Half year report Jan – June 2017: Uponor grew modestly in Europe; U.S. business impacted by a temporary production issue
Uponor Corporation Half year financial report 25 July 2017 08.00 EET
Half year financial report January – June 2017:
Uponor grew modestly in Europe; U.S. business impacted by a temporary production issue
- Net sales in April – June totalled €308.4 (299.5) million, with growth at 3.0%
- The building solutions business grew modestly in Europe. A temporary production issue impacted net sales in Building Solutions – North America. Uponor Infra increased sales in a strong tail wind.
- Operating profit for April – June came to €22.9 (26.5) million, down 13.6%, burdened by a temporary production issue and higher input costs; the comparable operating profit in April – June came to €23.8 (30.7) million, a change of -22.6%
- Net sales in January – June totalled €573.5 (546.4) million, with growth at 5.0%
- Operating profit for January – June came to €37.5 (38.4) million, a change of -2.3%; the comparable operating profit in January – June came to €38.8 (45.6) million, a change of -15.0%
- January – June earnings per share were €0.29 (0.28)
- The January – June return on investment was 13.6% (15.3%), and gearing on 30 June 67.6% (58.5%)
- The January – June cash flow from business operations came to €1.5 (-3.4) million
- Uponor repeats its full-year guidance announced on 13 February 2017: the Group’s net sales and comparable operating profit are expected to improve from 2016, assuming that economic development in Uponor's key geographies continues undisturbed
President and CEO Jyri Luomakoski comments on developments during the reporting period:
- While the overall market demand remains healthy, the second quarter performance did not meet our ambitions due to a combination of unrelated factors. On a positive note, we have successfully completed the transformation programmes in Europe giving us a solid platform for improving profitably as we keep on building on our partnerships with key customers.
- We have managed to stabilise our performance in Building Solutions – Europe in the second quarter, and we are now well positioned to benefit from solid demographic demand in key European countries as the economy continues to revive. We are happy to notice increasing interest among customers towards our new offerings, such as hygienic and prefabricated solutions.
- In spring, Building Solutions - North America reached a record of 25 consecutive quarters of growth, in local currency, and despite capacity constraints and a temporary production issue in April, managed to keep its sales on prior year level in the second quarter. After 10 expansions in Apple Valley, we recently announced the purchase of new premises and real estate not far from our current facilities, which is targeted to guarantee future capacity to serve customer needs in 2019 and beyond.
- Uponor Infra has successfully completed a series of streamlining and transformation measures, meeting the targets set for them. The segment reported positive comparable operating profit figures in the second quarter, driven by a solid growth of business.
| Group key financial figures | ||||||||
|
Consolidated income statement (continuing operations), M€ |
1-6 2017 |
1-6 2016 |
2016 | 2015 | 2014 | 2013 | ||
| Net sales | 573.5 | 546.4 | 1,099.4 | 1,050.8 | 1,023.9 | 906.0 | ||
| Operating expenses | 519.0 | 490.5 | 991.0 | 942.7 | 926.4 | 823.6 | ||
| Depreciation and impairments | 19.6 | 19.5 | 41.6 | 39.1 | 36.5 | 33.0 | ||
| Other operating income | 2.6 | 2.0 | 4.2 | 2.4 | 2.4 | 0.8 | ||
| Operating profit | 37.5 | 38.4 | 71.0 | 71.4 | 63.4 | 50.2 | ||
| Comparable operating profit | 38.8 | 45.6 | 90.7 | 75.8 | 67.7 | 55.2 | ||
| Financial income and expenses | -4.0 | -5.5 | -10.0 | -8.9 | -7.4 | -7.1 | ||
| Profit before taxes | 32.4 | 33.0 | 60.4 | 62.8 | 56.3 | 43.2 | ||
| Result from continuing operations | 21.7 | 20.8 | 41.5 | 37.1 | 36.3 | 27.1 | ||
| Profit for the period | 21.7 | 21.2 | 41.9 | 36.9 | 36.0 | 26.8 | ||
| Earnings per share | 0.29 | 0.28 | 0.58 | 0.51 | 0.50 | 0.38 | ||
Information on the January – June 2017 half year financial report
This report has been compiled in accordance with the IAS 34 reporting standards and is unaudited. The figures in brackets are the reference figures for the equivalent period in the previous year. Any change percentages are calculated from the exact figures and not the rounded figures published here.
