Uponor - Interim report (Q1 and Q3)

Interim report January - March 2017: Uponor’s net sales grows in all segments

Interim report January - March 2017: Uponor’s net sales grows in all segments

Uponor Corporation    Interim report 1-3/2017   3 May 2017    14.00 EET



  -- A pick-up in demand fuelled net sales growth in key markets in all
     segments, with the clear exception of Germany and the UK
  -- Net sales in January – March totalled €265.1 (246.9) million, with an
     organic growth at 7.4%
  -- Operating profit came to €14.6 (11.9) million, a change of 22.8%
  -- Comparable operating profit came to €15.0 (14.9) million, a change of 0.8%
  -- Earnings per share were €0.11 (0.09)
  -- Return on investment was 9.9% (8.9%), and gearing 74.5% (62.4%)
  -- Cash flow from business operations came to €-23.0 (-14.5) million
  -- Uponor repeats its full-year guidance announced on 13 February 2017: the
     Group’s net sales and comparable operating profit are expected to improve
     from 2016, assuming that economic development in Uponor's key geographies
     continues undisturbed


President and CEO Jyri Luomakoski comments on developments during the reporting
period: 

  -- We made broad-based progress in several key markets across all segments in
     the first quarter, which had more business days this year than in 2016. The
     first quarter is an off-season quarter and performance trends may change
     further in the year. One such factor that may impact business going forward
     is an upward trend in the prices of key raw materials which we have seen in
     recent months. We have issued and are prepared to issue further price
     increases to compensate for higher input costs.
  -- Building Solutions – Europe’s net sales growth was strong in several of its
     key markets, but business operations experienced headwinds in the largest
     national market, Germany, in particular. Performance was negatively
     affected mainly as a result of intensifying competition in plumbing
     solutions, along with higher marketing costs related to the biennial ISH
     trade show.
  -- The building solutions business in North America is progressing in a
     satisfactory manner and demand in the key market segments remains healthy,
     although not quite as lively as in the very strong comparison period.
  -- Uponor Infra reported an improvement both in its top line and bottom line
     development, but reported an operating loss which is typical for the
     season. Faced with margin pressures due to emerging input cost risks, the
     segment continues to implement its strategy of focussing on designed
     solutions sales that is less dependent on raw material price movements.

Information on the January – March 2017 interim report bulletin

This document is a condensed version of Uponor’s January – March 2017 interim
report bulletin, which is attached to this release. It is also available on the
company website. This interim report has been compiled in accordance with the
IAS 34 reporting standards and is unaudited. The figures in brackets are the
reference figures for the equivalent period in the previous year. Any change
percentages are calculated from the exact figures and not the rounded figures
published here. 

Webcast of the results briefing and the presentation

A webcast in English will be broadcast on 3 May at 15.00 EET. Connection
details are available at http://investors.uponor.com. The recorded webcast can
be viewed at http://investors.uponor.com shortly after publication. The
presentation document will be available at http://investors.uponor.com > News &
downloads. 

Next interim results

Uponor Corporation will publish its half year financial report on 25 July 2017.
During the silent period from 1 to 25 July, Uponor will not comment on market
prospects or factors affecting business and performance. 





Markets

With confidence among builders at levels not seen since before the financial
crisis, European construction markets entered the year with continued, positive
momentum. In North America, broad-based growth continued in Uponor’s key
building segments, but at a reduced rate. 

In Uponor’s largest Central European market, Germany, private consumption and
public expenditure, combined with buoyant business confidence, have continued
to boost the economy. Within the construction industry, the commercial
construction market has been particularly strong, while other building segments
have experienced lower growth. Some of the growth has been in the prefabricated
house market, which has not been a core market for Uponor. The construction
sentiment in Germany stumbled in the last months of 2016, but rebounded
somewhat during the first months of 2017 and remains favourable compared to
previous years. In the Netherlands, growth has moderated, but builders report
significant improvements in their order books. In several European markets, the
HVAC industry continues to be hampered by bottlenecks in planning and in
professional installation services, which is slowing business. 

In Southern Europe, construction activity is primarily trending upward, with
considerable improvements in the Spanish and French markets. Despite political
uncertainties, no significant headwinds have been prevalent in UK demand. 

Supported by improving macroeconomic fundamentals, construction activity has
grown across the Nordic countries. In Finland, non-residential projects have
slowly begun to contribute to the recovery, which has thus far been driven by
residential construction in growth centres. The Swedish market continues to
outperform its neighbours, with housing starts growing significantly. The
construction markets in Norway and Denmark are also both benefiting from
strengthening economies. 

In North America, residential and non-residential construction remain largely
healthy in the face of labour shortages in some industries and rising interest
rates. In the USA, lacklustre business investments have slowed the pace of
growth in non-residential construction projects, but construction spending has
nevertheless grown from the same period last year. On the residential side,
housing starts have sustained their steady, upward trend. In Canada, a recent -
and probably temporary - surge in multi-family starts in urban areas has lent
support to the residential market. 

