Uponor’s improved performance supported by North America and pick-up in Europe in the fourth quarter 2015
Uponor Corporation Financial statements bulletin 1-12/2015 12 Feb 2016 14.00 EET
Uponor’s improved performance supported by North America and pick-up in Europe in the fourth quarter 2015
- Building Solutions – North America continues to perform well in a healthy market, European segments post weaker figures for the full year 2015
- Net sales 1-12: €1,050.8m (2014: 1,023.9m), up 2.6%; organic growth at 5.2%
- Operating profit 1-12: €71.4m (63.4m), up 12.6%
- Operating profit excluding non-recurring items at €75.8m (67.7m), up 11.9%
- Earnings per share at €0.51 (0.50)
- Guidance for the year 2016: the Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2015
- The Board’s dividend proposal is €0.44 (0.42) per share
President and CEO Jyri Luomakoski comments on the reporting period:
- Volatility remained high throughout 2015, influencing both demand of our solutions and prices of our raw materials. Even shortages in resin supply were encountered. These changes in demand stretched our planning capacity, while significant plastic resin price movements, increasingly decoupled from the development of oil prices, have made pricing more challenging.
- Over the past few years, our Building Solutions – Europe segment has faced major performance challenges, which require a clear step change. In the autumn of 2015, we began a major transformation of the business, involving a new organisation, a more agile way of working as well as a new setup with lower costs, in order to serve the heterogeneous European market. The first steps were taken in the fourth quarter and we are proceeding according to plan.
- After a very successful 2015, Building Solutions – North America continues to benefit from favourable underlying market conditions, and further penetration into the commercial building segment is ongoing. Hence, in contrast to Europe, it faces very different challenges, as it endeavours to meet customer needs in step with business growth. Our largest investment in 2015, a new annex building in Apple Valley, Minnesota, adding floor space required for manufacturing, was completed on time, providing Uponor with the fundamentals for further capacity expansion.
- Uponor Infra's year was characterised by a strategic alignment of operations coupled with a broad-based rationalisation and streamlining programme. This affected Finland, in particular, where the markets have remained subdued for a lengthy period of time. The programme has been executed diligently, measures are already in hand, and, promisingly, our performance (excluding non-recurring items) is again in the black.
The Board’s dividend proposal
The Board proposes to the Annual General Meeting a dividend of €0.44 (0.42) per share. When making the proposal, the Board considered the solvency of the company, the company’s dividend policy and the business outlook, recognising the good availability of external funding for the growth plans, which include the announced temporary increase of capital expenditure and German acquisitions closed in January 2016.
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Key financial figures |
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Consolidated income statement (continuing operations), M€ |
2015 | 2014 | 2013 | 2012 | 2011 | ||
| Net sales | 1,050.8 | 1,023.9 | 906.0 | 811.5 | 806.4 | ||
| Operating expenses | 942.7 | 926.4 | 823.6 | 726.5 | 743.0 | ||
| Depreciation and impairments | 39.1 | 36.5 | 33.0 | 28.2 | 29.4 | ||
| Other operating income | 2.4 | 2.4 | 0.8 | 0.9 | 1.4 | ||
| Operating profit | 71.4 | 63.4 | 50.2 | 57.7 | 35.4 | ||
| Financial income and expenses | -8.9 | -7.4 | -7.1 | -8.6 | -17.7 | ||
| Profit before taxes | 62.8 | 56.3 | 43.2 | 49.4 | 17.7 | ||
| Result from continuing operations | 37.1 | 36.3 | 27.1 | 32.9 | 1.9 | ||
| Profit for the period | 36.9 | 36.0 | 26.8 | 32.8 | 1.6 | ||
| Earnings per share | 0.51 | 0.50 | 0.38 | 0.45 | 0.03 |
Information on the financial statements bulletin
This document is a condensed version of Uponor’s 2015 financial statements 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 of the previous year. Unless otherwise stated, figures refer to continuing operations. Any change percentages were calculated from the exact figures and not the rounded figures published here.
Webcast and presentation
A webcast of the results briefing in English will be broadcast on 12 February at 15:00pm EET. Connection details are available at http://investors.uponor.com. Questions can be sent in advance to ir@uponor.com. The recorded webcast can be viewed at http://investors.uponor.com shortly after its publication. The presentation document will be available at http://investors.uponor.com > News & downloads.