This document is a condensed version of Uponor’s January–June 2017 half year financial report, which is attached to this release. It is also available on the company website.
Webcast of the results briefing and the presentation
A webcast in English will be broadcast on 25 July at 10.00 EET. Connection details are available at http://investors.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 January – September interim report on 27 October 2017. During the silent period from 1 to 27 October, Uponor will not comment on market prospects or factors affecting business and performance.
Markets
Building and construction trends in Uponor’s international markets largely remained unchanged from the end of the first quarter. The construction markets in Europe generally remained solid during the quarter, with builders continuing to report improvements in their order books and the level of building activity. In North America, growth continued in Uponor’s key market segments, but at a reduced rate from previous years.
In Uponor’s largest Central European market, Germany, a strong labour market and pronounced immigration continued to boost the construction of new, multi-family homes. Meanwhile, growth in the single-family home segment was more constrained and the significantly larger renovation segment remained flat. On the non-residential side, some growth was visible compared to 2016 levels. In the Netherlands, construction activity has moderated from earlier periods, but remains healthy overall.
Despite some variations between countries and building segments, the construction markets in Southern Europe continued to develop positively compared to last year. Both Spain and France improved notably, while activity in the UK remained sound in general, despite widespread political uncertainty.
The markets in the Nordic region continued to improve. In Sweden, notable growth was sustained in both the residential and non-residential segments, with significant year-over-year growth. Construction markets in Denmark, Finland and Norway are also growing, but at a lower rate. There, the residential segments are driving most growth, while non-residential construction has to a great extent been in line with 2016.
Demand in China continued to be robust, although market growth has slowed as a result of government-driven cooling measures in the real estate market; demand for renovation has compensated for this effect.
Construction activity in North America remained largely healthy. In Uponor’s largest market, the USA, home builder confidence is high and building activity continued to improve in the residential segment. Non-residential spending has been flat overall compared to 2016, but has grown in the office and commercial segments. In Canada, home construction is being fuelled by significant increases in home prices.
With regard to Uponor’s infrastructure solutions, civil engineering expenditure in the Nordic countries remained modest, but steady, with lively demand witnessed in Sweden and also in Norway, where government spending has grown. In Poland, the markets remained soft. In Canada, the significant fall in industrial investments witnessed during 2015-2016 has bottomed out and demand has picked up in key Uponor product segments.
Net sales
Uponor’s consolidated net sales for the second quarter 2017 reached €308.4 (299.5) million, up 3.0%. There was a positive currency impact of €1.7 million in consolidated net sales, mainly originating in the USD and CAD. In constant currency terms, i.e. using Q2/2017 exchange rates, net sales growth was 2.4%.
Building Solutions – Europe reported net sales of €135.6 (134.8) million, up 0.6%. Net sales growth in the second quarter came primarily from Austria, Russia and a combination of other smaller markets, while several key European markets reported stable or modestly declining net sales figures. Net sales in the segment’s largest market, Germany, were flat, reflecting the tight competitive situation within the distribution chain. Net sales declined in the UK in particular, largely as a result of the currency impact and the renewed organisational setup, but also in the Nordics where second quarter net sales in Sweden, in particular, were influenced by the buying patterns of key customers and weaker OEM business than in 2016. Following the startup of our own production in China, net sales grew in Asia, which is reported as part of the Building Solutions – Europe segment.
