Financial statements bulletin 1–12/2018: Net sales improved in all segments; stable operational performance
Uponor Corporation Stock exchange release 13 February 2019 08:00 EET
Financial statements bulletin 1–12/2018: Net sales improved in all segments; stable operational performance
- Net sales for Oct–Dec 2018 was €282.6 (279.4) million, growth of 1.2% or organic growth of 12.5% in constant currency terms
- Operating profit for Oct–Dec was €17.1 (18.0) million; comparable operating profit at €20.5 (18.0) million, growth of 13.3%
- Net sales for Jan–Dec was €1,196.3 (1,170.4) million, growth of 2.2% or organic growth of 7.4% in constant currency terms
- Operating profit for Jan–Dec was €106.7 (95.9) million; comparable operating profit at €99.3 (97.2), growth of 2.1%
- Jan–Dec earnings per share was at €0.72 (0.83)
- Jan–Dec return on investment was 17.2% (16.3%), and gearing on 31 December was 39.4% (43.5%)
- Jan–Dec cash flow from business operations came to €79.9 (101.5) million
Uponor Infra’s North American business is included in the financial information until the end of August 2018, after which the business was divested. Zent-Frenger, which was part of Building Solutions – Europe segment, is included in the financial information until the end of October 2018, after which the business was divested.
Guidance statement for 2019:
Excluding the impact of currencies, Uponor expects its net sales to reach the level of the year 2018 net sales excluding the divested Uponor Infra’s North American business and Zent-Frenger (€1,107.7 million), and comparable operating profit to improve from the year 2018 comparable operating profit excluding the divested Uponor Infra’s North American business and Zent-Frenger (€83.5 million).
The Board’s dividend proposal:
The Board proposes to the Annual General Meeting a dividend of €0.51 (0.49) per share, of which 25 cents will be paid in March 2019 and 26 cents is planned to be paid in September 2019. When making the proposal, the Board considered the solvency of the company, the company’s dividend policy, the business outlook and planned investments, recognising the high availability of external funding for the company’s growth plans.
President and CEO Jyri Luomakoski’s comments:
- In 2018, Uponor improved both net sales and comparable operating profit, despite the divestments of Uponor Infra’s North American business and Zent-Frenger, a radiant ceiling manufacturer from Germany. We also announced our decision to cease our operations in Asia during 2019. Going forward, we will focus on our core businesses in Europe and North America, and strive to meet our profitable growth agenda.
- Net sales increased slightly in the Building Solutions – Europe segment, but operational challenges in our manufacturing facility in Virsbo, Sweden, together with increasing raw material costs decreased profitability in 2018. Corrective measures in Virsbo have been implemented and we expect the situation to improve during 2019. We will also launch new products for European markets at the world’s leading trade fair in the field of sanitary and heating, ISH, in March: smart water monitoring system, Phyn Plus; new generation press fitting solution, S-Press PLUS; fully electronic heat interface unit Combi Port E as well as the Smatrix Pulse cloud-based smart home control system.
- Building Solutions – North America segment increased its net sales, but the profitability level was burdened by the start-up costs from the Hutchinson manufacturing facility. In addition, the segment suffered from increasing raw material costs and freight rates throughout the first half of the year, and the second half of the year was not enough to compensate this completely.
- Uponor Infra improved its profitability significantly in Europe. Operational improvements were notable especially in Finland, and designed solutions sales also performed well. Uponor Infra’s North American business was divested in August.
- There are multiple uncertainty factors in the world economy, making 2019 predictions challenging. Our guidance, which is based on the current Group structure and constant currencies, is based on the execution plans of our strategy, but it is dependent on economic market conditions prevailing during the main construction season in our operating area. Our first quarter, traditionally the smallest due to seasonality in construction industry, is expected to be impacted by purchasing patterns of our distributors as price increases in many key markets will take place during the quarter and new products will be launched at the end of the quarter. In addition, the costs related to the biennial ISH trade fair will burden the result.
