2016-10-28 07:00:01 CEST
2016-10-28 07:00:01 CEST
REGULATED INFORMATION
Uponor - Interim report (Q1 and Q3)
Interim report January – September 2016: Uponor improved performance in Europe, the North American segment suffered from supply issues
Uponor Corporation Stock exchange release 28 October 2016 08.00 EET
Interim report January – September 2016:
Uponor improved performance in Europe, the North American segment suffered from
supply issues
-- Modest growth in net sales and operating profit in Building Solutions -
Europe and in Uponor Infra, while growth in Building Solutions – North
America decelerated and profit remained below prior year
-- Net sales for July – September totalled €284.1 (274.1) million, up 3.6% or
4.3% in constant currency
-- Operating profit for July – September came to €25.1 (23.6) million, a
change of 6.0%; comparable operating profit(* came to €29.0 (24.6) million,
an increase of 17.7%
-- Net sales in January – September totalled €830.5 (788.8) million, up 5.3%
or 6.5% in constant currency
-- Operating profit for January – September came to €63.5 (57.4) million, a
change of 10.5%; comparable operating profit amounted to €74.6 (59.2)
million, up by 25.9%
-- January – September earnings per share amounted to €0.47 (0.44)
-- January – September return on investment was 16.9% (17.3%), and gearing at
the end of September was 56.6% (37.9%)
-- January – September cash flow from business operations totalled €22.0
(17.0) million
-- Uponor repeats its guidance for the year 2016, announced on 12 February
2016:
Assuming that economic development in Uponor's key geographies otherwise
continues undisturbed, the Group’s net sales and comparable operating
profit are expected to improve from 2015.
*) Comparable operating profit excludes items affecting comparability (IAC)
President and CEO Jyri Luomakoski comments on developments
during the quarter:
-- Our European building solutions segment faced a softer third quarter in
terms of organic top line development, but the transformation programme
initiated in Q4/2015 helped to improve the comparable operating profit,
confirming the relevance of the transformation. The programme has
progressed well and we estimate that the final measures will be completed
during Q1/2017.
-- Building Solutions - North America suffered from fittings resin supply
shortages, which added to the cost burdens of the business. The underlying
market growth of the PEX pipe continued to be solid in both the residential
and commercial markets throughout the quarter.
-- I am delighted to see the turnaround in Uponor Infra, which after a series
of cost reduction programmes and continued weak demand in the Nordic
countries, again reports a clear comparable operating profit improvement.
We have also started a cost reduction and operational improvement programme
in Canada to further improve the overall performance of Uponor Infra.
Key financial figures
Consolidated income statement 1-9 1-9 2015 2014 2013 2012
(continuing operations), M€ 2016 2015
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Net sales 830.5 788.8 1,050.8 1,023.9 906.0 811.5
Operating expenses 737.8 705.0 942.7 926.4 823.6 726.5
Depreciation and impairments 31.6 27.3 39.1 36.5 33.0 28.2
Other operating income 2.4 0.9 2.4 2.4 0.8 0.9
Operating profit 63.5 57.4 71.4 63.4 50.2 57.7
Comparable operating profit 74.6 59.2 75.8 67.7 55.2 57.7
Financial income and expenses -7.2 -5.7 -8.9 -7.4 -7.1 -8.6
Profit before taxes 56.5 51.9 62.8 56.3 43.2 49.4
Result from continuing operations 35.6 32.7 37.1 36.3 27.1 32.9
Profit for the period 36.0 32.4 36.9 36.0 26.8 32.8
Earnings per share 0.47 0.44 0.51 0.50 0.38 0.45
Information on the January–September 2016 interim report
This interim report has been compiled in accordance with the IAS 34 reporting
standard and is unaudited. Figures given in the report are for continuing
operations, unless otherwise stated. Any change percentages have been
calculated from the exact figures and not from the rounded figures published
here.
Uponor follows the new recommendation from the European Securities and Markets
Authority (ESMA) concerning Alternative Performance Measures. Thus, the term
“non-recurring items” (NRI) has been changed to “items affecting comparability”
(IAC). See the table section for more details.
This document is a condensed version of Uponor’s January–September 2016 interim
report, which is attached to this release. It is also available on the company
website.
Webcast and presentation
A webcast, in English, of the results briefing will be broadcast on 28 October
at 10:00 a.m. EET. Connection details are available at www.uponor.com >
Investors. Questions can be sent in advance to ir@uponor.com. The recorded
webcast can be viewed at www.uponor.com > Investors shortly after publication.
The presentation document will be available at www.uponor.com > Investors >
News & downloads.
The next results report
Uponor Corporation will publish its financial statements 2016 bulletin on
Monday 13 February 2017. During the silent period from 1 January to 13 February
2017, Uponor will not comment on market prospects or factors affecting business
and performance, nor will the company engage in any discussion of events or
trends related to the reporting period or the current fiscal period.
