Wienerberger AG : H1 results confirm Wienerberger's diversification strategy
08/20/2013 | 03:10am US/EasternRecommend:
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- Group revenues: +27% to € 1,260 million (2012: € 989 million)
- Operating EBITDA: +5% to € 106 million (2012: € 101 million)
- Initial consolidation of Pipelife offsets declines in Bricks & Tiles Europe
- Pipes & Pavers: development as expected in H1
- North America: moderate growth in H1
- Outlook for H2 remains optimistic despite continuing difficult market environment
Vienna, August 20, 2013 - Wienerberger AG today announced results for the first half of 2013. The global market leader from Austria increased revenues by 27% to € 1,260 million and operating EBITDA by 5% to € 106 million over the comparable prior year period - despite extremely unfavorable trends and conditions during the first half-year. Heimo Scheuch, Chief Executive Officer of Wienerberger AG, explained: "In the first six months we were not only faced with an expected difficult residential construction market in Europe, but also with unusually severe weather. The Bricks & Tiles Europe Division was particularly hard hit. Developments like this are, unfortunately, not predictable and count even more because the division's employees are working very hard to meet this year's targets. For this reason, I am pleased that all other segments closed the first half-year in line with forecast and supported the Group's growth with higher revenues and EBITDA. The main driver for this growth was the initial consolidation of the Pipelife Group, which was acquired in May 2012. Pipelife generated the forecasted contribution of € 31 million to operating EBITDA for the first five months of 2013 and played an important role in the further development of the Group. Additional growth came from the North America Division, where slight recovery in new residential construction led to an improvement in revenues and earnings. In addition, the restructuring program announced last year, which is being implemented as planned, led to roughly € 10 million of cost savings in the first half of 2013."
Earnings, Asset and Financial Position
Due to non-recurring effects in the first six months of 2012 and slightly higher financing costs, profit before tax fell from € 29 million in the first half of 2012 to € -29 million for the reporting period. After the deduction of taxes, the Wienerberger Group recorded a loss of € 31.0 million and earnings per share (after the deduction of the hybrid coupon) of € -0.40 for the first half of 2013 (2012: € 0.08). Heimo Scheuch added: "Last year, positive non-recurring effects from the Pipelife takeover increased profit after tax by approx. € 42 million. These effects were not repeated in 2013, and the year-on-year comparison is therefore distorted."
Cash flow from operating activities negative due to seasonal increase in working capital
Cash flow from operating activities was negative at € -107.1 million due to the earnings decline and the seasonal increase in working capital. Total investments, which included the purchase price for Pipelife in the previous year, were substantially lower for the reporting period at € 43 million (2012: € 201 million) and comprised entirely of normal capex (maintenance and investments in technical upgrades for production processes).
Successful placement of € 300 million bond in April 2013
Net debt, which always reaches a high point in the summer for seasonal reasons, totaled approx. € 800 million as of June 30, 2013. In April 2013 Wienerberger issued a new bond that attracted substantial interest from international investors. Due to the strong demand, the volume was increased from the originally planned € 250 million to € 300 million and the coupon was set at 4.00% based on a seven-year term. The proceeds from the new bond will be used to refinance the bond that is due in July 2014 and to fund the operating business. The Group assumes net debt will decline to the December 31, 2012 level by year-end and, accordingly, the Managing Board's goal to hold the ratio of net debt to operating EBITDA below 2.5 at year-end remains intact.