Next interim results
Uponor Corporation will publish its Q1 interim results on 29 April 2016. During the silent period from 1 April to 29 April, Uponor will not comment on market prospects or factors affecting business and performance.
Interim results October – December 2015
Markets
After a slower than normal start to the autumn season, towards the latter part of the quarter, building solutions demand in Europe developed positively in key markets, such as the Nordic countries and in Germany, in particular. This was supported by the mild weather that kept building activity lively in a normally slowing season.
In addition, infrastructure solutions demand in Europe recovered slightly as civil engineering related construction activity remained moderate in mild weather, although no change was witnessed in overall demand. In North America, competitive pressures in some market segments increased due to ebbing investment in the oil and gas exploration segment, where Uponor Infra has little presence.
The North American building solutions markets continued to develop in a stable manner, following the trends witnessed in previous quarters.
Net sales
Uponor’s consolidated net sales came to €262.0 (251.5) million, showing an increase of 4.2% from the final quarter of 2014. With the impact of currency changes at €7.1 million, growth in constant currency came to 1.3%. In comparable terms, i.e. excluding Uponor Infra's divestments in the first quarter 2015, consolidated growth came to 8.0%.
In terms of building solutions, Uponor was able to clearly increase its net sales from last year in five of its largest markets, when measured in local currency.
Most of the net sales growth came from continued robust development in Building Solutions – North America. A good tailwind continued in the strengthening U.S. economy, and growth was reported in all U.S. regions, particularly in the South and the West. Early in the quarter, customers reacted to announced supply constraints regarding engineered plastic fittings, due to a lack of a key plastic resin, which had a short-term, positive impact on net sales. Offsetting the negative impact of the Canadian currency, sales in Canada developed favourably in contrast to the preceding rather flat quarters.
In Europe, Building Solutions – Europe’s net sales improved modestly from the corresponding period, supported by favourable weather conditions. Sales may also have been influenced by some customer prestocking ahead of announced price increases, due to volatility in plastic resin price.
Uponor Infra's net sales declined despite a modest increase in activity in the North European markets, with the exception of Norway. The segment's downward net sales trend was most evident in Poland and in North America, particularly in more commodity-oriented application areas. Sales of the strategically important designed solutions, however, increased from the comparison period.
Breakdown of net sales, October – December:
|
M€ |
10-12 2015 |
10-12 2014 |
Reported change |
| Building Solutions – Europe | 114.3 | 112.7 | 1.5% |
| Building Solutions – North-America | 74.0 | 56.1 | 31.9% |
| (Building Solutions – North-America, M$ | 80.2 | 70.0 | 14.5%) |
| Uponor Infra | 75.0 | 84.9 | -11.7% |
| Eliminations | -1.3 | -2.2 | |
| Total | 262.0 | 251.5 | 4.2% |
Profits and profitability
Uponor’s consolidated gross profit in the final quarter of 2015 totalled €91.4 (83.2) million or 34.9% (33.1%). Consolidated operating profit for the fourth quarter came to €14.0 (11.8) million. The operating profit margin came to 5.3% (4.7%).
Non-recurring items for the quarter totalled €3.0 (0.9) million, of which Uponor Infra accounted for €1.2 (0.3) million and Building Solutions – Europe €1.8 (0.6) million. Excluding any non-recurring items, consolidated operating profit came to 17.0 (12.7) million in the quarter under review.
Operating profit improved in Building Solutions – North America, up 12.7% in local currency despite strong comparison figures. This favourable performance trend, which offset the adverse effect of weakening Canadian currency, constitutes a mix of stable resin prices and the effective implementation of price increases earlier in the year. Conversion costs and overheads were also well managed despite the growth in volumes.
In the case of Building Solutions – Europe, operating profit suffered from flat net sales and costs related to the streamlining and transformation programmes.
Despite the positive impact from the divestment of the Omega-Liner® business, Uponor Infra’s reported operating profit for the current quarter weakened year-on-year, due to non-cash non-recurring items related to the segment's rationalisation initiatives. The positive contribution to operating profit came mainly from the Nordic countries, as a result of higher sales and fixed production overhead savings from the streamlining measures implemented.
