter anyway. These high margin activities in a low quarter makes your margin jump up.
Do you see any sign of a change in activity in the second part of the year, or your order book suggests that we could see the same kind of decline as what we've seen in the second quarter?
We have a visibility on the pipeline, and we know there's a lot in the pipeline. Now, before the pipeline becomes an order book, and before the order books get produced and sold, we will be way into the second half of the year.
You've got limited visibility for the next couple of quarters in this division?
Yeah.
And just-
Therefore, we'd rather say that's going to be nothing, because if you have no visibility, those things don't drop out of heaven.
Just to come back on the U.K. I understand that the second quarter was negatively impacted by destocking. The month of July has been better than the second quarter. Is that correct?
July has been better, yes.
We don't know about the rest of the year. Perhaps a question which is a bit about number, which is about your guidance and the one-off in your guidance. I just want to make sure that I understand properly. You've got an EBITDA guidance after effects of EUR 395 million?
Correct. Yes.
In this, you've got EUR 50 million.
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non-operating asset disposals. Excluding the sales of non-operating assets, it would be something like EUR 380 million?
Yes, correct.
You also have integrated a EUR 7 million negative impact of restructuring.
No, that was last year.
No, EUR 7 million, sorry. EUR 7 million impact of restructuring this year. Is it correct? You're mentioning that you will have some restructuring costs that will be compensated by additional energy costs. Does it mean that you are the-
Yeah.
Does it mean that you've got 7 million of restructuring costs?
That's compensated by the energy.
If the energy costs remain where it is, at some point, those one-off restructuring costs will disappear, while the energy cost is something which is recurring.
Sorry. First of all, I've mentioned it's not restructuring costs. We have lower running rates. Yeah? If we take, as I said, the possibility that we act on our working capital and that the market decline in certain areas that we have described, we will adjust our capacity and therefore have idle costs that will affect our EBITDA.
It's just lower volume in the U.K. and Belgium.
This will be compensated by better or lower energy costs of EUR 7 million.
Your guidance, therefore, suggests that you're expecting an organic EBITDA growth in the second half of something like 10%, which is better than what we've seen in Q2. Is it the correct calculation or am I missing something?
It is guiding for a better operating performance in the second half of the year than in the first half of the year, clearly.
Why it would be driving this better operating performance? Is it because you've got an easier base effect in France and Germany? Is it because that the U.K. will not be as bad? What will drive this better performance?
Look at some of the other markets. U.K. is 10% of our group turnover. We see a better performance now coming into Eastern Europe, yeah?
Yeah.
That is creeping in, that's usually more backloaded towards the second half of the year.
We see that a piping business, we are going to stay probably flat on the business that we have, excluding the one-offs, we will get some of the additional benefits of some of our cost restructuring still, too.
That's very clear. Thank you. Possibly very last question on the restructuring cost. Last year, you had EUR 17 and a half, and when was this exactly? It was mostly in the fourth quarter. That's it?
It was the fourth quarter because it was linked to the closure of some capacity, and really the final closure in Germany, two plants, a plant in France in pipes, and a plant in Belgium.
Okay. Thank you very much.
This year, if you just want the complete picture, we have EUR 2.9 million of closure costs for a factory in U.S., sorry, United States of America, where we are putting capacity together to boost up performance.
Okay. Very clear. Thank you very much.
Our next question is from Dilash Mahendrarajah of Berenberg. Please go ahead, sir.
Good afternoon all. Thanks for taking my questions. I have three, if I may. Firstly, back on the U.K., your outlook on new residential construction of -5% seems a bit more negative versus what some of your peers are saying. Why is this? Also in terms of the volumes there, am I correct in saying destocking started in Q4 last year? Would there be easier comps there or not?
Yes. The last two quarters of 2015 were already a bit weaker because we hinted also there to destocking, which went on till in the first quarter of this year. We believe most of that is done now. The comparatives will be relatively different, but as we said earlier in the call, we don't know what remaining five months of this year we're gonna be.
Yeah. Is there any reason why you're maybe, I know you sort of touched on this earlier, but why you're more negative in sort of terms of new residential in the U.K. than some of your peers? Is it regional or is it-
No, it's nothing to do with regional. I think it's probably that we take a more pragmatic approach, if I may say so at this stage. Yeah. I think nobody really knows for sure what, at the end of the year, comes out. I think it's fair to say that on an overall estimation, it's our own estimation that we see the market going down by about 5%.