Net sales in Building Solutions – North America declined slightly in the second quarter. The segment’s net sales came to €79.3 (80.2) million, down 1.2% in euro terms or 1.4% in USD. The main reason for this drop, despite healthy customer demand, was a temporary production issue in April, caused by resin, which temporarily curbed production and thus affected the company’s ability to deliver pipe orders during the quarter. Combined with that, the segment’s existing capacity was not enough to meet demand, due to longer-term continued sales growth, and the segment has been unable to deliver all customer orders in a satisfactory manner.
Uponor Infra reported growth for the second quarter and posted quarterly net sales of €94.3 (85.8) million, up 9.9% year-on-year. Growth was particularly robust in Canada and the U.S. and in Sweden, partly compensating for the decline in Denmark and Norway. Development in the segment’s largest market, Finland, was flat.
Net sales by segment (April – June):
| M€ | 4-6/2017 | 4-6/2016 | Change |
| Building Solutions – Europe | 135.6 | 134.8 | 0.6% |
| Building Solutions – North America | 79.3 | 80.2 | -1.2% |
| (Building Solutions – North America (M$) | 88.7 | 90.0 | -1.4%) |
| Uponor Infra | 94.3 | 85.8 | 9.9% |
| Eliminations | -0.8 | -1.3 | |
| Total | 308.4 | 299.5 | 3.0% |
Uponor’s January–June net sales reached €573.5 (546.4) million, growth of 5.0%, or 4.5% in constant currency. This was driven by the brisk growth of net sales in Uponor Infra during both the first and second quarter, as well as Building Solutions – North America, which posted healthy growth in the first quarter. In constant currency terms, net sales would have been €2.5 million lower than reported net sales. The main factor in this respect originated in USD, which strengthened against the euro during the comparison period.
Net sales by segment (January – June):
| M€ | 1–6/2017 | 1–6/2016 | Change |
| Building Solutions – Europe | 259.9 | 257.8 | 0.8% |
| Building Solutions – North America | 157.5 | 150.9 | 4.3% |
| (Building Solutions – North America (M$) | 172.2 | 168.2 | 2.4%) |
| Uponor Infra | 157.4 | 139.9 | 12.5% |
| Eliminations | -1.3 | -2.2 | |
| Total | 573.5 | 546.4 | 5.0% |
Results and profitability
Uponor’s consolidated gross profit in the second quarter came to €98.4 (105.5) million, a change of €-7.1 million. The gross profit margin was 31.9% (35.2%), mainly due to increased raw material prices and a temporary production issue in Building Solutions – North America. Comparable gross profit came to €99.2 (106.3) million, or 32.1% (35.5%).
Operating profit in the second quarter of 2017 came to €22.9 (26.5) million, down by 13.6% year-on-year. Profitability, as measured by the operating profit margin, came to 7.4% (8.8%). Comparable operating profit, i.e. excluding items affecting comparability, reached €23.8 (30.7) million, a drop of 22.6%. Operating profit was burdened by a variety of factors, including a temporary production issue in Building Solutions – North America, higher raw material costs not fully compensated for by price increases, and the startup costs in China.
Items affecting comparability, or IAC, in the second quarter, amounted to €0.9 (€4.2) million. Of this, Building Solutions – Europe accounted for costs of €2.4 million and Uponor Infra for a net income totalling €1.5 million, including a €1.9 million gain from the sale of unused office and manufacturing space in Uponor Infra’s premises in Vaasa, Finland. The above items were related to the European transformation programmes launched in November 2015, the final initiative of which was launched in the second quarter of 2017 when Building Solutions – Europe began employee consultations in Italy regarding office consolidation. The programmes had a combined target of achieving annual operational savings of €25 million against a total cost of €32 million in items affecting comparability. The savings targets were largely met. The IAC-costs during the entire programme amounted to €24.5 million in total.
Building Solutions – Europe’s operating profit in the second quarter came to €9.1 (8.2) million, up 12.6%. The segment’s comparable operating profit amounted to €11.5 (11.5) million. Reflecting the savings in overheads and expenses, the improvement in operating profit was burdened by higher input costs of aluminium and brass in particular, as well as increases in project support and promotional activities in a highly competitive market. Costs were also increased by starting up production and operations in Asia.