Breakdown of operating profit, October – December:
| M€ |
10-12 2015 |
10-12 2014 |
Reported change |
| Building Solutions – Europe | 3.3 | 4.7 | -29.8% |
| Building Solutions – North-America | 12.2 | 9.3 | 30.8% |
| (Building Solutions – North-America, M$ | 13.1 | 11.7 | 12.7%) |
| Uponor Infra | -1.2 | -0.9 | -22.9% |
| Others | -0.9 | -1.6 | |
| Eliminations | 0.6 | 0.3 | |
| Total | 14.0 | 11.8 | 18.0% |
Events during the period
On 25 November, Uponor announced that the Administrative Court of Helsinki had rejected the appeals of Uponor Corporation and its subsidiary Uponor Business Solutions Ltd, submitted in July 2013. The case concerns taxation adjustment decisions made by the Large Taxpayers’ Office in 2011, which Uponor viewed as being ungrounded. Uponor has sought leave to appeal to the Supreme Administrative Court.
On 26 November, Uponor announced plans to start a transformation programme in Europe to accelerate profitable growth and reduce costs. The programme involves Building Solutions – Europe and Uponor Infra. In addition to growing net sales, the transformation programme aims to achieve a minimum of €25 million in operational savings by the end of 2017. Of these savings, Building Solutions – Europe is seeking at least €20 million and Uponor Infra €5 million. The measures are expected to incur €32 million in non-recurring items in total, of which €13 million will be non-cash, to be booked in the 2016 accounts for the most part.
For Building Solutions – Europe, a key ambition is to generate profitable growth through a range of measures. The evolution of a more consolidated and specialised manufacturing, warehousing and distribution network is another key item. With respect to Uponor Infra, the measures to be taken are related to the consolidation of manufacturing operations in Finland. Uponor began employee consultations with respect to its Finnish operations in late November.
In an effort to support its growth plans in Asia, in November Uponor announced that it plans to begin its own manufacture of building solutions in China in late 2016. On another note, Uponor announced that its German subsidiary company, Uponor Holding GmbH, had signed a contract to acquire all of the shares in two German companies, Delta Systemtechnik GmbH and the KaMo Group, effective 4 January 2016. The acquisition was aimed at broadening Uponor’s portfolio and competencies in the increasingly important hygienic drinking water delivery sector. In 2014, the 119 employees of the acquired companies generated a total turnover of €32.8 million. Furthermore, in December Uponor Corporation acquired the entire shareholding in a Finnish start-up company, NWater Oy, specialising in online water quality monitoring.
In December, the Board of Directors of Uponor Corporation resolved to continue the key management Performance Share Plan mechanism approved by the Board in 2014. Approximately 25-30 Group key managers, including the members of the Executive Committee, belong to the target group of the new plan. The new plan covers the calendar years 2016-2018.
Also in December, following the strategic adjustment of Uponor Infra´s product portfolio, Uponor announced its plan to sell its Omega-Liner® pipeline renovation business to the Danish company Per Aarsleff A/S. The business had an annual turnover of close to €1.5 million.
In the USA, Uponor, Inc.’s class action settlements, originally announced on 10 June 2015, were resolved after court approvals on 17 December 2015. Uponor’s U.S. operative subsidiary company, Uponor, Inc., together with its insurers and some of its key trade partners, was involved in settlement negotiations in two class action suits due to alleged failure risks affecting Uponor yellow brass fittings sold in the USA. To all intents and purposes, the settlements were approved by the court in the form originally proposed by the parties, making them final and binding on all parties. According to the terms of the settlements, Uponor, Inc. will provide building owners with an enhanced warranty to cover potential fitting failures.
Uponor completed two manufacturing expansion projects during the quarter. In North America, the building project related to the manufacturing expansion of the Apple Valley premises in Minnesota was finalised successfully, while in Russia Uponor's new greenfield factory for the production of local heat distribution systems was officially inaugurated on 1 October 2015.
Financial statements January – December 2015
Markets
In general, construction activity in Uponor’s markets remained subdued during 2015, with no significant growth from the previous year. Although construction accelerated markedly in a few key markets, such as the USA, the Netherlands and Sweden, most markets showed few signs of noteworthy recovery from their already constrained levels of economic activity.
Within the Nordic countries, developments varied significantly by country. New residential building continued to expand at a robust rate in Sweden and showed some progress in Denmark and Norway, but continued to contract in Finland. Meanwhile, new non-residential building was subdued across the area, with all countries except Denmark shrinking from 2014. The downturn has not affected renovation, which is steadily growing in both the residential and non-residential segments. Civil engineering spending was flat with the exception of Norway, where investments in roads and water works compensated for declines in energy-related projects.
