Interim report Q2/2013: Uponor’s performance stays on track, thanks to a strong U.S. offsetting weakness in Europe
Uponor Corporation Interim report January – June 2013 26 July 2013 12.00 EET
Interim report Q2/2013: Uponor’s performance stays on track, thanks to a strong U.S. offsetting weakness in Europe
• U.S. building demand remained strong while demand in Europe continued lacklustre
• Net sales reported for April–June totalled €211.4 (218.1) million, a downward change of 3.0%
• Operating profit for April–June came to €19.7 (16.1) million, up by 22.0%
• Net sales in January–June totalled €389.1 (410.6) million, down 5.2%
• Operating profit for January–June came to €25.8 (25.4) million, a change of 1.6%
• January–June earnings per share amounted to €0.21 (0.18)
• January–June return on investment was 14.7% (15.4%), and gearing was 74.5 (74.8)
• January–June cash flow from business operations improved to -€9.3 (-28.2) million
• Uponor does not offer financial guidance for the second half of 2013
(This interim report has been compiled in accordance with the IAS 34 reporting standard, and it is unaudited. The figures in the report are for continuing operations unless otherwise stated. ‘Reporting period’ refers to January–June.)
President and CEO Jyri Luomakoski comments:
• I am happy to be able to report a strong second-quarter performance improvement supported mainly by the strong residential market in the USA and the stable input cost environment that helped our Infrastructure Solutions business, in particular.
• We are very pleased with the news we can now report regarding Uponor’s Infrastructure Solutions segment. The merger with KWH Pipe is now completed, and we are progressing at good speed in integration of the two companies’ businesses into one strong entity, Uponor Infra Oy.
• The new build market outlook in Europe looks grim. Similarly, regardless of a massive and growing need for building and municipal infrastructure renovation across the continent, there is very little confidence for investment.
Information on the January–March 2013 interim report bulletin
This document is a condensed version of Uponor’s January-June 2013 interim report bulletin, which is attached to this release. It is also available on the company website. The figures in brackets are the reference figures for the equivalent period in the previous year. Figures refer to continuing operations, unless otherwise stated. Any change percentages were calculated from the exact figures and not from the rounded figures published here.
Webcast and presentation material
Upon the release of this report, the presentation material for the interim report will be available at www.uponor.com > Investors > News & downloads.
A webcast on interim results will be broadcast in English on Friday, 26 July 2013, at 14:00 EET. Connection details are available at www.uponor.com > Investors. Questions for the webcast can be submitted in advance to ir@uponor.com. Once completed, the webcast will be available for viewing at www.uponor.com > Investors > News & downloads shortly after the financial information is published.
Next interim report
Uponor Corporation will release its interim report for January–September 2013 on Friday, 25 October 2013. For a silent period from 1 to 25 October, Uponor will not comment on market prospects or factors affecting business and performance, nor will the company engage in discussion of events or trends related to the reporting period or the current fiscal period.
Markets
The business environment in Europe, Uponor’s key region in terms of business volume, remained difficult and much as it has been in recent quarters, with few positive signals emerging that could help turn the tide. Public expenditure, especially building- and construction-related investment, continued to be scarce. Also, businesses and consumers were cautious in their building- and living-related spending, curbed by limited access to financing and a general lack of confidence in the economy. In contrast to Europe’s, the U.S. building industry’s indicators continued their recovery, thus giving promise of wider recovery of the country’s economy and increasing confidence amongst consumers and businesses.
Reflecting the subdued general economic environment, building and construction markets in Europe remained weak or weakened even further throughout most of the region. Exceptions to this trend included some Eastern European countries, such as Russia and the Baltic countries. The decline in demand for building solutions was strongest in Southern Europe and the UK. In Germany, regardless of good construction-industry indicators, the expected pick up after the weak first quarter did not materialise. The development was a touch better in the Nordic countries than for most parts of the continent. Demand did remain weak in Denmark and Finland, and also in Sweden, where some weak signals of stabilisation were, however, noted. The Norwegian building market stayed resilient but relaxed slowly from the lively levels witnessed in previous quarters.
All European markets were characterised by very tight competition amongst suppliers of products, with a tendency to cut margins in favour of maintaining employment and securing capacity utilisation. The period also saw a number of exits from the market throughout the value chain.
In North America, building-market demand continued to grow briskly in the USA – in the single-family market, in particular – while the Canadian market continued to stabilise to a more sustainable level from the peak volumes witnessed in 2012.
