Analysis Erste Bank 762,77KB

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Fixed Income Research
Credit Report
www.erstebank.at
January 2007
Wienerberger
Disclaimer
THIS REPORT HAS BEEN PREPARED BY ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG AND ITS AFFILIATES (COLLECTIVELY "ERSTE BANK") TO
PROVIDE BACKGROUND INFORMATION ABOUT WIENERBERGER AG (THE "COMPANY"). IT WAS PREPARED INDEPENDENTLY OF THE COMPANY AND ANY
ADVISERS TO THE COMPANY AND THE FORECASTS, OPINIONS AND EXPECTATIONS CONTAINED HEREIN ARE ENTIRELY THOSE OF ERSTE BANK. WHILE ALL
REASONABLE CARE HAS BEEN TAKEN TO ENSURE THAT THE FACTS STATED
HEREIN ARE ACCURATE AND THAT THE FORECASTS, OPINIONS AND EXPECTATIONS CONTAINED HEREIN ARE FAIR AND REASONABLE, ERSTE BANK HAS
NOT VERIFIED THE CONTENTS HEREOF AND ACCORDINGLY NONE OF ERSTE
BANK, THE COMPANY OR ANY ADVISER TO THE COMPANY NOR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS OR EMPLOYEES, SHALL BE IN ANY WAY
RESPONSIBLE FOR THE CONTENTS HEREOF, AND NO RELIANCE SHOULD BE
PLACED ON THE ACCURACY, TIMELINESS, FAIRNESS OR COMPLETENESS OF
THE INFORMATION CONTAINED IN THIS DOCUMENT.
THE AUTHORS OF THIS REPORT HAVE NO AUTHORITY TO MAKE ANY REPRESENTATION OR WARRANTY ON BEHALF OF THE COMPANY, ERSTE BANK, OR
ANY OTHER PERSON IN CONNECTION HEREWITH. NO PART OF THEIR COMPENSATION WAS, IS OR WILL BE DIRECTLY OR INDIRECTLY RELATED TO THE
SPECIFIC VIEWS CONTAINED IN THIS REPORT. NEITHER OF THE COMPANY,
ERSTE BANK, NOR ANY OTHER PERSON DOES ACCEPT ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING FROM ANY USE OF THIS
DOCUMENT OR ITS CONTENTS OR OTHERWISE ARISING IN CONNECTION
THEREWITH.
ERSTE BANK MAY HAVE ACTED UPON OR USED THE INFORMATION HEREIN
CONTAINED, OR THE RESEARCH OR ANALYSIS ON WHICH IT IS BASED, BEFORE
ITS PUBLICATION. ERSTE BANK MAY PARTICIPATE IN AN OFFERING OF SECURITIES OR RELATED FINANCIAL PRODUCTS OF THE COMPANY.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO SUBSCRIBE FOR OR PURCHASE ANY SECURITIES OF THE COMPANY AND NEITHER
THIS DOCUMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS
OF ANY CONTRACT OR COMMITMENT WHATSOEVER. THIS DOCUMENT IS
BEING FURNISHED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE
REPRODUCED OR REDISTRIBUTED TO ANY OTHER PERSON.
THIS DOCUMENT CONTAINS SOLELY GENERAL INFORMATION AND DOES NOT
CONSTITUTE AN ADVERTISEMENT FOR SECURITIES REFERRED TO HEREIN OR
AN OFFER, OR THE SOLICITATION OF ANY OFFER, TO BY OR SELL SECURITIES
REFERRED TO HEREIN PURSUANT TO RESPECTIVE AUSTRIAN LAWS.
Credit Report Wienerberger, January 2007
Page 1
Contents
Page
3
The Company
Strengths and Opportunities
4
Weaknesses and Risks
5
Company Profile
6
Business Segments
10
North-West Europe
Central-East Europe
Central-West Europe
USA
Investments and Other
11
13
15
17
18
Sector Development
19
Construction Business
Energy Markets
19
23
Financials
24
Strategy and Corporate Goals
Sales Revenues and Profitability
Cash Flow
Debt
1Q-3Q 2006
Outlook 2007
Credit Rating
24
26
28
29
30
31
31
Peer Group
32
Appendix
35
Contacts
40
Research
Elena Statelov, CIIA
[email protected]
+43 (0)50 100 19641
Veronika Posch
[email protected]
+43 (0)50 100 19633
Page 2
The Company
Overview
z Wienerberger is a worldwide leading producer of bricks for walls and roofing
systems. It is number one worldwide in hollow bricks, and number one in Europe
and the USA for facing bricks; Wienerberger number two in Europe for clay roof
tiles. Fifty years after its foundation in 1819, the company was listed for the first time
on Vienna Stock Exchange. With a weighting of almost 5% in the ATX, Wienerberger
is one of Austria's largest companies today.
z In the year 1986, it acquired the Oltmanns Group in Germany and thus laid the
foundation for today's far-reaching globalization. Four years later, it entered the
market in Hungary and thus made a first step into the East European market. In 2005,
the company earned around 26% of sales revenues in the Central European region
(incl. Austria). In 1999, Wienerberger acquired General Shale and took the risk of
entering the US market. In 2006, the exposure in the currently sluggish US market
was increased by the takeover of Robinson Brick.
z Wienerberger has been concentrating on the production of bricks for ceilings and
walls as well as pavers. Facing and hollow bricks used primarily in new constructions
accounted for some 74% of group sales revenues in 2005. The clay roof tiles used
largely in the area of renovation and maintenance contributed 21% to sales revenues
in 2005. Pavers, which is covered by the 75% subsidiary Semmelrock, accounted
for some 5% of sales revenues.
z Wienerberger is strongly diversified geographically. Only 2% of group sales revenues
were earned in Austria in 2005. As the bricks are produced close to the end
customers, the business activities (in % of sales revenues 2005) are grouped
regionally into the segments of North-West Europe (38%), Central-East Europe
(26%), Central-West Europe (20%) and USA (17%).
z Wienerberger increased sales revenues in 2005 based on organic growth and the full
year consolidation of "thebrickbusiness" and Koramic Roofing by 11.1% versus the
previous year to around EUR 1.95bn. EBIT, EBITDA and net profit increased, but
profitability was still slightly down due to higher energy costs (2005: EBITDA margin:
21.9%, EBIT margin 13.8%, net margin 10.1%).
z In our view, Wienerberger is a very reliable debtor. A declared goal of the company
is to keep the current rating of BBB/Baa2 constant despite the growth strategy. This
makes relatively stable credit ratios possible and can be regarded as positive for
bond investors. Thus, gearing (measured by the ratio of net debt to equity) is targeted
long-term at 60% to 80%. In the first three quarters of 2006, net debt increased due
to investments, the seasonally-caused build up of working capital and dividend
payouts (End of September 2006: EUR 1.2bnbn; end 2005: EUR 0.95bn.) and
gearing (End of September 2006: 78.5%: end 2005: 64%). Wienerberger expects
gearing at around 75% for the end of 2006. Moreover, the ratio of long-term to shortterm financial liabilities deteriorated substantially in the course of 2006 (56% longterm, 44% short-term financial liabilities). The issuance of a structured bond is
intended to serve mainly to improve the term structure and to maintain financial
flexibility.
Page 3
Strengths and Opportunities
Global leader
Wienerberger is the largest producer of hollow bricks worldwide. The company has a
strong market positions in the other products as well. In the area of facing bricks,
Wienerberger is number one in Europe and in the USA. Wienerberger is number two
in Europe in clay roof tiles.
International diversification
Wienerberger is an international company which operates in 25 countries and 5 export
markets (as of 3Q 2006). It does business in mature markets like Europe and the USA
as well as in the fast-growing markets of Central and Eastern Europe. The international
diversification helps it to offset temporary weaknesses in individual markets.
Solid cash flow generation
The production of wall bricks and ceiling bricks entails high initial investments in the
construction and commissioning of plants. In comparison, the required ongoing
investments are low and account only for around 60% of depreciation. This generates
high free cash flows that the company can use for growth projects, dividend payouts,
stock buybacks and debt repayment.
Stable rating
Wienerberger has been rated since June 2003 by S&P and since May 2004 by Moody's.
S&P upgraded Wienerberger's rating in June 2004 from BBB- to BBB, and Moody's has
been rating Wienerberger constantly as Baa2 with a stable outlook since its initial rating.
The management of Wienerberger is planning to keep the financial ratios of the company
within a bandwidth that will ensure the preservation of its current rating of BBB/Baa2.
Page 4
Weaknesses and Risks
Sector is sensitive to business cycle
The order situation at Wienerberger depends strongly on the state of the economy in
the respective markets. Developments in new residential construction and renovation
work are decisive. Apart from the economic situation, the success of the business of
Wienerberger also depends on the weather conditions. However, international
diversification has helped to lower dependence on any individual region.
High dependence on energy prices
Energy costs account for a large share of total costs at Wienerberger. In 2005, energy
costs were EUR 250.4mn or 12.8% of sales revenues. In the event of possible price
increases, the risks exists that these cannot be passed on in full to customers.
