Half year financial report January – June 2018: Growth of net sales and operating profit was driven by strong performance by Uponor Infra
Uponor Corporation Half year financial report 25 July 2018 08:00 EET
Half year financial report January – June 2018: Growth of net sales and operating profit was driven by strong performance by Uponor Infra
- Net sales in April – June totalled €324.9 (308.4) million, with organic growth at 5.3%, or 9.6% in constant currency terms
- All segments increased their net sales
- Operating profit for April – June came to €28.0 (22.9) million, up 22.3%, driven by Uponor Infra’s strong performance; the comparable operating profit in April – June came to €28.0 (23.8) million, a change of 17.9%
- Net sales in January – June totalled €601.8 (573.5) million, with growth at 4.9%
- Operating profit for January – June came to €45.0 (37.5) million, a change of 19.9%; the comparable operating profit in January – June came to €45.0 (38.8) million, a change of 16.0%
- January – June earnings per share were €0.30 (0.29)
- The January – June return on investment was 13.5% (13.6%), and gearing on 30 June was 64.2% (67.6%)
- The January – June cash flow from business operations came to €-16.5 (+1.5) million
- Uponor repeats its full-year guidance announced on 15 February 2018: excluding the impact of currencies, Uponor expects its organic net sales and comparable operating profit to grow from 2017
President and CEO Jyri Luomakoski comments on developments during the reporting period:
- All of Uponor‘s segments increased their net sales, but we cannot be satisfied with the profitability development in our building solutions businesses. Uponor has introduced price increases in Europe and North America to mitigate the impacts of rising raw material costs and freight rates.
- The market environment has remained positive, but bottle necks in planning and installation capacity, particularly in Europe, are creating challenges to benefit from the growth in the construction volumes.
- Net sales in the Building Solutions – Europe segment increased slightly. Net sales grew in most of the European markets, but the rising raw material prices impacted on the operating profit.
- Net sales in the Building Solutions – North America segment grew, but the rising level of freight rates as well as start-up costs of the new manufacturing facility in Hutchinson reduced operating profit. On the positive side, the start-up of Hutchinson in the second quarter was successful and ahead of schedule.
- Uponor Infra had a strong second quarter, with operations in North America continuing strong. In Europe, the benefits of the transformation programme are clearly visible. Net sales in Europe improved, particularly in Sweden and Poland.
- We expect that the market outlook for the second half of 2018 remains positive. However, one should take note of how the comparison period in the third quarter 2017 was exceptionally strong after the recovery from the temporary production issue in Building Solutions – North America in April 2017.
| Group key financial figures | ||||||||
| Consolidated income statement (continuing operations), M€ | 1-6 2018 | 1-6 2017 | 2017 | 2016 | 2015 | 2014 | ||
| Net sales | 601.8 | 573.5 | 1,170.4 | 1,099.4 | 1,050.8 | 1,023.9 | ||
| Operating expenses | 537.9 | 519.0 | 1,038.4 | 991.0 | 942.7 | 926.4 | ||
| Depreciation and impairments | 19.2 | 19.6 | 39.2 | 41.6 | 39.1 | 36.5 | ||
| Other operating income | 0.3 | 2.6 | 3.1 | 4.2 | 2.4 | 2.4 | ||
| Operating profit | 45.0 | 37.5 | 95.9 | 71.0 | 71.4 | 63.4 | ||
| Comparable operating profit | 45.0 | 38.8 | 97.2 | 90.7 | 75.8 | 67.7 | ||
| Financial income and expenses | -4.4 | -4.0 | -5.4 | -10.0 | -8.9 | -7.4 | ||
| Profit before taxes | 37.6 | 32.4 | 88.2 | 60.4 | 62.8 | 56.3 | ||
| Result from continuing operations | 26.5 | 21.7 | 65.4 | 41.5 | 37.1 | 36.3 | ||
| Profit for the period | 26.5 | 21.7 | 65.4 | 41.9 | 36.9 | 36.0 | ||
| Earnings per share | 0.30 | 0.29 | 0.83 | 0.58 | 0.51 | 0.50 | ||
Uponor Corporation's long-term financial targets
(issued on 12 February 2013)
| Annual targets and actuals | Last 12 mths | 2017 | 2016 | 2015 | 2014 | 2013 |
| Organic net sales growth to exceed GDP growth(1 by 3 ppts (2018E: 5.6%) | 6.4 | 6.5 | 2.0 | 5.2 | 2.0 | -1.5 |
| Comparable(2 EBIT margin >10% | 8.6 | 8.3 | 8.2 | 7.2 | 6.6 | 6.1 |
| Return on investment, ROI (p.a.) >20% | 14.8 (3 | 16.3 | 14.1 | 15.5 | 14.2 | 12.5 |
| Gearing (annual average for the four latest quarters) 30 – 70 | 55.6 | 58.4 | 56.7 | 40.4 | 45.8 | 57.9 |
| Dividend payout > 50% of earnings | - | 59.0 | 79.3 | 86.3 | 84.0 | 100.0 |
(1)GDP growth based on weighted average growth in the top 10 countries, measured by net sales. 2) The targets issued in February 2013 referred to reported EBIT margin. 3) Average of four quarters.)
