Q1/2011 interim report: Uponor's year gets off to a steady start

Uponor Corporation Interim report January-March 2011 28 April 2011 8.00 EET

Uponor’s year gets off to a steady start

Market prospects improved, with demand reviving in several markets
Net sales in January–March totalled €173.2 (157.4) million; a change of 10.0%
Operating profit for January–March totalled €3.2 (1.5) million; a change of €1.7 million
Earnings per share were €0.02 (–0.03)
Return on investment was 4.7% (–1.1%), and gearing 62.3% (60.4%)
Cash flow from business operations improved to €-21.9 (–28.0) million
Full-year guidance remains unchanged

(Figures for continuing operations, unless otherwise stated.)

President and CEO Jyri Luomakoski comments on the reporting period:

First-quarter demand in most markets improved year on year, and the recovery accelerated after the winter. We expect demand to remain steady as the summer approaches.
Rising raw material, component and energy prices are creating continuous price pressure. Disregarding restocking to meet summer demand, our stock values in euro have grown in step with higher raw material prices. It is therefore vital that we are able to pass on price rises, to compensate for the forthcoming higher production costs once our current stocks are depleted.
In April, we concluded an acquisition in Germany. This represents an important step in building our project business throughout Central Europe. It will supplement our offering, providing us with fresh know-how in this strategically important business sector.

Webcast and presentation material:

Following the release of this report, the related presentation material will be available at www.uponor.com > Investors > News & downloads.

A live webcast in English on the Q1 results will be on Thursday, 28 April at 10:00 am. Questions for the webcast can be sent to ir@uponor.com. The recorded webcast can be viewed at www.uponor.com >Investors > News & downloads shortly after the publication of the financial results.

Uponor Corporation will publish its interim report for January–June 2011 on 10 August 2011. During the silent period from 1 July to 10 August, Uponor offers no comment on market prospects or factors affecting business and performance, nor does the company discuss events or trends related to the reporting period or the current fiscal period.

Markets

The year has begun positively. In the first quarter, demand for building solutions remained stable in the key markets of Central Europe and the Nordic countries, mainly varying from good to satisfactory depending on the country. With respect to Uponor’s product ranges, a pickup in demand was seen in parts of Western Europe, while the situation in Southern Europe remains challenging. In North America, the US and Canadian building solutions markets were mainly characterised by the continuation of weaker development than last year. This was largely due to the peak in demand experienced in the US a year ago. On the whole, demand for infrastructure solutions remained level with the previous year, reflecting the second consecutive severe winter.

There were clear regional differences in the development of demand for residential, public and commercial building, as well as for plumbing and indoor climate solutions. On the whole, however, a relatively stable situation prevailed.

Net sales

Uponor’s net sales in the first quarter were affected by many factors, making comparison with the previous year more difficult. Such factors include the harsh winter in both years that, however, influenced different geographical areas in different ways; the rising raw material and energy prices; as well as anticipated price increases, all of which are expected to have affected purchasing behaviour. Furthermore, financial and political instability, both in Europe and the US, have hindered private homeowners’ and companies’ investments and the financing of large projects.

Uponor’s net sales in the first quarter of 2011 were €173.2 (157.4) million, up by 10.0 per cent on a year earlier. Currency fluctuations had an impact of €2.8 million on the growth of net sales. Part of the growth in net sales was attributable to the increase in raw material prices, insofar as the rise could be passed onto sales prices.

Net sales improved in all segments, with the infrastructure solutions segment experiencing the strongest growth. Its net sales grew, in particular, due to growth in purchases by wholesalers in preparation for demand rising in the spring as well as the sales price increases carried through. In Europe, net sales of building solutions improved in Central Europe, mainly due to low sales during the comparison period. Net sales in Southern and Western Europe also increased slightly, despite Portugal’s weak performance. In the Nordic countries, net sales in building solutions remained more or less level with the first quarter of 2010. Growth has slowed down since the final quarter of 2010, due to the harsh winter and relatively large deliveries to wholesalers in the final quarter of 2010. In Eastern Europe, where the markets are stabilising, net sales showed a slight increase. Despite the difficult market situation, the positive development in the U.S. increased the net sales of building solutions in North America, measured both in local and reporting currency.

By country, net sales grew most in Germany, up approximately 20 per cent from the previous year’s modest level. In addition, net sales increased considerably in Sweden, the Netherlands, France and the U.S. Of the ten largest countries, net sales declined only in Italy and Norway.

Net sales by segment (January–March):

M€	1–3/ 2011	1–3/ 2010	Change
Building Solutions – Europe	122.3	112.0	9.2%
Building Solutions – North America	26.7	24.5	8.8%
(Building Solutions – North America (M$)	37.2	33.6	10.8%)
Infrastructure Solutions	26.0	21.9	18.9%
Eliminations	-1.8	-1.0
Total	173.2	157.4	10.0%

Results and profitability

Uponor’s operating profit totalled €3.2 (1.5) million, showing a year-on-year increase of €1.7 million from the difficult first quarter of 2010. Operating profit margin improved to 1.8 per cent, from 1.0 per cent reported a year ago.

Operating profit was burdened by the strong rise in raw material and component prices, which the company could not pass on in full to its sales prices. This affected the infrastructure solutions business in particular. In Europe, building solutions’ profitability was also eroded by considerable efforts put into marketing and customer relationships, compared to the previous year, as a result of the timing of the major exhibitions and product launches in the early part of the current year.