With regard to Uponor’s infrastructure solutions, civil engineering
expenditures in the Nordic countries remain modest, but steady, while an
increase in non-residential building construction projects has improved demand.
In Canada, the significant fall in industrial investments witnessed during
2015-2016 has bottomed out and demand in Uponor’s core market segments is
returning. 



Net sales

Uponor’s consolidated net sales reached €265.1 (246.9) million, up 7.4%. A
positive currency impact of €3.7 million increased consolidated net sales,
mainly originating in the USD and CAD. In constant currency terms, i.e. using
Q1/2016 exchange rates, net sales growth was 5.8%. 

Growth of net sales was robust both in Uponor Infra and in Building Solutions –
North America, but also in several key national markets in Building Solutions –
Europe, reflecting a clearly improved business environment in both continents.
In addition, a small, positive effect is likely to have arisen from customers
pre-buying ahead of announced price increases. 

Building Solutions – Europe reported net sales of €124.3 (123.0) million, up by
a modest 1.1%. Net sales grew strongly in several key markets, supported by
sales initiatives that bore fruit in pre-fabricated installation unit sales, in
particular. A clear exception to the trend was Germany and the UK, both of
which saw net sales decline. In the UK, net sales were influenced by the
weakening British pound, which made imported products less attractive and, in
part, by earlier transformation-related internal measures that caused short
term challenges, especially in supply. The unsatisfactory net sales development
in Germany was mainly related to overcapacity in the supply of plumbing
products that influenced Uponor’s routes to market, in particular, as well as
competitive pressures, both in plumbing and in radiant heating systems, from
OEM and other low price-performance suppliers. 

Net sales continued to grow favourably in Building Solutions – North America.
The segment’s net sales came to €78.2 (70.7) million, up 10.5%, or 6.7% in USD.
In the first quarter of 2016, net sales was very strong as a result of lively
sales in Canada and the pre-buying of EP (enhanced polymer) fittings in the
U.S. as a result of announced availability constraints. In 2017, irregular
order and sales patterns as a result of the EP fittings availability issue in
2016, were still experienced and had a negative impact on net sales growth.
Further, sales was curbed by the fact that some business opportunities did not
materialise as expected in the first quarter due to external issues, such as
weather. 

Breaking a multi-year negative trend, Uponor Infra reported growth for the
first quarter and posted quarterly net sales of €63.1 (54.1) million, up 16.7%
year-on-year. Growth was particularly robust in North America, Sweden and
Denmark. 



Breakdown of net sales by segment (January – March):

M€                                         1–3/   1–3/  Change
                                           2017   2016        
--------------------------------------------------------------
Building Solutions – Europe               124.3  123.0    1.1%
--------------------------------------------------------------
Building Solutions – North America         78.2   70.7   10.5%
--------------------------------------------------------------
(Building Solutions – North America (M$)   83.5   78.2   6.7%)
--------------------------------------------------------------
Uponor Infra                               63.1   54.1   16.7%
--------------------------------------------------------------
Eliminations                               -0.5   -0.9        
--------------------------------------------------------------
Total                                     265.1  246.9    7.4%
--------------------------------------------------------------



Results and profitability

Uponor’s consolidated gross profit came to €91.4 (87.8) million, a change of
€3.6 million. The gross profit margin was 34.5% (35.5%). Comparable gross
profit came to €91.6 (88.5) million, or 34.6% (35.8%). The change in gross
profit margin was mainly driven by factors related to the EP fittings shortage
in the U.S. in 2016, including an increase in freight costs and higher EP resin
material cost. Further, partner promotions in the building solutions segments
increased from the comparison period in 2016. 

Operating profit in the first quarter of 2017 came to €14.6 (11.9) million,
representing a change of 22.8% year-over-year. Profitability, as measured by
the operating profit margin, ticked up to 5.5% (4.8%). Comparable operating
profit, i.e. excluding items affecting comparability, came to €15.0 (14.9)
million, up 0.8%. Operating profit was burdened by a variety of factors, such
as sales mix shifting towards lower margin product groups during the period,
increases in overheads and expenses due to initiatives to expand business in
the U.S., in particular, as well as continued high level of R&D investment. In
line with the transformation programmes reaching towards their end, items
affecting comparability amounted to just €-0.4 (€-3.0) million. 

Building Solutions – Europe’s operating profit came to €6.3 (4.9) million, up
27.9%. The segment’s comparable operating profit amounted to €6.7 (7.5)
million, a change of -11.2%. Offsetting the beneficial impact of higher net
sales in several markets, the segment’s comparable operating profit declined as
a result of lower sales in Germany and marketing costs related to the biennial
ISH trade fair in March. The ramp-up of operations in Asia, including the new
factory in China, also burdened operating profit to some extent. 