Division Results for the First Half of 2013
The unusually severe weather had a negative effect on the development of business in all divisions during the first half of this year, but to a different extent. After a snowy winter that lasted into April, construction activity was slowed by heavy rainfall and flooding. The Bricks & Tiles Europe Division was especially hard hit, with the weak demand for building materials leading to a 9% decline in revenues to € 653 million and a 29% drop in operating EBITDA to € 64 million. The construction industry did not expand capacity during the second quarter to handle the backlog from the early part of the year but simply postponed projects, and as a result catch-up effects in the relevant markets did not materialize. As a result of these developments, the Group lost approx. € 20 million of forecasted operating EBITDA for the first six months. Average prices in the Bricks & Tiles Europe Division were slightly lower than the prior year at the end of June, whereby Wienerberger was able to offset cost inflation in Western Europe with price adjustments despite a market-related decline in volumes. In Eastern Europe, the weaker demand for building materials led to increasing pressure on prices in a number of regions. Heimo Scheuch commented: "We are using our cost advantages for sales promotions in these markets to strengthen our positions. The results have been very successful volumes in Eastern Europe remained nearly constant during the second quarter, in contrast to the market trend, and market shares increased."
Initial consolidation of Pipelife brings sound revenue and earnings growth for Pipes & Pavers Division
In the Pipes & Pavers Europe Division, the initial consolidation of the plastic pipe producer Pipelife increased revenues from € 191 to 496 million and operating EBITDA from € 17 to 46 million. Pipelife nearly offset the weather-related declines at the beginning of the year and weaker demand in markets like the Netherlands, France and Poland with orders from the project business for industrial pipes and special products and generated the expected earnings contribution. Steinzeug-Keramo, the specialist for ceramic pipe systems, recorded a slight increase in volumes over the comparable prior year period after a weather-related difficult start at the beginning of the year and also closed the first six months in line with the forecast. Semmelrock was confronted with a very difficult market environment in Eastern Europe and weaker demand that led to in part double-digit volume declines. However, the cost savings measures implemented in 2012 supported an increase in earnings and an improvement in margins over the first half of the previous year.
Higher revenues and earnings in North America
The North America Division benefited from moderate recovery in new residential construction. Revenues rose by 35% to €109 million and operating EBITDA from € 1 million to € 4 million, also due to the initial consolidation of the North American pipe business. Average prices remained nearly constant at the prior year level, despite increasing price pressure in individual regions.
Outlook and Strategy
Forecasts for the remainder of this year point to a continuing difficult market environment, above all for the European brick business. Low consumer confidence, restrictive lending policies by banks and the lack of government incentives for residential construction have pushed construction in Europe down to a very low level. In a number of Wienerberger's most important markets, e.g. the Netherlands, Belgium, France and nearly all East European countries, construction is now lower than the crisis year 2009. One consequence of this development is that affordable housing is becoming an increasingly critical issue in Europe. Heimo Scheuch added: "We also see this as a vital concern for Europe and are intensively engaged in raising the awareness of local decision-makers for the importance of public sector support for residential construction. These impulses not only create access to affordable housing, but also drive the economy. Residential construction covers a wide range of jobs - through the many specialists involved, e.g. masons, plumbers, painters, roofers, electricians, interior designers, etc. - and can serve as an engine for economic growth. Many countries have already recognized this fact and taken steps in this direction. My wish would be a pan-European program for the expansion of subsidized residential construction - including the necessary financing - which would then be implemented by the member states."
Substantial improvement expected in second half-year, above all for Bricks & Tiles Europe Division
Heimo Scheuch's outlook for the Wienerberger Group in the second half-year is optimistic, in spite of the difficult market environment: "Even if the hoped-for catch-up effects in the Bricks & Tiles Europe Division failed to materialize in the second quarter and are no longer expected to come through during the rest of the year, I still see substantial improvement during the second six months, above all in the roof tile business. The Pipes & Pavers Division should record stable revenue and earnings development through the end of this year. In North America, the latest forecasts by the US Census Bureau for the second half-year point to an acceleration of growth, which leads me to expect an improvement in revenues and earnings. The previously mentioned restructuring measures are being implemented as planned and should produce the expected € 18 million of cost savings this year. Net debt is projected to decline to the December 31, 2012 level by year-end. Our main focus in this still difficult market environment will remain on the generation of strong cash flows, the strengthening of our market positions and the development of new products. We will also concentrate on Wienerberger's continued development through value-creating growth steps in our core businesses.
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