Markets
Construction activity in Europe continued to strengthen in the third quarter,
albeit from a low base. In North America, construction activity remained
healthy in general, but the substantial increase against the previous year, as
witnessed during earlier quarters, turned out to be weaker in the third
quarter.
In Central Europe, Germany has continued to benefit from consumer-driven
expansion in the economy. A strong labour market and low mortgage rates have
translated into higher demand for residential buildings, leading to a
significant increase in residential building permits and several all-time-high
builder confidence survey results. The non-residential segment has remained
healthy, but external political and economic uncertainties are causing
hesitancy amongst businesses about the initiation of new projects. In the
Netherlands, construction activity has moderated.
In Southern Europe, construction activity in Spain and France has made some
gains from a low base, while the Italian market continues to be challenging. In
the UK, the fallout from the EU referendum has thus far been muted.
Within the Nordic countries, construction activity has continued to trend
upward. Sweden’s residential boom continues, with starts over the last 12
months reaching their highest level since the early 1990’s. In Finland, the
market remains weak, but building permit figures and construction volumes
indicate that the slight improvements noted earlier in the year have been
sustained.
In North America, residential and non-residential construction remain largely
healthy, but the substantial year-over-year gains witnessed during the quarters
since the recovery began were no longer materialising in the third quarter.
Rather, housing starts and construction spending were largely in line with the
same period in 2015.
With regard to Uponor’s infrastructure solutions, demand in the Nordic markets
was stable on the whole, with demand in Sweden and Norway improving somewhat.
The markets in Poland and other central-eastern Europe remained subdued,
lacking EU funding. Depressed energy prices continue to restrain oil-related
investments in Canada, which is also negatively impacting on the infrastructure
business in other market segments.
Net sales
Uponor’s continuing operations reported net sales of €284.1 (274.1) million for
the third quarter, entailing growth of 3.6%, or 0.4% in organic terms, i.e.
excluding any divestments and acquisitions. The impact of currency changes
versus the same period last year was -€1.9 million.
Building Solutions – Europe’s net sales grew due to the acquisitions made in
January 2016, but organic net sales in the third quarter declined slightly. The
main reasons for the decline were a lower relative share of single-family
buildings in contrast to flats in the sales mix, a softer commercial building
market - especially in Germany, and tight competition from private label
offerings, particularly in the lower price–performance categories. Weakening
market demand witnessed in the Netherlands also impacted on net sales
development. Net sales developed favourably in some other key markets, such as
Finland, the UK and Russia.
In Building Solutions – North America, growth in net sales was modest compared
to several previous quarters, reflecting a more stable housing market in the
U.S., in contrast to the strong growth that prevailed in 2015. In the U.S.,
sales of the commercial product offering in particular developed favourably,
while residential sales fluctuated. Sales development was also affected by the
engineered polymer resin shortage, which created challenges in the supply of
plastic fittings since it started in 2015. Demand also weakened in Canada and
net sales there remained slightly below those of the comparison period.
Uponor Infra reported top line growth, mainly originating in the Nordic
countries, while the continued weak market situation in Central and Eastern
Europe and North America had a negative impact on net sales development.
Breakdown of net sales by segment (July–September):
M€ 7-9/2016 7-9/2015 Change
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Building Solutions – Europe 127.4 121.2 5.1%
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Building Solutions – North America 77.5 75.1 3.1%
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(Building Solutions – North America (M$) 86.2 83.6 3.2%)
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Uponor Infra 80.8 79.0 2.3%
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Eliminations -1.6 -1.2
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Total 284.1 274.1 3.6%
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Uponor’s January–September net sales came to €830.5 (788.8) million, achieving
growth of 5.3%, or 2.6% in organic terms. This was mainly driven by the strong
growth in Building Solutions - North America throughout the first half of the
year. The currency impact on year‑to-date net sales, versus last year, totalled
-€9.4 million, mainly based on the CAD, GBP and RUB.
Breakdown of net sales by segment (January–September):
M€ 1-9/2016 1-9/2015 Change
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Building Solutions – Europe 385.2 352.8 9.2%
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Building Solutions – North America 228.4 201.8 13.2%
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(Building Solutions – North America (M$) 254.4 224.4 13.4%)
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Uponor Infra 220.7 237.0 -6.9%
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Eliminations -3.8 -2.8
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Total 830.5 788.8 5.3%
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Results and profitability
Uponor’s operating profit in the third quarter came to €25.1 (23.6) million,
representing a change of 6.0%. Profitability measured in terms of the operating
profit margin reached 8.8% (8.6%). Comparable operating profit, i.e. excluding
any items affecting comparability, came to €29.0 (24.6) million in the quarter
under review, showing an increase of 17.7%. Thus, the comparable operating
profit margin reached 10.2 (9.0) per cent.