Building Solutions – North America reported an operating profit of €10.6 (11.1)
million, showing a decline of 3.9% from the comparison period but still
remaining at a healthy level. The decline in operating profit was partly caused
by the repercussions of the shortage in EP resin in 2016, as mentioned above,
as well as lower margins due to regional sales mix. 

Uponor Infra improved its operating profit markedly, by 47.1%, but remained in
negative territory at €-1.9 (-3.6) million which, for seasonal reasons, is not
unusual for the first quarter. The segment’s comparable operating profit came
to €-1.9 (-3.2) million, representing a change of 40.5%. The improvement in
profitability was mainly caused by operational leverage due to higher sales
volumes, as well as savings from the transformation programme. The largest
share of the improvement came from the North American operations, supported by
the timely cost saving actions implemented during the fourth quarter of 2016.
Uponor Infra’s transformation programme in Europe has, been completed. 


Operating profit by segment (January – March):

M€                                        1–3/  1–3/  Change
                                          2017  2016        
------------------------------------------------------------
Building Solutions – Europe                6.3   4.9   27.9%
------------------------------------------------------------
Building Solutions – North America        10.6  11.1   -3.9%
------------------------------------------------------------
(Building Solutions – North America (M$)  11.4  12.3  -7.2%)
------------------------------------------------------------
Uponor Infra                              -1.9  -3.6   47.1%
------------------------------------------------------------
Others                                    -0.9  -0.7        
------------------------------------------------------------
Eliminations                               0.5   0.2        
------------------------------------------------------------
Total                                     14.6  11.9   22.8%
------------------------------------------------------------



Comparable operating profit by segment (January – March):

M€                                        1–3/  1–3/  Change
                                          2017  2016        
------------------------------------------------------------
Building Solutions – Europe                6.7   7.5  -11.2%
------------------------------------------------------------
Building Solutions – North America        10.6  11.1   -3.9%
------------------------------------------------------------
(Building Solutions – North America (M$)  11.4  12.3  -7.2%)
------------------------------------------------------------
Uponor Infra                              -1.9  -3.2   40.5%
------------------------------------------------------------
Others                                    -0.9  -0.7        
------------------------------------------------------------
Eliminations                               0.5   0.2        
------------------------------------------------------------
Total                                     15.0  14.9    0.8%
------------------------------------------------------------



Financial expenses at €2.8 (3.4) million were slightly less than in the
comparison period. 

The share of the result in associated companies at -0.5 million is related to
the minority share in the joint venture company Phyn, which is still in a
development and pilot phase and does not yet generate returns. 

Profit before taxes for January – March totalled €11.3 (8.6) million. The
effect of taxes on profits was €3.9 million, compared to €3.2 million in the
first quarter of 2016. The estimated tax rate for the full year is 35%,
compared to 31.3% at the year-end of 2016. 

The profit for the first quarter of 2017 amounted to €7.4 (5.4) million.



Short-term outlook

The rather stable market outlook that prevailed in February 2017, when Uponor
announced its 2016 results, has remained materially unchanged. Despite the
obvious risks that may materialise, the recent investment behaviour of
businesses and consumers indicates that confidence in near-term economic
development remains undisturbed. 

An encouraging improvement in demand has been noted in the European markets,
influencing demand for both building solutions and infrastructure solutions, in
comparison to sentiment in early 2016. The North American building solutions
markets have sustained their healthy levels, despite occasional month-to-month
fluctuations in demand. Likewise, demand for infrastructure solutions has
picked up in North America. As stated earlier, the recovery thus seems
broad-based and is supported by improving confidence, attractive credit terms,
immigration and, naturally, pent up demand over the longer term. 

Plastic resin prices have been on a gradual rising trend in recent months, and
Uponor has announced its first price increases to compensate for higher input
costs. Further price increases are likely to be announced during the quarter at
hand. 

Assuming that economic development in Uponor's key geographies otherwise
continues undisturbed, Uponor repeats its earlier full-year guidance: 

The Group’s net sales and comparable operating profit are expected to improve
from 2016. 

On 13 February 2017, Uponor estimated that the Group's capital expenditure,
excluding any investment in shares, would be in the range of €50-60 million.
With the new, planned additions included, the capital expenditure is expected
to be close to €60 million in 2017. Funds will be directed towards the
development of new products and offering, such as strategically significant
hygiene solutions, and the expansion of business in Asia among other
activities. 

Uponor’s financial performance may be affected by a range of strategic,
operational, financial, legal, political and hazard risks. A more detailed risk
analysis is provided in the section ‘Key risks associated with business’ in the
Annual Report 2016. 



Uponor Corporation
Board of Directors



For further information, please contact:
Jyri Luomakoski, President and CEO, tel. +358 20 129 2824
Maija Strandberg, CFO, tel. +358 20 129 2830



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 3,900 employees in 30 countries, mainly in Europe and North
America. In 2016, Uponor's net sales totalled €1.1 billion. Uponor is based in
Finland and listed on Nasdaq Helsinki. www.uponor.com

Attachments:

Uponor interim report 1-3 2017.pdf