- THE MAGAZINE
In comparison with the record first quarter of the previous year, Wienerberger AG recorded, as expected, a massive revenue and earnings decline for the first three months of 2009. Group revenues fell by 37% and EBITDA by 82%. The development of business was significantly influenced by the continued deterioration of macroeconomic conditions in 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,” said Wolfgang Reithofer, chief executive officer (CEO). “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.”
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 U.S. remained weak.
Operating EBIT for the first quarter was negative €29.0 million (approximately $39.4 million), compared with positive €42.6 million (~ $57.9 million) in the prior year’s quarter. The shutdown of nine plants and further cost savings in sales and administration led to restructuring costs of €42.6 million (~ $57.9 million), which included €11.4 million (~ $15.5 million) of cash expenses and €31.2 million (~ $42.4 million) of special write-downs. Wienerberger recorded a loss in profit after tax of €61.0 million (~ $82.9 million) for the first three months of 2009, as opposed to profit of €30.2 million (~ $41.0 million) in the prior year’s quarter.
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% and EBITDA by 85%. 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,” said 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.”
In Central-West Europe, revenues fell by 29%. According to Heimo Scheuch, designated CEO and member of the managing board with responsibility for North-West Europe and Germany, “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% and EBITDA by 36%. 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,” said Scheuch. “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.”
Revenues in the North America segment dropped 33% to €35.2 million (~ $47.8 million) and EBITDA declined to negative €5.8 million (~ $7.9 million). Housing starts in the U.S. 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. “We expect weaker demand from the U.S. market, in any case during the first six months,” said Windisch. “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.”
The relevant markets for Wienerberger will definitely contract during 2009, the extent of which is 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,” said Reithofer. “During the past year, we closed 27 plants and implemented extensive cost reduction measures, which should result in annual savings of roughly €90 million (~ $122.3 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.
“The 2009 restructuring program is expected to result in cost savings of €40 million (~ $54.4 million), beginning next year. We have limited our investment plans to roughly €180 million (~ $244.6 million) this year, with approximately €80 million (~ $108.7 million) directed to maintenance capex and approximately €100 million (~ $135.9 million) to the completion of projects started in 2008. The reduction of inventories should release at least €100 million (~ $135.9 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.”
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