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Edited Transcript of WBSV.VI earnings conference call or presentation 24-Feb-21 1:00pm GMT

·57 min read

Full Year 2020 Wienerberger AG Earnings Call Vienna Feb 24, 2021 (Thomson StreetEvents) -- Edited Transcript of Wienerberger AG earnings conference call or presentation Wednesday, February 24, 2021 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Daniel Merl Wienerberger AG - IR Manager * Heimo Scheuch Wienerberger AG - Chairman of Managing Board, MD & CEO ================================================================================ Conference Call Participants ================================================================================ * Ami Galla Citigroup Inc., Research Division - VP & Senior Associate * Cedar Ekblom Morgan Stanley, Research Division - Executive Director & Equity Analyst * Markus Remis Raiffeisen CENTROBANK AG, Research Division - Financial Analyst * Matthias Pfeifenberger Deutsche Bank AG, Research Division - Research Analyst * Miro Zuzak JMS Invest AG - Investment Professional * Rushil Paiva Stifel Europe, Research Division - Research Analyst * Xintong Ouyang On Field Investment Research LLP - Analyst * Yves Brian Felix Bromehead Exane BNP Paribas, Research Division - Analyst of Building Materials ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the Conference Call on Wienerberger's Result on the Full Year 2020. (Operator Instructions) The presentation will be followed by a question-and-answer session. (Operator Instructions) And I would now like to turn the conference over to Daniel Merl, Investor Relations Manager. Please go ahead. -------------------------------------------------------------------------------- Daniel Merl, Wienerberger AG - IR Manager [2] -------------------------------------------------------------------------------- Ladies and gentlemen, a warm welcome to the Wienerberger Earnings Call on the Full Year 2020 Results. Our Board representative today is our CEO, Heimo Scheuch. He will lead you through the presentation today discussing our results in the challenging year 2020 but also giving an outlook on further growth opportunities for Wienerberger in the future. After that presentation, as usual, we are ready to take your questions. I will now hand over to Mr. Scheuch for the presentation. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [3] -------------------------------------------------------------------------------- Thank you, Daniel, and thank you for all of you being on our call. A warm welcome from our side here in Vienna on the sunny and lovely February afternoon. If we look back all of us to 2020, we will remember it as an exceptional year by any respect, exceptional personally, professionally, and that has influenced our life significantly. I'm personally very happy to report that all our efforts were with our employees and our customers and stakeholders in 2020 to get them safely and healthy through this very crucial year. I'm proud particularly with the high degree of discipline of our employees. And I must say, at this stage, I thank them also on this call for their performance, their enormous performance, their efforts and, as I said, their discipline because we had literally a very, very good management when it comes to the COVID situation and the cases that we had within the company. They were very low. This performance also relates to the fact that financially and also on the ESG performance, we had a great achievement and a great set of results that we can propose and present to you. Again, you have seen in the year 2020 that we at Wienerberger are focused on innovation. 33% of our turnover comes from this innovative product and solutions. And we continue to grow in this. And this is so important in this changing world around us. The digitalization that we have focused on for years now has helped us that our employees have spent thousands of hours with our customers and stakeholders in explaining them how to handle, to install the products safely throughout the year. And this is, I think, the way forward for the new Wienerberger when we talk about growth in the years to come, a highly solution-oriented company that clearly focus on the customer needs and has a very, very highly performing digital business. But that's not enough. We, as a manufacturing company, want and are willing to improve our footprint, ecologically speaking. We have set strong targets also in the past, and we are happy to report that we have reduced our CO2 emissions for clay blocks only by 20% in -- at the end of our project in 2020. So we have achieved our ambitious target. We want to grow and to become even better in this field of ecological footprint, and I will talk about this later. It's just to show you that we do a lot of efforts in any respect when we talk about ESG. But let me go back to the results and the financials. With the 3% lower turnover compared to our record levels in 2019, I do believe we can present a very satisfactory set of results and especially also on the EBITDA front, like-for-like EUR 566 million compared to 500 -- slightly above the EUR 590 million the year before. So again, a very strong performance even considering that in some countries, we had a 3-months lockdown and had to digest all of these sort of very difficult situations throughout our different markets. You see it in the EBITDA margin with nearly 17%. We were strongly performing there. And I'm especially happy with the high degree of performance when it comes to cash flow, with the free cash flow of nearly EUR 400 million. That's the highest free cash flow that the company has ever produced in its history. We have obviously shown a great degree of discipline when it comes to working capital management, CapEx management, growth management. And it shows clearly that in such very difficult and sort of not to be foreseen situations, we can manage this very effectively and have a great team of experienced managers to react to this very different local situations and adapt to them. When you look at our net debt situation, and I ignore for 1 minute the Hybrid, then we have obviously reduced significantly our net debt compared to the year before. And you can see that even in such a year, we were able to pay out the dividend to our shareholders with nearly EUR 70 million. We were able to buy back shares and, on top of it, repay the Hybrid with more than EUR 200 million. So we returned to investors and shareholders more than EUR 300 million in the crisis year of 2020. And considering this situation, I think it's a strong message of Wienerberger that we are a company that generates a lot of cash even in difficult times. Let's come to quarter 4 of last year. If you look at the numbers here, we have seen fairly satisfactory development in all of our units, Building Solutions Europe, Piping Solutions and North America on the external revenue side, so nearly at the level of the year before. So again, great performance in all the 3 units. And on the EBITDA, we have even slightly improved our performance. And this, again, shows our high degree of discipline when it comes to operational excellence and the implementation of our Fast Forward project that I will talk a little bit later about. The different units, as I said, the most affected one was Building Solutions in Europe due to some very long lockdowns in quarter 2. We talked about the situation, obviously, during the year. There's nothing more to report. But I think also when you look at the months after the lockdowns, especially in the second half, we've seen a strong rebound and a strong comeback in all the different markets. And the performance in the manufacturing area and on the sales side has been very satisfactory with prices and, obviously, lower costs. So we were able, again, and this, again, I think I want to stress, to cover all cost increases with our price increases. And by any means, in some countries, price increases were good in order to offset the cost inflation because they were high in certain areas of Eastern Europe especially when it comes to wages in 2020. Piping Solutions has shown also, considering the circumstances, a very good set of results also on the EBITDA front and obviously in the overall performance. We see here the promised shift to higher value-added products to solutions, where we obviously deliberately exit some of the commodity businesses that we have in order to proactively advance in our margins throughout the business. North America, also very satisfactory here and the strong improvement on especially the EBITDA front and the margin front, very disciplined cost approach here. And the management of the price is also