Building Solutions – North America reported an operating profit of €10.5 (14.6) million for the quarter, representing a decline of 28.4% from the strong comparison period. The decline in operating profit was mainly a result of the temporary production issue experienced in April, which impacted on the ability to meet customer’s demand for pipe and increased inefficiencies in production. The issue was solved in the second quarter. In addition, more expensive resin used in engineered polymer (EP) fittings since June 2016 and extra costs from managing the supply-demand situation, particularly in connection with the above-mentioned production issue, burdened profitability in the second quarter.
Uponor Infra’s operating profit came to €4.7 (5.1) million, a decline of 7.9%. The segment’s comparable operating profit came to €3.2 (5.7) million, representing a change of -43.2%. This decline was mainly caused by higher resin costs and temporary inefficiencies related to production transfers due to higher demand than anticipated. Moreover, the increase in net sales mainly came from lower profitability markets, thus affecting Uponor Infra’s overall profitability.
Operating profit by segment (April – June):
| M€ | 4-6/2017 | 4-6/2016 | Change |
| Building Solutions – Europe | 9.1 | 8.2 | 12.6% |
| Building Solutions – North America | 10.5 | 14.6 | -28.4% |
| (Building Solutions – North America (M$) | 11.7 | 16.3 | -28.5%) |
| Uponor Infra | 4.7 | 5.1 | -7.9% |
| Others | -1.0 | -0.9 | |
| Eliminations | -0.4 | -0.5 | |
| Total | 22.9 | 26.5 | -13.6% |
Comparable operating profit by segment (April – June):
| M€ | 4-6/2017 | 4-6/2016 | Change |
| Building Solutions – Europe | 11.5 | 11.5 | 0.9% |
| Building Solutions – North America | 10.5 | 14.6 | -28.4% |
| (Building Solutions – North America (M$) | 11.7 | 16.3 | -28.5%) |
| Uponor Infra | 3.2 | 5.7 | -43.2% |
| Others | -1.0 | -0.6 | |
| Eliminations | -0.4 | -0.5 | |
| Total | 23.8 | 30.7 | -22.6% |
Profit before taxes for April – June totalled €21.1 (24.4) million. Taxes had a €6.8 million effect on profits, while the amount of taxes in the comparison period was €9.0 million. Profit for the period in the second quarter came to €14.3 (15.4) million.
The January – June gross profit came to €189.8 million (33.1%) against €193.3 million (35.4%) in 2016. Comparable gross profit amounted to €190.8 million (33.3%) against €194.8 million (35.6%) in 2016, mainly burdened by competitive price pressure, particularly in the European building solutions business.
The January – June operating profit came to €37.5 (38.4) million, or €38.8 (45.6) million in comparable operating profit, down 2.3% or 15.0% respectively from the first half year in 2016.
Items affecting comparability in January – June totalled €1.3 (7.2) million. Building Solutions – Europe’s transformation programme related costs were €2.8 (5.9) million. Uponor Infra’s transformation programme costs of €0.4 (1.0) million were offset by a gain of €1.9 (0.0) million on sale of premises in Vaasa.
Profitability, or the operating profit margin, for the first half-year was 6.5%, against 7.0% in the first half of 2016. The comparable operating profit margin came to 6.8% (8.3%).
Operating profit by segment (January – June):
| M€ | 1-6/2017 | 1-6/2016 | Change |
| Building Solutions – Europe | 15.4 | 13.1 | 18.3% |
| Building Solutions – North America | 21.1 | 25.7 | -17.9% |
| (Building Solutions – North America (M$) | 23.1 | 28.6 | -19.4%) |
| Uponor Infra | 2.8 | 1.5 | 86.8% |
| Others | -1.9 | -1.6 | |
| Eliminations | 0.1 | -0.3 | |
| Total | 37.5 | 38.4 | -2.3% |
Comparable operating profit by segment (January – June):
| M€ | 1-6/2017 | 1-6/2016 | Change |
| Building Solutions – Europe | 18.2 | 19.0 | -3.9% |
| Building Solutions – North America | 21.1 | 25.7 | -17.9% |
| (Building Solutions – North America (M$) | 23.1 | 28.6 | -19.4%) |
| Uponor Infra | 1.3 | 2.5 | -46.9% |
| Others | -1.9 | -1.3 | |
| Eliminations | 0.1 | -0.3 | |
| Total | 38.8 | 45.6 | -15.0% |
Financial expenses at €4.0 million were €1.5 million less than in the comparison period.