Key financial figures
| Consolidated income statement (continuing operations), M€ | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 |
| Net sales | 1,196.3 | 1,170.4 | 1,099.4 | 1,050.8 | 1,023.9 | 906.0 |
| Operating expenses | 1,063.6 | 1,038.4 | 991.0 | 942.7 | 926.4 | 823.6 |
| Depreciation and impairments | 42.4 | 39.2 | 41.6 | 39.1 | 36.5 | 33.0 |
| Other operating income | 16.4 | 3.1 | 4.2 | 2.4 | 2.4 | 0.8 |
| Operating profit | 106.7 | 95.9 | 71.0 | 71.4 | 63.4 | 50.2 |
| Comparable operating profit | 99.3 | 97.2 | 90.7 | 75.8 | 67.7 | 55.2 |
| Financial income and expenses | -8.5 | -5.4 | -10.0 | -8.9 | -7.4 | -7.1 |
| Profit before taxes | 93.5 | 88.2 | 60.4 | 62.8 | 56.3 | 43.2 |
| Result from continuing operations | 63.2 | 65.4 | 41.5 | 37.1 | 36.3 | 27.1 |
| Profit for the period | 63.2 | 65.4 | 41.9 | 36.9 | 36.0 | 26.8 |
| Earnings per share | 0.72 | 0.83 | 0.58 | 0.51 | 0.50 | 0.38 |
Uponor Corporation's long-term financial targets
(issued on 12 February 2013)
| Annual targets and actuals | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 |
| Organic net sales growth to exceed GDP growth(1 by 3 ppts (2018E: 5.4%) | 4.9 | 6.5 | 2.0 | 5.2 | 2.0 | -1.5 |
| Comparable(2 EBIT margin >10% | 8.3 | 8.3 | 8.2 | 7.2 | 6.6 | 6.1 |
| Return on investment, ROI (p.a.) >20% | 17.2 | 16.3 | 14.1 | 15.5 | 14.2 | 12.5 |
| Gearing (annual average for the four latest quarters) 30 – 70 | 53.0 | 58.4 | 56.7 | 40.4 | 45.8 | 57.9 |
| Dividend payout > 50% of earnings | 70.8 | 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.)
Information on the financial statements bulletin
This release is a condensed version of Uponor’s 2018 financial statements bulletin, which is attached to this release. It is also available on the company’s IR website.
The figures in brackets are the reference figures for the equivalent period of the previous year. Unless otherwise stated, the figures refer to continuing operations. Any change percentages were calculated from the exact figures and not the rounded figures published here.
News conference, webcast and presentation
A news conference for analysts, fund managers, investors and representatives of the media will be arranged in Savoy, Eteläesplanadi 14 (Salikabinetti, 7th floor), Helsinki, Finland on 13 February at 10:00 EET.
A webcast of the news conference in English will be broadcast on 13 February at 10:00 EET. It can be viewed via our IR website at investors.uponor.com or via the Uponor IR mobile app. The recorded webcast can be viewed via the website or the app shortly after the live presentation. All presentation materials will be available at investors.uponor.com > News & downloads.
Next interim results
Uponor Corporation will publish its Q1 interim results on 3 May 2019. During the silent period from 1 April to 2 May, Uponor will not comment on market prospects or factors affecting business and performance.
Interim results October – December 2018
Markets
Construction activity in Uponor’s key markets remained generally healthy, although signs of softening demand became more pronounced in some markets. In Europe, a slowdown in building activity became more apparent in the Nordics, while in Uponor’s largest European market, Germany, building activity remained stable. North American markets grew slightly overall from a year earlier.
Net sales
Uponor reported net sales of €282.6 (279.4) million for the fourth quarter, showing growth of 1.2% to comparison year 2017. The currency impact, mainly from the USD, SEK and RUB came to € -6.5 million, whereby the year-over-year organic growth in the quarter in constant currency terms came to 12.5%.
Building Solutions – Europe’s net sales grew, coming to €128.5 (125.5) million, a growth of 2.5% from the comparison period. The main drivers behind the growth were Finland, Norway and Austria.
Building Solutions – North America continued growth with net sales of €90.5 (79.5) million, which represents an increase of 13.8%. In USD, net sales were $103.3 (94.2) million, a growth of 9.6%. The growth was driven by strong performance in the U.S. markets both in plumbing solutions and indoor climate solutions.
Uponor Infra’s net sales decreased to €65.3 (75.4) million, a decline of 13.3%. The decline in the comparison period is due to Uponor Infra’s North American business, which was divested in August 2018. Remaining European business increased its net sales year-over-year.
Breakdown of net sales by segment, October–December:
M€ | 10–12 2018 | 10–12 2017 | Reported change |
| Building Solutions – Europe | 128.5 | 125.5 | 2.5% |
| Building Solutions – North-America | 90.5 | 79.5 | 13.8% |
| (Building Solutions – North-America, M$ | 103.3 | 94.2 | 9.6%) |
| Uponor Infra | 65.3 | 75.4 | -13.3% |
| Eliminations | -1.7 | -1.0 | |
| Total | 282.6 | 279.4 | 1.2% |
Results and profitability
Uponor’s gross profit in the final quarter of 2018 totalled €94.2 (95.0) million. The gross profit margin declined slightly to 33.3% (34.0%).