Okay. On France, Germany, and the Netherlands. I think they're sort of the, in terms of Western Europe, where you've adjusted your outlook in terms of housing stock. What have you seen that's changed your view? Is it just a change in the stock data, or are you seeing something on the ground? Also, in terms of Germany, is what you're seeing sustainable? Because I think previously, the trend was towards multi-family housing. What's changed there?
Yeah. Actually, when we talk about our estimates, and you appreciate that if I say it's our own experience on the ground especially, and not so much on the statistical side. If I walk you through, France has seen from, you remember the events that took place in France, the fortunate and unfortunate events that I don't want to comment in the first half, but also social unrest and other issues led to, obviously, a weaker environment in certain areas of France. Logistically, it was rather difficult to get around. Obviously, from an overall perspective, I think here we will see still a very good development because you remember that we turned the corner in France last year, and here we see a positive now, back to growth mood in the French housing market when it comes to for one and two-family houses, which are important for us.
Yeah?
Yeah.
I think this is to be continued. You also know that next year we'll have an election year in France, I do assume that at this stage, we have more or less turned the corner and we are back into a growth in France. The Dutch market is also solid growth here on the ground. Probably, as I said at the beginning of the year, everybody was, especially in Western Europe, more enthusiastic, and certainly the referendum, the discussions, all of it led a little bit to a weaker environment, but still with a good growth rate in the Dutch market. I think we are happy and we can take benefit of this positive environment. Again, please keep in mind that next year we are up for national elections in the Netherlands. Again, here, I think we will see certain changes.
I think all of these discussions that we hear out of the local election campaigns and political discussion lead us to believe that there are strong signals in favor of residential housing markets, renovation, et cetera. Positive signs there. To your last question, Germany. You're absolutely right. We were cautious at the beginning of the year because urban construction is still going on residentially in Germany. This is I think the positive takeaway from the second quarter, Germany has somehow been able to stimulate also the one and two-family houses outside the bigger cities. Here, obviously, we can take more advantage of it because bricks usually tend to go into these type of constructions, and therefore for our, especially clay block business, is a positive sign.
Let me also say in this context, one thing, I think we have been ready together with our operational team back down in Germany to propose solutions for refugee homes that are very long-term oriented and are developed together with governmental institutions where we can obviously contribute here positively also to the rising demand for such homes in Germany.
Okay. Finally, just for housekeeping really. How should we look at tax rates this year and next?
Tax rates. Wow. Ask me an easier question. I can guide you a bit on the tax cash out. I think that's the easier bit to look at. We have now EUR 11 million of cash out for the first half of the year.
Yeah.
My working hypothesis, we'll probably end up between EUR 20 million and EUR 25 million for the full year.
Okay. Thank you very much for that.
The next question is from Mr. Stefan Trubrig of Kepler. Please go ahead, sir.
Yeah, good afternoon, gentlemen. Thanks for taking my questions. There are a couple left. First of all, I would be interested in some more details on the volume development, because I didn't really understand it. Looking at your half-year report, and you provide for the clay blocks, facing bricks, and roof tiles for the regions, the volume development, which apart from the facing bricks in Western Europe, has been across the board surprisingly positive. Also in North America, volumes are up nicely. My question is, why is then in the top line bridge, the volume growth almost only flat? Is the reason that the sharp volume decline in the Pipes & Pavers? If you could provide some more color here, that would be appreciated. Secondly, I would be interested in your view on the U.S. market. You sounded quite optimistic seeing 10% growth.
However, according to latest census data, residential housing permits have turned down recently. Maybe if you could judge the current development, that would be appreciated. The third question would be on your further business development pipeline. You mentioned a couple of smaller bolt-on acquisitions. However, if I recall correctly, your 2020 vision of plus EUR 600 million EBITDA would also imply, let's say, a larger acquisition. Is there currently something in the pipeline or, let's say, a project that could materialize anytime soon? In which region would you try to become more active on the acquisition front? Thank you.
Right. Well, I will focus on your last question on the M&A and then also on the U.S. Willy will comment on the, I would say, the volumes.
Yeah. On the volumes, you're quite right. We've seen a good volume growth in most of our European markets in Clay Building Materials, but that's of course offset by volume decreases in pavers, ceramic pipes, and also in plastic pipes. Very clear.
Okay, there must have been very sharp declines then, because given the significance of the clay products, so the bricks, the pavers, and pipes must have come down quite drastically.
It's not double digits, it's also a question about how you weigh volumes in the total picture.
Yeah.
