Interim report Q2/2015: Uponor’s performance improvement driven by North America and Uponor Infra
Uponor Corporation Interim report January-June 21 July 2015 08.00 EET
Interim report Q2/2015: Uponor’s performance improvement driven by North America and Uponor Infra
- The U.S. markets maintained their strength while weak demand continued to burden the European building solutions business; Uponor Infra reported a solid profit improvement
- Net sales for April – June totalled €277.6 (264.5) million, up 4.9% or 0.3% in constant currency
- Operating profit for April – June came to €22.5 (17.6) million, up 27.9%, driven by Building Solutions – North America and Uponor Infra • Net sales in January – June totalled €514.7 (495.4) million, up 3.9% or -0.6% in constant currency
- Operating profit for January – June came to €33.8 (22.4) million, a change of 50.6%
- January – June earnings per share amounted to €0.23 (0.17)
- January – June return on investment was 14.0% (8.8%), and gearing was 47.8% (56.9%)
- January – June cash flow from business operations totalled -€19.8 (-18.7) million
- Uponor repeats its guidance for the year 2015, announced on 12 February 2015: The Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2014.
(This interim report has been compiled in accordance with the IAS 34 reporting standard, and is unaudited. The figures in the report cover continuing operations unless otherwise stated. ‘Reporting period’ refers to January – June.)
President and CEO Jyri Luomakoski comments:
- We report continued strong performance in Building Solutions – North America in the second quarter, as a result of strong growth in the U.S. Over the last four years the business has almost doubled its net sales and more than doubled its operating profits in local currency. Aimed at satisfying future demand, our manufacturing expansion is progressing as planned.
- In stark contrast, Building Solutions – Europe is suffering from the lacklustre recovery in the European business landscape, with only a few markets reporting growth in the second quarter. In Germany, our largest national market in Europe, development has been unsatisfactory and this has also impacted on our European supply chain. We have initiated a programme to achieve annual cost savings of around €3 million in order to mitigate the impact of uncertain market development.
- Uponor Infra’s restructuring is starting to bear fruit and, despite flat demand and tight public finances, we can report encouraging improvement in profitability.
Webcast and presentation material
This release and the presentation material related to this interim report are available at http://investors.uponor.com > News & downloads.
A webcast will be broadcast in English on Tuesday 21 July 2015 at 10:00 EET. Connection details are available at http://investors.uponor.com. Questions on the webcast can be submitted in advance to ir@uponor.com. The recorded webcast will be available at http://investors.uponor.com > News & downloads shortly after the broadcast.
Uponor Corporation will release its interim report for January – September 2015 on Thursday 29 October 2015. During the related silent period from 1 to 29 October, Uponor will not comment on market prospects or factors affecting business and performance, nor will the company discuss events or trends related to the reporting period or the current fiscal period.
INTERIM REPORT JANUARY – JUNE 2015
Markets
The second quarter of 2015 saw an acceleration in the economic trends witnessed in the first quarter. In Europe, some countries returned to growth, albeit marginal, while development was flat overall. In North America, some fundamental economic indicators have softened but construction market indicators have generally been on a par with expectations.
Within the Nordic construction markets, Sweden has continued to grow despite the high growth rates already witnessed during previous quarters. The Finnish market remained very weak, with no signs of a turn-around visible. Compared to the prior year, both the Norwegian and Danish markets picked up slightly, the opposite trend to that witnessed in 2014.
In Central Europe, the German construction market continued to underperform compared to the wider economy. While the overall economy was doing exceptionally well and has rebounded strongly from the autumn slowdown, the construction sector remained relatively subdued. Some bright spots, such as the new multi-family segment, demonstrated growth in an otherwise flat market. The Dutch market continued to make sizable gains compared to the very low activity levels of previous years. Switzerland and Austria remained rather soft.
In Eastern Europe, geopolitical events have continued to dampen demand. In Russia, elevated caution throughout the industry was only partially countered by pent up demand for apartments. In the Baltics, construction activity remained brisk in general.
Among the markets in South and West Europe, the UK has continued at a healthy level but the consistent year-on-year growth seen over the last two years has stalled. The French market continues to be weak, but its downward trend has slowed. Other national markets have stabilised at a low level.
In North America, the U.S. construction market was improving despite the fluctuation caused by the particularly cold and snow-laden weather in large geographic regions of the country during the winter months. In spite of caution due to doubts about the continuing strength of the wider economy, permit levels and builder confidence reached pre-crisis levels and non-residential construction grew compared to the previous year. The Canadian residential market was fairly flat, mainly being supported by the multi-family segment, while the non-residential market weakened.