very satisfactory. Please consider also that our good and very sustainable business in Canada was affected with nearly a 3-month lockdown in the Canadian market. But let's now move to the strategic highlights. In the past, we talked about growth in Wienerberger and growth coming actually from 3 major pillars: Self Help program, we called it Fast Forward in the past. We have successfully completed this project. You remember that we talked about this in detail, the EUR 120 million target. We have achieved now EUR 110 million even considering that our suppliers and the projects couldn't be realized as we wish in 2020 but still a very good performance. Only EUR 10 million remaining out of this project that we will shift into the new project from 2021 onwards. So I can say that the great performance of our colleagues, how we achieved it in time and under very difficult circumstances especially last year. Organic growth. As I said at the beginning, 33% of our turnover is innovative products. We continue to grow here. I showed in the presentation a couple of examples with photovoltaic roof solutions, with advanced cistern systems, for example, in the piping one and automated 3D printing when we come to mass production of manholes, for example. So again, you see here in the business continuously with thousands of projects throughout our markets and our divisions' strong organic growth potential for the years to come with this innovative product. And last but not least, the third pillar of growth is external growth -- M&A I mean, especially we've been very disciplined again last year. We have taken over, for example, a small company in the field of IT-based and web and cloud-based technologies for the water management in the Netherlands that we can integrate and roll out throughout the business. And we have made a major move in North America strategically when it comes to the consolidation of the market with the takeover of Meridian. And obviously, we are eagerly awaiting the approval of the antitrust authorities. I can't tell you right now when it will happen because we had the change in administration, as all of you appreciate. And this will take a little bit, but we are confident that we'll get it soon, and then we can start the integration. In none of my outlooks or about the guidance is Meridian will be included because, obviously, we don't have the information yet. And as we have it, then, we will communicate clearly and transparently in our question how this will contribute to our results in 2021. But at this stage, we have not included anything from Meridian. Let me say one word to a project that probably was not on your radar screen so much in the last years when we talked about the portfolio optimization. We clearly said that Wienerberger is working on its portfolio, and we wanted to do this throughout the business. And we disposed of our Swiss activities. So this project that we qualified as EUR 150 million sort of portfolio restructuring, we successfully achieved that also in 2020 by the -- by this divestment of our Swiss activities. Why did we do that? We didn't see enough growth potential there. It was a sort of a stable, slightly declining market, and we didn't see here the opportunity for growth as Wienerberger. So we reroute this sort of cash that we got from the sale of this business to more attractive growth areas of the business. Financially, I think I mentioned the most important items. When you look at the income statement, I think one thing that I want to address obviously, from quarter 1 of 2020, you remember that we took the hit on the impairment when it comes to the whole goodwill in the U.S. So this is an old history, nothing to do with COVID. It was a goodwill from 1996 that we wrote off, so we are completely now clean in the U.S., and this helps us, obviously, also in the future when we look at Meridian and the integrated business. And then some impairments on assets in Russia, for example, that we took also in quarter 1, so nothing was added throughout the year. Everything was done at the beginning. And then obviously, this reflects -- went on the bottom in the net results and profit. But it's, as I said, has no impact on liquidity, no impact on the operations. It's a purely bookkeeping and balance sheet issue. Because if we look at the cash flow, again, I think free cash flow, I mentioned a very strong performance here. Also on the net cash side, you see here a strong performance. And very disciplined also on the CapEx front with EUR 125 million of maintenance CapEx for the business. This leads me to another observation. If you look at the cash conversion of Wienerberger, we have been continuously improving this over the year. We are now at 78% last year. And you will see obviously a high degree of discipline also in the future because we want to limit ourselves for the business to EUR 120 million of maintenance CapEx that we need to maintain the business for the future. When we talk about growth, however, here we have an ambitious program also for the future. You see that we have been disciplined throughout 2020 with about EUR 86 million spent on growth projects throughout the business. And this was obviously due to the fact that it was a very unstable and insecure times in 2020. But in the future, obviously, and I will talk a little bit about this later, we have plans to grow further with Wienerberger. On the balance sheet, I talked about the requalification of the Hybrid because we obviously have repaid it in meantime. So it's now debt, and therefore, we have the debt level more or less on the same level than last year. But obviously, keep in mind, this is EUR 250 million of equity basically because the hybrid was considered equity that we repaid. And this leads me obviously also to my remarks that we have a very attractive payout to our investors. We keep our promises. Even in a tough year like 2020, we paid the dividend to our shareholders. We obviously paid some shares -- bought some shares back. And obviously, the Hybrid has been repaid. So again, I think a very healthy environment when it comes to balance sheet and the financial structure. But now let's move to 2021. 2020 is behind us. Successfully, we closed the books and move on to '21. '21 is a year again which will be affected by COVID-19. Let me put this at the beginning, because we will see lockdown through different markets in Europe and outside of Europe. I do not see that this is over yet. Ladies and gentlemen, we'll see this sort of throughout the year in different aspects of our lives, and we will have to live with it. But generally speaking, we see a healthy environment for our business and our end markets throughout new build, renovation and infrastructure and North America. Let me draw your attention. You have actually a set of slides, and 26 is probably one of the important slides to look at how we, from Wienerberger's perspective, see our markets where we operate in. And in the new build arena in Western Europe, we will see a slight increase -- decrease, sorry, a slight decrease because here, some markets will be a little weaker than last year. That's how we see the development. I referred to this, by the way, to some of you in different discussions when I said, obviously, the permit situation is such that, due to the lockdowns and backlogs and not administration working at a proper written, we have here some sort of backlog in permits. And this will affect new build rates in Western Europe. Central Eastern Europe, more flattish environment, Nordics is a little less, and North America growing. So this is the new build situation of Wienerberger. When we talk about renovation, it's growing. It's about 20% of our turnover and also growing, by the way, because we have different solutions for facade, for especially the roof. And we are growing this business throughout the different markets that we are in. So this is going to be a major attention point for the strategic development of Wienerberger. Infrastructure, more on the flattish side or slightly growing. Why flattish? Because some of the projects will take some time to come through. I remain rather positive when it comes to the Nordics and the Central Eastern European markets and especially in North America. So again, this is the set of markets and the development of these markets throughout 2021 as we foresee them. When we talk about quarter 1, I'm not making any sort of negative statements, but I'm just saying that the winter was severer than last year in many areas of the business. Even if there's now springtime in Austria and in Central Europe, but we had very harsh winter and snow, so obviously, this was affected, and it will take a little