Interim report Q1/2016: Uponor reports steady progress in Europe, strong growth in North America continues
Uponor Corporation Interim report January–March 2016 29 April 2016 08.00 EET
Interim report Q1/2016: Uponor reports steady progress in Europe, strong growth in North America continues
• Net sales in January – March totalled €246.9 (237.1) million, up by 4.1%, or 2.6% in organic terms
• Operating profit came to €11.9 (11.3) million, a change of 5.0%, or 31.4% excluding non-recurring costs of €3.0 (0.0) million from the European transformation programmes
• Earnings per share were €0.09 (0.06)
• Return on investment was 8.9% (7.2%), and gearing 62.4% (46.7%)
• Cash flow from business operations came to €-14.5 (-22.4) million
• Uponor repeats its full-year guidance announced on 12 Feb 2016: the Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2015, assuming that economic development in Uponor's key geographies otherwise continues undisturbed.
(This interim report has been compiled in accordance with the IAS 34 reporting standards and is unaudited. Figures given in the report are for continuing operations, unless otherwise stated.)
President and CEO Jyri Luomakoski comments on developments during the reporting period:
• Building Solutions – Europe reports modest top-line growth and positive profitability development in the challenging European business landscape, while it is simultaneously focussing on the extensive transformation programme. The programme is progressing according to plan in most geographies, with key parts of the programme expected to be completed during the year.
• Another successful quarter is behind us in Building Solutions – North America. In the last few quarters, we have successfully continued our penetration of the commercial space, added to our manufacturing capacity and strengthened customer loyalty, all of which have helped us to strengthen our position as a preferred partner in all regions.
• In Uponor Infra, we have made positive progress with the consolidation programme, especially in cost savings, but the results are not yet visible in reported performance. We continue to face challenges on the volume side due to persistently flat and highly competitive markets, although in Finland, where the market has been in recession for 4 years, we are finally gaining some traction in key applications.
Information on the January – March 2016 interim report bulletin
This document is a condensed version of Uponor’s January – March 2016 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 the rounded figures published here.
Webcast of the results briefing and the presentation
A webcast in English will be broadcast on 29 April at 10:00 a.m. EET. Connection details are available at http://investors.uponor.com. Questions can be sent to ir@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 Q2 interim results on 26 July 2016. During the silent period from 1 to 26 July, Uponor will not comment on market prospects or factors affecting business and performance.
Markets
Although general trends in the building and construction markets in Uponor’s key geographies, Europe and North America, remained much as they had been in several previous quarters, there was some optimism in the air. The economy in the U.S., Uponor’s single largest national market, continued to perform well in the first quarter and some positive signs and stabilisation were also reported in Europe, although they were not necessarily yet visible in the post-cyclical construction industry.
In Europe’s largest building market, Germany, domestic demand and increased public expenditure continued to support the economy in the face of sustained political and economic uncertainty. This was reflected in construction activity, where order books in the residential segment, in particular, were solid. Germany’s neighbouring countries were stable to a satisfactory degree. Positive building market trends were also visible in Sweden and Spain. Construction output in Finland has also yielded minor growth recently, but no broad-based recovery is yet in sight. The weakening trend in Russia is having an impact on other eastern European markets, especially in the Baltic countries, while the south-eastern markets continue to be livelier.
In North America, growth in the U.S. economy showed some signs of slowing from the previous quarter, although consumer spending and housing components maintained their momentum in the first quarter. Within the construction industry, spending in nearly every construction segment was above last year’s levels; despite the fact that builder confidence has softened, the sector is still in expansionary territory. Compared to the first quarter of 2015, the number of housing permits and starts was clearly higher in the U.S. and remained at the previous year’s level in Canada.
The infrastructure solutions markets developed very much in line with general trends in the construction market. Demand in the early part of the quarter, however, was somewhat weaker in Europe, due to weather-driven issues, i.e. the mild last quarter of 2015 and harsh weather in January 2016. In North America, the competitive pressures caused by the troubled oil and gas exploration market persisted in Uponor’s key market sectors.