Operating profit for the fourth quarter came to €17.1 (18.0) million. The operating profit margin came to 6.1% (6.4%). The total net effect of items affecting comparability (IAC) was €3.4 million in the fourth quarter. The biggest items were disposal gain from the divestment of Zent-Frenger (€4.0 million) and ramp down costs from Asian operations (€6.9 million). There were no items affecting comparability in the comparison period.
Comparable operating profit, i.e. excluding any items affecting comparability, improved and came to €20.5 (18.0) million, while the comparable operating profit margin came to 7.3% (6.5%).
Building Solutions – Europe’s operating profit was €5.1 (10.2) million. Adjusting for IAC, comparable operating profit came to €8.0 (10.2) million, which represents a comparable operating profit margin of 6.2% (8.1%). The decline was due to higher operational costs in Virsbo and sales mix.
Building Solutions – North America’s operating profit came to €13.7 (9.6) million, or to $15.7 (11.5) million measured in USD. The operating profit margin improved to 15.2% (12.2%). This was driven by price increases and reduced freight rates.
Uponor Infra’s operating profit declined, coming to €-0.2 (1.8) million. The comparable operating profit came to €0.3 (€1.8) million. The decline was due to the divestment of North American business in August 2018. In Europe, Finland improved its profitability level together with designed solutions sales.
Reported operating profit by segment, October–December:
| M€ | 10–12 2018 | 10–12 2017 | Reported change | |
| Building Solutions – Europe | 5.1 | 10.2 | -50.0% | |
| Building Solutions – North-America | 13.7 | 9.6 | 42.9% | |
| (Building Solutions – North-America, M$ | 15.7 | 11.5 | 36.3%) | |
| Uponor Infra | -0.2 | 1.8 | -113.8% | |
| Others | -1.2 | -2.5 | ||
| Eliminations | -0.3 | -1.1 | ||
| Total | 17.1 | 18.0 | -5.2% |
Comparable operating profit by segment, October–December:
M€ | 10–12 2018 | 10–12 2017 | Comparable change |
| Building Solutions – Europe | 8.0 | 10.2 | -21.8% |
| Building Solutions – North-America | 13.7 | 9.6 | 42.9% |
| (Building Solutions – North-America, M$ | 15.7 | 11.5 | 36.3%) |
| Uponor Infra | 0.3 | 1.8 | -87.9% |
| Others | -1.2 | -2.5 | |
| Eliminations | -0.3 | -1.1 | |
| Total | 20.5 | 18.0 | 13.3% |
Events during the period
On 28 November 2018, Karsten Hoppe was appointed President, Building Solutions – Europe and a member of Uponor’s Executive Committee as of 1 February 2019.
On 13 December 2018, Uponor announced that, in alignment with its strategy to focus on profitable growth in core businesses throughout Europe and North America, the company has decided to cease operations in Asia during 2019. This includes operations in China, as well as sales offices in South Korea, Hong Kong and Malaysia.
Financial statements January – December 2018
Markets
Despite some softening towards the end of the year, construction activity on both sides of the Atlantic was generally healthy in 2018, growing marginally from the strong levels seen in 2017. Consumers on both continents continued to benefit from a strong labour market that in turn drove growth in residential new build projects. Although more cautious than consumers, businesses increased investments in non-residential construction projects, too. As in previous years during this prolonged growth cycle, a pronounced lack of skilled labour continued to challenge builders’ ability to take on new projects.
In Uponor’s largest Central European market, Germany, residential building permits fell from their post-unification peak, but remained at elevated levels that continued to provide a backlog of multi-family housing projects. Spending on new residential projects grew, while the significantly larger renovation segment was flat compared to the previous year. Non-residential building grew slightly, but was at a similarly low level as in previous years. Growth was stronger in the Netherlands, with spending in both the residential and non-residential segments expanding.
In Southwest Europe, the Spanish construction market continued to make gains from a very low baseline. Construction spending was sustained at elevated levels in France, while the Italian market was again subdued. In the UK, political uncertainties may have contributed to a reduction in investment in non-residential projects, but residential spending remained at 2017 levels.
Construction activity in the Nordic region continued to grow during the beginning of the year, supported by a backlog of projects. However, as the year wore on, a clear deceleration in the number of new multi-family residential projects became evident in Finland and Sweden. In the non-residential segment, Sweden and Norway both experienced a decline in activity, while Finland and Denmark grew slightly.
