Strategy and Business Model

Completion of strategic reorientation from an expansion-driven to a market-oriented company
For Wienerberger, the years since the crisis have been characterized, above all, by a difficult new residential construction market and an internal focus on cash generation. Extensive restructuring measures were implemented in 2009 as a reaction to the global financial crisis, which cut fixed costs by approx. € 200 million, substantially reduced working capital and gradually decreased the company’s debt. The conclusion of the restructuring phase was followed by a strategic reorientation from a primarily expansion-driven to a market-oriented company with a focus on organic growth. Our customers are the focal point of our actions – we want to create added value for them with innovative, high-quality and use-oriented system solutions. Comprehensive advising and service for our customers, starting with the project planning stage, are an important part of our improved sales activities. The strategy for our core business is designed to establish and extend leading positions in all markets in which we are present.
 
Strategic expansion through development of pipe systems
In order to reduce Wienerberger’s dependence on new residential construction over the medium-term, we have been working for several years to expand the core business through a stronger concentration on renovation and infrastructure. Our activities in the area of pipe systems should be seen in this connection. We acquired Steinzeug-Keramo, the market leader for ceramic pipes in Europe, during 2010. In 2012 the Wienerberger Group completed its transformation to an international system provider of building materials with the full takeover of Pipelife, one of the leading European producers of plastic pipes. Both companies were acquired at comparatively low multiples and create substantial added value with a CFROI that clearly exceeds the internal hurdle rate of 11.5%. The expansion of the core business has reduced the dependence on cyclical new residential construction from approx. 70% to roughly 60% of revenues. It has also broadened Wienerberger’s strategic base to include new opportunities for sustainable growth over the medium- and long-term.
 
Financial discipline is a top strategic priority for Wienerberger
Our strategic focus will remain on financial discipline as well as the protection of a strong capital structure. In 2012 we held the ratio of net debt to operating EBITDA at 2.2 years – which is below our internal target of 2.5 – despite the Pipelife takeover. The issue of an additional bond in January 2012 with a volume of € 200 million increased our liquidity reserves and further optimized the term structure of liabilities. The maintenance and protection of a strong capital structure remains a central goal for Wienerberger, which we will continue to pursue through the proactive management of liquidity and the term structure of liabilities.
 
Wienerberger Group: EBITDA potential of approx. € 600 million
Wienerberger’s activities cover solutions for walls and roofs (clay blocks, facing bricks and clay roof tiles) as well as pipe systems & paver solutions (plastic pipes, ceramic pipes and concrete pavers). These businesses are managed by region based on the following divisions: Bricks & Tiles Europe, Pipes & Pavers Europe and North America. The Wienerberger Group has a medium- to long-term EBITDA potential of approx. € 600 million across all divisions, once the new residential construction market recovers.

Difficult market environment leads to capacity adjustments in Bricks & Tiles Europe Division
For the Bricks & Tiles Europe Division, the past years were influenced, above all, by a difficult market environment and a focus on cash generation. In 2009 the financial crisis led to the implementation of an extensive restructuring agenda that adjusted structures to reflect the market. The reporting year brought an unexpected decline in new residential construction throughout Europe, which pushed the level of residential construction below the 2009 crisis year in a number of key markets. Wienerberger reacted to this renewed weakness with further optimization and restructuring measures in the Bricks & Tiles Europe Division. A restructuring program was launched during the second half of 2012, which should result in cost savings of approx. € 50 million by year-end 2014. This program includes the mothballing of plants as well as the adjustment of shift models and the optimization of administrative and selling expenses. Another important step was the appointment of a dedicated management team for the Bricks & Tiles Europe Division. The former COO Johann Windisch resigned from the Management Board in 2012 to turn his full attention to this division together with two experienced Wienerberger managers. Under his direction, further optimization measures will be identified and implemented to improve the division’s profitability.
 