Wienerberger therefore endeavours to limit the risk of intra-year price increases by
concluding long-term supply contracts and by entering into forward deals in the
liberalized markets.
Currency risk
Wienerberger operates as an international supplier in countries outside of the euro
monetary union, which entails exchange rate risks. Due to the local nature of the
business of construction materials, internal group payment flows occur de facto only
within the scope of internal group dividend payouts and loans.
Integration risks through the growth strategy
One of the core objectives of Wienerberger is the expansion in all markets already
covered to reinforce or attain a leading position. Furthermore, expansion opportunities
in new growing markets are investigated. This growth strategy carries integration risks.
Wienerberger has up to now managed to integrate its acquisitions successfully.
Shareholder orientation
The shares of Wienerberger are 100% free float. For years, the group has pursued a
stable dividend policy and has been distributing 45% of profits before taxes every year.
Additionally, Wienerberger pursues a growth strategy that is designed to ensure the
steady appreciation of the company. Despite shareholder orientation, Wienerberger
attaches great importance to preserving its rating of BBB/Baa2. To this end, the gearing
(net debt to equity) should stay within the range of 60% to 80%.
Page 5
Company Profile
Development into a
major corporation
Wienerberger was founded in 1819 and 50 years later it become listed on the Vienna
Stock Exchange. Only as of the year 1986, did the international expansion start with the
takeover of the Germany Oltmanns group. The number of plants increased from 11 at
the time to 263 at present (as of 3Q 2006). Wienerberger thus advanced to become the
largest brick producer worldwide.
Milestones in the history of Wienerberger
1819
Founding by Alois Miesbach on the Wienerberg in Vienna
1869
1918
Start of public trading on the Vienna Stock Exchange
1955
Record production for the reconstruction of Vienna after World War II
1972
Investment in Bramac concrete roof tile company in Austria
1986
Start of internationalisation by takeover of Oltmanns Group in Germany
1990
Start of expansion into Eastern Europe by entering the Hungarian market
1995
1999
Acquisition of the Sturm group in France
Loss of plants in Croatia, Hungary and Czechoslovakia in the wake of World War I
Rise to global player through the takeover of General Shale in the US,
ZZ Wancor in Switzerland, Mabo in Scandinavia through Pipelife
2002
2003
Takeover of brick business of Hanson plc in continental Europe
Establishment of a strategic business field for brick ceiling systems and rise to number 2 in
roofing systems in Europe by taking over 50% of Koramic Roofing
2004
Development into a fully publicly held company, full acquisition of Koramic Roofing and
"thebrickbusiness" in Great Britain
2006
Takeover of Robinson Brick (US)
Source: Wienerberger
Ownership structure
Wienerberger AG is listed with 74.2mn no-par value bearer shares on the prime market
of Vienna Stock Exchange. As of the end of 2006, stock market capitalization was
around EUR 3.3bn; this corresponds to a rise in stock market capitalization of around
33% versus the end of 2005. With a weighting of 4.92% in the ATX index, Wienerberger
is one of the largest exchange listed Austrian companies.
Shareholder structure by country 2005 (Mid-year 2006)
Other
13%
Northern Europe
3%
USA
34%
France
5%
Germany
8%
Austria
17%
Great Britain
20%
Page 6
Company Profile
The shares of Wienerberger AG are 100% free float without any strategic core
shareholder. Institutional investors are predominant and in mid 2006 they held a share
of 90%. Private shareholders accounted for only 10% of share capital in mid 2006. A
large portion of shareholders come from Great Britain and the USA.
International
orientation
Today, Wienerberger is an international company whose principal sales markets are in
Europe and the USA. Wienerberger operates in a total of 25 countries and additionally
supplies five export markets. The largest single market is the USA with a share in total
sales revenues of around 17% in 2005 followed by Germany (12%), Belgium and
Holland (each 10%). Only around 2% of sales revenues are earned in Austria (excl.
investments) and for this reason the company perceives itself as a primarily international group.
Core products
Hollow bricks
Wienerberger focuses on the production of bricks for ceilings and walls as well as
pavers. Hollow bricks are usually used for external and internal retaining walls as well
as for partition walls. The walls are usually plastered or covered after being erected.
Hollow bricks are sold under the brand name of POROTHERM (POROTON in Germany).
Sales revenues in hollow bricks attained some EUR 631mn in 2005. This corresponds
to a share in group sales of around 32% (excl. Other). At a share of 42% in operating
EBITDA, solid bricks were the most profitable product segment of Wienerberger in
2005.
Facing bricks
By contrast, facades and interior walls are built or covered by facing bricks. Wienerberger
facing bricks are sold under the brand name TERCA. Facing bricks constitute the
largest product segment as measured by sales revenues of 41% and an operating
EBITDA margin of 19%.
Roofing systems
The product segment of roofing systems earned around 21% of sales revenues and
around 22% of operating EBITDA in 2005. Clay roof tiles sold under the brand name
KORAMIC are used primarily to cover pitch roofs. A large share of this market is
accounted for by renovation work on existing buildings and not by new constructions as
is the case for wall bricks. This creates a lower cyclical dependence. Apart from clay
roof tiles, concrete roofing slabs produced by Bramac (50:50 joint venture of
Wienerberger and Lafarge Roofing) are also part of the product group of roofing
systems.
Pavers
With the 75% stake in Semmelrock (Austria's leading producer of concrete slabs) and
the clay activities in Benelux pavers were the fourth core product segment of
Wienerberger with sales revenues of approx. EUR 102mn in 2005. Approximately 4%
of the group's operating EBITDA are earned in the segment of pavers.
Internationally, the brick industry is strongly fragmented, although a heightened
consolidation process has been observed in the past decades. This fragmentation is
due particularly to the necessity of regional production. Thus, Wienerberger's supply
radius for hollow bricks is at the most 250km due to the high transport costs; it is 600
km for facing bricks and 800 km for clay roof tiles.
Page 7
Company Profile
Selected ratios by product
(in EUR mn.)
2003
2004
2005
Group revenues
1,544
1,759
1,955
- Hollow bricks
- Facing bricks
613
591
712
647
808
631
- Roofing systems
228
315
407
- Pavers
64
79
102
- Other
48
6
7
Group operating EBITDA
335
405
428
- Hollow bricks
105
132
154
- Facing bricks
160
195
182
- Roofing systems
57
84
94
- Pavers
- Other
11
2
12
-17
17
-18
Group operating EBITDA margin
22%
23%
22%
- Hollow bricks
17%
19%
19%
- Facing bricks
- Roofing systems
27%
25%
30%
27%
29%
23%
- Pavers
17%
15%
16%
Sales revenues 2005 by product
EBITDA 2005 by product
Pavers
5%
Pavers, 3.9%
Hollow bricks
32%
Roofing
systems
21%
Facing bricks
42%
Roofing
systems, 22.0%
Hollow bricks,
42.4%
Facing bricks,
36.0%
Other: 0,4%
Other: -4,2%
Page 8
Company Profile
Employees
In the year 2005, the group employed a total of 13,327 workers which is an increase of
around 10% versus the previous year. This increase is due primarily to acquisitions and
new construction of plants in Europe. While sales revenues per employee were up by
around 1% in 2005 versus the previous year, average EBITDA per employee decreased.
This was caused by the steep rise in energy prices, which were a major cost factor at
12.8% of group sales revenues in 2005.
Development of employees 2003-2005
by region
Sales revenues and EBITDA per employee,
in EUR thousands
14000
160
12000
140
120
10000
100
8000
80
6000
60
4000
40
2000
20
0
0
2003
2004
Central-East Europe
USA
Central-West Europe
Other
2005
North-West Europe
2003
Revenue/employee, in TEUR
2004
2005
EBITDA/employee, in TEUR
Page 9
Business Segments
Business activity
divided in four
segments
The business segments of Wienerberger are grouped by region. The individual
products are manufactured and sold in the respective region. Hollow bricks are not
transported further than 250km, facing bricks not further than 600 km and roofing tiles
not further than 800km. Longer transport distances would not be reasonable because
of the costs.
Due to the strong regional nature of the business activity, the segmentation at
Wienerberger is grouped into four regions:
z North-West Europe
z Central-East Europe
z Central-West Europe
z USA
Selected ratios by segments
(in EUR mn)
2003
2004
2005
Group Revenues
1,544
1,759
1,955
- North-West Europe
481
633
748
- Central-East Europe
455
490
507
- Central-West Europe
332
373
385
- USA
252
284
337
24
-22
-23
- Other *
Group EBITDA
335
405
428
- North-West Europe
88
134
165
127
142
137
- USA
69
49
87
59
78
66
- Other *
2
-17
-18
Group EBITDA margin
21.7%
23.1%
21.9%
- North-West Europe
18.3%
21.2%
22.1%
28.0%
29.0%
26.9%
20.7%
23.4%
20.2%
- USA
19.5%
20.8%
19.7%
* incl. group eliminations
Page 10
Business Segments
Sales revenues 2005 by region
EBITDA 2005 by region
Central-East
Europe 26,0%
USA 17,3%
USA 15,5%
Central-East
Europe 31,9%
North-West
Europe 38,6%
North-West
Europe 38,3%
Central-West
Europe 19,7%
Other: -1,2%
Central-West
Europe 18,2%
Other: -4,2%
North-West Europe
Largest segment
North-West Europe is the largest segment of the Wienerberger group. Around 38% of
sales revenues and 39% of EBITDA were earned in North-West Europe in 2005.