Information on the January – June 2018 half year financial report
This document is a condensed version of Uponor’s January – June 2018 half year financial report, which is attached to this release. It is also available on the company website. 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.
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 investors.uponor.com. The recorded webcast can be viewed at investors.uponor.com shortly after publication. The presentation document will be available at investors.uponor.com > News & downloads.
Next interim results
Uponor Corporation will publish its January – September interim report on 24 October 2018. During the silent period from 24 September to 24 October, Uponor will not comment on market prospects or factors affecting business and performance.
Markets
The ongoing, favourable global economic environment continued to support solid levels of construction activity in both Europe and North America during the quarter, with builders reporting strong order books and production levels. However, as a consequence of several years of uninterrupted growth, year-over-year growth rates have moderated compared to the last few years, in several key markets. A pronounced lack of skilled labour also continued to limit builders’ ability to take on more projects.
In Uponor’s largest Central European market, Germany, builder confidence weakened towards the end of the quarter, but remains near all-time-highs. Both the residential and non-residential segments remained at good levels and, although the growth of residential building permits have slowed, the skilled labour shortage means that a sizable backlog probably still exists. The significantly larger renovation segment appeared to be flat. In the Netherlands, the market continued to grow, with expansion in both the residential and non-residential markets.
Markets in Southern Europe improved slightly on the whole, but developments were uneven. The brisk increase in construction activity witnessed during previous quarters in Spain was sustained and the French market remained solid, while the markets in Italy and the UK were hampered by economic and political uncertainties.
In the Nordic region, builders’ confidence remained at a high level. Some divergence has been witnessed in the residential segment, with Finland and Denmark posting year-over-year growth, while Sweden and Norway flattened. In contrast, the non-residential segment improved throughout the region.
The construction markets in North America remained largely healthy. In Uponor’s largest market, the USA, construction activity rose again in both the residential and non-residential segments, with the latter probably being supported by the recent tax incentives. Homebuilder sentiment remained strong, but retreated slightly from the 18-year high posted in December. On the negative side, labour shortages and increasing material costs continued to hamper growth, posing a key challenge for builders. Some signs of softening were evident in pockets of the Canadian residential segment.
With regard to Uponor’s infrastructure solutions, civil engineering expenditures in the Nordic countries remained modest, but was steady in Finland and Denmark. Meanwhile, both the Norwegian and Swedish governments have notably increased investment levels from 2017. In Canada, industrial investments, a key demand driver, remained on a good level in general.
Net sales
Uponor’s consolidated net sales for the second quarter 2018 reached €324.9 (308.4) million, up 5.3% in organic terms. There was a negative currency impact of €13.3 million in consolidated net sales, mainly originating in the USD, CAD and SEK. In constant currency terms, net sales growth was 9.6%.
Building Solutions – Europe reported net sales of €138.7 (135.6) million, up 2.2%. Net sales grew particularly in the Netherlands and Spain. In Germany, net sales were on a par year-on-year curbed by the tight competitive situation and some temporary production challenges in prefabricated production. In Sweden, net sales declined slightly year-on-year in local currency. In Asia, which is reported as part of the Building Solutions – Europe segment, net sales grew year-on-year. However, the competitive situation remains demanding in Asia.
Net sales in Building Solutions – North America came to €83.5 (79.3) million, up 5.3% in euro terms or up 11.4% in USD. The biggest customers had already been building up their stocks in the first quarter of the year, which impacted on the net sales in the second quarter. During the comparison period, the segment had a temporary production issue that curbed growth in spring 2017.
Uponor Infra’s net sales came to €104.1 (94.3) million, up 10.4% year-on-year. Growth was good in North America as well as in Sweden and Poland.