Net sales
Uponor’s consolidated net sales reached €246.9 (237.1) million, up 4.1% in the reported figures. In organic terms, there was a growth of 2.6%. This includes adjustments for Uponor Infra’s divested Thai and Extron business units in the first quarter 2015, as well as the acquisitions of the KaMo/Delta businesses as part of Building Solutions – Europe in early 2016.
In constant currency terms, i.e. using Q1/2015 exchange rates, net sales would have been €249.6 million or €2.7 million higher than reported net sales. The main impact came from CAD, NOK, RUB, and GBP, while the greatest aggregate impact was on Building Solutions – Europe.
Net sales grew most strongly in Building Solutions – North America in what was a healthy business environment in all regions. Reported growth in euro terms was 24.2%. Growth in USD was almost as robust, at 23.8%. Although smaller in volume, growth was particularly strong in Canada in relative terms, driven partly by major new product introductions. Both plumbing and indoor climate offerings fared well in both countries.
Building Solutions – Europe reported growth of 9.2% in net sales, or 2.1% in terms of organic growth. In Germany, net sales growth was largely attributable to the KaMo/Delta acquisition completed in early January. The acquisition brought important new high-end value-adding technology to Uponor. The integration of the acquired technology has been managed efficiently, also resulting in the rapid adoption of the new pre-assembled units in the local offerings of some other European countries. The project business in Germany also experienced a good quarter. Among Uponor’s other large national markets, good progress was reported in Denmark, Spain and Sweden.
Uponor Infra’s net sales declined by 20.7%, or 15.5% adjusting for the divestments in Q1/2015. With the exception of Sweden and Norway, measured in local currency, net sales declined in all other key markets. Net sales in the segment’s largest national market, Finland, developed favourably in key applications but declined in terms of total net sales. Net sales in Canada declined due to prolonged weak and competitive market, while in Poland, orders dropped owing to the lack of larger projects.
Breakdown of net sales by segment (January – March):
| M€ |
1–3/ 2016 |
1–3/ 2015 |
Change |
| Building Solutions – Europe | 123.0 | 112.6 | 9.2% |
| Building Solutions – North America | 70.7 | 56.9 | 24.2% |
| (Building Solutions – North America (M$) | 78.2 | 63.2 | 23.8%) |
| Uponor Infra | 54.1 | 68.3 | -20.7% |
| Eliminations | -0.9 | -0.7 | |
| Total | 246.9 | 237.1 | 4.1% |
Results and profitability
Uponor’s consolidated gross profit margin at 35.5% (35.9%) has remained almost unchanged. The downward notch was a result of a combination of factors, including the non-recurring items related to the European transformation programmes, as well as a weaker product mix in sales and continued competitive pressures on prices in Building Solutions - Europe. A key component, the price development of plastic raw materials, year-over-year, was rather stable in the first quarter.
Uponor’s consolidated operating profit for continuing operations in the first quarter of 2016 came to €11.9 (11.3) million, representing a change of 5.0% year-over-year. Profitability, as measured by the reported operating profit margin, remained at 4.8%, the same as a year ago. Excluding any non-recurring items, operating profit was €14.9 (11.3) million, up 31.4%. The first quarter of 2016 included non-recurring costs of €3.0 million as part of the transformation programmes in Building Solutions – Europe, €2.6 million, and Uponor Infra, €0.4 million.
Building Solutions – Europe’s reported operating profit came to €4.9 (6.1) million, or €7.5 million excluding non-recurring items related to the extensive transformation programme. Good progress was made in costs, partly due to improved productivity at the new Central European distribution centre in Hassfurt, Germany, taken into use in March 2015.
Building Solutions – North America reported an operating profit of €11.1 (8.1) million, up by 36.6%, as a result of the strong growth of the business and overall cost timing. Furthermore, a favourable product mix and resin cost development both had a positive impact on profits. The previously announced shortage in engineered polymer resin had a less adverse impact than originally anticipated.
