Ceramic Industry News

Weather Woes Weaken Wienerberger's 1st Qtr Results

May 18, 2010
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Wienerberger AG recorded an expected year-on-year decline in revenues and earnings for the first quarter of 2010. The most severe winter in more than 20 years brought construction to a virtual standstill across Europe and the U.S. during the first two months of the year and triggered a decline in sales volumes on nearly all of Wienerberger’s markets.

Revenues fell by 22% to €279.5 million (approximately $353.7 million), and operating EBITDA was negative at €22.6 million (~ $28.6 million). “We postponed the start of production in our plants at the beginning of this year because of the unusually long winter, and the costs of these extended standstills had an added negative effect on our earnings,” said Heimo Scheuch, CEO.

The development of business from January to March was characterized by weak demand in almost all markets. Eastern Europe registered the strongest declines due to the exceptionally long winter, with lower volumes in all countries. Revenues also fell in Western Europe, but to a lesser extent, while Great Britain was the only country in the group to record a volume increase of 19% for the first three months. New residential construction in the U.S. also remained weak throughout the reporting period as a result of the weather.

In Central-East Europe, the unusually long winter and the slow pace of new residential construction during March were responsible for a 36% drop in revenues to €59.8 million (~ $75.7 million). The costs of extended plant standstills and lower average prices resulted in negative operating EBITDA of €12.8 million (~ $16.2 million) for the first quarter of 2010. The decline in average prices reflected a more flexible pricing policy in Eastern Europe, with adjustments from the second to fourth quarter of 2009. Accordingly, the price level for the first three months of 2010 was below the comparable prior-year period.

“Segment results were negatively influenced by the adverse market and weather conditions, as well as the costs of extended plant standstills,” said Johann Windisch, chief operating officer. “Market forecasts for this region are particularly difficult since we cannot determine exactly what part of the earnings decline is attributable to the bad weather and what part reflects market weakness. We cannot exclude further revenue declines in Central-East Europe during 2010, whereby we are more optimistic for Poland, Bulgaria, Romania, and Southeastern Europe than for Hungary, the Czech Republic, and Slovakia. In these three markets, we expect that new building materials capacity will further increase competitive pressure, which we intend to counter with a flexible pricing policy and the launch of premium products.”

Central-West Europe reported a 16% decline in revenues to €55.9 million (~ $70.7 million) for the first quarter, as well as negative operating EBITDA of €5.9 million (~ $7.5 million). The costs of extended plant standstills were the main cause of the negative earnings in this segment. “Italy and Switzerland reported moderate declines, but Germany followed two weak months with a slight increase in volumes during March,” said Windisch. “The moderate rise in building permits over the past few months supports forecasts for recovery on the German residential construction market in 2010 from the very low level that has characterized recent years. Central-West Europe should therefore see a moderate improvement in volumes and earnings during the coming year, which will be based on positive impulses from residential construction in Germany.”

Revenues in North-West Europe fell by 18% to €141.2 million (~ $178.7 million) in the first quarter of 2010. Despite a slight year-on-year improvement during March, all product groups reported lower sales volumes on all Continental European markets for the first quarter. The development of business in Great Britain was positive, with increasing signs of modest recovery in new residential construction. Wienerberger sold 19% more facing brick and roof tile at lower average prices than in the weak first quarter of the previous year.

“The decline was not brought about by a price reduction, but by a shift in the product mix,” said Windisch. “Project developers have increased their use of commodity products, which are naturally less expensive. This changeover was reflected in an above-average rise in these products as a share of our total volumes, as well as a lower average price for facing bricks. I would not call this a trend, but a temporary occurrence.”

Windisch expects a slight improvement in Great Britain and France for the full year, as well as stable demand for building materials in Belgium. His outlook for the Netherlands is somewhat more pessimistic due to the limited availability of project financing and government cost-cutting programs, and he expects a further decline on the new residential construction market in this country.

The demand for brick in the U.S. also decreased at the beginning of 2010 due to the unfavorable weather, but it stabilized at a low level in March. Revenues in the North America segment consequently fell by 21% to €27.8 million (~ $35.2 million), but operating EBITDA improved from negative €5.8 million (~ $7.3 million) in the first quarter of 2009 to negative €3.8 million (~ $4.8 million) for the reporting period. “In the USA we expect a bottoming out during the first half-year and moderate recovery in new residential construction during the second six months,” said Windisch. “Based on stable volumes and a substantial increase in capacity utilization over the 2009 level, operating EBITDA should be positive in 2010.”

Seasonal effects prevent the first quarter from providing a reliable basis for full-year forecasts in the construction industry. “That means results for the first three months give us only limited information for predicting the development of business during the rest of the year,” said Scheuch. “I do not believe we will be able to completely make up for the weak start into 2010, but expect a substantial improvement in earnings this year as a result of the anticipated savings from the restructuring program and a price-related reduction in energy costs. Net debt rose during the first quarter due to seasonal factors but with gearing of 23% we still have one of the strongest balance sheets in the construction industry. We intend to use this financial strength and our leading role in the brick sector to launch new products in existing and new markets, and thereby expand our positions.”

Additional details are available at www.wienerberger.com.

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