Developments within the markets of Central Europe were also mixed. Germany achieved some minor year-on-year growth in the new residential segment, but this was largely muted by flat development in the much larger residential renovation segment. Stagnation in non-residential building offset small residential gains, leaving the overall construction market flat. On a more positive note, the Netherlands continued its recovery by posting noteworthy growth across most construction segments.
In Southwest Europe, growth in the UK’s new residential segment slowed considerably from 2014, remained weak in France and Italy, and made minor gains in Iberia. Residential renovation was largely flat across the area. In non-residential building, the renovation segment was able to offset the flat new build development to some extent.
In Eastern Europe, continued economic and political instability in Russia took a toll on the residential and non-residential building segments, with consumers and businesses becoming increasingly cautious. Construction spending in the Baltic countries also fell overall in both the building and civil engineering segments. In contrast, some of the larger East-Central European countries, such as Poland and the Czech Republic, were able to post year-on-year growth.
The general slowdown in global growth, especially in developing countries, was reflected in Uponor’s export markets, where investments in residential and non-residential projects were negatively impacted.
In North America, growth continued in the USA across nearly all construction segments. Following three years of robust improvement, new residential construction remained strong, but the growth rate began to slow slightly. Meanwhile, sustained improvements in business and consumer confidence led to substantial investments in the non-residential segment. Despite expectations to the contrary, the residential segment in Canada continued to develop well during the year. However, falling energy prices negatively impacted on activity in some areas of the non-residential and civil engineering segments.
Net sales
Uponor's 2015 consolidated net sales from continuing operations amounted to €1,050.8 (2014: €1,023.9) million, up 2.6% year-on-year. In organic terms, i.e. adjusting for the divestment of Uponor Infra's Thai and Extron business units in the 2014 figures, Uponor's consolidated net sales grew by 5.2%. Based on a constant currency comparison, there was a €+35.0 million difference in full-year net sales. This was mainly due to the positive impact from the USD, but also CAD and GBP, while the main negative influence came from RUB.
Building Solutions – Europe’s net sales declined by -2.5%, reflecting the weak performance in the first three quarters of the year. Notwithstanding the short-term pick-up in demand in the last two months of the year, European markets have generally remained flat, with Sweden and the Netherlands standing out as the few brighter spots. The strength of the fourth quarter 2015 was supported by mild weather especially in northern Europe, some pre-stocking among customers, as well as the timing of commercial projects in Germany.
Through a series of manufacturing expansions over recent few years, Building Solutions – North America has been able to sustain sturdy net sales growth over a lengthy period of time, and 2015 was no exception. Due to currency changes, reported net sales in euro were particularly strong. Net sales developed healthily in the U.S., driven by the plumbing business in particular. Thanks to a strong final quarter, the Canadian business also posted growth, mainly driven by significant new product innovations in the indoor climate segment of the market.
Uponor Infra’s net sales for 2015 saw a clear decline, a bit over half of which originated in the divested Thai and Extron business units, which had combined net sales in 2014 of €28.6 million. The segment’s continuing net sales decline was mainly driven by weak development in Poland and Canada.
Within the business groups, the share of Plumbing Solutions represented 45% (39%), Indoor Climate Solutions 25% (27%), while Infrastructure Solutions represented 30% (34%) of Group net sales.
Net sales by segment for 1 January – 31 December 2015:
| M€ |
1–12 2015 |
1–12 2014 |
Reported change |
| Building Solutions – Europe | 467.1 | 479.1 | -2.5% |
| Building Solutions – North America | 275.8 | 200.8 | 37.4% |
| (Building Solutions – North America (M$) | 304.6 | 265.2 | 14.8%) |
| Uponor Infra | 312.0 | 351.3 | -11.2% |
| Eliminations | -4.1 | -7.3 | |
| Total | 1,050.8 | 1,023.9 | 2.6% |
Measured in terms of reported net sales, and their respective share of Group net sales, the 10 largest countries were as follows (2014 figures in brackets): the USA 23.9% (17.6%), Germany 13.0% (13.9%), Finland 11.8% (13.2%), Sweden 8.9% (9.2%), Canada 7.9% (8.2%), Denmark 4.5% (4.7%), the Netherlands 3.5% (3.1%), the United Kingdom 3.4% (3.5%), Norway 2.9% (3.6%), and Spain 2.8% (2.8%).