There's of course a difference.
Okay.
Rest assured, none of them is in double digit region.
Okay, thanks.
Going to the U.S., I can only confirm what I said earlier. We believe that the U.S. housing market will grow this year again by about 10%, especially in the regions where we are active, and also the Canadian market, especially in the Ontario area, shows good signs of strength. I remain with respect to the U.S., honestly what's coming after the elections and with the new president is going to be then I think I've not my glass ball in front of me what's going to happen there. Generally speaking, we remain positive about the U.S. housing trends should be outwards demographically. We need the houses in the U.S. We are now building also in our areas, again, more with the brick facing facades. Here again, also the positive signs remain intact.
When we go to your last question, as far as M&A activity is concerned, let it put me in such a way. We have now focused very thoroughly on improving our portfolio, adding in markets where we can quickly create value and have a very good payback like we have done in Finland, like in the Eastern European one, and with the paver plant in Austria. You will see us move very cautiously, very focused on certain targets that we view important for our company. Willy has explained to you our high degree of discipline when it comes not only to the balance sheet, but also on the financing. We obviously, as a group, will focus on this very thoroughly in the months and years to come. When you talk about our, call it midterm, long-term target 2020.
Obviously, a group like Wienerberger, if we continue on our growth path, we will come across opportunities, but not this year and not next year when we talk about M&A activity, then we will clearly develop our focused approach again in order to strengthen our position in the European market where we are active and in the U.S. market. However, let me say one thing at this stage. You have seen us moving from a production-oriented company in the last years to a more market and more customer-driven company. You see it with our pricing, with our innovation. This will be the key drivers in the next coming years.
Wienerberger will certainly shape more and more its approach to market and being very close to decision-makers and therefore focus thoroughly on the distribution front in order to improve pricing and also the margins in the product segments that we are active. That's our key focus for the years to come.
Okay, thank you. Just one follow-up question on the Netherlands, where you said that due to the Brexit decision to leave the EU, there are some spillover effects, and that's why you lowered your growth expectations for the Dutch market. Is this mainly, or is it driven or influenced by other competitors that were servicing the U.K. market that now also try to address the joining market? I.e., shipping from the U.K. to the Netherlands, like you did when the U.K. market was booming, shipping from the Netherlands to the U.K.? Or if not, could you provide us some color what is the reason behind the lower growth expectation?
Well, it's nothing to do with competitive landscape or so. This is a very stable one in the Netherlands already for a decade. Recall that we had obviously very low market activity there, and people know how to operate their plants, so it's nothing to do with this or market share shifts, nothing at all. We see only that obviously, there was a high degree of optimism in the Dutch market at the beginning of this year. If I may say so, the spillover effect is much more a psychological one than something material. Obviously, people are a little bit more cautious, I would say, waiting a little bit more on certain decisions, and therefore, the whole year will turn out a very positive one for the Dutch market, a very positive one with good growth rates.
If you look at the growth rates, it's actually very high for a construction market in new residential housing. It is still a little lower than originally expected, and this is to be seen under the light that people probably have lowered their enthusiasm a little bit after the referendum. This general weakening in the consumer confidence because the Netherlands are a big export market, not on bricks, but on other materials into the U.K., and that's what is hampering the confidence a bit in the Netherlands at this moment.
Okay. Thank you very much.
The next question is from Florence O'Donoghue of Davy. Please go ahead, madam.
Hello. Thank you. Just one from me, actually. Sorry, going back on the whole U.K. side again. I was just wondering, can you help us on how much of your brick revenues that you generate in the U.K. are via the export channel, that are actually imported into the U.K. from your European production?
No.
No.
Sorry, Florence, but that's-
That's okay, really. I suppose just.
Yeah. We take a fair share of the imports into the U.K.
Sure. Okay. Just on that, I know you said earlier on about you're hedged out at pre-Brexit rates. Does that unwind look into next year? Is it a possible challenge as we look into 2017, given what's happened with sterling more recently?
Yes.
Okay. That's great. Thank you.
It will be the same effect as the sterling, yeah.
Super. Thank you. Thanks, gentlemen.
The next question is from Sir Mike Betts of Jefferies. Please go ahead, sir.
Yes, thank you very much. I've only got one left as well. You refer in some of the statements to the wet weather in June. Is there any way you can kind of quantify what that might be or guide? Some companies talk about the sales in April and May and then a step down in June or volumes. Is there any kind of guidance you can give us as to what impact that might have had on Q2? Thank you.