The segment of North-West Europe includes (in % of group revenues 2005)
z
z
z
z
z
Development 2005
Belgium (10%)
Holland (10%)
France (8%)
Great Britain (6%)
Northern Europe (3%) Denmark, Norway, Sweden, Finland, Estonia
Compared to 2004, the year 2005 saw an increase of around 18% in sales revenues in
the strategic business area of North-West Europe, which was due to acquisitions and
new plant constructions. At the same time, a very steep increase in EBITDA by around
23% to EUR 165mn and an EBIT increase of 31% were attained.
North-West Europe: Selected ratios
2004
2005
% Change
633
748
18%
EBITDA*
134
165
23%
EBIT*
83
109
31%
400
885
114
953
-72%
8%
3,539
4,203
19%
(in EUR mn)
Revenues
Totoal Investment
Capital Employed
Employees
* adjusted for non-recurring income and expenses
Page 11
Business Segments
North-West Europe:
Share in group sales revenues and EBITDA 2005
North-West Europe:
Sales revenues by country 2005
Scandinavia
8%
39%
EBITDA 38%
61%
Revenues
Other
1%
Belgium
27%
Great Britain
16%
62%
North-West Europe
France
20%
Other
Netherlands
28%
Within this segment, Holland and Belgium are the most important countries at around
10% of group sales revenues in 2005. In the two countries, the gains were made in new
residential construction and renovation work. Moreover, it was possible to raise prices
in Belgium, which contributed overall to higher sales revenues and improved margins.
In France, strong construction activity in 2005 was seen especially in new residential
construction. In the course of these constructions, it was mainly sales volumes in the
product segment of hollow bricks that went up.
In Great Britain, sales declines were posted in 2005 because of the decrease in private
building activity. The integration of "thebrickbusiness" and the restructuring process
exposed Wienerberger to a greater burden than its peers.
Development 1Q-3Q
2006
In the first three quarters of 2006, the segment North-West Europe saw an increase
in sales revenues by 10% versus the like period of the previous year. At the same time,
EBIT and EBITDA rose by 5% each. These gains in sales revenues and results were
attained mainly due to the good sales situation and price increases. Especially in
Belgium and France, strong increases in hollow bricks were posted. The hike in product
prices to meet the steep increase in energy costs resulted in higher sales revenues. It
was only in Great Britain that the average prices remained at the same level as in the
preceding year due to a shift in the product mix.
North-West Europe: Selected ratios 1Q-3Q 2006
Q1-Q3 2005
Q1-Q3 2006
% Change
562
616
10%
EBITDA*
127
133
5%
EBIT*
86
90
5%
81
956
123
1,069
51%
12%
4,213
4,202
0%
(in EUR mn)
Revenues
Totoal Investment
Capital Employed
Employees
Page 12
Business Segments
Wienerberger announced the acquisition of Baggeridge Brick Plc in 2006 (sales
revenues in the business year 04/05 GBP 50.7mn, EBITDA app. GBP 9.2mn). The
transaction is expected to be closed at the beginning of 2007.
Central-East Europe
Second-largest
segment
Central-East Europe contributed 26% to group sales revenues in 2005 and 32% to
EBITDA, making it the second-largest strategic business segment of the Wienerberger
group. This segment includes brick and roofing activities in Austria and in the Eastern
European countries. Moreover, the activities of Semmelrock (75% stake, fully
consolidated), Bramac (50% stake, pro rata consolidation) and Tondach Gleinstätten
(25% stake, consolidated at equity) are allocated to this business segment.
The segment of Central-East Europe includes (in % of group revenues 2005):
z
z
z
z
z
z
z
z
z
z
Development 2005
Poland (4%)
Hungary (4%)
Czech Republic (4%)
Austria (2%)
Slovakia (1%)
Romania (1%)
Croatia (1%)
Slovenia (1%)
Russia and Bulgaria (new markets)
Other: Semmelrock pavers (4%), Bramac concrete roofing slabs (3%), Tondach
Gleinstätten (consolidated at equity)
In 2005, the segment of Central-East Europe increased sales revenues by 4% to EUR
507.4mn. EBIT and EBITDA declined slightly in contrast. Nonetheless, the segment of
Central-East Europe was the most profitable segment within the group in 2005 as well
with an EBIT margin of around 17.1%.
Central-East Europe: Selected ratios
2004
2005
(in EUR mn)
Revenues
490
507
EBITDA*
142
137
EBIT*
102
87
Totoal Investment
130
122
Capital Employed
468
570
Employees
4,558
4,767
% Change
4%
-4%
-14%
-6%
22%
5%
Page 13
Business Segments
Central-East Europe:
Central-East Europe:
Sales by country 2005
Other
24%
Austria
16%
32% 26%
EBITDA
68%
Czech Republic
20%
Revenues
74%
Poland
22%
Central-East Europe
Other
Hungary
18%
In 2005, the demand for wall building materials decreased substantially in Hungary and
Poland. This was due in Poland to the shift in demand from single family homes to multistorey residential buildings and in Hungary to the reduction in state subsidies for
residential construction and the related advance purchase effects in 2004. This
development caused losses in sales revenues and results. In connection with the higher
energy costs, profitability also declined at the same time versus 2004. In Slovenia as
well, there was a slight decline in results.
In the Czech Republic the market for wall construction materials also declined in 2005.
However, due to the higher energy prices, sales revenues and results increased slightly
at a minor drop in sales volume. Improved results were also reported for Slovakia and
Romania. In Austria business developed stably. Despite the decrease in volumes, the
contribution to results was more or less constant.
The subsidiary owned 75% by Wienerberger AG, Semmelrock, enlarged its market
share in all regions in 2005 and increased the contribution to results. Growth at Bramac
Betonsteine (50% stake) weakened. Tondach Gleinstätten AG, which is owned 25% by
the Wienerberger group also suffered a slight decline in results at slightly higher sales.
Development 1Q-3Q
2006
In the first three quarters of the year 2006, sales revenues in the strategic business
segment of Central-East Europe rose versus the like period of the previous year by 19%
to around EUR 452mn. At the same time, EBITDA climbed by 5% and EBIT by 1%.
The good market situation in the area of residential construction in Eastern Europe
fuelled the solid growth in sales revenues where Wienerberger was able to enlarge its
market share. Semmelrock and Bramac also attained double-digit growth rates in sales
revenues and EBITDA.
Page 14
Business Segments
Central-East Europe: Selected ratios 1Q-3Q 2006
Q1-Q3 2005
Q1-Q3 2006
% Change
380
452
19%
EBITDA*
103
108
5%
EBIT*
67
68
1%
75
550
84
575
12%
4%
4,830
4,578
-5%
(in EUR mn)
Revenues
Totoal Investment
Capital Employed
Employees
Central-West Europe
Third-largest
segment
The business segment of Central-West Europe is the third-largest segment of the
Wienerberger group with a contribution to sales revenues of 20% in 2005. This segment
includes the business activities in the countries of Germany, Switzerland and Italy.
Germany was the strongest one with a share of 62% in segment sales revenues in 2005.
Development 2005
In the year 2005, the development of the segment Central-West Europe was characterized
mainly by a decline in construction activities in Germany. Even though sales revenues
were up 3% vs. 2004, EBITDA and EBIT declined by double-digit drops.
Central-West Europe: Selected ratios
2004
2005
373
385
3%
EBITDA*
87
78
-11%
EBIT*
51
43
-16%
56
359
62
396
10%
10%
1,768
2,002
13%
(in EUR mn)
Revenues
Totoal Investment
Capital Employed
Employees
% Change
Central-West Europe:
Central-West Europe:
Sales by country 2005
Italy
19%
18% 20%
EBITDA
82%
Switzerland
19%
80%
Central-West Europe
Revenues
Germany
62%
Other
Page 15
Business Segments
In Germany, hollow bricks, which account for two-thirds of sales revenues, posted some
significant declines in volumes, but price levels remained stable. There was also a
decline in results in facing bricks. Additionally, the expenses of integration and
restructuring also burdened the result versus the previous year.
In Italy and Switzerland the situation in the construction industry is much friendlier.
Wienerberger increased sales volumes and prices in Italy. These price hikes only partly
offset the much higher energy costs and for this reason the results rose disproportionately
low in comparison to sales revenues. In Switzerland, results improved again slightly.
Development 1Q-3Q
2006
After the steep declines in results in 2005 in the strategic business segment of CentralWest Europe, the first three quarters of 2006 posted clear increases in sales revenues
as well as EBIT and EBITDA.
Espesially the strong demand in Germany led to double-digit growth rates. Sales
revenues advanced 17%, EBITDA by 14% and EBIT by 18%. Apart from the good
economic situation in Germany, the first time consolidation of the facing bricks producer
Knabe and the roofing tile plants Bogen and Jungmeier boosted growth.