In North America, the USA posted another year of construction industry growth, albeit at a reduced rate from earlier years. Residential spending grew and home builder confidence remained clearly in expansionary territory, despite moderating towards the end of the year. Meanwhile, businesses continued to invest more in non-residential projects, with nearly every sub-segment contributing to the growth. In Canada, a decrease in residential spending was compensated for by growth in non-residential projects.
With regard to Uponor’s infrastructure solutions, demand was stable overall, with softening in some building segments offset by increased government expenditures in, for example, Sweden and Norway. East Central European countries, and especially Poland, benefited from elevated investment levels in both building and civil engineering.
Net sales
Uponor’s 2018 net sales amounted to €1,196.3 (1,170.4) million, a growth of 2.2% year-over-year. The negative currency impact totalled €28.1 million, bringing the 2018 full-year organic growth to 7.4% in constant currency terms. The negative net currency effect was mainly due to the USD, SEK, CAD and RUB.
Building Solutions – Europe’s net sales amounted to €524.2 (521.7) million, showing a small growth of 0.5% year-over-year. Net sales remained at quite a stable level in most countries, with the biggest growth in Finland and Spain. Net sales declined in Sweden and slightly in Germany.
Building Solutions – North America reported full-year net sales at €340.5 (328.2) million, a growth of 3.7%. In U.S. dollar terms, net sales were $401.5 (373.2) million, representing growth of 7.6%. The growth came from both the U.S. and Canadian markets.
Uponor Infra’s net sales came to €337.3 (323.4) million, which represents a growth of 4.3%, despite the divestment of North American business in August 2018. Most of this growth came from Sweden and Poland.
Within the business groups, the share of plumbing solutions represented 49% (49%), indoor climate solutions 23% (24%), while infrastructure solutions represented 28% (27%) of Group net sales. If the impact of Uponor Infra’s North American business is eliminated, the shares are: plumbing solutions 52%, indoor climate solutions 24% and infrastructure solutions 24%.
Measured in terms of reported net sales, and their respective share of Group net sales, the 10 largest countries were as follows (2017 figures in brackets): the USA 26.9% (26.3%), Germany 12.5% (13.2%), Finland 11.0% (10.3%), Sweden 9.6% (9.7%), Canada 7.2% (8.6%), Denmark 4.3% (4.4%), the Netherlands 3.5% (3.5%), Spain 3.3% (3.2%), Norway 2.8% (2.6%), and Poland 2.6% (1.9%).
Net sales by segment for 1 January – 31 December:
| M€ | 1–12 2018 | 1–12 2017 | Reported change |
| Building Solutions – Europe | 524.2 | 521.7 | 0.5% |
| Building Solutions – North America | 340.5 | 328.2 | 3.7% |
| (Building Solutions – North America, M$ | 401.5 | 373.2 | 7.6%) |
| Uponor Infra | 337.3 | 323.4 | 4.3% |
| Eliminations | -5.7 | -2.9 | |
| Total | 1,196.3 | 1,170.4 | 2.2% |
Results and profitability
The consolidated full-year gross profit ended at €400.8 (394.1) million, a growth of €6.7 million. The gross profit margin came to 33.5% (33.7%). Comparable gross profit came to €400.8 (395.1) million, or 33.5% (33.8%).
Consolidated operating profit came to €106.7 (95.9) million, a clear improvement from the previous year, driven by the disposal gains (€11.7million) from the divestment of Uponor Infra’s North American business and (€4.0 million) Zent-Frenger. The operating profit margin ended at 8.9% (8.2%) of net sales.
Comparable operating profit, i.e. excluding any items affecting comparability, reached €99.3 (97.2) million, an increase of 2.1%. Comparable operating profit margin came to 8.3% (8.3%). The total net amount of items affecting comparability was €7.4 (1.3) million, of which a total of €4.3 (2.8) million was reported in Building Solutions – Europe (disposal gain from divestment of Zent-Frenger, restructuring costs and ramp down costs from Asian operations) and €-11.7 (-1.5) million in Uponor Infra (the disposal gain from the divestment of North American business).
Building Solutions – Europe’s operating profit was €31.1 (40.0) million. The segment reported a decline in full-year comparable operating profit, which came to €35.4 (42.8) million. The segment’s profitability was burdened by the continuing tight competitive situation together with increasing raw material prices. The introduced price increases were not enough to offset the situation, when also operational expenses increased in Virsbo. In addition, the sales mix did not support profitability development.