Results
The consolidated full-year gross profit ended at €370.2 (340.1) million, a change of €30.1 million or 8.9%. The gross profit margin came to 35.2% (33.2%). The main influencer of this trend was the larger relative share of the North American building solutions business and, in terms of Uponor Infra, the sales growth of the strategically important designed solutions and successful pricing in a volatile resin price environment.
Consolidated operating profit came to €71.4 (63.4) million, up 12.6% from the previous year. The operating profit margin improved slightly, coming to 6.8% (6.2%) of net sales. Currency exchange rates had a €7.5 million positive translation impact on the improvement in full-year operating profit.
Overhead cost development was mainly influenced by two factors, the first being growth in Building Solutions - North America, exaggerated by currency translation, and the other being non-recurring items relating to the implementation of the transformation programmes in the European segments. In addition, results of past and ongoing cost saving initiatives are visible in the underlying numbers.
Operating profit was burdened by €6.2 (5.9) million in non-recurring costs and included non-recurring gains for the amount of €1.9 (1.7) million, bringing the net amount to €4.3 (4.3) million. Of these, €3.6 (3.7) million was reported in Building Solutions – Europe and €0.7 (0.6) million in Uponor Infra. The non-recurring items in 2015 were mainly related to provisions and impairments in connection with the ongoing transformation programmes in both segments, while Uponor Infra benefited from gains from the divested businesses. In Building Solutions – Europe, the initiatives related to the streamlining programme announced on 21 July 2015 have mostly been completed, with the exception of those relating to the German business operations, where consultations with the works council are ongoing. Any streamlining initiatives to be implemented in Germany will be reported as part of the transformation programme, announced on 26 November 2015.
Excluding any non-recurring items, consolidated operating profit was €75.8 (67.7) million, an increase of 11.9%. Similarly, excluding any non-recurring items, Building Solutions – Europe's operating profit came to €27.6 (38.7) million, while Uponor Infra reported a slightly positive €0.9 (0.0) million.
The volatility of input costs, especially those of plastic resins, has continued to be high and average prices remain high according to a longer term comparison. Regardless of the dramatic drop witnessed in global oil prices, plastic resin prices in Europe, in particular, have remained high due to resin manufacturers’ capacity constraints and the resulting bottle-necks in deliveries.
Operating profit by segment for 1 January – 31 December 2015:
| M€ |
1-12/ 2015 |
1-12/ 2014 |
Reported change |
| Building Solutions – Europe | 24.0 | 35.0 | -31.4% |
| Building Solutions – North-America | 51.0 | 31.5 | 61.9% |
| (Building Solutions – North-America (M$) | 56.3 | 41.6 | 35.4%) |
| Uponor Infra | 0.2 | -0.5 | 142.0% |
| Others | -3.8 | -2.6 | |
| Eliminations | 0.0 | 0.0 | |
| Total | 71.4 | 63.4 | 12.6% |
Uponor’s net financial expenses came to €8.9 (€7.4) million. Net currency exchange differences in 2015 totalled €-3.4 (-1.2) million.
Profit before taxes was €62.8 (56.3) million. At a tax rate of 40.9% (35.5%), income taxes totalled €25.7 (20.0) million. The 2015 income taxes include €1.6 million in taxes paid in Estonia due to dividends distributed as well as an additional €0.5 million deferred tax liability related to remaining retained earnings in the Estonian subsidiaries, corresponding to a one-time effective tax rate increase of 3.3 percentage points. In addition, the share of North American business with a relatively higher income tax rate has increased.
Profit for the period totalled €36.9 (36.0) million, of which continuing operations accounted for €37.1 (36.3) million.
Return on equity declined to 12.1% (12.3%). Return on investment reached 15.5% (14.2%).
Earnings per share were €0.51 (0.50), and €0.51 (0.50) for continuing operations. Equity per share was €3.39 (3.16). For other share-specific information, please see the Tables section.
Consolidated cash flow from operations was €58.2 (75.7) million, while cash flow before financing came to €16.5 (45.1) million. The change was mainly driven by increased net sales in the last two months of the year resulting in higher accounts receivable, as well as an increase of €13 million in paid taxes. In line with the profit improvement, net cash from operations improved from €99.0 million in 2014 to €105.6 million in 2015.