longer than expected to takeoff the season of the building around this area. And also in North America, we see that there's a slower start to the season. So this is nothing to worry about but just to mention it for the purpose of transparency. Let's come to the guidance. Based on the assumptions that I've tried to sort of lay out a little earlier when it comes to our different markets, we have obviously put our guidance together based on these assumptions. And I -- we call them flattish, slightly declining or a little up when it comes to renovation. That's the overall perspective. We also have said clearly in the past, and I continue to do this also for this year, 2021, that we will be able to offset inflationary cost increases by price increases. As a matter of fact, I just want to give you some more granularity here. We will need about 2% to 3% of price increases to offset such cost increases. So this is a clear target that we are aiming at, and I'm positive with my management team that we will achieve those. However, and this is obviously something which is out of our control at this very moment, there is a very -- or has been a very strong increase in plastic granular products and our raw material for the plastic pipe business in already quarter 4, and this has continued into January. And therefore, we see a certain risk. And I call it a risk, and we have built this risk factor in our guidance. We have here EUR 20 million, where we see a potential risk. And this is due to the fact that you have infrastructure projects and project business where you can't immediately increase the prices. So you have a certain lag of time that is between these cost increases and potential price increases. It doesn't mean that it realizes itself by definition. But as I said, we see it as a potential risk and want transparently to put this on the table at the beginning of the year. On the CapEx side, EUR 120 million, that's what we guide as a CapEx for the maintenance of the business. On the dividend side, we proposed and will propose to the general assembly at the beginning of May EUR 0.60 a share dividend, so unchanged to the year before. And when we come now to the growth, we foresee on the EBITDA front a 7% to 11% organic growth of Wienerberger due to the following effects: first of all, operational excellence measures again that will contribute significantly to this growth; then obviously, we invest in the business for growth when it comes to new products, new designs, expanding, et cetera, and on the ESG front. And all together here, when you look at the business, we want to get from the Self Help side, about EUR 40 million. So if we base ourselves on a comparable level of EUR 560 million for the last year of 2020, EUR 40 million will come from this sort of Self Help program. We have a headwind on the plastic side that I qualified at about EUR 20 million. And then we see additional growth out of our organic potential with new products between EUR 20 million and EUR 40 million. So this brings us to a guidance of about EUR 600 million to EUR 620 million of EBITDA for the ongoing year. We believe that this is a strong sort of performance if we get to this level, and we will always look at carefully how the markets develop. As I said, if in Western Europe, the situation with the permits gets better towards the mid of the year, this will improve, obviously. But there are some risk factors as well that we want to address very transparently at the beginning of this year. Last but not least, on the group strategy, nothing has changed. We have a clear set of ESG targets that we remain committed to and that I will elaborate in a minute. And these are obviously determining all of our growth aspects, innovation and digitalization of the business, the Self Help operational excellence and the M&A that we will carry out in 30 -- in 2021. And the end markets, obviously, in North America and Europe will be reinforced by the different acquisitions and by the focus on renovation, infrastructure and new build. So here, we will continue our growth. We will focus on this clear target that we have set ourselves on the 15% reduction of CO2 emissions, clear commitment to circular economy and to improve and maintain biodiversity around our production sites. Socially, we have also a clear set of targets. And governance-wise, Wienerberger wants to improve and maintain the highest degree of governance standards internationally applicable. With this strong commitment on ESG, with a strong commitment to the balance sheet, with this commitment to pursue this organic growth that we have seen in the last decade, above 6% within Wienerberger, to continue this also in the year '21, we want to go back to pre-crisis levels already in '21 and show the market that we are capable of growing successfully Wienerberger and making a strong company, future-oriented products and obviously products that our clients can install in any sort of situation as in 2020. Ladies and gentlemen, this is the sort of short presentation on 2020 and especially the outlook on '21. I'm just closing my remarks with a couple of personal notes. Obviously, I want to thank my colleague, Carlo Crosetto, that has successfully assisted us and help me throughout the 2020. It was a tough year. And I respect fully his personal decision to return to Germany and sort of pursue his professional and private life in Germany. That's a personal decision, and it has to be highly respected. I'm also very glad that the Supervisory Board has nominated my colleague, Gerhard Hanke, to the new CFO. Gerhard is a very experienced colleague that has been with the company more than 20 years in a lot of functions in financial but also operationally, has a long-standing experience in Wienerberger and all the different units and is a strong addition to the Managing Board. I'm happy because he is a colleague that will not only help us but steer and manage the Project 2023 especially when it comes to the Self Help program because he has done so in the past when we did M&A and integration. So he's a very experienced colleague. He's listening into this call already today. We'll Organize a special call to present my colleague, Gerhard, in March, a little later. Then he can lay out his working program also for Wienerberger and so that you get to know him also on the next roadshows. And also another thank you to my dear colleague, Anna Grausgruber from the IR. She has been our successfully new IR Manager in 2020. Fortunately for her and unfortunate for me, if I may say so, her maternity leave is a little earlier than expected. We wish her good luck, and she was a great addition to the team. And I'm also very glad that internally, we have prepared and have a new colleague, Elisabeth, that will join the team, and she also will present herself on the next call. So we'll give the 2 colleagues, Gerhard and Elisabeth, another couple of weeks to work themselves in and transit from their current positions into the new positions. And then we can present them to you. And so they are then on the next call and answer the questions, hopefully, in the way you want them to, but I'm sure they are. They are very experienced, both of them. So this is my personal note at the end of the presentation, and now we're obviously ready to take your questions. Thank you very much. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question is from the line of Yves Bromehead of Exane BNP Paribas. -------------------------------------------------------------------------------- Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [2] -------------------------------------------------------------------------------- I will have just a few questions. Number one, if we could just come back to your 2021 outlook by key markets, you're mentioning that you expect flat to maybe more slightly negative volume expectations in Europe in new build based on that backlog of permits. But if we look at what the house builders are saying in the U.K., for example, and then if you look at the permit situation in Germany, in Netherlands but also in Central Eastern Europe, it's rather positive. So if I combine this with sort of the easier base that you have in Q2 onwards, I'm just trying to understand if you're starting the first quarter with harsh weather and you're on the cautious side and if you think that there is more reasons to be optimistic as we exit Q1. I'm just trying to understand and pick your brain on how you're thinking about those end markets. I'll jump to my next questions after, if that's okay? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [3] -------------------------------------------------------------------------------- Yes, perfectly. You want the answer to this one first? -------------------------------------------------------------------------------- Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [4] -------------------------------------------------------------------------------- Yes, please. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [5] -------------------------------------------------------------------------------- Yes, sure. No problem. No, it's not that I'm pessimistic at all. I'm not under the impression of a harsh winter or something like this, not at all. I clearly hear the voices from the U.K. market, but that's only one market. But I see also the French market. I see the Belgium and the Dutch market. I agree with you that there is -- and I remain positive. There's pent-up demand. There's a strong demand in the market as such. I'm just saying that, obviously, there's a mixture of things that we need to take into consideration. As I said, COVID is not over yet. There's some sort of situation where permits are there but not executed in the right way or not as smoothly as I would hope for. So nothing to be pessimistic about, but I give you this sort of feedback that I have also from the market, talking with the operational guys, talking with a lot of people out there. So I'm not worried. I'm just saying it is going to be in the first half of the year certainly not the sort of boost that somebody -- some people believe. That's why I'm saying slightly declining, flattish environment where we operate in. And then we will see. I think it's like having a little fork here. And if the fork lightens up and we see clearer, then I can give you a clearer picture as well. I hope I answered it in the way that is satisfactory to you. -------------------------------------------------------------------------------- Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [6] -------------------------------------------------------------------------------- Yes. Just a few other questions. Second is, if I look back at the slides from your Capital Markets Day, you had about a EUR 65 million EBITDA tailwind from investments in digital and ESG-related topics. It doesn't seem to be flowing through in 2021, if my assumption is correct, so could you help us to understand the phasing of when you expect those benefits to come through? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [7] -------------------------------------------------------------------------------- Well, I think you are talking about this is part of this EUR 135 million program. And obviously, not everything flows through in 1 year, you appreciate that. I think what I said is that in '21, that's the first of these 3 years, already EUR 40 million are flowing through, EUR 40 million. And then obviously, we will have the remaining part, you can just sort of divide it in '22 and '23, more in '22 than in '23, to be honest. You can foresee this coming through. And you will see the full amount of EUR 135 million coming. -------------------------------------------------------------------------------- Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [8] -------------------------------------------------------------------------------- Okay. And my last question, on the U.S., so what is -- I understand there's a new administration, but does that really change the kind of competitive analysis that they're conducting? And has your position changed on whether you can integrate Meridian without having to shuffle some of the assets and maybe sell some assets that you hold particularly in Northeast and in Canada maybe? And then just continuing on the U.S., as a follow-up to that, if I look at single-family permit, it's up 20%. I think one of your competitors is quoting about 80% utilization rates already. I think Meridian has also taken some measures to address overall capacity. So quite a bit of rationalization taking place in the last 2 years. Permits up 20%. Some other industries are talking about saturation levels. Is 2021 this year where U.S. margins really start to show some signs of life again? And what's your view there? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [9] -------------------------------------------------------------------------------- Well, I mean I like your wording, but I think if you look at 2020, I'm not trying to be selfish or saying I'm satisfied, but we have seen some sign of life already in 2020, with a strong improvement of our margins, as you can see from our business. You are absolutely right that utilization rates are up. Cost has been well managed. I think obviously, and you're right, I do see also the good development especially in our regions when it comes to the permits and the sort of pickup in the new 1 and 2 family-house business. And so I'm looking with a certain degree of optimism to our U.S. operations and the performance. I have not changed anything with respect to the planned integration or the planned takeover of Meridian. There's only one thing, the new President signed immediately the creation or sort of bill where no accelerated processes should be implemented when it comes to antitrust, so we follow the normal procedure. So we should have in the next weeks or so a clear indication from them. I don't expect anything else than I've already said in the past. -------------------------------------------------------------------------------- Yves Brian Felix Bromehead, Exane BNP Paribas, Research Division - Analyst of Building Materials [10] -------------------------------------------------------------------------------- So it's reasonable to assume Q1 closing? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [11] -------------------------------------------------------------------------------- Listen, we're in the hands of administration. I mean we Europeans know what it means. If it's French, Austrian, German or English, administration always takes its time, yes? So let's not -- let's -- I'm not trying to be here, again, conservative or whatever you call me. I'm just realistic. Let's not play it by weeks. It's -- we will get indications. I'm optimistic on that. It takes its time, yes? -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Next question is from Matthias Pfeifenberger of Deutsche Bank. -------------------------------------------------------------------------------- Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [13] -------------------------------------------------------------------------------- One question only from my side on the pipes business. What can we expect in terms of margin compression at least for the first half? We go back to 2018 levels of, let's say, mid- to high single digit? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [14] -------------------------------------------------------------------------------- Yes, I would say high single digit probably, if I may say something to this. But obviously, I wouldn't -- let me just sort of rephrase this a little bit. Because you remember, I talked about the potential risk, yes, and that's obviously -- this is only part of the business. This is not all of the business. So I would -- this situation with the increasing -- and I have to be careful what I say. The situation is such that the raw material supplier in Europe are fairly concentrated, yes? And for a certain degree, they have called force majeure and maintenance at the same time, at the same time, which is not very -- obviously, we call -- it's on the edge, let's put it this way. I think this will cause some sort of investigations anyway because it's a little strange. -------------------------------------------------------------------------------- Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [15] -------------------------------------------------------------------------------- It's sort of driving up the prices. They're driving up the prices since they can. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [16] -------------------------------------------------------------------------------- Correct. Exactly. And the question is when that the prices come down again or is flat or whatever. So there's a lot of uncertainty, and I wanted to address this uncertainty in transparent ways. I wouldn't jump to the major conclusions already in February. Yes. So we have this situation. We need to deal with it. We need to be transparent with you guys. But at the end of the day, we will see in the next months how this sort of works out and when we get in a more normal mood again, yes? -------------------------------------------------------------------------------- Matthias Pfeifenberger, Deutsche Bank AG, Research Division - Research Analyst [17] -------------------------------------------------------------------------------- And can I just come back to Germany. So the permits are falling. That's maybe also baked into less capacity on the admin side. But people then, even if they have the permit, sit on it because there is obviously uncertainty in the market. What about the U.K.? I mean it's -- we just heard it's promising, but then it's probably nothing to do with the 1 and 2 family housing category. But there's a big cladding crisis and insurance rates spiking, and also on the residential side, obviously, multi-story and highrise and all that stuff. I'm just wondering if that has another effect on sentiment. And then post Brexit, how the dynamics are there in the U.K. market? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [18] -------------------------------------------------------------------------------- No, I don't see that. I think all of the markets are rather robust and also -- especially also the U.K., I think for this year, we will have a rather positive market environment for the U.K. I'm not at all worried. -------------------------------------------------------------------------------- Operator [19] -------------------------------------------------------------------------------- The next question is from the line of Xintong Ouyang of On Field Investment Research. -------------------------------------------------------------------------------- Xintong Ouyang, On Field Investment Research LLP - Analyst [20] -------------------------------------------------------------------------------- I've got a couple of them. The first one is on the bridge that you shared on the EBITDA like-for-like for 2021. I'm just wondering if it is fair to assume that if price totally offset cost, the EUR 20 million is offset, another like 0 to EUR 20 million growth implies around like 0% to 2% volume growth that you project if we take like 35% flow-through for '21? Is that a fair assumption? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [21] -------------------------------------------------------------------------------- That's a pretty fair assumption. Yes. You had 35% gross margin. Position yourself between 30% and 35%, somewhere, yes. -------------------------------------------------------------------------------- Xintong Ouyang, On Field Investment Research LLP - Analyst [22] -------------------------------------------------------------------------------- Okay. Great. And then another thing is on the cost side. I guess, well, I thank you very much for all the explanation on the plastic side, it's very clear. But then on the gas side, I'm just wondering, because you hedge, right, this year, 2021, you probably hedge around, what, 80%. But then would that mean you have to suffer from the high gas price that we are seeing this year at the end of 2021? And then it will roll into 2022? So I'm just wondering, is it possible to provide a little bit of like quantified numbers on EBITDA or like a range of what kind of headwinds you're going to see on the gas side like later this year and next year? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [23] -------------------------------------------------------------------------------- This year, we won't see any, I would say, because we are hedged fairly well, yes, so high degree, higher than you have said. And for next year, we're already hedged also far above 50% already for next year. So the headwind is not going to be so substantial for next year either. -------------------------------------------------------------------------------- Xintong Ouyang, On Field Investment Research LLP - Analyst [24] -------------------------------------------------------------------------------- Okay. I see. Great. And then on the wage inflation for 2021, because you increased price last year because of wage inflation mainly in WBS, right? So I'm just wondering for this year, what kind of wage inflation you're seeing especially in the Central Eastern Europe? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [25] -------------------------------------------------------------------------------- Very good question, and I must say you need to be a little bit more patient. We're in the middle of certain discussions in certain countries. This is not over yet. We -- the discussions are taking a little longer this year because, obviously, you can imagine that the labor market is a little different, and we try not to overreact with the increases. So having a little bit moderate ones is our goal in the negotiations, but I can't confirm that. So we are in the middle of it. It will take another month or so that we have a clearer picture, yes? But all in all, as I said, the 2% to 3% price increases will cover all of it. -------------------------------------------------------------------------------- Xintong Ouyang, On Field Investment Research LLP - Analyst [26] -------------------------------------------------------------------------------- I see. Great. And then another one is more like on the long term on M&A. I remember after Meridian, you said that you want to shift your focus back to Europe. And I see that you -- for example, your roofing business is growing really well, but some of the products you're selling there are from third parties. So I'm just wondering when do you actually consider buying, say, insulation or waterproofing products and actually develop them in-house to like basically boost margin on that part. Just wondering what was your view on that on the M&A side. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [27] -------------------------------------------------------------------------------- On the M&A side, I think you're fairly right to assume that we move back a little bit, I would say, now to Europe after we have addressed the U.S. situation. And here again, you need to see we have a piping operations where we want to improve and grow our business in certain areas, so that we will address. And then on the roofing side, before we move outside the scope and the end markets and the sort of applications that we have, we need to further consolidate or improve our positions. It's no use to start off new ideas and projects when you have not completed the old one. So what I'm trying to say is we have been very disciplined in the U.S. You have seen us. Industry is consolidating and then also move and take then the next step after. So what I'm saying is Wienerberger will focus on its areas of activities in the next year, especially '21 and a little bit beyond, as we have accomplished on this, and then we will move into next sectors and create an even broader product portfolio and additions to the ones that we have today and sell it to our customers, but a step-by-step approach. -------------------------------------------------------------------------------- Xintong Ouyang, On Field Investment Research LLP - Analyst [28] -------------------------------------------------------------------------------- I see. So is it fair to interpret it as in Europe, in the -- on the brick side, you prefer first to consolidate markets, for example, like Germany, which is very scattered, instead of like combining new products into your portfolio? Is that fair interpretation? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [29] -------------------------------------------------------------------------------- Not 100%, no, if I may say. So I tried to sort of refer to your roofing suggestions. And when you talk about different products, on the clay block side, we have a very good and very strong position throughout Europe. So I'm not talking about big consolidation on the facing brick either because this is very local and very sort of regional. On the roofing side, I see certain potential for further consolidation. Yes, that's what I confirm. -------------------------------------------------------------------------------- Operator [30] -------------------------------------------------------------------------------- The next question is from Markus Remis of RBI. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [31] -------------------------------------------------------------------------------- First one relates to the plastic granulates topic. If you could maybe shed some light on the annual purchasing bill. And then I'd be interested to hear whether you have already approached your customers who have tried to implement higher prices. And how receptive is the market? And how price disciplined do you see your competitors? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [32] -------------------------------------------------------------------------------- Well, I address your 2 last questions. I mean, the understanding in the industry has been, as long as I know it, very much the same. Competitors move in the same direction because all of them are exposed to this raw material increase. So this is a very transparent way in the industry, and clients and customers understand that. So don't see any price pressure per definition, first of all. Secondly, when you talk about how we approach, obviously, we are in discussions with all of our customers, and they know about it. We -- obviously, nobody, by definition, is very happy about some things like this, but they have to accept it. And as I said earlier at the beginning, I talked about the risk and the risk, because when you are in projects and they are infrastructure projects, take -- tend to take a little longer, a couple of months or even longer. And then the deliveries come step by step. And obviously, that's why I'm saying it's not always easy to come in and say now we have an increase of X percent because of raw materials, and that's why we see a certain risk. They have -- I would say, our customers understand the situation. They will deal with it. If the risk materializes, this is the maximum that we have, the EUR 20 million. I'm not saying that it materializes per se and to up to this amount. So this is, I think, a very transparent way of communicating such a risk. On the purchasing side, I think we have a lot of materials that we purchase. And I don't want to give too much now on details on this. It's not the highest amount within Wienerberger. It is substantial, but it's not the highest one. But for competitive reasons, I don't want to sort of share this for the moment. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [33] -------------------------------------------------------------------------------- Okay. Sure. Can I then talk about the logistics cost? In general, do you also perceive inflationary tendency here? And are there any issues when you're -- I guess, you're still shipping from Continental Europe also partly to the U.K. Are you seeing any delays on the borders, anything that's truly disturbing to the flow of goods? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [34] -------------------------------------------------------------------------------- Nothing. Nothing at all. No. We have optimized our logistical sort of structure already in the past. We have no issues here when you talk about the Brexit or the cost side. Everything is very sort of clear. When you talk about transport or freight, obviously, in some areas of Europe, you have some sort of issues on availability, yes? I mean that's something where we need obviously to keep an eye on because if the economy picks up a little bit left and right, we will have significant issues on availability of freight around Europe. That's an issue clearly because some of the people who offer freight have disappeared throughout the crisis. And I think it will take some time to come back. There's also, by the way, an ESG subject in freight because we require our colleagues, meaning the professionals, to have the right trucks when it comes to ESG performance, the environmental performance, and not all of them have it. So I think here, you will see a major change happening. In North America, especially in the U.S., we have to some degree our own fleet there that helps in these situations because also here on the long haulage, you have issues of availability. But I think so far, we have managed this well from this respect and also on the cost side. -------------------------------------------------------------------------------- Markus Remis, Raiffeisen CENTROBANK AG, Research Division - Financial Analyst [35] -------------------------------------------------------------------------------- Okay. Last question on the shareholder remuneration, I mean what would be your thoughts on buybacks? Do you still consider them as an appropriate means of shareholder returns at current levels? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [36] -------------------------------------------------------------------------------- Well, I understand where your question is hinting to. I mean I'm saying that from our perspective, we have very attractive projects in the business and outside the business to deploy our financial resources. And they are better and reward the shareholders more with this sort of way forward than by buying back shares at this stage. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- The next question is from Rushil Paiva of Stifel Europe. -------------------------------------------------------------------------------- Rushil Paiva, Stifel Europe, Research Division - Research Analyst [38] -------------------------------------------------------------------------------- Just a couple, if I may. Just firstly, on the revenues generated from innovative products, you mentioned earlier that 33% of the revenues are coming from these types of products. So you have surpassed the previous goal that you had in that respect. So firstly, do you have any new goals for the revenue you aim to generate from such products? And can you highlight any particular products that you still consider to be commoditized or low growth? Secondly, I know you can't comment on the time line of the Meridian transaction. But the performance of Meridian for the 6 months from June 2020 to December 2020 did improve significantly versus prior year. So are you able to make any comments on what you thought drove that improvement? And then my last question just relates to the fourth quarter revenues, which they did recover basically to 2019 levels, which were considered to be high or very tough comps. So I was wondering if you could tell us what you thought was the portion that attributed to the pent-up demand versus underlying demand just to give us a better idea of the exit rate or the underlying conditions in the market. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [39] -------------------------------------------------------------------------------- Your last question is very difficult to answer, to be very honest with you. And if there was still pent-up demand in quarter 4 or not, I wouldn't overestimate the pent-up demand in quarter 4. I saw it more in quarter 3, I must say, probably in one or other market a little bit. But I saw it as a very normal and sustained level of performance in Q4, if I may. The question regarding Meridian and its performance, if you -- and I'm not talking under the control of the still owners on the paper or former owners, if I may say so. But the improvement was also very strong because they come from a very low comparable level, yes? So I think this is only normal that if you come from such a level that you showing a strong improvement. But it's still when you look at our -- and you remember what we have foreseen for the integrated business and then the improvement of the business, there's a strong still improvement to be done. And if we get our hands around it, we will sort of realize it. So there's a significant work by our colleagues in North America to be performed to get to the levels where we are. So this is, I think, still a way to go. But I'm certainly looking with this positive eye to what they have done so far, and they are on the right track, but there's a lot more to come. And then your first question was related to the innovative product. May I say one thing? We don't need to set every other year a new target. We said that from our perspective, Wienerberger should or must have, from an innovation perspective, more than -- at least 30% of new products. And we want to keep this standard. If we are a little better, perfect. We don't want to sort of increase our targets by a couple of percentage points. That's not our style. We want to work hard to keep this momentum going because I think this is the hardest one now. Because if you are on a high level to maintain it, it's much more difficult than just to set new targets. And I'm trying to sort of give this clear and transparent answer because it's so important to keep this innovation rate going into the company. When you talk about products where you think that -- or where you were referring to, are they lower margin, are they commoditized, at a certain stage, you need to look very carefully at a lot of things. And you have seen our very, I would call it, very proactive management style. We divested Switzerland for such a reason. We closed our operations in Pipelife in Greece by the end of last year because they were obviously not meeting that criteria. And you will see us moving through the business also in '21. So it's a very strict discipline that we apply in businesses where we say either you can -- we can improve the quality of the business and the margins by investment, yes, making it better operational excellence-wise or changing the products, more value-added products. Or there's another sort of possibility like the consolidation that we are currently doing in the U.S. to improve the business. If none of these 3 is possible, then we clearly will either close or exit the business. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- The next question is from Ami Galla of Citi. -------------------------------------------------------------------------------- Ami Galla, Citigroup Inc., Research Division - VP & Senior Associate [41] -------------------------------------------------------------------------------- Just a few from me. My first question was on the Green Deal. I was wondering if you could give us a sense of when do you see that coming -- benefiting the order flows on the renovation end market. And have you seen any movement in this regard at this stage? My second question was on -- just a technical one on the structural adjustment costs. If you could give us any color on 2021, what should we be penciling in for that? And the third one was really on the interest costs. I mean you refinanced your debt at this stage. If you could give us some sense of what the average cost of the debt stands in the business today. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [42] -------------------------------------------------------------------------------- First of all, on the Green Deal, the Green Deal, we all know it's now very highly publicized. And on the political front, everybody talks in different areas like also in North America, Canada and U.K. and Continental Europe. For the moment, you don't see a real big movement. There's still a lot of discussions. There's a little sort of discussion when and how and who. I would say we will need another 6 months that we see certain things coming our way. If it materializes in '21, not too sure about it. At least, and this is what I can confirm, at least it creates a positive momentum so that people are talking positively about infrastructure spending, about renovation, about new build. I'm seeing in certain countries, and this has nothing to do with the Green Deal, by the way, I see that the Belgium government made a huge step in renovation when they sort of granted either tax benefits or subsidies with respect to renovation especially for facade and roof. I've seen also the Danish government moving in this direction. You can now say this is Green Deal. But I think it's also the local authorities that now step forward and put their own things in place. You will see obviously a major sort of impact coming from the Hungarian government, reducing VAT again to 5% and granting young families interest-free loans for new houses. So you see a lot of movements there in local authorities moving in these directions to stimulate renovation, new build and infrastructure. So I think under this umbrella, if it's now Green Deal or you call it otherwise, but I think there will be a lot of initiatives coming in different economies. I mean you know what they talk about in the U.S. about infrastructure, how much money they want to spend or the U.K. wants to spend things. So there's a lot going on. I think until everything materializes, it will take some time. So this is my first -- your first question on the Green Deal. Then you had some questions on the, I call it, structural adjustments, yes? -------------------------------------------------------------------------------- Ami Galla, Citigroup Inc., Research Division - VP & Senior Associate [43] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [44] -------------------------------------------------------------------------------- You will -- you talked about '21, and obviously, I don't give a guidance on this because it's, for me, not 100% sure what comes our way yet because that's something very difficult to make a judgment upon. However, I will sort of give you one hint or one indication. When we talk about the Meridian integration in the U.S., we have foreseen and communicated to you, by the way, in September that we foresee here about -- not in September, in December, I'm sorry, about EUR 10 million of restructuring costs, EUR 10 million, yes? So that I think you can build into this, into your model. -------------------------------------------------------------------------------- Ami Galla, Citigroup Inc., Research Division - VP & Senior Associate [45] -------------------------------------------------------------------------------- And my last one was really on the interest cost, if you could give us some color on what the average cost of debt stands as things stand today. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [46] -------------------------------------------------------------------------------- 2.15, I think, 2.15. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- The next question is from Cedar Ekblom of Morgan Stanley. -------------------------------------------------------------------------------- Cedar Ekblom, Morgan Stanley, Research Division - Executive Director & Equity Analyst [48] -------------------------------------------------------------------------------- I've got 3 questions. On Piping Solutions, can you talk about how you see your normalized margin? Do you see any change in your longer-term margin target in that business? Or are we looking at a short-term sort of blip in margins in 2021 related to raw material costs? The second question is, if we think about M&A in Europe, how would you rank the relative attractiveness of investing in your piping business or investing in your Building Solutions business? And the third question is then on piping again. How do we see your focus as it relates to application? Obviously, that business has a mix of residential and infrastructure end markets. How do you see the relative attractiveness when we're thinking about targets for that business in the future? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [49] -------------------------------------------------------------------------------- Thank you for these very helpful questions, which will give me the opportunity to talk about this business a little more. I start with the more strategic one, that was your last question. And obviously, from the attractiveness and the sort of focus for the investment, I rank it very high, above Building Solutions, because obviously, the capital intensity is lower, first of all. We have here the potential to grow much faster, quicker and more profitable in the short term. So here, to make here the right sort of move geographically and, as you pointed out correctly, in the necessary applications that's very key now brings us a lot of momentum, yes? And if I may say so, I rank it very high, and we will move on certain targets in order to improve this really dramatically because we have a strong market share and a strong situation in Northern Europe, where we obviously have high margins and where we can still improve them. And to come back to your margin sort of question, we -- I don't see this as a long-term effect. It's a very short-term effect. I don't have to change anything on here the goal to improve further margins. And I'm not sort of -- again, with -- like with your colleague's question about the share of innovative products, I don't want to stay at a certain margin and say now it's at 12%, and I'm happy with 12%. I'm not happy with 12%. I see the opportunity to grow further. And if it's 14% or 15%, I think we can still make our way because here, again, if you add solutions and applications, then you can grow also your margin, yes? And if in Finland, for example, we offered pipes and now we offer whole water systems to our clients and include also IT applications, then obviously, you can grow the business much faster and much more profitable. And that's the way forward. If we -- if you come back -- if I may come back to your question about where to devote the sort of money to it, I think in-house applications, here we need to grow further. We have a good position already on the electrical one. And we want to grow this electro business further in Europe. We can do more on the hot and cold side as well in certain areas, geographically-wise. And as I said, Eastern Europe is for us still a growth opportunity because here, infrastructure-wise and in-house-wise, we can improve our business here both because you have a lot of renovation and new build in the next 10 years. And on the infrastructure, if I look 10 years ahead, there's a lot to be done still in infrastructure. And here again, I just really want to restate my statement from the beginning. I see here great opportunities and the potential to grow the business fast and very profitable. -------------------------------------------------------------------------------- Cedar Ekblom, Morgan Stanley, Research Division - Executive Director & Equity Analyst [50] -------------------------------------------------------------------------------- Is it fair to say then that you're leaning more towards growth in your residential applications when you're talking about in-house? Would that be a fair conclusion? Or do you see it very evenly spread between residential and infrastructure? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [51] -------------------------------------------------------------------------------- At this stage, still, I would say it's a fairly equal one because we need to close some gaps in infrastructure in Eastern Europe. That's why I see this as an important step forward. And if we have closed this gap, then you will see the additional growth will come more on the in-house side. -------------------------------------------------------------------------------- Cedar Ekblom, Morgan Stanley, Research Division - Executive Director & Equity Analyst [52] -------------------------------------------------------------------------------- And last question on the piping business. I just want to understand, are there any cross-selling synergies between your Building Solutions business and your in-house applications in the piping side? Is that a natural discussion that you have with the customer, where you have the brick business already and then you bring along the in-house? Or is it quite separate commercial discussions that you're having? -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [53] -------------------------------------------------------------------------------- It is -- when you talk about the application, the installation is a separate one because, obviously, they are separate installers, plumbers and electric installers, et cetera. So obviously, you have here a separate target group. However, when you talk about the energy performance of the house, the overall sort of heating, cooling, et cetera, systems, then as an expert, Wienerberger comes into place, and our project sales teams come into place. And here, you have the significant synergies when you talk about cross-selling. So the future will be a company that offers, again, a set of solutions to our clients. When they are more interested in -- I built a house or I built an apartment block and I need the whole solution for cooling, heating and also the water supply to this sort of thing, and therefore, it makes a lot of sense to offer them the whole system. And if you then look even beyond that, then we will deliver whole wall systems to those customers where you have probably, and I'm not being over visionary now, but integrated pipes into the wall systems of clay. But this is then the sort of synergy that you have then also on the manufacturing side, yes, not only sales but manufacturing. So this is the way forward for Wienerberger, an integrated company offering complete set of solutions to people. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- (Operator Instructions) And the next question is from the line of Miro Zuzak of JMS Invest AG. -------------------------------------------------------------------------------- Miro Zuzak, JMS Invest AG - Investment Professional [55] -------------------------------------------------------------------------------- Yes. First of all, congratulations. I think it's a very good result. And the path you're on is clearly visible, the restructuring path, the modernization path. As you consume a lot of energy in the production process, can you please remind me about your exposure towards the carbon price? So what's the effect? I mean assume a plus EUR 10 move in the carbon price, how would this affect your P&L? And maybe you can also explain how this exposure has changed in the last couple of years. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [56] -------------------------------------------------------------------------------- A very important question that is close to my heart because ESG matters. I have to tell you the following. We are -- from a business perspective, CO2 emissions only matter in the clay business, in the Building Solutions business because here we use natural gas for burning our kilns. And this is the major sort of consumer for energy basically when it comes to our kilns. So this is the part of the business that is mostly affected. As an industry on the European level, we are considered carbon leakage status. So we have received from the beginning of the trading scheme free allowances for CO2 emissions. We have not been like other industries selling and trading, et cetera. So we have had enough CO2 emissions rights basically over the years. We bought some at low-cost also in order to cover us for the future. And we have managed this, I think, fairly well over the last couple of years and do so in the future. We've been granted now also for the third phase of the emission trading scheme free allowances with obviously the obligation to reduce our emissions, and that's what we are currently doing. So we are fully covered. So any movement here on the CO2 price front, as you alluded to, will not affect us immediately right now. So there's no need to worry. And obviously, we run our own simulations and our own analysis, and therefore, we have come up with the clear target to reduce the overall emission by 15%, yes. That's a clear signal that you see us moving in this direction. So we are conscious about the fact. And by the way, we emit, from an overall perspective, a force for -- compared to a steel mill, for example, the whole 200 sites of Wienerberger, it's the force of 1 average steel mill in Europe. So it's a very small amount of CO2 that we emit at the end of the day, but we are conscious that we need to make our contribution and reduce it further. Let me just say a couple of strategic words because we are making a lot of effort in research and development and in technology. We can and we will build right now the first electrified kiln in Belgium, where we have then a zero-emission brick out there. So you see us already testing certain possibilities in order to change completely the face of the industry, and that's something we look at. We don't look it as a threat, and that's what I would like to relate to you. We see it as an opportunity to make our performance better and improve our global carbon footprint. So again, I hopefully gave you a color and a clear understanding where we are. And this is, from a cost perspective, not affecting us right now, but we are working on it not to have this effect in the future either. -------------------------------------------------------------------------------- Miro Zuzak, JMS Invest AG - Investment Professional [57] -------------------------------------------------------------------------------- And this third phase, how long is it lasting? So when will... -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [58] -------------------------------------------------------------------------------- 2029. -------------------------------------------------------------------------------- Miro Zuzak, JMS Invest AG - Investment Professional [59] -------------------------------------------------------------------------------- Okay. And good luck going forward. -------------------------------------------------------------------------------- Heimo Scheuch, Wienerberger AG - Chairman of Managing Board, MD & CEO [60] -------------------------------------------------------------------------------- Thank you. Thank you very much, indeed. Thank you. -------------------------------------------------------------------------------- Operator [61] -------------------------------------------------------------------------------- And there are no more questions at this time. I hand back to Daniel Merl for closing comments. -------------------------------------------------------------------------------- Daniel Merl, Wienerberger AG - IR Manager [62] -------------------------------------------------------------------------------- Thank you very much, operator. So ladies and gentlemen, thank you very much for dialing in today. The next conference call will be on the 12th of May for the Q1 2020 results. And that's for today. I can only wish you a nice remaining afternoon. Thank you very much for dialing in today. Stay safe, and goodbye. -------------------------------------------------------------------------------- Operator [63] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes the Wienerberger conference call. Thank you for joining, and have a pleasant day. Goodbye.