Infrastructure Solutions demand in Northern Europe remained relatively stable but low, largely because of the long winter that extended until April, in clear contrast to the previous year.
Net sales
Uponor’s net sales for continuing operations in the second quarter came to €211.4 (€218.1) million, down 3.0 per cent year on year, also in organic terms, reflecting the weak European building markets. Amongst the 10 biggest countries, only net sales in the USA grew from the comparison period.
The caution that prevailed in Europe kept overall demand weak and hindered the expected recovery after the wintry first quarter, influencing the infrastructure solutions markets in the Nordic countries and building solutions sales in Central Europe, in particular. Net sales’ development in Building Solutions – Europe was most resilient in the commercial project business, which is less sensitive to shorter-term variations.
In Building Solutions - North America, net sales continued to show strong growth in the USA, where plumbing sales for the non-residential market in particular picked up. With a strong market presence in the single-family sector, Uponor also benefited from the continued strength of the housing market. In Canada, net sales declined slightly as a result of the building market normalising since the peak period in 2012.
Net sales by segment (April–June):
| M€ | 4–6/2013 | 4–6/2012 | Change |
| Building Solutions – Europe | 124.3 | 133.2 | -6.7% |
| Building Solutions – North America | 43.8 | 38.9 | 12.6% |
| (Building Solutions – North America, USD | 57.2 | 49.7 | 14.9%) |
| Infrastructure Solutions | 45.0 | 47.6 | -5.4% |
| Eliminations | -1.7 | -1.6 | |
| Total | 211.4 | 218.1 | -3.0% |
January–June net sales came to €389.1 (410.6) million, down 5.2 per cent from the comparison period. Organic net sales saw negative growth and were down 3.3 per cent, excluding the impact of Hewing GmbH, the German subsidiary that was divested at the end of the first quarter of 2012.
Currency translations in January–June 2013 had no net influence on net sales, thanks to the strong SEK compensating for the weakening of other major currencies.
Net sales by segment (January–June):
| M€ | 1–6/2013 | 1–6/2012 | Change |
| Building Solutions – Europe | 238.2 | 266.2 | -10.5% |
| Building Solutions – North America | 81.0 | 69.9 | 15.8% |
| (Building Solutions – North America, USD | 106.2 | 91.1 | 16.5%) |
| Infrastructure Solutions | 72.6 | 77.3 | -6.1% |
| Eliminations | -2.7 | -2.8 | |
| Total | 389.1 | 410.6 | -5.2% |
Results and profitability
Uponor’s consolidated gross margin for continuing operations in the second quarter was 39.1%, showing a year-on-year rise of 1.8 percentage points that mainly reflects the positive developments in North America and the stable input cost environment in the Infrastructure Solutions business, both of which helped to offset the negative leverage effect in Building Solutions – Europe.
Operating profit for continuing operations in the second quarter totalled €19.7 (16.1) million, up 22.0 per cent in year-on-year terms. Profitability measured by the operating profit margin improved to 9.3 per cent from the 7.4 per cent reported a year ago.
Operating profit margin development was largely driven by stable resin-price trends in Infrastructure Solutions, top-line growth in Building Solutions – North America, and improvements in production efficiency and careful management of overhead spending in all operations.
Operating profit by segment (April–June):
| M€ | 4–6/2013 | 4–6/2012 | Change |
| Building Solutions – Europe | 11.1 | 12.2 | -8.7% |
| Building Solutions – North America | 6.6 | 4.1 | 58.6% |
| (Building Solutions – North America, USD | 8.6 | 5.3 | 61.4%) |
| Infrastructure Solutions | 4.3 | 2.2 | 92.4% |
| Others | -1.9 | -2.6 | |
| Eliminations | -0.4 | 0.2 | |
| Total | 19.7 | 16.1 | 22.0% |
Profit before taxes for April–June totalled €17.6 (13.9) million. The influence of taxes on profits was €5.8 million, while the amount of taxes in the comparison period was
€5.1 million. Profit for the second quarter came to €11.8 (8.8) million.
January–June operating profit came to €25.8 (25.4) million, up 1.6 per cent from the comparison period being largely due to the weak first quarter of 2013. Profitability, or the operating profit margin, was 6.6 per cent, with the year on year figure being 6.2 per cent.
Thanks to consistent cost and efficiency management, overheads in the first half-year were below those of the comparison period, mainly driven by savings in Building Solutions – Europe and in Infrastructure Solutions and the divestment of Hewing GmbH in the first quarter.
