This year’s profit after taxes fell by 85 percent in the first three quarters compared to the same period last year, from 312.5 to 46.1 million euros, as the world’s largest brick manufacturer announced on Tuesday. Sales were relatively stable at 3.4 billion euros, after 3.3 billion euros a year ago.
“The recovery in the new residential construction markets expected for 2024 has not occurred,” the company explained. This is primarily due to slower rate cuts and the “limited impact” of government countermeasures in countries such as Austria, Germany, Belgium, France and North America.
In addition, demand reportedly remained “subdued” in the third quarter due to political uncertainty – for example in the run-up to the US elections – and flood disasters. Eastern Europe and Great Britain/Ireland, in turn, showed positive demand for living space, which “partially compensated” for declines in volume in Western Europe – especially in France and Germany – and the USA. According to Wienerberger, the infrastructure and renovation business areas developed “solidly”.
Largest takeover in company history
In the midst of these turbulent developments, Wienerberger made the largest acquisition in the company’s history this year with the takeover of the French roof and solar provider Terreal. “We are able to digest the largest acquisition that Wienerberger has ever made,” said CEO Heimo Scheuch in a conference call.
The deal is worth 600 million euros. According to previous information, the company to be integrated with around 3,000 employees at 28 locations is expected to generate additional annual sales of around 725 million euros. “Terreal makes a positive contribution to our sales and results,” emphasized Scheuch today. A contribution of “100 million euros or a little more” is expected for the coming year. From March to September 2024, Terreal contributed EUR 56 million to operating EBITDA.
Wienerberger’s net debt climbed by 55 percent in the first three quarters this year, from 1.21 to 1.88 billion euros. Equity rose by only 6 percent to 2.83 billion euros. This increased the company’s debt ratio from 45.7 to 66.5 percent.
As a result of the overall weak demand, many plants were and are underutilized this year or were temporarily shut down. As a result, Wienerberger recorded “fairly high downtime costs” of 80 million euros in the first three quarters this year – especially in the summer months, as Scheuch admitted. This resulted in tighter austerity measures.
“We intensified our cost and efficiency measures,” reported the CEO. In the reporting period, cost management resulted in savings of 51 million euros – 22 million euros of which were in the third quarter alone. In 2024 as a whole, they should add up to 60 million euros. In addition, there are around 40 million euros in savings through the so-called “Self-Help Program”.
Outlook scaled back
Wienerberger has now significantly reduced the outlook for the full year 2024. “The challenges in new residential construction are proving to be more stubborn than expected,” said management. At the same time, there is continued robust demand in the areas of renovation and infrastructure.
Operating EBITDA (earnings before interest, taxes, depreciation and amortization adjusted for the effects of sales of non-operating assets and structural adjustments, note) is expected to be between 750 and 770 million euros this year. In mid-August, the group management had still expected 800 to 820 million euros. In 2023, 810.8 million euros were achieved. For 2025, Scheuch expects “certainly well over 800 million euros”. However, this information is not yet guidance, the CEO added.
In the first three quarters of 2024, operating EBITDA fell from EUR 665.1 to 601.9 million compared to the comparable period in the previous year, and the associated margin deteriorated from 20.2 to 17.7 percent. Earnings before taxes, interest, depreciation and amortization (EBITDA) fell from 655 to 536.7 million euros. Profit before interest and taxes (EBIT) halved from 443 to 217.6 million euros.
Works on the back burner
In any case, demand is expected to recover next year. “Volume is the most important driver – our plants are currently running on a low budget,” said CFO Gerhard Hanke in today’s conference call.
“It was a challenging year, it was a year full of surprises,” summarized Scheuch, with a view to the geopolitical and macroeconomic environment as well as the floods, which are delaying new housing construction in the affected areas for months until 2025. You will not build on completely wet ground. Next year, new construction activity is expected to gain momentum again thanks to lower interest rates and government stimulus programs – “driven by the results of the US elections, initiatives from the EU Housing Commission and improved market conditions in Great Britain/Ireland and Eastern Europe.”
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**Interview with Heimo Scheuch, CEO of Wienerberger**
**Editor**: Thank you for joining us today, Heimo. Wienerberger has reported a significant drop in profits this year, with an 85% decrease after taxes in the first three quarters compared to the previous year. What do you attribute this drastic decline to?
**Scheuch**: Thank you for having me. The decline in our profits primarily stems from the ongoing challenges in the new residential construction markets, which we’ve expected to recover in 2024 but haven’t seen materialize yet. Factors such as slower rate cuts from central banks and limited effects of government measures in key markets like Austria, Germany, Belgium, and North America have contributed to subdued demand.
**Editor**: You mentioned that despite stable sales figures, demand has been particularly weak in Western Europe and the USA. What are the key factors driving this weakness?
**Scheuch**: Political uncertainty, especially with the upcoming US elections, has significantly impacted market sentiment. Additionally, natural disasters like floods in various regions are hindering new housing projects and creating further delays. However, I must note that we have seen positive demand in Eastern Europe and the UK, which has partially offset the declines in other areas.
**Editor**: Amid these difficulties, Wienerberger completed its largest acquisition to date with the purchase of the French roof and solar provider, Terreal. How do you believe this will impact the company moving forward?
**Scheuch**: The acquisition of Terreal is a strategic move for us. It integrates approximately 3,000 employees and is expected to add substantial revenue. We believe that Terreal will contribute positively to our sales and results, projecting around 100 million euros of contribution for the upcoming year. This acquisition reinforces our commitment to diversifying our offerings and reinforcing our market position.
**Editor**: You’ve mentioned the increased costs associated with underutilization of plants and temporary shutdowns this year. How is the company addressing these operational challenges?
**Scheuch**: Yes, we have faced high downtime costs of around 80 million euros. To tackle these challenges, we have intensified our cost management strategies, leading to savings of 51 million euros in the reporting period. As we move into 2024, we’re implementing stricter austerity measures to ensure efficiency in our operations.
**Editor**: Looking ahead, what is your outlook for 2024 and beyond given the current economic climate?
**Scheuch**: While we have scaled back our expectations for 2024 due to persistent challenges, we are optimistic about a recovery next year. We anticipate that lower interest rates and potential government stimulus programs will drive new construction activity. Our CFO, Gerhard Hanke, has pointed out that although our plants are operating on a low budget now, we expect volume to be the key driver of our recovery.
**Editor**: It sounds like you’re navigating through some turbulent waters, but there’s cautious optimism for the future. Thank you, Heimo, for sharing your insights today.
**Scheuch**: Thank you for having me; it’s been a pleasure.