The market for Uponor’s infrastructure solutions has remained challenging. Although the Nordic region has benefited from an uptick in civil engineering projects, the non-residential markets have remained muted. The largest international market, Canada, has remained positive in general.
Net sales
Uponor’s net sales for continuing operations in the second quarter came to €277.6 (264.5) million, a rise of 4.9 per cent year on year. Currency translations in April – June 2015, mainly coming from the U.S. dollar, influenced net sales by €12.4 million, bringing net sales growth without the currency impact to 0.3%.
Net sales in Building Solutions – Europe declined, reflecting the flat or declining markets in most of Europe. The largest drops were reported in Germany, Finland and the UK. Brisk growth was noted in the Netherlands and also in France, which is starting to recover from the sales drop in 2014. In Eastern Europe, healthy growth continued in the Baltic countries and in Poland, while Russia fell sharply. In terms of application areas, the heating market in Central Europe was particularly soft due to the fact that low energy prices undermined the incentive to modernise building heating systems and make them more sustainable. In Germany, a lack of installation professionals also limited business to some extent. It should also be noted that a comparison to 2014 is difficult, since the first two quarters of 2014 were artificially lively due to pent up demand.
In Building Solutions – North America, the U.S. net sales development continued to be brisk in a healthy market, and was also driven by successful customer conversion and the strengthening of Uponor’s market position in low-share territories. Some of the improvement in the second quarter marks a transition from the first quarter, when installations were curbed by a long spell of cold weather. Net sales in Canada grew modestly in local currency.
Uponor Infra too suffered from the weak European business environment. The segment reported a significant decline in net sales in Finland and Sweden, while strong progress was evident in Canada. Adjusted for the divestments of two smaller infrastructure solution units in the first quarter of 2015, Uponor Infra reported growth of 1.6% in the second quarter.
Net sales by segment (April – June):
| M€ | 4–6/2015 | 4–6/2014 | Change |
| Building Solutions – Europe | 119.0 | 122.0 | -2.4% |
| Building Solutions – North America | 69.8 | 49.5 | 40.8% |
| (Building Solutions – North America, USD | 77.6 | 67.9 | 14.3%) |
| Uponor Infra | 89.7 | 95.3 | -5.8% |
| Eliminations | -0.9 | -2.3 | |
| Total | 277.6 | 264.5 | 4.9% |
January – June net sales came to €514.7 (495.4) million, an increase of 3.9 per cent on the comparison period. Currency translations in January – June 2015 had a positive impact of €22.2 million on Group net sales, most of which came from the U.S. dollar. Adjusted for currency translation, consolidated net sales growth thereby totalled -0.6%.
Net sales by segment (January – June):
| M€ | 1–6/2015 | 1–6/2014 | Change |
| Building Solutions – Europe | 231.6 | 242.9 | -4.6% |
| Building Solutions – North America | 126.7 | 90.0 | 40.7% |
| (Building Solutions – North America, USD | 140.8 | 123.4 | 14.1%) |
| Uponor Infra | 158.0 | 166.1 | -4.9% |
| Eliminations | -1.6 | -3.6 | |
| Total | 514.7 | 495.4 | 3.9% |
Results and profitability
Uponor’s consolidated gross margin for continuing operations in the second quarter was 35.5 per cent, showing a year-on-year increase of 2.7 percentage points. This is mainly attributable to a more favourable product mix in Building Solutions – North America, whose relative share has also grown, as well as the benefits flowing from raw materials purchased in a lower input cost environment.
Operating profit for continuing operations in the second quarter totalled €22.5 (17.6) million, up 27.9% per cent in year-on-year terms, including a positive impact of €2.7 million from currency translation. Profitability measured in terms of the operating profit margin came to 8.1 per cent, compared to the 6.6 per cent reported for the rather strong second quarter in 2014. Operating profit for April – June, excluding non-recurring items, came to €23.3 (17.1) million, up 36.4%.