In Switzerland as well, sales revenues and results were up, while in Italy there were slight
drops in sales at only minor increases in prices.
Central-West Europe: Selected ratios 1Q-3Q 2006
Q1-Q3 2005
Q1-Q3 2006
% Change
293
343
17%
EBITDA*
64
73
14%
EBIT*
39
46
18%
Totoal Investment
45
79
76%
Capital Employed
406
464
14%
1,894
2,076
10%
(in EUR mn)
Revenues
Employees
Wienerberger expects sales volumes to remain constant in 2007. Due to the phasing
out of the subsidy for single family homes and the hike in VAT from 16% to 19% in
Germany, there seem to have been advance purchases in 2006 as well. This support
for the market will disappear in 2007. Nonetheless, the company is striving to achieve
further increases in results by cutting costs and raising prices in Central-West Europe.
Page 16
Business Segments
USA
Smallest segment
At a sales revenues share of 17% in 2005, the USA is the smallest strategic business
segment of the Wienerberger group. Wienerberger is number one on the market for
facing bricks in the USA. The operating activities of the group are run by General Shale,
a 100% subsidiary of Wienerberger AG, and by the company Robinson Brick, which
was consolidated for the first time in 2Q 2006.
Development 2005
Wienerberger achieved significant increases in sales revenues and results in the USA
in 2005. Versus 2004, sales revenues rose by some 19% to EUR 337.2mn, while
EBITDA increased by 12% and EBIT even by 23%. Production hit the limits of capacity
due to the strong demand and for this reason it was mainly the price increases that lifted
sales revenues. Due to the full capacity utilization in the years 2004 and 2005, the
enlargement of production capacities was the focus in 2006.
USA: Selected ratios
2004
2005
% Change
284
337
19%
EBITDA*
59
66
12%
EBIT*
42
52
23%
44
277
40
345
-10%
24%
2,117
2,194
4%
(in EUR mn)
Revenues
Totoal Investment
Capital Employed
Employees
USA: Share in group sales revenues and EBITDA 2005
16%
17%
EBITDA
85%
Revenues
83%
USA
Other
Development 1Q-3Q
2006
Based on the decline in new residential construction in the USA, results were down in
the first three quarters of 2006. Sales growth of 8% is due to the first-time consolidation
of Robinson Brick. Wienerberger expects a decline in residential construction for the
full year 2006 in the USA that is expected to last at least until mid-2007. Nonetheless,
the group expects further increases in sales revenues and results due to the capacity
adjustments (2 old plants were closed) and the full consolidation of Robinson Brick.
Page 17
Business Segments
USA: Selected ratios 1Q-3Q 2006
Q1-Q3 2005
Q1-Q3 2006
252
272
8%
EBITDA*
50
49
-1%
EBIT*
39
38
-5%
36
338
132
443
269%
31%
2,194
2,422
10%
(in EUR mn)
Revenues
Totoal Investment
Capital Employed
Employees
% Change
Investments and Other
Non-core group
activities
The segment Investments and Other comprise mainly the holding and the non-core
activities of the group (Pipelife plastic pipes and real estate). The Pipelife group, which
is owned 50% by Wienerberger and Solvay, is consolidated at equity and is thus
contained in the financial and not in the operating result.
Development 2005
In 2005, sales revenues in the segments rose by around 24% to EUR 20mn, which was
due to the increase in third-party services invoiced to the operating subsidiaries as well
as the higher sales revenues of Wienerberger Ofenkachel GmbH&Co.KG (was sold at
the beginning of 2007). Due to the high holding costs that are allocated to this segment,
the contributions to results of EBIT and EBITDA are regularly negative in Investments
and Other.
Investments and Other: Selected ratios
2004
2005
% Change
16
20
24%
-17
-18
3%
EBIT*
Totoal Investment
-21
42
-21
26
1%
-38%
Capital Employed
172
161
-6%
(in EUR mn)
Revenues
EBITDA*
Employees
Investments and Other: Selected ratios 1Q-3Q 2006
Q1-Q3 2005
Q1-Q3 2006
% Change
13
16
26%
-11
-11
-1%
EBIT*
Totoal Investment
-13
31
-14
18
-5%
-41%
Capital Employed
159
176
11%
(in EUR mn)
Revenues
EBITDA*
Employees
Page 18
Sector Development
Construction Business
Demand for construction materials such as bricks and pavers depend strongly on the
development of business cycled in the construction industry in the relevant countries.
The segment of private residential construction is of particular significance for
Wienerberger. The activities in residential construction influence demand for facing and
hollow bricks, while the development in renovation and maintenance influences demand
for clay roof tiles.
Residential new constructions are highly dependent on the general situation of the
economy and on interest rates. Renovation and restoration work have a slightly anticyclic characteristic.
The organization Euroconstruct publishes a report twice a year on developments in the
European construction sector. It investigates the construction industry in a large number
of countries in which Wienerberger operates.
North-West Europe
2005: High growth
rates in new
residential
construction
Residential construction attained high growth rates in 2004 and 2005, which was driven
mainly by the exceptional growth in the segment of new residential construction. In the
year 2005, residential construction rose in North-West Europe* by 4.4%. This growth
was boosted by all countries with the exception of Great Britain. Euroconstruct estimates
a similarly high growth rate of 4.2% for 2006 as well. The construction industry developed
the weakest in Great Britain again.
North-West Europe: Residential construction in %, y/y
14%
12%
10%
8%
6%
4%
2%
0%
-2%
2004
2005
Total residential construction
2006e
2007f
New residential construction
2008f
2009f
Residential renovation
*Belgium, Demark, Finland, France, Netherlands, Norway, Sweden, Great Britain,
Ireland
Source: Euroconstruct
2007: Weaker
growth rates
expected
Overall economic growth seems to have reached a temporary climax in 2006 in many
countries of North-West Europe. Over the course of the forecast horizon, the growth
rates for residential construction will decline due to several factors. Moreover, higher
energy and raw materials prices have raised the costs and this has checked demand
somewhat. The above average growth rates of the previous years are also having a base
effect. In contrast to residential construction, high growth rates are expected in the
segment of maintenance and renovation from 2007 to 2009.
Page 19
Sector Development
North-West Europe: Total residential construction, annual growth rate in %
2003
1.0%
6.6%
8.7%
0.1%
11.2%
-1.9%
1.2%
5.5%
7.8%
Belgium
Denmark
Finland
France
Ireland
Netherlands
Norway
Sweden
Great Britain
2004
5.3%
7.9%
7.5%
4.6%
10.8%
6.5%
14.6%
12.5%
7.7%
2005
4.3%
8.4%
5.5%
4.9%
11.4%
6.8%
10.2%
10.0%
-0.9%
2006e
7.3%
5.5%
7.1%
5.1%
5.9%
7.1%
7.2%
8.1%
-0.3%
2007f
4.5%
-2.0%
0.8%
1.3%
-3.8%
5.1%
3.2%
4.6%
3.0%
2008f
1.8%
0.0%
-0.1%
-0.5%
-8.6%
3.4%
0.3%
1.3%
3.6%
2009f
2.7%
0.0%
0.3%
0.3%
-4.3%
2.1%
1.4%
-0.8%
3.2%
Central-East Europe
2005: Residential
construction hardly
grew
In the year 2005, residential construction hardly grew in Central-East Europe. The
construction activity in new residential housing even declined slightly which was
compensated by minor growth in residential renovation. While this decline was driven
mainly by Austria and Hungary, in other countries construction even grew substantially
(Slovakia +17.9%).
Central-East Europe: Residential construction in %, y/y
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
2004
2005
2006e
2007f
2008f
2009f
* Austria, Poland, Slovakia, Czech Republic, Hungary
Page 20
Sector Development
2006: Need for
catching up should
have accelerated
growth
Euroconstruct expects much higher growth rates for 2006 and for the coming years in
the region of Central-East Europe, which will probably be between 4.2% and 4.9%
annually, as it is precisely the East European countries that have a great need for
catching up in residential construction.
Central-East Europe: Total residential construction, annual growth rate in %
2003
5.9%
-0.5%
-6.3%
22.5%
9.9%
Austria
Poland
Slowakia
Czech Republic
Hungary
2004
2.8%
6.1%
-2.3%
18.1%
16.8%
2005
-3.2%
4.5%
17.9%
4.4%
-3.4%
2006e
4.3%
4.4%
17.3%
1.7%
3.7%
2007f
2.8%
6.2%
9.9%
5.4%
4.7%
2008f
2.1%
8.5%
7.2%
1.1%
5.2%
2009f
1.9%
6.3%
3.3%
4.1%
7.8%
Central-West Europe
2005: Decline in
growth
The slowest growth was seen in Central-West Europe in the past few years in European
comparison and in 2005 it was even negative. The reason was the particularly poor
development in Germany. New residential construction in Germany posted a decline
in 2005 of -6.8% vs. the previous year. In contrast, Italy and Switzerland reported solid
growth rates.