Uponor Infra’s transformation programme is progressing as planned and initiatives such as the manufacturing footprint optimisation are well underway. For this reason, the targeted savings are not yet visible in operating profit, which came to €-3.6 million, a decline of €2.3 million from the previous year, mainly driven by lower net sales.
In terms of discontinued operations, there was a gain of €0.6 million from the sale of manufacturing property previously occupied by Uponor’s infrastructure solutions business in Ireland.
Despite favourable progress in creating savings, mainly via Building Solutions – Europe’s transformation programme, expenses increased slightly and came to €76.5 (74.6) million. Key contributors to this increase were non-recurring costs related to the transformation programmes, of which €2.3 million were included in expenses. In addition, expenses grew in Building Solutions – North America, due to sales and marketing related activities and partly for timing reasons, and in Building Solutions – Europe as a result of the German acquisitions.
Profit before taxes for January – March totalled €8.6 (6.3) million. The effect of taxes on profits was €3.2 million, compared to €2.3 million in the first quarter of 2015. The estimated tax rate for the full year is 37.0%, compared to 40.9% at the year-end 2015, which included higher income tax in Estonia due to dividends paid to the parent company.
Profit for the first quarter of 2016 amounted to €5.4 (4.0) million.
Breakdown of operating profit by segment (January – March):
|
M€ |
1–3/ 2016 |
1–3/ 2015 |
Change |
| Building Solutions – Europe | 4.9 | 6.1 | -19.0% |
| Building Solutions – North America | 11.1 | 8.1 | 36.6% |
| (Building Solutions – North America (M$) | 12.3 | 8.9 | 36.2%) |
| Uponor Infra | -3.6 | -1.3 | -168.9% |
| Others | -0.7 | -1.3 | |
| Eliminations | 0.2 | -0.3 | |
| Total | 11.9 | 11.3 | 5.0% |
Short-term outlook
The near-term economic outlook in Uponor’s core geographical markets remains much as it was on 12 February 2016, when Uponor announced the full-year 2015 financial results.
Continuing the trends witnessed in the last couple of years, the North American economy is expected to remain strong and offer a solid basis for the further creation of market growth.
In Europe, however, the economies within the eurozone, in particular, are expected to remain weak although some stabilisation is likely to take place after the prolonged slowdown. Of Uponor’s key markets, building activity is expected to continue to be brisk in Sweden in the near future and the German residential market is showing signs of picking up. Likewise, the positive sentiment visible in Spain, Denmark and even in Finland in the first quarter of 2016 may mark a turning point after the lengthy slow period. Viewed over a longer time horizon, the weak economic cycle in Europe that began after the financial crisis in the autumn of 2007 will soon have lasted almost a decade. For this reason, there is a great deal of pent up demand in Europe which, once the tide turns, is likely to drive a recovery in the building and construction market.
No major changes are expected outside Uponor's core markets, i.e. Europe and North America, in the near term.
In the autumn of 2015, Uponor announced extensive transformation programmes in its European businesses, involving both Building Solutions – Europe and Uponor Infra, with the purpose of improving market presence and contributing to both net sales development and performance improvement, including cost savings. The implementation of these programmes is well underway and will continue in 2016. In North America, manufacturing capacity enhancements will support continued profitable growth. At the same time, Uponor is boosting investment in research, technology and corporate development in order to maintain its lead in the building industry’s transition towards a more sustainable economy. In recent years alone, Uponor has introduced new, unique system offerings and has invested in acquisitions to meet growing demand for pre-assembled building components and more stringent health and hygiene requirements. All of these initiatives were designed to ensure that Uponor is well placed to meet growth in demand when the markets eventually turn.
In connection with the results briefing on 12 February 2016, Uponor stated that the Group's capital expenditure will increase from that experienced in 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 greenfield factory in China.
After a strong fourth quarter in 2015, the first quarter of 2016 started off weakly but strengthened in February and March. This was mainly driven by favourable weather conditions in key geographies. Assuming that economic development in Uponor's key geographies otherwise continues undisturbed, Uponor repeats its full-year guidance, announced on 12 Feb 2016: the Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2015.
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 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
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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