The improvement in operating profit in the second quarter was mainly a result of continued strong performance development in Building Solutions – North America as well as a rise in Uponor Infra’s operating profit. Uponor Infra’s operating profit grew, supported by the savings achieved from the restructuring programmes and the favourable impact of input costs materialised before the current quarter, offsetting the higher manufacturing costs due to resin availability issues in the second quarter. Due to reporting practices, the higher input costs that arose after the emergence of challenges in resin supply in the second quarter were not yet visible in Uponor Infra’s reported performance. Building Solutions – Europe’s negative performance trend continued and the segment reported a clear decline in operating profit, i.e. -36.1% or -22.6% excluding the non-recurring items. The drop in profits was largely a result of the disappointing volume development in Germany and some other markets. The new distribution centre in Hassfurt, Germany is now fully operational but its introduction involved temporary added warehousing costs. Additionally, €0.8 million in non-recurring costs were booked in the second quarter 2015 in relation to the streamlining programme just launched in Building Solutions – Europe.
Operating profit by segment (April – June):
| M€ | 4–6/2015 | 4–6/2014 | Change |
| Building Solutions – Europe | 6.2 | 9.6 | -36.1% |
| Building Solutions – North America | 15.0 | 8.6 | 76.5% |
| (Building Solutions – North America, USD | 16.8 | 11.7 | 43.2%) |
| Uponor Infra | 3.0 | 0.4 | 684.9% |
| Others | -1.4 | -0.7 | |
| Eliminations | -0.3 | -0.3 | |
| Total | 22.5 | 17.6 | 27.9% |
Profit before taxes for April – June totalled €21.2 (14.0) million. Taxes had an effect on profits of €7.9 million, while the amount of taxes in the comparison period was €4.6 million. Profit for the second quarter came to €13.3 (9.4) million.
The January – June operating profit came to €33.8 (22.4) million or €34.6 (25.7) million without non-recurring items, up 50.6 or 34.6 per cent respectively from the comparison period. Key contributors to the development were Building Solutions – North America with its solid growth and careful overhead cost management, as well as Uponor Infra which benefited from input costs and the savings achieved through successful restructuring measures, despite flat net sales.
There were €0.8 million in non-recurring items in the reporting period, related to the streamlining programme started in Building Solutions –Europe, while in January – June 2014 non-recurring items totalled €3.3 million, mainly due to the new distribution centre in Building Solutions – Europe. Thus, Building Solutions – Europe’s operating profit, excluding non-recurring items, was €13.1 (18.5) million, a drop of -29.1%.
Profitability, or the operating profit margin for the first half-year, was 6.6 per cent, against 4.5 per cent in the comparison period in 2014.
Earnings per share, both basic and diluted, for January – June totalled €0.23 (0.17). Equity per share, both basic and diluted, was €3.08 (2.80).
Operating profit by segment (January – June):
| M€ | 1–6/2015 | 1–6/2014 | Change |
| Building Solutions – Europe | 12.3 | 15.3 | -19.9% |
| Building Solutions – North America | 23.1 | 13.0 | 77.9% |
| (Building Solutions – North America, USD | 25.7 | 17.8 | 44.3%) |
| Uponor Infra | 1.7 | -3.8 | 143.9% |
| Others | -2.7 | -1.5 | |
| Eliminations | -0.6 | -0.6 | |
| Total | 33.8 | 22.4 | 50.6% |
Short-term outlook
As far as Uponor’s key geographic markets are concerned, the economic outlook for the second half of 2015 is estimated to remain similar or slightly weaker to that for the first half of the year.
The European markets continue to face various challenges, such as the geopolitical development in and around Ukraine, the impact of the Greek debt crisis, and the slow and fragile recovery of the European economies from the prolonged slowdown. All of these are influencing developments in the building and construction markets, in particular.
In terms of the European building industry in particular, the outlook for the second half of 2015 is therefore bleaker than it was for the first half of 2015. Building activity in Germany, the largest nation, is still expected to be on a fair level but demand has weakened since 2014 in spite of the country’s general economic strength. No meaningful growth is expected in the other large markets on the continent either.
In North America, the U.S. economy is expected to develop steadily and the building market there is expected to grow further. In Canada, demand for building and construction is expected to continue to be fairly flat.
The shortage of plastic resin witnessed in Europe in the spring and summer is expected to ease after the summer period, but the unbalance between supply and demand is likely to keep prices high for the foreseeable future. Uponor continues to focus efforts on managing the situation well and expects to be able to serve customer needs satisfactorily in the third and fourth quarters.
Uponor repeats its guidance for the year 2015, announced on 12 February 2015: The Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2014.
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 Financial Statements 2014.
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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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. 3,800 persons, in 30 countries. In 2014, Uponor's net sales exceeded €1 billion. Uponor Corporation is listed on NASDAQ Helsinki in Finland. www.uponor.com