Central-West Europe: Residential construction in %, y/y
4%
3%
2%
1%
0%
-1%
-2%
-3%
2004
2005
2006e
2007f
2008f
2009f
* Germany, Italy, Switzerland
2006: Rebound
expected
Euroconstruct expects growth in 2006 in the region of Central-West Europe to hit +1.9%
which will be due to the recovery in demand in Germany. Between 2007 and 2009,
growth in renovation and maintenance will probably remain relatively constant at 1% to
1.3% annually. New residential construction will post declines vs. 2006 by contrast.
Page 21
Sector Development
Central-West Europe: Total residential construction, annual growth rate in %
2003
-1.0%
1.7%
16.4%
Germany
Italy
Switzerland
2004
-2.9%
2.8%
9.9%
2005
-4.0%
3.2%
4.9%
2006e
1.8%
2.0%
1.0%
2007f
0.8%
0.1%
1.5%
2008f
1.0%
-1.4%
0.9%
2009f
0.5%
-2.0%
0.2%
USA
Slump in housing
starts
After residential construction activity advanced in the years 2002 to 2005 at annual
growth rates of between 5.8% and 8.5%, the construction industry was checked strongly
in 2006. Due to lower demand, a poor economy, higher interest rates and overcapacities,
construction activity for single family homes dropped in 2006 (based on data up to and
including November 2006) by some -16.9%.
USA: Housing starts
10%
5%
0%
-5%
-10%
-15%
-20%
2001
2002
2003
2004
2005
2006e
2007f
2008f
Source: Bloomberg, Reed Construction Data
The data vendor Reed Construction Data assumes that the market for residential
construction will shrink again in 2007. The slump will only be overcome in 2008.
U.S. Residential Building Construction, in thousands of units
2006e
2007f
171
162
-10%
-5%
Midwest
357
287
280
-20%
-2%
South
996
918
874
-8%
-5%
West
525
443
359
-16%
-19%
Total
2,068
1,819
1,675
-12%
-8%
Source: Reed Construction Data (as of January 2007)
Northeast
2005
190
2008f
165
2%
319
14%
890
2%
391
9%
1,765
5%
Page 22
Sector Development
Energy Markets
Apart from the business cycle, Wienerberger is also dependent on developments in the
energy sector. In the year 2005, the total energy costs of the Wienerberger group were
EUR 250.4mn, which corresponds to 12.8% of sales revenues. In 2004, energy costs
had been EUR 198.6mn or 11.3% of sales revenues.
Price development: Petroleum vs. natural gas
90
Wienerberger: Energy costs by type of energy 2005
16
80
Oil
7%
14
70
12
60
Coal and other
6%
10
50
8
40
6
30
4
20
Jun/ 06
Natural gas
62%
Dez/ 06
Jun/ 05
Dez/ 05
Jun/ 04
Dez/ 04
Jun/ 03
Dez/ 03
Jun/ 02
Dez/ 02
Jun/ 01
Dez/ 01
Jun/ 00
Dez/ 00
Jun/ 99
Brent USD/Barrel
Dez/ 99
Jun/ 98
Dez/ 98
0
Jun/ 97
0
Dez/ 97
2
Dez/ 96
10
Electricity
25%
Natural gas Henry Hub USD/mn BTU (r.s.)
Source: Bloomberg, Datastream
Natural gas: Most
important energy
source for Wienerberger
The most important energy source for the Wienerberger group is natural gas that has
a share of almost two-thirds in energy costs and another quarter is accounted for by
electricity. Although petroleum has a relatively low share in energy costs of the group,
the development of the oil price is an indication of the price pressure the group is
exposed to. Thus, oil and US natural gas prices fluctuated mostly in tandem - the
correlation between Brent and Henry Hub was 77% at the beginning of 1997 and 2007.
In most European countries, gas prices are state regulated. However, the regulated
prices also depend on the general development of energy markets.
Increase in energy
prices is a risk for
Wienerberger
The Wienerberger group usually fixes the costs for its products at the beginning of the
year, and for this reason, intra-year energy price increases are a risk. Wienerberger
attempts to minimize this risk by entering into forward deals in the liberalized energy
markets of Great Britain and the US, in which some 19% of energy costs were incurred
in 2005. Furthermore, Wienerberger attempts to conclude long-term contracts in the
other countries or through the fixed prices in the regulated markets for substitute
products (e.g. diesel or light fuel oil ) to close forward deals here as well to hedge risks.
Page 23
Financials
Strategy and Corporate Goals
The Wienerberger group pursues a steady course of earnings growth by continuously
improving products, customer services and process efficiency. Furthermore, operations
are permanently being optimized through internal improvements, which have a positive
influence on cash flows available for growth projects, dividend payouts, debt reduction
and stock buybacks. The strategy is based on an integrated growth model consisting
of three pillars: growth, dividends and leverage.
Strategy: Integrated growth model
Bolt-on and external projects
Wienerberger
Free Cash Flow
Growth
Dividend
policy 45% pay-out
Gearing
Profitable growth
Wienerberger defines itself as a growth company whose core aim is to achieve profitable
growth. The company focuses on bricks for roofing and walls and on pavers. Wienerberger
is the largest international supplier of bricks. In all markets in which Wienerberger is
represented, leading positions are to be established and expanded. Additionally,
expansion possibilities are being examined in new countries with growing markets in
which bricks have a large share in the construction industry.
Wienerberger differentiates between two types of growth projects:
z "Bolt-on projects" - New construction of plants or capacity adjustments as well as
small takeovers in markets Wienerberger has already entered. To achieve high
synergies and increase results, Wienerberger pursues the goal of obtaining a return
on capital invested (cash flow return on investment, CFROI) of 22% within two to three
years after the investment. In 2005, a total of EUR 250.5mn or 41% more than in
2004 were invested in bolt-on projects with a focus on Central-East Europe. 75%
were invested in new plants and capacity expansion, and 25% in smaller acquisitions.
z "External projects" - Acquisitions of large competitors or entry into new markets
that form the basis for additional bolt-on projects. These acquisitions are only carried
out if in the view of the management they are strategically sensible and particularly
conducive to creating value. External projects have a CFROI target of 16% in the
third year after the investment. While EUR 364.6mn were spent in 2004 for the major
acquisitions of Koramic Roofing and "thebrickbusiness", in 2005 there were no
investments in external projects. Currently, the takeover of Baggeridge in Great
Britain is being planned. The transaction is expected to be closed in mid 2007.
Page 24
Financials
Gearing
The financing for growth projects is obtained first, from the group internal cash flows
and second, from borrowed capital. The corporate goal is to keep the gearing ratio
(measured by the ratio of net debt to equity) within a bandwidth of 60-80% in order to
avoid any risk to the current rating of BBB/Baa2.
At the end of the year 2005, gearing ratio was 64%. Due to acquisitions (e.g. Robinson
Brick Plc. in 2Q 2006), the gearing ratio rose by the end of 3Q 2006 to 78.5% and is
thus within the target bandwidth. Wienerberger expects gearing at around 75% for the
end of 2006.
Increase in enterprise value
The increase in enterprise value is one of the main components of the group's strategy.
This is influenced mainly by cash flow ratios such as cash flow return on investment
(CFROI) that is calculated on EBITDA/(capital employed + cumulated depreciation).
Wienerberger aims for 12% CFROI after one-time effects for all corporate segments as
the sustainable minimum profitability target. This target was exceeded in all operational
areas in 2005. The CFROI was 12.9% for the entire group.
Financial targets
z Above-average EBITDA and EPS growth (ca. 10% p.a.)
z ROCE medium term > 10% (WACC = 7.5%)
z Gearing between 60-80%
z Preserve current rating (BBB/Baa2)
z Pay-out ratio of 45% of net profit
Major acquisitions
2006
In the second quarter of 2006, the Wienerberger group acquired the Robinson Brick
Company through the US subsidiary General Shale and thus expanded in the west of
the USA. The purchase price was USD 88mn plus net working capital on the day of
closing. In the year 2005, Robinson Brick reported sales revenues of some USD 87mn,
with 40% being attained in the area of sales and other, 32% in facing bricks, 10% in
concrete slabs and the remaining sales revenues in the segments Thinrock&Building
Stone (real stones from quarries) and Thinbrick (thin, decorative facing bricks).
2004
Wienerberger acquired the number three in the British brick manufacturing sector,
"thebrickbusiness" in 2004. Previously, Wienerberger had been represented on the
largest European market for facing bricks only through imports. The purchase price
was GBP 90.3mn. In the business year 2003/04, "thebrickbusiness" reported sales
revenues of GBP 64mn and EBITDA of GBP 16.5mn (adjusted for non-recurring income
and expenses).
2003/2004
Wienerberger acquired Koramic Roofing in two steps. The first 50% were acquired free
of debt in 2003 for EUR 211.5mn. The second half was taken over in 2004 and financed
Page 25
Financials
by a capital increase of EUR 210mn. Koramic Roofing reported sales revenues in the
business year 2001 of EUR 203mn and EBITDA of EUR 49.4mn. This takeover made
Wienerberger the second-largest producer of roofing systems in Europe.