Net sales by segment (April – June):
| M€ | 4-6/2018 | 4-6/2017 | Change |
| Building Solutions – Europe | 138.7 | 135.6 | 2.2% |
| Building Solutions – North America | 83.5 | 79.3 | 5.3% |
| (Building Solutions – North America (M$) | 98.8 | 88.7 | 11.4%) |
| Uponor Infra | 104.1 | 94.3 | 10.4% |
| Eliminations | -1.4 | -0.8 | |
| Total | 324.9 | 308.4 | 5.3% |
Uponor’s January–June net sales reached €601.8 (573.5) million, growth of 4.9%, or 9.4% in constant currency. All segments increased their net sales. In constant currency terms, net sales would have been €25.4 million higher than reported net sales.
Net sales by segment (January – June):
| M€ | 1–6/2018 | 1–6/2017 | Change |
| Building Solutions – Europe | 263.9 | 259.9 | 1.5% |
| Building Solutions – North America | 161.1 | 157.5 | 2.3% |
| (Building Solutions – North America (M$) | 194.5 | 172.2 | 13.0%) |
| Uponor Infra | 179.4 | 157.4 | 14.0% |
| Eliminations | -2.6 | -1.3 | |
| Total | 601.8 | 573.5 | 4.9% |
Results and profitability
Uponor’s consolidated gross profit in the second quarter came to €107.3 (98.4) million, a change of €8.9million. The gross profit margin was 33.0% (31.9%), mainly driven by Uponor Infra’s good performance. During the comparison period in 2017, higher raw material prices and a temporary production issue in Building Solutions – North America reduced the gross profit margin. Comparable gross profit came to €107.3 (99.2) million, or 33.0% (32.1%).
Operating profit in the second quarter of 2018 came to €28.0 (22.9) million, up by 22.3% year-on-year. Profitability, as measured by the operating profit margin, came to 8.6% (7.4%). Comparable operating profit, i.e. excluding items affecting comparability, reached €28.0 (23.8) million, up by 17.9%. Comparable operating profit margin was 8.6% (7.7%).
There were no items affecting comparability, or IAC, in the second quarter 2018. In the comparison period, the amount was €0.9 million, of which Building Solutions – Europe accounted for costs of €2.4 million and Uponor Infra for a net income totalling €1.5 million.
Building Solutions – Europe’s operating profit in the second quarter came to €11.0 (9.1) million, up by 19.7%. The segment’s comparable operating profit amounted to €11.0 (11.5) million, a decline of 4.5%. The operating profit was impacted by higher raw material prices as well as promotional activities. In addition, the sales mix in Europe included a larger proportion of lower margin products.
Building Solutions – North America reported an operating profit of €8.8 (10.5) million for the quarter, representing a decline of 15.8% in euro terms, or a decline of 11.4% in USD, from the comparison period. The decline in operating profit was due to rising raw material costs and freight rates as well as start-up costs from the Hutchinson manufacturing facility.
Uponor Infra’s operating profit came to €10.1 (4.7) million, an increase of 115.3%. The segment’s comparable operating profit came to €10.1 (3.2) million, representing a change of 212.1%. This increase was driven by an improvements in both North America and in Europe, where the results from the transformation programme completed in 2017 benefited. Uponor Infra also grew the share of higher margin products in its sales mix.
Operating profit by segment (April – June):
| M€ | 4-6/2018 | 4-6/2017 | Change |
| Building Solutions – Europe | 11.0 | 9.1 | 19.7% |
| Building Solutions – North America | 8.8 | 10.5 | -15.8% |
| (Building Solutions – North America (M$) | 10.4 | 11.7 | -11.4%) |
| Uponor Infra | 10.1 | 4.7 | 115.3% |
| Others | -1.3 | -1.0 | |
| Eliminations | -0.6 | -0.4 | |
| Total | 28.0 | 22.9 | 22.3% |
Comparable operating profit by segment (April – June):
| M€ | 4-6/2018 | 4-6/2017 | Change |
| Building Solutions – Europe | 11.0 | 11.5 | -4.5% |
| Building Solutions – North America | 8.8 | 10.5 | -15.8% |
| (Building Solutions – North America (M$) | 10.4 | 11.7 | -11.4%) |
| Uponor Infra | 10.1 | 3.2 | 212.1% |
| Others | -1.3 | -1.0 | |
| Eliminations | -0.6 | -0.4 | |
| Total | 28.0 | 23.8 | 17.9% |
Profit before taxes for April – June totalled €24.4 (21.1) million. Taxes had a €7.1 million effect on profit for the period, while the amount of taxes in the comparison period was €6.8 million. Profit for the period in the second quarter came to €17.3 (14.3) million. The estimated tax rate for the full year is 29.5% (33.0%).
