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[November 2009]
Wienerberger Records Clearly Positive Cash Flow Despite Continuing Weak Demand
Wienerberger AG (Vienna, Austria), the world's largest producer of bricks, was impacted by the continuing effects of the global economic and financial crisis during the first nine months of this year. Bank constraints on project financing for housing and above all the decline in consumer confidence triggered a sharp drop in new residential construction.
Against this backdrop, Wienerberger recorded a 26% decrease in revenues to €1.416.7 billion and 51% lower operating EBITDA of €177.5 million (before restructuring costs) and a drop in operating EBIT of 83% to €36.7 million. Due to restructuring costs of €81.4 million (comprising €29.3 million of cash expenses and €52.1 million of special write-downs) as well as the half-year recognition of €28.2 million in impairment charges to property, plant and equipment and, also, of €124.4 million to goodwill, profit before tax was clearly negative at -€225.3 million. Profit after tax totalled -€198.2 million as a result of positive tax effects, and adjusted earnings per share equalled -€0.01.
"The year got off to a weak start in all our markets. Sales volumes fell dramatically, especially in Central-East Europe and North America, and new residential construction continued to contract across Western Europe - above all in Great Britain, the Netherlands and France," explained Heimo Scheuch, CEO of Wienerberger AG. An analysis by quarter shows a slower decline in revenues over the course of the year: the third quarter decrease was slightly smaller than the decrease in the second quarter, partly because of the lower comparative values for the third quarter of the previous year.
"Although volume declines were more moderate during the summer, September remained below expectations - especially in the USA and Eastern Europe - and there are no signs that the downturn in the operating business will soon bottom out. The only improvement in volumes was reported by Great Britain, with a slight increase over the (low) prior year level in September, which still cannot be interpreted as a change in trend. For these reasons, cash preservation and reduction in fixed costs will remain our top priority," emphasised Heimo Scheuch, underscoring the Wienerberger strategy.
Wienerberger reacted to the sharp decline in demand during the first quarter with an extensive action plan. After removing 27 plants from the production network in 2008, the measures originally defined for 2009 involve the shutdown or mothballing of another 26 plants to match market conditions as well as active working capital management to reduce inventories by at least €100 million, a decrease in fixed costs through restructuring in sales and administration and a cutback in investments to a minimum.
The development of business after the summer remained less favourable than expected. Consequently the action plan was expanded to include the closure or mothballing of five additional plants in Hungary, Germany, Poland and the USA. An estimated 31 plants are to be closed or mothballed during 2009 at a cost of €120 million (€50 million of cash expenses and €70 million of special write-downs) - 24 of these plants were shut down during the first nine months. In addition, extensive temporary standstills are planned to reduce inventories. These measures affected a total of 1,660 employees during the reporting period. The temporarily closed locations and mothballed production lines represent a substantial capacity reserve that can be reactivated quickly as needed.
The measures implemented to date led to a year-on-year decrease of roughly €135 million in personnel and maintenance costs during the first nine months of 2009. In addition, active capacity management supported a reduction of more than €100 million in inventories compared with the first three quarters of 2008. Investments were also cut by a significant amount: maintenance costs fell by one-half to approximately €37 million, while the €68 million in growth investments that were required to complete projects started in 2008 were 76% less than in 2008.
"Given the weak condition of new residential construction on all our markets, I do not expect any significant improvement in earnings by year-end 2009. Operating EBITDA for the second half of 2009 should therefore reflect the level recorded for the first six months," summarised Heimo Scheuch. "Bank constraints on financing, rising unemployment and the high number of foreclosures in the USA are working against a turnaround in new residential construction. It is too early to speak of recovery from today's perspective because the economic environment is still difficult, but the measures we have implemented lead me to be more optimistic about 2010.
“Even if demand remains weak, I expect the coming year will bring considerable improvement in earnings and cash flow due to the cost savings realised through our action plan and an improved utilisation of capacity in our plants."
ENDS