Wienerberger AG, the world’s largest producer of bricks and the number one in clay roof tiles in Europe, is reporting a 25% year-on-year drop in revenues for the difficult 2009 financial year. Shaken consumer confidence and, above all, a lack of financing triggered a major contraction in new construction in all Wienerberger markets. Declining sales volumes and slightly lower average prices, as well as the cost of extensive plant standstills to reduce inventories as part of the active working capital management program, led, as expected, to weaker operating results for Wienerberger in 2009: preliminary operating EBITDA (before restructuring costs) fell by 53% to € 208.6 million and preliminary operating EBIT by 92% to € 19.0 million. Preliminary EBIT after one off effects totaled € -258.1 million following the recognition of € 121.4 million in restructuring costs for optimization measures (including € 52.6 million of cash expenses), € 32.3 million of impairment charges to real estate and € 123.3 million of impairment charges to goodwill. The deduction of the preliminary financial result of € 37.5 million and the addition of preliminary tax benefits of € 36.9 million resulted in a loss after tax of
€ 258.7 million and preliminary earnings per share of € -3.17 (adjusted earnings per share: € -0.34). The decisive implementation of the cost reduction program and, above all, the significant reduction of working capital and investments allowed Wienerberger to increase free cash flow by an impressive 28% to around € 250 million for the reporting year despite weaker operating results in a difficult market environment.
2009 marked by restructuring
“2009 was an extremely challenging year that was also marked by extensive restructuring”, explained Heimo Scheuch, Chief Executive Officer of Wienerberger AG, on the results presented today. “We were faced with significantly lower demand for building materials in all our markets. The biggest disappointment was North America, which has remained on a downward spiral since 2006 and fell substantially below expectations in 2009 with a further 36% drop in revenues to € 149.0 million. Operating EBITDA in this segment was negative at € -13.3 million as a result of costs incurred to cut capacity to a low level of 20% in order to reduce inventories. On a positive note, we were successful in holding prices constant in spite of a difficult US market climate.” In Central-East Europe, which was first impacted by the economic crisis in early 2009, Wienerberger also recorded a substantial decline in earnings from the good 2008 level. Revenues in this region fell by 35% to € 579.4 million. Negative foreign exchange effects and a 10% decrease in average local currency prices had a negative impact on operating EBITDA, which fell 59% below the prior year to € 108.8 million. New residential construction in Western Europe dropped sharply during the first six months of 2009, but recovered slightly in the second half-year. The demand for building materials has stabilized in recent months, above all in Great Britain and Germany. Revenues in North-West Europe were € 713.4 million, or 19% less than in the previous year, while operating EBITDA declined by 29% to € 102.5 million. Central-West Europe reported a 10% decrease in revenues to € 373.2 million and 24% lower operating EBITDA of € 32.3 million.
First signs of renewed growth in Central-West Europe during Q4
Group revenues fell by 21% to € 399.3 million and operating EBITDA by 59% to € 31.1 million during the last three months of 2009. Operating EBIT was negative at € -17.7 million due to extended winter standstills and the resulting costs of idle capacity. However, developments in the four Wienerberger regions differed during this period. In Central-West Europe, where Germany represents roughly 70% of the segment, revenues nearly matched the prior year at € 86.3 million. In North-West Europe, the decline was more moderate than in earlier quarters with an 11% fall in revenues and a 10% reduction in EBITDA. These results were mainly supported by a slight rise in the demand for building materials from a very low level in Great Britain as well as more constant sales volumes in Belgium. In North America and Central-East Europe, the past months have failed to bring any improvement in the downward trend. Revenues in North America dropped 40% and, due to lower capacity utilization and extended winter standstills, resulted in negative operating EBITDA of € -4.3 million. Central-East Europe reported comparatively good results in relation to the sound fourth quarter of 2008 with a 34% decline in revenues and 59% lower EBITDA.
Wienerberger stronger than ever due to action plan
and capital increase
In 2009 Wienerberger implemented an extensive action plan to adjust its structures to meet lower demand. This program included the adjustment of production capacity to reflect the current state of the market, active working capital management to reduce inventories and a decrease in administrative and sales costs as well as a cutback in investments to the minimum necessary. A total of 31 plants were shut down or mothballed, and extensive standstills were implemented throughout the production network to reduce inventories. The company also halted its growth program and only funded the completion of projects already in progress. Investments were limited to approximately € 134 million in 2009, of which about € 63 million represented maintenance expenditures. Wienerberger was able to reduce maintenance programs to a one-off low level without impairing the performance capability of its plants, and realized a reduction of nearly 40% in comparison with the previous year. Heimo Scheuch expressed his satisfaction with the results of the action plan by commenting, “We not only met, but exceeded the goals we set at the beginning of 2009. Fast and decisive action allowed us to realize cost savings of € 160 million in 2009 as well as to trim inventories by € 168 million and subsequently reduce net debt to roughly € 410 million by the end of the year. We now have lean cost structures and a solid balance sheet and – thanks to the capital increase – are in a stronger position than ever before.”
Wienerberger market forecasts for 2010 remain very cautious
Wienerberger remains cautious for 2010 because of the still limited market visibility. “I am an optimistic person and assume the worst is now over in most of our markets. But just when and to what extent recovery will take hold is something I would not want to predict at this time”, said Heimo Scheuch. “For example, take the USA: the NAHB (National Association for Home Builders) is forecasting an increase of more than 20% in housing starts this year. I would be more than happy if they were right, but I have my doubts because of the steady rise in unemployment and high number of foreclosures. In my opinion, the demand for building materials in the USA will most likely remain constant at a low level during the first half of 2010. Developments on the Central-East European markets are also difficult to estimate. Poland is the only country in the region where I am more confident for 2010 because of the strong domestic demand. Visibility is so limited in the other countries that I refuse to make any predictions and cannot exclude a further decline in demand. In Western Europe, I expect 2010 sales volumes should match the prior year level. Demand should rise at least slightly in Great Britain and Germany, with Belgium and France remaining stable and Switzerland declining slightly. In the Netherlands, I expect another double-digit drop in new residential construction this year because financing is still tight and business in this sector is heavily dependent on project developers”, explained Heimo Scheuch. Asked about a dividend for 2009, Scheuch replied that this decision will be made within the next couple of weeks.
Significant earnings improvement expected in 2010 due to cost reductions
Heimo Scheuch excludes further plant shutdowns in 2010, based on the current outlook. “We have adjusted our capacity to reflect market conditions, and I therefore consider the restructuring process to be completed. Wienerberger has efficient structures, and we will now turn our full attention to the operating business. For me, this means a greater focus on our high-quality products in existing markets and their launch into new markets, as well as the further expansion of sales activities. In spite of the limited visibility, I view 2010 with optimism. Our first quarter results will be noticeable negatively influenced by the severe winter weather, but I expect stable volumes as well as a significant improvement in earnings for the full year based on further cost savings of € 35 million and increased capacity utilization at our plants”, added Heimo Scheuch in conclusion.
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