The share of the result in associated companies at €-1.1 million is related to the minority share in the joint venture company Phyn, whose offering is in the development and pilot phase and does not yet generate returns. Phyn was established on 1 July 2016. The activities of the joint venture are progressing according to the plan.
Profit before taxes for January – June totalled €32.4 (33.0) million. Taxes had a €10.7 (12.2) million effect on profits. The estimated tax rate for the full year was lowered from 35%, issued in the first quarter, to 33%.
Profit for the period in the period came to €21.7 (20.8) million. Earnings per share, both basic and diluted, for January – June totalled €0.29 (0.28). Equity per share, both basic and diluted, was €3.35 (3.22).
Key events
On 4 May 2017, Uponor announced that its U.S. subsidiary, Uponor, Inc., part of the Building Solutions – North America segment, plans to begin expanding its manufacturing facility in Apple Valley, Minnesota with a €16.3 million ($17.4 million) investment. This, the tenth expansion since operations began in Apple Valley in 1990, is expected to be completed by January 2018, adding 5,440 square metres (58,000 square feet) in manufacturing operations space related to crosslinked polyethylene (PEX) pipe production.
Events after the reporting period
On 20 July 2017, Uponor announced that its U.S. business, Uponor North America, part of the Building Solutions – North America segment, has signed an agreement to acquire a 22,000 square metre manufacturing facility and real estate in the town of Hutchinson, Minnesota. The deal, which is worth €5.6 million ($6.3 million), is expected to close by the end of August 2017. Uponor forecasts continued long-term growth in commercial and residential construction, and plans to use the facility to expand its PEX pipe manufacturing operations.
Short-term outlook
In the first half of 2017, building and construction trends in Uponor’s international markets largely remained unchanged, driven by demographic demand. At the same time, concerns about the resilience of the global economy have mounted, mainly being driven by heightened political uncertainties and, in Europe, in particular, by those related to Brexit. So far, however, they have not fuelled business or consumer caution to any notable degree.
The encouraging improvement in demand noted in Europe since 2016, both in building solutions and infrastructure solutions, is therefore expected to continue. Likewise, in North America, despite short-term fluctuations, building solutions demand is expected to remain healthy, offering room for growth in both the shorter and longer term. Similar trends are expected to continue in infrastructure solution demand. The fundamental drivers behind this development are improved confidence, attractive credit terms, immigration, and longer-term pent up demand affecting the residential sectors of the market in particular.
Assuming that economic development in Uponor's key geographies otherwise continues undisturbed, Uponor repeats its earlier, full-year guidance for 2017:
The Group’s net sales and comparable operating profit are expected to improve from 2016.
In its January – March interim report, Uponor estimated that the Group's capital expenditure, excluding any investment in shares, would be close to €60 million in 2017. If the acquisition of the U.S. manufacturing facility and real estate, announced on 20 July 2017, materialises as planned, capital expenditure is therefore estimated to exceed €60 million in 2017.
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 Annual Report 2016.
Uponor Corporation
Board of Directors
For further information, please contact:
Jyri Luomakoski, President and CEO, tel. +358 20 129 2824
Maija Strandberg, CFO, tel. +358 20 129 2830
Uponor Corporation
Tarmo Anttila
Vice President, Communications
Tel. +358 20 129 2852
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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 3,900 employees in 30 countries, mainly in Europe and North America. In 2016, Uponor's net sales totalled €1.1 billion. Uponor is based in Finland and listed on Nasdaq Helsinki. www.uponor.com