Building Solutions – Europe’s operating profit improved somewhat, partly as a
result of an increase in net sales as well as the savings generated by the
transformation programme. Plastic raw material availability and pricing were
more predictable than in the previous year, which helped planning and
production efficiency development. The segment’s operating profit includes a
total of €0.9 million in items affecting comparability, which in the comparison
period amounted to €1.0 million.
Building Solutions – North America’s operating profit declined somewhat in the
third quarter. Despite being down versus last year, at 16.0% Building Solutions
– North America’s profitability remained at a high level as a percentage of net
sales. The segment has been growing its plumbing business, including plastic
fittings, during H2/2015 outpacing the supply of engineered polymer resin which
is used to produce the fittings. In order to secure customer satisfaction,
Uponor’s first response was to offer certain high-volume items in lead-free
brass, which has a higher cost and is therefore less attractive to the
customer. For Uponor, these sourced items also generate lower gross margins
compared to plastic fittings, in which our manufacturing depth is higher than
for metal fittings. During the second quarter 2016, Uponor, Inc. was able to
identify and qualify another engineered polymer, which enabled the
reintroduction of the full range of plastic fittings for customers. This new
material has a significantly higher unit cost. Additionally, the two rounds of
offering changes have caused incremental costs in the supply chain, which
should stabilise during the fourth quarter of 2016. As a further element,
investment in the expansion and optimisation of manufacturing - combined with
new recruitment - increased total overheads and conversion costs during the
quarter.
Uponor Infra’s operating profit clearly improved, being supported by the
favourable development in conversion costs and overhead expenses as well as
cost savings from the ongoing transformation programme. In addition, the
reported quarter saw lower turbulence in plastic resin availability, which
generated extra costs in the comparison period. Geographically, advances were
made in the Nordic countries, in particular, where net sales developed in a
favourable direction. The segment’s operating profit includes a total of €3.2
(0.0) million in items affecting comparability.
Breakdown of operating profit by segment (July-September):
M€ 7-9/2016 7-9/2015 Change
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Building Solutions – Europe 10.8 8.4 29.4%
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Building Solutions – North America 12.4 15.7 -21.0%
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(Building Solutions – North America (M$) 13.8 17.5 -20.9%)
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Uponor Infra 2.7 -0.3 925.5%
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Others -0.2 -0.2
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Eliminations -0.6 0.0
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Total 25.1 23.6 6.0%
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Financial expenses, net, in the third quarter, came to €1.7 (-0.7) million, up
€2.4 million. This increase was mainly due to the strengthening of the NOK and
RUB, which caused exchange losses in 2016.
Profit before taxes for July – September totalled €23.5 (24.4) million. Taxes
had an effect on profits of €8.7 million, while the amount of taxes in the
comparison period was €9.0 million.
Profit for the third quarter came to €14.8 (15.4) million.
The January – September operating profit came to €63.5 (57.4) million or €74.6
(59.2) million without items affecting comparability, up 10.5 or 25.9 per cent
respectively on the comparison period. Key contributors to this development
were Building Solutions – North America’s solid growth in the first half of the
year, which was supported by Uponor Infra and Building Solutions – Europe in
the third quarter.
Items affecting comparability totalled €11.1 million in the January – September
period. They were related to the transformation programmes in the Building
Solutions – Europe and Uponor Infra segments. In the corresponding period in
2015 such items totalled €1.8 million. Excluding items affecting comparability,
Building Solutions – Europe’s comparable operating profit, was €30.8 (22.5)
million and that of Uponor Infra was €8.3 (1.4) million.
Profitability, or the operating profit margin for the January – September
period was 7.6 per cent, against 7.3 per cent in the comparison period. The
comparable operating profit margin came to 9.0 (7.5) per cent.
Breakdown of operating profit by segment (January–September):
M€ 1-9/2016 1-9/2015 Change
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Building Solutions – Europe 24.0 20.7 16.2%
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Building Solutions – North America 38.1 38.8 -1.9%
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(Building Solutions – North America (M$) 42.4 43.2 -1.7%)
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Uponor Infra 4.2 1.4 204.9%
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Others -1.9 -2.9
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Eliminations -0.9 -0.6
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Total 63.5 57.4 10.5%
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Earnings per share for January–September totalled €0.47 (0.44), both basic and
diluted. Equity per share was €3.41 (3.26), and diluted equity per share was
€3.41 (3.25).
Events during the period
During the July-September period, progress was made in initiatives that had
been launched earlier in the year. On 13 July, Uponor Corporation and Belkin
International, Inc. completed the partnership agreement, announced on 25 May
2016, and formed a joint venture company in the United States and Europe for
the development and commercialisation of intelligent water technology. The new
joint venture, named Phyn, develops water sensing and conservation technology
for both consumers and the building industry. As a minority-owned business, the
joint venture company was consolidated into Uponor’s financial accounts using
the equity method.