The January – June gross profit came to €200.5 million (33.3%) against €189.8 million (33.1%) in 2017. Comparable gross profit amounted to €200.5 million (33.3%) against €190.8 million (33.3%) in 2017.
The January – June operating profit came to €45.0 (37.5) million, or €45.0 (38.8) million in comparable operating profit, up 19.9% or 16.0% respectively from the first half year in 2017.
There were no items affecting comparability in January – June 2018, while they totalled €1.3 million in the first half of 2017.
Profitability, or the operating profit margin, for the first half-year was 7.5%, against 6.5% in the first half of 2017. The comparable operating profit margin came to 7.5% (6.8%).
Operating profit by segment (January – June):
| M€ | 1-6/2018 | 1-6/2017 | Change |
| Building Solutions – Europe | 17.0 | 15.4 | 10.0% |
| Building Solutions – North America | 19.0 | 21.1 | -10.1% |
| (Building Solutions – North America (M$) | 22.9 | 23.1 | -0.8%) |
| Uponor Infra | 13.4 | 2.8 | 379.1% |
| Others | -2.3 | -1.9 | |
| Eliminations | -2.1 | 0.1 | |
| Total | 45.0 | 37.5 | 19.9% |
Comparable operating profit by segment (January – June):
| M€ | 1-6/2018 | 1-6/2017 | Change |
| Building Solutions – Europe | 17.0 | 18.2 | -6.7% |
| Building Solutions – North America | 19.0 | 21.1 | -10.1% |
| (Building Solutions – North America (M$) | 22.9 | 23.1 | -0.8%) |
| Uponor Infra | 13.4 | 1.3 | 920.7% |
| Others | -2.3 | -1.9 | |
| Eliminations | -2.1 | 0.1 | |
| Total | 45.0 | 38.8 | 16.0% |
Financial expenses, which totalled €4.4 million, were €0.4 million less than in the comparison period.
At €-3.0 million, the share of the result in associated companies is related to Uponor’s 50% share in the joint venture company, Phyn. Phyn was established on 1 July 2016. Sales of the new Phyn Plus smart water monitoring and shut-off device began in the second quarter in the USA.
Profit before taxes for January – June totalled €37.6 (32.4) million. Taxes had a €11.1 (10.7) million effect on profit for the period. The estimated tax rate for the full year is 29.5% (33.0%).
Profit for the period came to €26.5 (21.7) million. Earnings per share, both basic and diluted, for January – June totalled €0.30 (0.29). Equity per share, both basic and diluted, was €3.66 (3.35).
Short-term outlook
In the first half of 2018, the building and construction market has mostly remained healthy in countries where Uponor operates. Although there are raising concerns about political uncertainties, e.g. Brexit and the challenges posed by tariff increases, they have not yet impacted on the consumer or business behaviour.
The demand in the European building solutions markets is therefore expected to continue stable. Likewise, in North America, despite short-term fluctuations, building solutions demand is expected to remain healthy. In addition, the demand in infrastructure market is expected to remain on a healthy level both in the North America and Europe.
Assuming that economic development in Uponor's key geographies continues undisturbed, Uponor repeats its earlier, full-year guidance for 2018.
Excluding the impact of currencies, the Group’s net sales and comparable operating profit are expected to improve from 2017.
In its January – March interim report, Uponor estimated that the Group's capital expenditure, excluding any investment in shares, will remain at roughly the same level as in 2017, mainly driven by the capacity expansion programme in North America.
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 2017.
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
Susanna Inkinen, Vice President, Communications and Corporate Responsibility, tel. +358 20 129 2081
Distribution:
Nasdaq Helsinki
Media
www.uponor.com
investors.uponor.com
Uponor in brief
The year 2018 marks Uponor's 100-year anniversary. Our success is built on strong partnerships with our customers and stakeholders in the past, present and future.
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 4,000 employees in 30 countries, mainly in Europe and North America. In 2017, Uponor's net sales totalled nearly €1.2 billion. Uponor is based in Finland and listed on Nasdaq Helsinki. Uponor builds on you - www.uponor.com
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