Very difficult, Mike, to really quantify that all over the markets. We know that especially Benelux, U.K., parts of France have been hit by very strong rain, so that definitely has hampered our roof tile sales. We heard from some of the markets also comments that, especially on the facing brick side, it was very difficult to start bricking up. It's difficult to see how much of that is really quantifiable and also in a way that we could communicate it. I'm sorry for that. I would love to know it as well, so.
That's understood. Is the expectation that that will be made up in the remainder of the year? Is that the way you look at it? Obviously, it depends on the weather, but if we just get normal weather, is it potentially possible for the market to catch that up?
I doubt it, really. This catching up is happening. You still see that there is, I would say, a reluctance with a lot of construction companies to hire additional people, so they work along what they're doing. I do not see really a big push there up. Certainly not in the summer months, because remind you, July, August, typically in those countries are holiday months. If we see something, the spillover would be rather in, I would say, probably in the fourth quarter is something more realistic. The rest is booked, the rest they are busy with, and I've not heard any of the countries where they shifted their holidays and where we have seen a different pattern in deliveries either.
Understood. Thank you very much.
The next question is from Mr. Daniel Porter of UBS. Please go ahead, sir.
Good afternoon, gentlemen. Just a few from me, actually. Can we just go through a little bit of an EBITDA bridge? Very helpfully in the past, you've given that before. If we're assuming that we're sort of getting nothing on volume, price is sort of dropping through about EUR 15 million or so. Can we just talk a little bit about the cost tailwinds that you got through the first half as well, and any restructuring benefits that you got through from the restructuring undertaken last year? I believe there was a couple of loss-making plants that were closed. Can you just guide us through what might have been the EBITDA benefits of those?
Okay. The main effects are really on the pricing that has come through. A little bit of volume effects, and then again, we have to be careful not to go into too much regional figuring out. As you can imagine, and yes, you can see in our figures, our margins are significantly up in Eastern Europe in bricks.
Where of course we have a better utilization of our factories. On the cost restructuration on the 2017 closures, there's not that much effect already in the first quarter, and only marginally starting to kick in the second quarter. I expect more of that to come in in the second half, and we guided there for EUR 3 million-EUR 5 million.
EUR 3 million-EUR 5 million. Okay. Yep. That's helpful. Just on that underlying cost as well, in terms of energy costs, you're looking at EUR 7 million for the full year. What was the
No, no. We're looking at EUR 12 million. Initially, our guidance being EUR 5 million-EUR 6 million.
Now we're saying we get an additional EUR 7 million on it, which will probably be consumed by some of the capacity measures we will have to take, and we have to eat some of our fixed cost anyway, because that's what's going to happen. The
All right. EUR 5 million-EUR 6 million really becomes EUR 12 million-EUR 13 million. Is that how we should be thinking of it?
Yes, please.
Yes. Got you. Understood. Okay. Can I just ask to, just in terms of your growth CapEx that you've undertaken and have guided to for this year, can we just talk about the benefit to EBITDA for 2017, what you might be expecting for that, and what synergies you might be sort of anticipating at this stage as well?
Yes. Part of the growth CapEx is, of course, a new factory that we are building on paving. The benefit of that will only start kicking in next year.
The benefits of the acquisitions itself, we said it's very small in the first half of the year, and I think it's around half a million EUR in the first half. It will probably go one million EUR in the second half and a tad more maybe in the second half of the year. Not really that big.
Okay.
We are still integrating and starting with the brick factories and they're fine, they're operating, but we still have to get them integrated to the system.
Yeah. Okay. Understood. Can I just ask about inventory as well? You just touched earlier that in the U.K., you're looking at sort of managing-
Yeah
managing your inventory position there a little more through the second half. Now, is it fair to assume that over the last two years, you've had fairly big inventory builds in the U.K., just in anticipation of stronger growth? Should we be thinking about a fairly significant unwind in the inventory position there in light of that? Just how does that sort of factor into your thinking in terms of cash and net debt for the end of the year?
No. I think we move down our inventory a little bit in the U.K., but I see our inventories growing alongside with the growth that we see in other markets.
Okay.
It is a question of balancing out. Yeah. We are precautionary taking the measures now in the U.K. to slow down the production, but we'll see how the market evolves, and maybe we'll jack it up again.
This is just really, I think, good housekeeping and just do it that way.
Yeah. Just being prudent. Understood. Okay. Thank you very much, Edwin.
The next question is from Tobias Loskamp of HSBC. Please go ahead.