The finalisation of the new factory premises in Taicang, China, has continued
as planned and the first production lines are currently being installed and
tested. Employees began to move into the new office in October 2016.
As part of the transformation programmes in Europe, Building Solutions – Europe
relocated its office in the UK to a location close to London and completed its
consultations with personnel. By the end of the third quarter, a total of 10
offices throughout Europe had been closed since the start of the year, while
net reduction in personnel, relating to the transformation programme, amounts
to 143 persons. Uponor Infra continued to streamline manufacturing by
centralising production in fewer locations in Finland and Denmark. A total of
31 jobs were lost in Uponor Infra as part of the transformation programme
during 2016.
The quarter also saw the launch of a new product, Uponor Barrier PLUS, the
first 100% plastic potable water pipe for use in water transport in areas with
contaminated soil, in order to avoid potential risks to human health in urban
and other brownfield environments. For the first time, the new Uponor Barrier
PLUS is based on a non-permeable polymer in place of the aluminium layer,
resulting in a durable but fully-recyclable pipe system. The system, which uses
standard fittings for pressurised potable water piping, will be sold by Uponor
Infra organisations in Finland, Denmark, Norway and Sweden.
Events after the reporting period
In October 2016, Uponor Infra decided to restructure its Canadian manufacturing
operations. This initiative will include the further consolidation of
manufacturing as well as measures to streamline operations. Measures aimed at
creating operational savings will also have a minor impact on jobs in various
locations in Canada.
Short-term outlook
The near-term economic outlook in Uponor’s core geographical markets remains
rather stable although uncertainty regarding longer-term stability is mounting.
The main drivers for such uncertainty are continued political turbulence in
Europe and its neighbouring regions, doubts about the economic strength of the
European Union, as well as the sustainability of the global economic
development currently being supported by public expenditure. In addition,
increased volatility, which is becoming the norm in the business environment,
may cause short-term bumps on the road.
Notwithstanding what is said above, demand in the building and infrastructure
market in Europe is likely to develop satisfactorily, due to the fact that
economic development in some countries, such as Germany, continues to be strong
and is driving private consumption, while in several others pent-up demand for
residential building is being actively satisfied in the form of new build and
renovation.
In North America, the brisk building market in the U.S. may begin to plateau, a
trend which may be reinforced in the shorter term by the nation’s focus on
issues on the political agenda rather than business or personal life. No major
changes are anticipated in Canada.
The next two quarters will mark the completion of Uponor’s internal
transformation programmes in Europe. While, in 2016, the focus has largely been
on transforming and renewing the businesses and structures, the subsequent
quarters will see the targeted benefits and savings coming in. For both
Building Solutions – Europe and for Uponor Infra, Uponor considers its
businesses to be in a much better position to meet future challenges, targeting
stronger profit development than in the last few years. In Building Solutions -
North America, investments in manufacturing capacity will support further
growth in step with the markets.
In connection with the results briefing on 12 February 2016, Uponor stated that
the Group's capital expenditure would increase from that experienced over the
last few years. Uponor estimated that capital expenditure, excluding any
investment in shares, will amount to circa €58 million in 2016, against €50
million in 2015. Some key reasons for the increase were the continued high
emphasis on new offering development, extensive European transformation
initiatives including manufacturing footprint optimisation, as well as a plan
to establish a factory in China. While most of the initiatives have been
executed as planned, there have been some delays, which may result in capital
expenditure remaining somewhat below the previously communicated figure of €58
million.
Assuming that economic development in Uponor's key geographies continues
undisturbed, Uponor repeats its full-year guidance, announced on 12 February
2016: the Group’s net sales and operating profit (excluding any items affecting
comparability) are expected to improve from those of 2015.
Uponor’s financial performance may be affected by a range of strategic,
operational, financial, legal, political and hazard-based risks. A more
detailed risk analysis is provided in the section ‘Key risks associated with
business’ in the Financial Statements 2015.
Uponor Corporation
Board of Directors
For further information, please contact:
Jyri Luomakoski, President and CEO, tel. +358 20 129 2824
Riitta Palomäki, CFO, tel. +358 20 129 2822
Tarmo Anttila
Vice President, Communications
Tel. +358 20 129 2852
Distribution:
Nasdaq Helsinki
Media
www.uponor.com
Uponor is a leading international systems and solutions provider for safe
drinking water delivery, energy-efficient radiant heating and cooling and
reliable infrastructure. The company serves a variety of building markets
including residential, commercial, industrial and civil engineering. Uponor
employs about 3,700 employees in 30 countries, mainly in Europe and North
America. In 2015, Uponor's net sales totalled €1,050 million. Uponor is based
in Finland and listed on Nasdaq Helsinki. www.uponor.com
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