Bricks & Tiles Europe Division: EBITDA potential of € 400 million under normalized market conditions
The new management team in the Bricks & Tiles Europe Division is taking charge of a modern industrial base with lean cost structures and an efficient plant network. The division has significant organic growth potential in the form of capacity that is currently not in use, but can be reactivated under normal market conditions. Wienerberger is in a position to generate a sound increase in earnings when the markets recover, primarily due to the fact that a major part of the fixed cost reductions is sustainable. The strategic focus for the coming years calls for an improvement in profitability through further process optimization as well as organic growth with innovative, premium products and building material solutions for energy-efficient construction. We see an EBITDA potential of approx. € 400 million for the Bricks & Tiles Europe Division over the medium- to long-term, assuming an appropriate market recovery.

Strategic focus of Pipes & Pavers Europe on further development of the product portfolio
The Pipes & Pavers Europe Division includes Wienerberger’s plastic pipe activities, ceramic pipe activities and concrete paver business. This division’s product portfolio covers system solutions for building installations, drinking water supply, irrigation, wastewater and rain water management systems, energy supply and drainage as well as special products for industrial applications and pavers. We offer system solutions to meet current challenges that include the increased incidence of flooding caused by climate change and the development of green areas through urbanization. Our focus for Pipes & Pavers lies, in particular, on the continuous development of the product portfolio and progress through innovation.

Pipes & Pavers Europe Division: EBITDA potential of € 145 million
Above-average growth is expected over the coming years, above all, in the areas of rainwater and water management due to the renovation backlog in Western Europe and the planned increase in supply network coverage in Eastern Europe. The growing demand for electricity and broadband services will also lead to increased demand for cable and electrical installation pipes in the future. The market shares of plastic pipes are growing steadily in comparison with competing metal and concrete products and outpacing the market. Over the medium- to long-term, we therefore see an EBITDA potential of approx. € 145 million for the Pipes & Pavers Division.

North America Division: EBITDA potential of € 60 million
Our brick activities in North America were the first Wienerberger business to be affected by the financial crisis. Since 2006, US housing starts have fallen by more than 75%. Stabilization at a very low level in 2011 was followed by a slight recovery on the North American market in 2012. Wienerberger has a modern, highly efficient plant network and its own sales center in North America. Currently unused and mothballed capacity will allow us to benefit significantly from positive market developments in the future. We see an EBITDA potential of approx. € 60 million in this division over the medium- to long-term, based on normalized conditions on the new residential construction market.

Use of opportunities for smaller, value-creating acquisitions
In the future we also want to use the challenging market environment to selectively expand our core business through smaller, profitable acquisitions. We will only invest in projects that help us to meet our CFROI target of 11.5% at the Group level, whereby we plan to realize these projects in all markets to strengthen our positions. Within the framework of available cash flow, we will also utilize opportunities to drive growth in the renovation segment.

Sustainable creation of added value as top corporate goal
The foremost goal of our entrepreneurial activities is to create and maintain a sustainable increase in the value of the company in accordance with ecological, social and economic principles. Accordingly, we work to create added value for all our stakeholders.
– For our employees, the positive development of our company means stable jobs with fair and healthy working conditions.
– Our customers benefit from sustainable, long-lasting and innovative products that guarantee energy-efficient, healthy living and supply security.
– Our products and system solutions make an important contribution to the attainment of climate protection and emission goals with their resource-efficient production and their long service life. We are also well aware of our responsibility to society and provide targeted in-kind support to the needy in the form of products or training programs.
– Shareholders and investors participate in the sustainable increase in Wienerberger’s value through higher share prices and dividends.

Wienerberger is well positioned to benefit from future recovery in residential construction. We have a modern, highly efficient plant network, a strong capital base, lean cost structures, strong innovation capability, durable and innovative products and committed, skilled employees. These success factors should allow us to realize the available operating EBITDA potential of approx. € 600 million at the Group level over the medium- and long-term in a normalized market environment.