In comparison with the record first quarter of the previous year, Wienerberger AG, the world’s largest producer of bricks and the number two in clay roof tiles in Europe, recorded as expected a massive revenue and earnings decline for the first three months of 2009. Group revenues fell by 37% to € 360.3 million and EBITDA by 82% to € 16.2 million. The development of business was significantly influenced by the continued deterioration of macroeconomic conditions on all markets as well as severe weather during most of the first quarter. “Extremely mild winters during the past two years were followed this season by heavy snows that restricted construction activity. In addition to the already weak markets, this situation had a further unfavorable influence on our business. One of our current goals is to reduce inventories by the end of this year. We therefore extended the winter standstills at our plants, but the resulting costs had an added negative effect on earnings. However, it should be noted that the first quarter of the year provides only a limited basis for an analysis of the building materials industry because of seasonal and weather-related factors – and for this reason, an evaluation of developments at Wienerberger over the coming months is only possible to a limited extent“, commented Wolfgang Reithofer, Chief Executive Officer of Wienerberger AG, on the results presented today.
Bad weather and weak markets lead to sharp drop in demand
Wienerberger recorded significantly lower demand on all markets during the period from January to March, whereby the decrease in Eastern Europe was the most pronounced because of the strong first quarter of 2008 with its historical record results. The strongest revenue declines were reported by Hungary, Romania and Russia but volumes were also low in Poland, the Czech Republic and Slovakia. Moreover, foreign exchange effects had a negative influence on the development of revenues in the region. Western Europe also reported top-line declines on all markets, but to a lesser extent. New residential construction in the USA remained weak. The operating EBITDA decreased because of weaker demand and the costs arising from extended production standstills.
EBIT clearly negative at € -29.0 million
Operating EBIT for the first quarter was clearly negative at € -29.0 million, compared with € 42.6 million in the prior year. The shutdown of nine plants and further cost savings in sales and administration led to restructuring costs of € 42.6 million, which included € 11.4 million of cash expenses and € 31.2 million of special write-downs. Wienerberger recorded a loss in profit after tax of € 61.0 million for the first three months of 2009, as opposed to profit of € 30.2 million in the prior year. Adjusted earnings per share fell from € 0.26 for the first quarter of 2008 to € -0.39 in the first quarter of 2009 (after deduction of the hybrid coupon and an adjustment for restructuring costs).
Seasonal increase in net debt
“Net debt rose from € 890.2 million at the beginning of the year to € 1,067.9 million as of March 31, 2009 due to seasonal factors. Cash flow from operating activities was negative at € 85.3 million because of the decline in earnings and the seasonal increase in working capital. However in spite of very weak market activity, Wienerberger was able to reduce inventories in a period that is normally characterized by increases in this area. Cash outflows of € 49.6 million for investments and acquisitions include € 37.7 million for the completion of projects started in the previous year as well as € 11.9 million of maintenance capex. Group equity declined from € 2,497.2 million at the beginning of the year to € 2,364.0 million as of March 31, 2009, chiefly due to the payment of the hybrid coupon and negative foreign exchange differences“, explained Chief Financial Officer Willy Van Riet.
Central-East Europe with massive drop in earnings after record prior year
Central-East Europe reported massive declines in comparison with the record first quarter of the prior year due to a sharp drop in sales volumes. Revenues fell by 54% to € 93.2 million and EBITDA by 85% to € 9.4 million. Among the Wienerberger regions, Central-East Europe was the most heavily affected by the severe snow. “Results in this segment were negatively influenced by the difficult market and weather conditions as well as by unfavorable foreign exchange effects, above all from Poland, the Czech Republic, Romania and Hungary“, explained Johann Windisch, member of the Managing Board with responsibility for Central-East Europe and North America. “It is not possible to separately identify the influence of the bad weather and the effects of market weakness on earnings, and that makes it difficult to evaluate the development of business in this region. In any event we are expecting substantial volume declines in all countries, whereby the more stable macroeconomic environment in Poland, the Czech Republic and Slovakia should allow these countries to perform better than Hungary, Romania and Russia.“
Bad weather leads to earnings decline in Central- and North- West Europe
In Central-West Europe, revenues fell by 29% to € 66.4 million, while a loss of € 5.5 million was recorded at the EBITDA level. Heimo Scheuch, designated CEO and member of the Managing Board with responsibility for North-West Europe and Germany added: “Sales volumes in this segment declined by more than 30% – also as a result of the bad weather. Although prices remained stable, earnings were negative above all due to the costs resulting from extended seasonal plant standstills. For the full year we expect a further weakening of demand in all markets and increasing pressure on prices in Italy.“ In North-West Europe revenues fell by 26% to € 172.4 million and EBITDA by 36% to € 25.1 million. In addition to the cost of production standstills, earnings were negatively affected by the bad weather and the related drop in sales volumes. For example, sales volumes of facing bricks and clay roof tiles in Great Britain were roughly 40% below the still sound first quarter of 2008 (before the market collapse in April). “Great Britain will remain weak. In France we are expecting only a slight volume decline because of the continuing market shift from concrete to bricks. On the market in Belgium, the VAT reduction for building materials and construction services could provide positive effects. The negative trend will continue in the Netherlands“, summarized Heimo Scheuch.
US-housing starts in Q1 still declining
Revenues in the North America segment dropped 33% to € 35.2 million and EBITDA declined to € -5.8 million. Housing starts in the USA continued to contract sharply, falling by more than 50% year-on-year during the first three months of 2009. For this reason, earnings were also affected by plant standstills and the related the costs of idle capacity. Johann Windisch described the outlook for this region as follows: “We expect weaker demand from the US market, in any case during the first six months. However, stabilization may be possible after this summer since we already saw an extremely low level of residential construction during the second half of 2008.“
Protection of liquidity, reduction in net debt and capacity adjustment to reflect market weakness
The relevant markets for Wienerberger will definitely contract during 2009, the extent of which is however difficult to estimate. “Our top priority remains the strengthening of liquidity as well as the adjustment of our capacity and cost structures to match sales levels. During the past year we closed 27 plants and implemented extensive cost reduction measures, which should result in annual savings of roughly € 90 million in 2009. We have also announced further measures to reduce costs and adjust capacity. Of the 20 plant shutdowns scheduled for this year, the first nine were completed during the reporting period. These measures led to cash expenses of € 11.4 million and special write-downs of € 31.2 million during the first three months. The 2009 restructuring program is expected to result in cost savings of € 40 million beginning next year. We have limited our investment plans to roughly € 180 million this year, with approx. € 80 million directed to maintenance capex and approx. € 100 million to the completion of projects started in 2008. The reduction of inventories should release at least € 100 million in 2009. We also recorded the first positive results from these measures: in a period that is normally characterized by an increase in inventories, we were able to achieve a reduction in this area despite lower sales volumes. Due to the seasonality of our business, net debt rose to € 1,067.9 million as of March 31, 2009. Our goal remains to reduce this figure to € 790 million by the end of the year“, added Reithofer in conclusion.
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