Key figures are reported for a five-year period in the financial section.
Investment, research and development, and financing
Uponor's largest investment in fixed assets in 2015 was its sixth expansion of manufacturing capacity in the Apple Valley facility in Minnesota, which is part of Building Solutions – North America. This building project was completed during the fourth quarter of 2015.
In terms of capital expenditure, Uponor aims to maintain a balance between targeting resources at the most viable opportunities, while keeping overall investment levels tight. A high proportion of the funds spent are being directed towards selected productivity improvements and maintenance.
In 2015, gross investment in fixed assets totalled €50.1 (35.7) million, an increase of €14.4 million year on year. Of this, €18.6 million comes from the manufacturing expansion ongoing in North America. In addition to the increase from the strengthening U.S. dollar, also other currency changes influenced investment numbers reported in euro. Net investments totalled €49.2 (32.1) million.
Research and development costs amounted to €18.5 (16.3) million, or 1.8% (1.6%) of net sales.
The main existing funding programmes on 31 December 2015 included an €80 million bond maturing in 2018 and a €20 million bond maturing in 2016. With existing bond issues, Uponor has balanced the maturity structure and diversified its sources of funding. In addition to these, Uponor Infra Oy took out a loan of €35 million on 1 July 2013 in order to finance its operations, €11 million of which was outstanding at the end of 2015.
Committed bilateral revolving credit facilities, which will mature in 2019-2020, totalled €200 million; none of these back-up facilities were used during the year.
For short-term funding needs, Uponor’s main source is its domestic commercial paper programme, totalling €150 million, none of which was outstanding on the balance sheet date. At the end of the year, Uponor had €49.2 (60.2) million in cash and cash equivalents.
Accounts receivable and credit risks received special attention throughout the year. The amount of bad debt remained low at €0.6 (0.7) million.
Consolidated net interest-bearing liabilities went up to €91.3 (82.0) million. The solvency ratio was 44.3% (43.9%) and gearing came to 29.3% (27.6%). Average quarterly gearing was 40.4 (45.8), in line with the range of 30-70 set in the company's financial targets.
Events during the period
On 25 February 2015, Uponor announced Uponor Infra's divestment of its majority shareholding in Wiik & Hoeglund PLC of Thailand. Furthermore, on 30 March it was announced that Uponor Infra Oy has divested its fully owned Finnish subsidiary, Extron Engineering Oy, a specialist in machinery for the plastic products industry. Despite the divestment, Uponor Infra will continue to license and sell certain technologies relevant to the infrastructure business. Both divestments were based on a strategy of focusing on markets where Uponor Infra can command a strong market position and achieve operational synergies. Later, in December, following the strategic adjustment of its product portfolio, Uponor Infra divested its Omega-Liner® pipeline renovation business to the Danish company Per Aarsleff A/S.
On 25 March, Uponor established a captive insurance company, Uponor Insurance Ltd, a fully-owned subsidiary, for the purpose of improving management of its global liability programmes and gaining access to comprehensive insurance coverage under more favourable terms.
On 21 July, Uponor announced a streamlining programme in its Building Solutions – Europe segment, for the purpose of adjusting operations to the weak demand in Europe. The target was to achieve annual savings of around €3 million, for instance, by adjusting sales network and by centralising and outsourcing support functions. It was estimated that such initiatives will incur a total of €4–€5 million in non-recurring costs in 2015. The measures were expected to account for around 100 man years of work in Building Solutions - Europe. Further, on 26 November, Uponor announced plans to start a transformation programme in Europe to accelerate profitable growth and reduce cost. The programme involves Building Solutions – Europe and Uponor Infra. The transformation programme is expected to contribute a minimum of €25 million in savings by the end of 2017, of which Building Solutions – Europe accounts for at least €20 million and Uponor Infra €5 million. These measures are expected to incur €32 million in non-recurring items, of which €13 million non-cash, to be booked in the 2016 accounts for the most part. As already referred to above, the initiatives related to the streamlining programme in Building Solutions – Europe, announced on 21 July 2015, have mostly been completed, with the exception of the German operations. Any streamlining initiatives to be implemented in Germany, with the remaining €2.5 million in non-recurring items, will in future be reported as part of the transformation programme, announced on 26 November 2015.