Scope of consolidation
The consolidated figures of the Wienerberger group are prepared in accordance with
the International Financial Reporting Standards (IFRS) published by the International
Accounting Standards Board (IASB), including the interpretation of the International
Financial Reporting Interpretations Committee (IFRIC).
The consolidated financial statements as of 31 Dec. 2005 inclusive of Wienerberger
AG contain 14 (2004: 13) fully consolidated domestic and 105 (2004: 107) foreign
subsidiaries. 33 associated companies (2004: 32), whose influence on the assets,
liabilities, financial position and profit or loss of the group are of subordinate significance
were not taken into account in the consolidated statements. Furthermore, 12 (2004: 13)
joint venture companies of the Schlagmann and Bramac groups have been reported pro
rata and 7 (2004: 8) companies at equity.
Sales Revenues and Profitability
The business year 2005 was again characterized by solid profitability for the
Wienerberger group. The growth path was continued despite the difficult economic
framework. On the one hand, past growth projects created positive impulses, on the other
hand, the massive increase in energy prices and the decline on the building materials
market in a few important markets - Great Britain, Hungary, Poland, Germany influenced negatively. Generally, the results in 2005 were increased again but the growth
rates were still lower versus 2004.
Sales revenues 2005
up by 11.1%
At the group level, Wienerberger attained sales revenues of EUR 1,954.6mn in 2005
which is a gain of 11.1% versus 2004. This was also made possible by the full-year
consolidation of "thebrickbusiness" and Koramic Roofing as well as by the acquisition
of F. v. Müller Dachziegelwerke in Germany and the acquisition of three brick and two
paving stone plants in Poland. Organic growth - adjusted for acquisitions and currency
effects - was 4%. A breakdown by segment shows that North-West Europe and the USA
achieved the highest growth in sales revenues by 18.1% to EUR 747.9mn and by 18.5%
to EUR 337.2mn, which was due primarily to the price hikes. In Central-West Europe
sales revenues suffered from the weak market in Germany despite the very good
development in Italy and Switzerland. Overall, sales revenues grew in this segment by
3.3% versus 2004. The segment Central-East Europe achieved a marginal gain in sales
revenues as well of 3.6% in 2005.
Page 26
Financials
Development of sales revenues and EBITDA (in EUR mn)
2,500
2,000
1,500
1,000
500
0
1996
1997
1998
1999
2000
Revenues
2001
2002
2003
2004
2005
EBITDA
Growth dynamic of
results slower due to
higher energy costs
EBITDA in 2005 was higher by ca. 6% than the like figure of the previous year, attaining
EUR 428.4mn. The EBITDA margin worsened versus 2004 by 1.2 percentage points
to 21.9% (2004: 23.1%), but was still clearly above the median value of the peer group.
One of the reasons for the deterioration of the EBITDA margin was the higher energy
costs, which accounted for around 13% of sales revenues in 2005 (2004: 11.3%) or
EUR 250.4mn. EUR 30mn were due to price increases and some EUR 22mn to
additional production volumes. The company expects energy costs to go up by EUR
45mn in 2006 versus 2005. Operating results (EBIT) rose in 2005 by 4.7% to 269.6mn.
The EBIT margin shrunk marginally from 14.6% in 2004 to 13.8% in 2005, and
compared to peers it is in the upper range.
Earnings before taxes (EBT), which also indicates the output and earnings capacity of
a company, also increased despite higher investment volumes (EUR 88.2mn for normal
investments and EUR 250.5mn growth investments) and the resultant depreciation
(EUR 158.1mn) vs. the previous year by 8.6% to EUR 251.3mn. This increase was
bolstered by the improved financial result (2005: EUR -18.3mn; 2004: EUR -26.1mn),
due to higher contributions of the companies consolidated at equity Pipelife and
Tondach Gleinstätten (EUR 29.5mn). Interest expenses rose by 17%, while interest
income declined by around 8%. Thus, net financing costs deteriorated to EUR -43.4mn
(2004: EUR -33.3mn).
Page 27
Financials
Wienerberger Group: Development of margins
25%
20%
15%
10%
5%
0%
2003
2004
EBITDA Margin
EBIT Margin
2005
Net Margin
Equity ratio
decreases slightly to
45.4%
The equity including minorities was EUR 1,483.1mn as of 31 Dec. 2005 and was thus
8% higher than in the previous year. The equity ratio (incl. minorities) dropped versus
2004 by around 2 percentage points to 45.4%, which is explained by the expansion of
balance sheet (+14%: broken down to 1% by the takeover of F. v. Müller Dachziegelwerke and Petersminde Teglvaerk A/S and 13% organic). Versus the peer group, the
equity ratio is still higher than the median and is even clearly in the top range. Equity
ratio after minorities was 44.5% (2004: 46.5%).
Cash Flow
Solid cash flow
generation
FFO was up versus the previous year by 8.2% to EUR 321.3mn due to the higher net
result (2005: EUR 196.4mn). A look at the operating cash flow of the last five years shows
that it was on average higher than EUR 250mn. Due to the mainly market-linked
accumulation of working capital in 2005, which resulted in substantial payment outflows,
operating cash flow in 2005 was around 72mn below the previous year´s value at EUR
238.9mn. The relatively low ongoing maintenance investments, which in 2005 accounted
for around 56% of depreciation (2005: 158.1mn), created enough leeway for financing
growth projects, dividend payouts and stock buybacks. In 2005, EUR 250.5mn were
invested in bolt-on projects (smaller takeovers, new plant constructions and enlargements).
The management is planning to use the stable cash flows that result from the capital
intensive business mainly for profitable growth over the medium term instead of for the
reduction of leverage. Overall investments of the Wienerberger group have probably
reached the planned sum of EUR 350mn in 2006. The company plans to invest EUR
250mn in growth projects and EUR 120mn in maintanance investments in 2007.
Page 28
Financials
Debt
The total of the financial liabilities (incl. financing leasing) of the Wienerberger group
as of 31 Dec. 2005 increased versus the previous year by EUR 256.4mn to EUR
1,189.2mn, which was due mainly to investments and higher working capital. With the
proceeds of EUR 400mn from the first issue of a corporate bond in April 2005 (Coupon:
3.875%, maturity: 25 April 2012) the group has succeeded in clearly improving its term
structure profile. Some 92% (2004: 70%) of total financial liabilities are long-term and
only 8% (2004: 30%) are short term.
Increase in net
indebtedness
Net indebtedness of the Wienerberger group at the end of 2005 was EUR 947mn and
was thus around EUR 171mn higher than at the end of 2004. Although the liquidity (cash,
bank deposits and securities) was much higher (up by 54.3% to EUR 242.3mn), total
investments, dividend payouts and working capital accumulation were a burden on net
indebtedness. Gearing (net debt to equity) rose accordingly from 57% to 64%.
Development of net indebtedness and gearing
1,000
90%
900
80%
800
70%
700
60%
600
50%
500
40%
400
30%
300
200
20%
100
10%
0
0%
2003
Net debt (in EUR mn)
2004
2005
Gearing (Net debt/Equity), r.s.
Debt ratios a bit
worse
The debt ratios were a bit worse in 2005 versus the previous year. Total financial liabilities
hit 80% of equity capital (2004: 68%). The ratio of total financial liabilities to EBITDA
worsened from 2.3x to 2.8x. Nonetheless, Wienerberger is still within the bandwidth of
the peer group (median 2.8x).
The ratio FFO to net financial liability decreased from 38% in 2004 to 34% in 2005. The
ratio of operating cash flow to total financial liabilities hit 20% at the end of 2005 (2004:
33%) and was thus below that of the peer median.
Interest coverage
deteriorates slightly
Interest and similar expenses reported for 2005 by the Wienerberger group increased
by around EUR 8mn to EUR 68.9mn. Interest coverage on an EBITDA basis in 2005 had
a value of 6.2x below the previous year's level of 6.7x, but in a peer group comparison
it was in the upper range. On an EBIT basis, interest coverage deteriorated slightly
(2005: 3.9x; 2004: 4.2x) and is just slightly below the median value versus peers.
Page 29
Financials
1Q-3Q 2006
In the first three quarters of the year 2006, the Wienerberger group increased sales
revenues by 13% vs. 1Q-3Q 2005 to EUR 1,655.9mn. This increase in sales revenues
was due 8% to higher volumes and 5% to higher prices. The higher costs for energy
caused EBITDA, EBIT and profit to increase only slightly. EBITDA adjusted for onetime effects was up by ca. 6% to EUR 351.6mn, while EBIT grew 4% to EUR 228.1mn
and profits after tax by 3% to EUR 157.4mn.
Demand for residential new constructions was up in almost all European markets.
Wienerberger thus posted higher sales revenues in all segments. The steepest increase
in sales revenues was seen in Central-East Europe (+19%), which was due primarily
to the excellent development in Poland and in Central-West Europe (+17%), with the
recovery of the German construction market contributing substantially to higher sales
revenues. In the USA, residential construction activity decreased substantially. The
higher sales revenues reported of 8% were due to the first-time consolidation of
Robinson Brick, which was acquired in 2Q 2006.