Operating profit by segment (January–March):

M€	1–3/ 2011	1–3/ 2010	Change
Building Solutions – Europe	6.6	9.0	-27.4%
Building Solutions – North America	0.7	-1.8	139.5%
(Building Solutions – North America (M$)	1.0	-2.5	140.3%)
Infrastructure Solutions	-4.0	-4.0	0.5%
Other	-1.1	-1.9	42.4%
Eliminations	1.0	0.2
Total	3.2	1.5	113.5%

Profit before taxes for January–March totalled €2.1 (–2.6) million. The influence of taxes on profits was negative, at €–0.6 million, while taxes for the corresponding period in 2010 were €0.8 million. Profit for the reporting period amounted to €1.5 (–1.8) million. Earnings per share were €0.02 (–0.03), both basic and diluted. Equity per share was €2.87 (€3.07), both basic and diluted.

Investment and financing

No significant investment projects were initiated during the reporting period; capital investments were mainly targeted at maintenance and improvement.

Gross investments in the first quarter came to €2.9 (1.8) million, clearly less than depreciation, which amounted to €6.9 (7.5) million. Cash flow from business operations improved to €-21.9 (–28.0) million, in response to regular seasonal fluctuations.

As market uncertainty continues, safeguarding liquidity remains one of the main goals of corporate financing. Follow-up of overdue accounts receivable and actions to avoid possible credit risk realisations are being actively continued.

Since the end of last year, no major changes have occurred in the Group’s financial position. At the end of the reporting period, €48 million remained of the €80 million of the company’s pension contribution borrowed back from a Finnish pension insurance company. Available bilateral credit limits amounted to €190 million, none of which was in use at the end of the reporting period. At the period end, €79.7 (53.9) million was in use of the €150 million from the domestic commercial paper programme.

Despite the dividend of €40.2 million paid on 25 March, the company’s gearing is at a healthy level. Interest-bearing liabilities amounted to €130.8 (135.4) million. The period-end cash balance totalled €8.5 (6.3) million. Gearing increased to 62.3 per cent (60.4 per cent), but remains in line with the set targets.

Key events

In the first quarter, Uponor focused strongly on modernising its marketing activities and product systems. Significant new products were introduced at the international ISH trade fair in Frankfurt, Germany, which is the world’s foremost customer event in the building solutions industry. A key novel product was the new RTM press fitting. During the spring, this will be launched in several European countries.

In addition, the new Quick & Easy expansion tool was introduced to the European public at the ISH trade fair. This battery-powered tool, developed in collaboration with a leading tool manufacturer, markedly facilitates the fitting of plumbing systems, and it is compatible with the manufacturer’s other tools. In North America, where the tool was launched end of last year, it has clearly raised interest in Uponor’s offering.

New heating and control systems were also introduced at the ISH trade fair. Uponor’s communications concept was based on the new customer segmentation model: for the first time, products and solutions were presented to defined target groups in their actual environments.

The traditional Uponor Conference was organised in Austria, for the 33rd time. This has become a key event for planners in Central Europe, with approximately 200 participants this year.

In March, Uponor signed a contract to acquire a 50.3% majority holding in the German company Zent-Frenger Gesellschaft für Gebäudetechnik mbH, in order to strengthen its position in the project business. Zent-Frenger develops, manufactures and markets heating, cooling and geothermal technology solutions, mainly for commercial and public building.

In March, Uponor’s new distribution and training centre was inaugurated in Spain, close to Madrid. The building also houses the main office for Uponor’s management in Western and Southern Europe.

In the US, good results were achieved through the company’s success in key markets to convert contractors and builders. In California, Uponor was able to increase sales of pipe systems, following last year’s state approval of the use of PEX pipes in water distribution systems within buildings.

Uponor has taken measures to expand its business in Asia and concluded co-operation contracts in Indonesia, for example, to increase its sales of indoor climate systems. Preparations to establish a Rep Office in India proceeded well.

Events after the period under review

The acquisition of the 50.3% majority holding in the German company Zent-Frenger Gesellschaft für Gebäudetechnik mbH announced in March was finalised on 11 April 2011.

Short-term outlook

The year has had a cautiously positive start, with the residential building markets expected to grow steadily during the spring. Positive signs can be discerned in Germany, in particular, and in some of its neighbouring countries. Demand for building solutions is expected to remain at the current level in the Nordic countries, whereas demand for infrastructure solutions should improve on the previous year’s modest level. Positive signs of a revival in demand are also apparent in most markets in Southern, Western and Eastern Europe. Despite the poor market statistics, Uponor has a more positive outlook in North America than last year.

However, Uponor’s financial performance may be affected by a range of strategic, operational, financial and hazard risks. A more detailed risk analysis is provided in the company’s Annual Report. In addition, the future development of the building and housing market depends on global economic and political developments, which are very difficult to predict.

Under these circumstances, Uponor maintains its full-year guidance:

Organic growth in Uponor’s net sales is expected to accelerate from the 2010 level, and operating profit is expected to improve on last year’s reported result. The Group’s fixed-asset investments are not expected to exceed depreciation, and efficient net working capital management measures will help to retain a good cash flow level.

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:
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www.uponor.com

Uponor is a leading international provider of plumbing and indoor climate solutions for residential and commercial building markets across Europe and North America. In Northern Europe, Uponor is also a prominent supplier of infrastructure pipe systems. Uponor offers its customers solutions that are technically advanced, ecologically sustainable, and safe and reliable to own and operate. The Group employs approx. 3,200 persons, in 30 countries. In 2010, Uponor's net sales totalled 750 million euros. Uponor Corporation is listed on NASDAQ OMX Helsinki in Finland. http://www.uponor.com