On 25 November, Uponor announced that the Administrative Court of Helsinki had rejected the appeals of Uponor Corporation and Uponor Business Solutions Ltd, submitted in July 2013. The case concerns taxation adjustment decisions made by the Large Taxpayers’ Office in 2011, which Uponor viewed as being ungrounded. Uponor has sought leave to appeal to the Supreme Administrative Court.
Uponor also announced that, effective from 4 January 2016, Uponor Holding GmbH, Germany had acquired the shares in two German companies, Delta Systemtechnik GmbH and the KaMo Group. This acquisition aims at broadening Uponor's portfolio and competencies in the increasingly important hygienic drinking water delivery sector. In 2014, the 119 employees of both companies combined generated a total turnover of €32.8 million.
In 2015, Uponor, Inc. completed a manufacturing expansion project in its Apple Valley facilities in Minnesota. This building work was finalised in December. The investment will add an additional 8,175m2 of manufacturing and office space and secure further capacity needs in the near-term. In Russia, Uponor's new greenfield factory for the production of local heat distribution systems was officially inaugurated on 1 October 2015. A new distribution centre in Hassfurt, southern Germany, close to the main German manufacturing operations was opened for business in March. In November, Uponor further announced that the company is planning to begin its own manufacture of building solutions in China in 2016 in order to satisfy growing demand in this large market.
In the USA, Uponor, Inc.’s class action settlements, originally announced on 10 June 2015, became final after court approvals on 17 December 2015. Uponor’s U.S. operative subsidiary company, Uponor, Inc., together with its insurers and some of its key trade partners was involved in settlement negotiations in two class action suits due to the alleged failure risks of Uponor yellow brass fittings sold in the USA. Court approvals of the final settlement terms were granted in the form of two separate Class Action Settlements. To all intents and purposes, the settlements were approved by the court in the form originally proposed by the parties, making them final and binding on all parties. According to the terms of the settlements, Uponor, Inc. will provide building owners with an enhanced warranty to cover potential fitting failures.
In December, the Board of Directors of Uponor Corporation resolved to continue the key management Performance Share Plan mechanism resolved by the Board in 2014. Approximately 25—30 Group key managers, including the members of the Executive Committee, belong to the target group of the new plan. The purpose of the plan is to continue aligning the objectives of the management and Uponor shareholders in order to increase the value of the company, boost profitable growth and retain the services of the participants in the longer term. The new plan covers the calendar years 2016-2018.
Short-term outlook
No major changes in outlook are in prospect in Uponor's key geographic areas. Economic trends are likely to continue in a similar manner to the last two years, i.e. North America continuing to experience lively economic growth, while Europe struggles with stagnant economies and lack of growth drivers. Overall, the Asian markets, which remain of marginal importance to Uponor, are expected to perform at their current levels, but economic trends there may change unexpectedly, posing a risk to global market developments.
Although the economic drivers behind building and construction related investments seem very similar to 2015, Uponor has launched an extensive restructuring that is expected to improve Uponor's market presence, and thus positively contribute to both net sales development and performance improvement. In North America, manufacturing capacity enhancements will support the growth of net sales.
On 21 July 2015, Uponor announced a streamlining programme in the Building Solutions – Europe segment, for the purpose of adjusting operations to the weak demand in Europe. Later, on 26 November 2015, Uponor announced a plan to carry out a major transformation in its Building Solutions - Europe and Uponor Infra segments. The implementation of these programmes will continue in 2016.
Uponor has traditionally channelled a considerable amount or resources on new offering development, such as the recently announced unique seamless aluminium composite pipe. In addition, standard productivity improvement related activities and maintenance will be carried out as usual in 2016. With respect to the fact that Uponor announced extensive transformation initiatives in 2015, including manufacturing footprint optimisation and a plan to establish a greenfield factory in China, all these will temporarily increase the Group's capital expenditure from that experienced in the last few years. Uponor estimates that capital expenditure, excluding any investment in shares, in total will amount to circa €58 million in 2016, against €50 million in 2015.
Due to favourable weather and extemporary customer behaviour, such as prestocking, the last quarter of 2015 was particularly lively, which together with harsh weather is likely to affect demand in the first quarter 2016. Assuming that economic development in Uponor's key geographies otherwise continues undisturbed, Uponor issues the following guidance for 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 ‘Key risks associated with business’ section of the 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
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 3,700 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