Earnings per share for January–June totalled €0.21 (0.18), both basic and diluted. Equity per share was €2.68 (2.63), basic and diluted.
Operating profit by segment (January–June):
| M€ | 1–6/2013 | 1–6/2012 | Change |
| Building Solutions – Europe | 17.8 | 23.9 | -25.2% |
| Building Solutions – North America | 11.2 | 6.8 | 64.9% |
| (Building Solutions – North America, USD | 14.7 | 8.8 | 65.8%) |
| Infrastructure Solutions | 0.6 | 0.3 | 92.9% |
| Others | -3.1 | -5.0 | 36.8% |
| Eliminations | -0.7 | -0.6 | |
| Total | 25.8 | 25.4 | 1.6% |
Investments and financing
The period’s largest ongoing investment is the manufacturing expansion in the USA’s Apple Valley, Minnesota facility, which was initiated in May. Adding some 1,600 square metres of mostly manufacturing space in connection with the existing premises, the extension is expected to be completed by year end, with production commencing in early 2014. The investment will increase Uponor’s capital expenditure by some €12 million in 2013. Other ongoing investments were related mainly to maintenance and development.
In January–June, gross investments in fixed assets came to €10.4 (7.8) million. This was clearly below depreciation, which came to €14.4 (14.2) million. The cash flow from business operations improved to -€9.3 million, from -€28.2 million.
Uponor continues to pay attention to keeping its liquidity at a good level. There remains a risk of bad debts in Europe, in particular; therefore, Uponor is active in following up on trade receivables, among other elements, in order to manage risk.
The main existing funding programmes on 30 June 2013 included an €80 million bond maturing in 2018 and a €20 million bond maturing in 2016. Uponor’s available committed bilateral credit facilities come to €190 million, with none of this amount in use at the end of the reporting period. At end of period, there was €41.0 million in commercial papers issued under the €150 million domestic commercial-paper programme.
The Group’s solvency ratio improved slightly to 35.5 per cent (34.4 per cent) due to better performance and a reduction in net working capital. Net interest-bearing liabilities amounted to € 146.2 (143.9) million. The period-end cash balance was €7.3 (7.7) million. Gearing was 74.5 (74.8) per cent.
Short-term outlook
Developments in Uponor’s two key geographic areas, Europe and North America, are clearly diverging in several ways. Trying to recover from the economic crisis that has already continued for several years, Europe has not been able to find a political way out and is likely to suffer from a lengthy zero-growth period going forward. Regardless of the reasonably healthy building market, the late start to the building season in Germany – Europe’s largest economy – will have an impact on full-year volumes, and the outcome is also shadowed by concerns about the strength of the German economy.
The North American economy is also weak and to a great extent dependent on the economic drivers in the rest of the world, but strong drivers of domestic demand there are offering a great deal of help in getting the economy back on track.
For the reasons stated above, building and construction demand in Europe is expected to remain weak while in North America demand is expected to gain momentum, although there are risks in that scenario as well.
Uponor continues to be prepared for lengthy protraction of the current low activity levels, with limited expectations of market growth. The main factors supporting business growth are lively renovation activity, longer-term trends of sustainability and low-energy building, and increased preparation for extreme weather conditions, all of which favour Uponor’s indoor climate, plumbing, and infrastructure solutions.
With the new European organisation introduced in April and the new joint-venture company for infrastructure solutions established on 1 July 2013, Uponor is actively utilising the momentum to develop its operations targeting increased agility, improved efficiency, and higher customer satisfaction. The management are keeping a special eye on the company’s focus, cost-efficiency, and cash flow. Further actions to reduce overheads and other costs may become necessary in selected markets, if the economic outlook stays weak.
At the same time, Uponor maintains support for its various growth initiatives, to benefit from its strong range of new product and system innovation and to utilise the tailwind its sustainable product portfolio is enjoying in the markets.
Uponor’s 1 July cancellation of its guidance for 2013 was, as mentioned above, due to structural changes arising from the launch of the new joint venture (Uponor Infra). New guidance is to be expected in February 2014, in connection with the publishing of the 2013 Financial Statements.
As always, 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 ‘Key risks associated with business’ section of the 2012 Financial Statements.
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
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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. The Group employs approx. 3,000 persons, in 30 countries. In 2012, Uponor's net sales exceeded €810 million. Uponor Corporation is listed on NASDAQ OMX Helsinki in Finland. http://www.uponor.com.