Increase in net
indebtedness
Compared to year-end 2005, net debt rose due to investments by 28% to around EUR
1,209.4mn. Equity capital increased by 3% to EUR 1,523.8mn. Wienerberger's gearing
ratio thus increased accordingly from 64.0% at the end of 2005 to 78.5% at the end
of September 2006. Wienerberger expects a slight decline in gearing again to 75% for
the full year.
Selected ratios 1Q-3Q 2006
Revenues (in EUR mn)
1Q-3Q 2005
1Q-3Q 2006
Change
- North-West Europe
- USA
- Investments & Other¹
Wienerberger Group
379.8
292.6
562.1
251.5
-17.4
1,468.6
452.1
343.0
615.9
271.9
-27.0
1,655.9
19%
17%
10%
8%
55%
13%
1Q-3Q 2005
1Q-3Q 2006
Change
103.3
63.9
126.5
49.6
-10.9
108.2
72.8
132.5
49.1
-11.0
5%
14%
5%
-1%
1%
332.4
351.6
6%
1Q-3Q 2005
1Q-3Q 2006
Change
67.3
39.3
85.6
39.4
-13.3
68.3
46.3
89.8
37.6
-13.9
1%
18%
5%
-5%
5%
Wienerberger Group
218.3
228.1
4%
Group Profit before tax
196.9
200.9
2%
Group Profit after tax
153.5
157.4
3%
EBITDA² (in EUR mn)
- North-West Europe
- USA
Wienerberger Group
EBIT² (in EUR mn)
- North-West Europe
- USA
1) Including Group eliminations and holding company costs; negative revenues are due to the offset of
inter-company sales in this segment
2) Adjusted for non-recurring income and expenses
Page 30
Financials
Outlook 2007
In the light of the friendly economic environment, Wienerberger expects business to
develop well in 2007 as well.
After there had hardly been any growth in residential construction in 2005 in the CEE
markets, the expectations for the coming year are of higher growth rates, which should
sustainably support demand for wall building materials in the Central-East Europe.
Wienerberger also expects higher sales revenues and earnings in North-West Europe.
Moreover, the Baggeridge transaction is expected to be closed in mid 2007.
In the USA, the situation in residential construction will probably remain tense. After
having seen average growth rates for new home construction starts during the period
2002-2005 of 6.9%, the market took a plunge in 2006 and dropped -16.9%. In 2007,
residential construction activity is expected to decline again, but not as severely.
Credit rating
Investment Grade
The creditworthiness of Wienerberger AG (BBB stable/Baa2 stable) is rated by
Standard&Poor's and Moody's. The two rating agencies are of the same opinion as
regards the risk category and view Wienerberger as within the investment grade
segment in the category BBB flat with a stable outlook.
The stable BBB/Baa2 rating reflects the strong market position of Wienerberger AG and
its capacity to generate high cash flows. Only some 60% of depreciation is needed for
maintenance investments. A positive effect on the rating also comes from the strong
geographical diversification. Temporary weaknesses in markets such as in Germany
and Great Britain in 2005 were compensated by the fast-growing markets. The amount
of indebtedness and profitability also justify a rating in the range of BBB. The rating is
restricted due to the small size of Wienerberger in international comparison and by the
cyclical nature of the brick business.
An improvement of the rating is feasible in Moody's opinion if the free cash flow generated
is used to reduce debt over a longer period of time. A substantial increase in
indebtedness (indebtedness/EBITDA > 3x, RCF/net debt <20%) would entail a
downgrading by contrast.
Based on the declared target of the company to keep the gearing ratio within the range
of 60% to 80%, we assume that the rating of BBB/Baa2 will be retained.
Page 31
Peer Group
As bricks are produced close to end consumers for profitability reasons, most direct
competitors of Wienerberger are smaller local companies. At the international level,
Hanson (Great Britain), CRH (Ireland), Boral (Australia) and Lafarge (France) must
compete with Wienerberger in at least some of its markets.To present a better overview,
we have added Saint Gobain (France), Holcim (Switzerland), HeidelbergCement
(Germany) to our peer group analysis even though these are not direct competitors,
but active in other markets of the cyclical construction materials industry.
Hanson PLC
Hanson PLC (Baa1 stable/BBB+ stable) is one of the largest producers of construction
materials worldwide. Apart from materials such as sand, cement, gravel, asphalt etc.,
Hanson also produces bricks. The company operates in the regions of North America,
Great Britain, Australia and the Pacific as well as in continental Europe. At sales
revenues of around GBP 3.7bn (EUR 5.4bn) in 2005, Hansons PLC is almost three times
as large as Wienerberger.
In 2002, Hansons PLC sold its construction materials division (produces materials
mainly for building construction) to Wienerberger. Hanson Plc produces bricks only in
the markets of Great Britain and the USA.
Saint Gobain
The international group Saint Gobain (Baa1 stable/BBB+ stable) produces and sells
glass products (flat glass), high performance materials (ceramics, plastics, abrasives)
and construction materials. Saint Gobain operates only in North America with its roofing
construction activities in the same segment as Wienerberger.
Saint Gobain is the largest group within the peer group with sales revenues of around
EUR 35.1bn and almost 200,000 employees. A share of around 75% of sales revenues
was earned in the year 2005 in Europe. Other regions in which Saint Gobain operates
are North America (17% of sales revenues 2005), Latin America (5% of sales revenues
2005) and Asia (3% of sales revenues 2005).
Lafarge SA
Lafarge (Baa2 stable/BBB stable) produces and sells diverse construction materials in
the four divisions of gypsum, stone and concrete, cement and roofing construction.
Lafarge operates worldwide, with Western Europe (39% of sales revenues 2005), North
America (28% of sales revenues 2005) and CEE (6% of sales revenues 2005) being
the largest markets.
Lafarge is world market leader for roofing systems. In 2005, this division earned sales
revenues of EUR 1.5bn, which corresponds to around 9% of total group sales. Within
the roofing construction activities, around two-thirds of sales revenues were earned in
Western Europe.
Boral
Boral (Baa1 stable/BBB+ negative) is seated in Australia and produces and sells
construction materials. Apart from operating in the home market, Boral is also active
in the USA and in Asia. The activities of the group are divided into the segments Australia
- construction materials (51% of sales revenues 05/06), Australia - building products
(25% of sales revenues 05/06), USA (20% of sales revenues 05/06), and Asia (4% of
sales revenues 05/06). In the USA and in the division Australia-building products, bricks
and roofing systems are the core products of the group.
Page 32
Peer Group
CRH
CRH (n.r./BBB+ stable) produces cement, sand, gravel, roofing systems, insulation and
diverse other construction materials. The group is present in 19 countries. In 2005,
around 40% of sales revenues were earned with basic construction materials, 23% of
sales revenues in trade and around 37% in processed construction products which
includes also bricks and roofing systems. CRH operates in Europe (51%) and in
America (49%; US, Canada, Argentina, Chile).
HeidelbergCement
HeidelbergCement (Ba1*+/BBB- stable) is one of the largest construction materials
producer worldwide and produces mainly cement (57% of group sales 2005), concrete
and mortar, sand and gravel as well as other construction materials. HeidelbergCement
is therefore not a direct competitor of Wienerberger, but is also active in the cyclical
construction business.
HeidelbergCement is an international group with its focus in Europe. In 2005, around
46% of sales revenues were earned in the diverse regions of Europe. 28% of sales
revenues were earned in North America. Moreover, HeidelbergCement is also represented
in Africa, Asia (incl. Turkey) (2005: approx. 14% of sales revenues).
Holcim
Holcim (n.r./BBB+) is an international construction group seated in Switzerland, which
also produces construction materials like HeidelbergCement and is not a direct
competitor of Wienerberger. The most important product groups are cement, concrete
and mortar, concrete components, sand and gravel, lime as well as lime sandstone.
Holcim's sales revenues in 2005 were more than six times as high as Wienerberger's.
Holcim is active worldwide. In 2005, Europe accounted for 37% of sales revenues
making it the most important region, while 25% of sales revenues are earned in North
America. Furthermore, Holcim also operates in Latin America (16% of sales revenues
2005), Australia and Oceania (12% of sales revenues 2005) as well as in Africa and
the Near East (10% of sales revenues 2005).
Page 33
Peer Group
Wienerberger
Peer-Group Median
Peer-Group Average
Saint Gobain
n.r.
Baa1
n.r.
Baa2
Baa1
Baa1
Baa2
BBB+
n.r.
BBB+
stable
BBBn.r.
BBB+
n.r.