Building Solutions – North America’s operating profit came to €46.6 (49.7) million, or $54.9 (56.5) in USD. The decline was due to start-up costs for Hutchinson manufacturing facility as well as increased raw material costs and freight rates. During the second half of 2018, the segment introduced price increases and managed to reduce freight rates, but the positive actions were not enough to fully compensate for the weaker first half of the year.
Uponor Infra reported a good improvement in operating profit €35.1 (12.0) million as well as in comparable operating profit which reached €23.4 (10.5) million. The improved profitability was driven by operational improvements in Finland as well as designed solution sales. Uponor Infra’s North American business was divested in August 2018.
Operating profit by segment for 1 January – 31 December:
| M€ | 1–12/ 2018 | 1–12/ 2017 | Reported change | |
| Building Solutions – Europe | 31.1 | 40.0 | -22.1% | |
| Building Solutions – North-America | 46.6 | 49.7 | -6.2% | |
| (Building Solutions – North-America, M$ | 54.9 | 56.5 | -2.8%) | |
| Uponor Infra | 35.1 | 12.0 | 191.6% | |
| Others | -5.2 | -4.2 | ||
| Eliminations | -0.9 | -1.6 | ||
| Total | 106.7 | 95.9 | 11.3% |
Comparable operating profit by segment for 1 January – 31 December:
M€ | 1–12 2018 | 1–12 2017 | Comparable change |
| Building Solutions – Europe | 35.4 | 42.8 | -17.3% |
| Building Solutions – North-America | 46.6 | 49.7 | -6.2% |
| (Building Solutions – North-America, M$ | 54.9 | 56.5 | -2.8%) |
| Uponor Infra | 23.4 | 10.5 | 122.0% |
| Others | -5.2 | -4.2 | |
| Eliminations | -0.9 | -1.6 | |
| Total | 99.3 | 97.2 | 2.1% |
Uponor’s net financial expenses increased to €8.5 (5.4) million, as the comparison period includes a positive impact of €3.6 million from the Finnish Supreme Administrative Court tax resolution. Net currency exchange differences in 2018 totalled €-4.9 (-3.2) million.
The share of the result in associated companies, €-4.7 (-2.3) million, is related to Uponor’s 50% share in the joint venture company, Phyn, established in 2016. Uponor increased its ownership from 37.5% to 50% in February 2018, by investing an additional €8.1 million ($10 million). Sales of the new Phyn Plus smart water monitoring system began in the second quarter in the USA, and it will be launched in European markets in spring 2019.
Profit before taxes was €93.5 (88.2) million. The effective tax rate was 32.4% (25.8). The divestments of Uponor Infra’s North American business and Zent-Frenger together with decision to cease operations in Asia and close down the sales office in Australia had one-time impacts of +4.9% pts to effective tax rate. Income taxes totalled €30.3 (22.8) million.
Profit for the period totalled €63.2 (65.4) million. Return on equity reached 18.0% (19.4%).
Return on investment increased to 17.2% (16.3%). Return on investment, adjusted for items affecting comparability, came to 15.9% (16.6).
Earnings per share were €0.72 (0.83). Equity per share was €4.08 (3.83). For other share-specific information, please see the Tables section.
Consolidated cash flow from operations amounted to €79.9 (101.5) million. Uponor received full compensation for the tax claim concerning Uponor Business Solutions Oy, with an impact of €11.4 million, but the net working capital increased. This is due to the comparison period, where North American inventories were on a level too low for sustainable business needs at the end of 2017. In addition, the inventories were at a higher level in Europe in the end of 2018 driven by the new product launches in March 2019. Cash flow before financing came to €72.7 (42.0) million.
Key figures are reported for a five-year period in the key financial figures section.
Short-term outlook
For all of 2018, Uponor’s key markets, Europe and North America, remained at a strong level. Political uncertainties remain, which causes difficulties in forecasting the outlook for 2019. E.g. Brexit, the challenges posed by tariff increases and China’s economic development can change the situation, perhaps even quickly.
Assuming that economic and political developments in Uponor's key geographies continue undisturbed, Uponor issues the following full-year guidance for 2019:
Excluding the impact of currencies, Uponor expects its net sales to reach the level of the year 2018 net sales excluding the divested Uponor Infra’s North American business and Zent-Frenger (€1,107.7 million), and comparable operating profit to improve from the year 2018 comparable operating profit excluding the divested Uponor Infra’s North American business and Zent-Frenger (€83.5 million).
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
www.investors.uponor.com
Uponor in brief
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 2018, 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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