Hi. Good afternoon. Three questions, please. Firstly, you showed some improvements in the operating cash flows. Is it mainly inventory linked, or is it something else to it? Is that a sustainable improvement that we should see for the full year, or will that reverse in the second half? Second question that I have is, basically, can you remind us on the share of piping and clay building product sales in North America? Finally, my part of question on the U.K., you have previously said that Q1 was flat, Q2 was down. Is it for the market or is it for your sales including, let's say, negative destocking effect? Thank you.
Cash flow effect. The majority of that is, of course, coming out of our stocks, which we are managing down. I think that's only a reflection of more looking at also our pipes, not only of the U.K., because it's not like we have We also look because we know we have less market activity in our piping activity. We have also managed down the stocks over there. It's mainly on that part as well that we've improved. If you take it on turnover base, it's of course always dangerous because you're comparing two different product and product groups. It's 20%.
20% is the pipes?
Yep. In turnover.
Then in terms of profitability?
That's a too detailed granular information that we don't like to give.
Yeah.
The majority of the results come out of the brick.
You had one other question on.
On the U.K., just to clarify on when you said the first quarter was flat, second quarter was down, is that basically for you how the market behaved, or is it your sales and that already includes some destocking effects?
That was our sales, did not yet include any destocking effects because that's only starting in the second half of the year.
Just want to clarify. That's your destocking, I thought about the market has destocked from, let's say, second half of last year.
Okay. We did not destock basically in the first half of the year in the U.K. We just had the normal running path. How much of that is related to the destocking? I can't tell.
Okay. All right, that's fine. Thank you.
The next question is from Ami Galla of Citigroup. Please go ahead.
Thank you. I just have a couple of questions, please. Firstly, in the U.K., can I ask, when do you have the pricing negotiations with your customers next? For next year, could you think of passing on the costs from the FX headwinds for the imports component? My second question is if you could give us some color on the input cost moves on your pipes division, what do you expect for next year there?
You will appreciate if I say the following at this stage, it's not only true for the U.K., but for all of our countries. We usually get together our pricing and strategy as far as pricing is concerned in the later part of the third quarter into the fourth quarter of every year for the following year. Then we thoroughly investigate the market, the potential for market growth or decline, and how we position ourselves against competition, not only in our products, but also potential substitution products. Therefore it is at this stage much too early to make any judgment call with respect to pricing in certain regions of Wienerberger.
I can tell you the one thing that, as you have seen over the last years, we always have been very clear that we want to put on inflationary cost increases to our customers if possible and if the market allows it. We will clearly focus on this also in areas like the facing brick market. When you look at exports and imports, this is a different story because obviously you have transportation costs, you have currency fluctuations, et cetera. Actually, these are things that the client as such, or the customer doesn't want to see because he buys locally and obviously pays locally for it. We will, as I said earlier, investigate thoroughly the situation. We are not there yet. It's too early. We will see it at the latest pitch of the year. Your second question was related to input cost pipes?
Yes.
There actually, we've seen a bit of fluctuation in the PVC price. I think it's actually going up a little bit, but not really to an extent that we believe we are not able to pass on with the usual delays and some of the price increases there. It's not really spikes back and forth, but I think that part is fine.
Can I also have a follow-up on the U.K. again? If sterling remains at current levels, for next year, would imports be margin accretive to the group at all if you import product to the U.K.?
We've imported brick into the U.K. in the years at the height of the financial crisis during 2008 and 2012. The products that we sell in the U.K., which are made on the continent, are an integral part of our product offering in the U.K. because they cannot be made in the U.K. We will continue on selling them, and we will see, as Heimo said, how we can deal with the margin and the currency pressure on the margin.
To answer your question clearly, yes, we make margin on these products.
Okay. Thank you.
Ladies and gentlemen, if you would like to ask a question, please press the star followed by the one on your telephone. There are no further questions at this time. I hand back to Mr. Ofner.
Well, ladies and gentlemen, thank you very much again for dialing in today. As the final point for today's call, I would like to remind you of our Capital Markets Day, which we will host on September 15th in Graz, Austria. If you have questions about this event and require further details or want to register, please get in contact with the IR team. Thank you very much for dialing in. All that's left to say for today is have a nice day and talk to you again at the latest in our Q3 conference call on November 8th. Thank you. Bye-bye.
Ladies and gentlemen, this concludes the Wienerberger conference call on the results for the first half year 2016. Thank you for joining and have a pleasant day. Goodbye.