BBB
stable
BBB+
stable
BBB+
stable
BBB
stable
Outlook S&P
stable
stable
stable
n.r.
stable
stable
neg
stable
EUR
2005
EUR
2005
EUR
2005
EUR
2005
EUR
2005
EUR
2005/06
EUR
2005
EUR
2005
19,300
24,400
41,260
59,901
80,146
15,802
199,630
13,327
(in mn)
Employees
Ba1
*+
Boral
Lafarge
Rating Moody's
Rating S&P
Outlook Moody's
CRH
Holcim
HeidelbergCement
Hanson
Peer Group Comparison
EBITDA
1,957
945
1,409
2,988
3,210
442
3,941
428
Total debt
Net debt
5,120
3,599
3,010
1,437
3,518
3,153
10,321
8,156
8,830
7,095
961
916
14,930
12,850
1,189
947
Equity capital incl. Minorities
Balance sheet total
6,234
16,053
3,881
9,407
5,058
11,935
9,157
24,490
12,329
27,895
1,600
3,244
12,593
40,798
1,483
3,270
Leverage Analysis (%)
LT Debt/Tot Capital
40.0
24.5
27.4
44.1
32.4
37.5
41.1
35.3
37.5
40.8
LT Debt/Balance sheet total
Total debt/Balance sheet total
28.3
31.9
17.9
32.0
19.7
29.5
35.1
42.2
24.6
31.7
29.6
29.6
27.7
36.6
26.1
33.3
27.7
31.9
33.4
36.4
Net Debt/Equity capital incl. minorities
57.7
37.0
62.3
89.1
57.6
57.3
102.0
66.1
57.7
63.8
EBIT/Interest Exp. (x)
EBITDA/Interest Exp. (x)
4.7
6.6
2.0
2.9
3.1
4.8
3.6
5.1
n.a.
n.a.
5.1
7.1
5.5
8.5
4.0
5.8
4.2
5.8
3.9
6.2
Total Debt/EBITDA (x)
OCF/Total Debt
2.6
27%
3.2
23%
2.5
23%
3.5
21%
2.8
21%
2.3
27%
3.8
19%
2.9
23%
2.8
23%
2.8
20%
Fixed Charge Coverage
Profitability
EBIT Margin (%)
9.6
12.1
11.7
18.0
14.0
10.8
7.3
11.9
11.7
13.8
EBITDA Margin (%)
13.5
17.4
18.1
25.1
20.1
15.1
11.2
17.2
17.4
21.9
Net Margin (%)
6.9
10.4
4.4
8.3
6.9
7.6
3.6
6.9
6.9
10.0
ROE (%)
Equity ratio (excl. minorities) (%)
17.9
38.6
15.3
41.2
8.4
38.8
15.4
30.1
12.5
35.0
14.1
49.3
11.0
30.1
13.5
37.6
14.1
38.6
13.2
44.5
Equity ratio (incl. minorities) (%)
38.8
41.3
42.4
37.4
44.2
49.3
30.9
40.6
41.3
45.4
Equity capital-ratios
Source: Bloomberg, Company Reports, Erste Bank Research, n.r. = no rating
Page 34
Appendix
Income Statement
2003
2004
2005
1,544.0
-984.7
559.3
-370.9
51.4
-34.4
334.6
-148.5
186.1
-30.1
156.0
-43.1
112.9
-2.5
110.4
1,758.8
-1,074.5
684.3
-421.2
42.8
-48.5
405.4
-148.0
257.5
-26.1
231.4
-49.5
181.8
-4.7
177.1
1,954.6
-1,211.0
743.6
-479.3
42.2
-36.9
428.4
-158.1
269.6
-18.3
251.3
-54.8
196.4
-2.1
194.4
(IAS, EUR mn, 31/12)
Sales revenues
Cost of goods sold
Gross profit
SG&A
Other operating revenues
Other operating expenses
EBITDA
Depreciation
EBIT
Financial result
EBT
Tax expenses
Net result
Minority interests
Net result after minorities
Balance Sheet
2003
2004
2005
Intangible assets
Tangible assets
Financial assets
Financial assets
333.9
1,047.0
197.8
1,578.7
522.1
1,337.6
153.0
2,012.7
563.9
1,507.1
161.1
2,232.1
Inventories
Receivables and other current assets
Other assets
Cash and cash equivalents
Total current assets
TOTAL ASSETS
302.5
307.2
42.0
176.8
828.4
2,407.1
391.4
253.1
51.7
157.0
853.2
2,865.9
445.9
281.7
67.6
242.3
1,037.5
3,269.6
Shareholders' equity
Minorities
Shareholders' equity incl. minorities
956.7
23.8
980.4
1,333.0
34.2
1,367.2
1,453.4
29.7
1,483.1
Interest-bearing LT debts
Other LT liabilities
Total long-term liabilities
722.5
205.8
928.3
654.7
239.0
893.7
1,091.4
285.6
1,376.9
Interest-bearing ST debts
Other ST liabilities
Total short-term liabilities
237.3
261.1
498.3
278.2
326.8
605.0
97.9
311.7
409.5
2,407.1
2,865.9
3,269.6
2003
2004
2005
233.6
280.3
-145.4
134.9
-326.1
85.6
39.9
297.0
310.6
-238.0
72.6
-552.1
199.4
-42.1
321.3
238.9
-278.6
-39.7
-276.9
168.6
130.7
TOTAL LIAB. & EQUITY
Cash Flow Statement
FFO
Cash flow from operating activities
CAPEX
Free Cash Flow
Cash flow from investing activities
Cash flow from financing activities
Change in cash and cash at bank
Page 35
Appendix
Margins & Ratios
2003
2004
2005
Sales growth
10.5%
13.9%
11.1%
EBITDA Margin
21.7%
23.1%
21.9%
EBIT Margin
12.1%
14.6%
13.8%
EBT Margin
10.1%
13.2%
12.9%
Net Margin
7.3%
10.3%
10.1%
Profitability ratios
ROE
2.9%
3.9%
3.4%
ROCE
8.7%
9.7%
8.9%
Equity ratio (incl. minorities)
40.7%
47.7%
45.4%
Equity ratio (excl. minorities)
39.7%
46.5%
44.5%
Gearing (Net debt/Equity capital)
79.9%
56.7%
63.8%
Total debt/Balance sheet total
39.9%
32.6%
36.4%
Total debt/Equity capital
97.9%
68.2%
80.2%
Liquid funds
176.8
157.0
242.3
Interest-bearing debts
925.9
901.9
1,163.4
32.0
28.7
23.2
1.8
2.2
2.6
Debt ratios
Calculation of Net debt
Leasing loans
Intercompany receivables and payables from
financing
Total debt
959.7
932.9
1,189.2
- therefrom long-term
722.5
654.7
1,091.4
- therefrom short-term
237.7
278.2
97.9
782.9
775.9
947.0
Net debt
Debt Factors
EBITDA/Net financing costs
10,5x
12,2x
9,9x
EBIT/Net financing costs
5,8x
7,7x
6,2x
EBIT/Interest Exp
3,7x
4,2x
3,9x
EBITDA/Interest Exp
6,7x
6,7x
6,2x
Total debt/EBITDA
2,9x
2,3x
2,8x
Net debt/EBITDA
2,3x
1,9x
2,2x
FFO/Total debt
24%
32%
27%
FFO/Net debt
30%
38%
34%
Page 36
Notes
Page 37
Notes
Page 38
Notes
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Private Banking & Asset Management
Head:
Wolfgang Traindl
+43 (0)50 100-13066
Private Banking
Susanne Höllinger
Walter Roch
+43 (0)50 100-11817
+43 (0)50 100-12148
Vermögensverwaltung
Harald Gasser (head)
+43 (0)50 100-11490
ERSTE-SPARINVEST
Kapitalanlagegesellschaft m.b.H.
Geschäftsführung:
Franz Gschiegl
Heinz Bednar
Ernst Sorger
Anton Kovar
+43
+43
+43
+43
(0)50
(0)50
(0)50
(0)50
100-19890
100-19049
100-19882
100-11906
Sales Equities
Head of Sales Equities & Derivatives
Michal Rizek
Brigitte Zeitlberger-Schmid
Equity Sales Vienna XETRA & CEE
Hind Al Jassani
Werner Fuerst
Josef Kerekes
Ana Milatovic
Ernst Mosser
Stefan Raidl
Christian Luig
Manuel Kessler
Sabine Kircher
Christian Klikovich
Armin Pfingstl
Roman Rafeiner
London
Dieter Benesch
Tatyana Dachyshyn
Jarek Dudko, CFA
Federica Gessi-Castelli
Declan Wooloughan
+4420 7623-4154
+43 (0)50 100-83123
+43
+43
+43
+43
+43
+43
+43
+43
+43
+43
+43
+43
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
(0)50
100-83111
100-83114
100-83122
100-83131
100-83132
100-83113
100-83181
100-83182
100-83161
100-83162
100-83171
100-83172
+4420
+4420
+4420
+4420
+4420
7623-4154
7623 4154
7623 4154
7623-4154
7623-4154
This report is meant as supplementary economic information for our
clients and is based on information available on the date of printing.
Our analysis and conclusions are of a general nature and do not take
into account the individual circumstances or needs of investors such
as income potential, tax situation or the level of risk he or she is
prepared to undertake. Information about previous performance does
not guarantee future performance.
Although we judge our sources to be reliable, we do not accept any
responsibility for the completeness and accuracy of our information.
This report is neither an offer to sell nor an offer to buy any securities.
Page 40

Analysis Erste Bank 762,77KB

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