Uponor Corporation Interim report January–March 2014 28 April 2014 08.00 EET
Interim report Q1/2014: Uponor reports brisk growth supported by good weather and stable markets
• Businesses across the European continent benefited from the exceptionally mild winter compared to the harsh weather in Q1 2013, while North America suffered from a severe winter
• Net sales in January – March totalled €230.9 (177.7) million; up by 30.0% or 6.5% adjusting for the combined historic figures for Uponor Infra
• Operating profit came to €4.8 (6.1) million, a change of -20.8%; excluding a non-recurring cost of €3.8 million, operating profit improved by 40.8%
• Earnings per share were €0.04 (0.05)
• Return on investment was 3.5% (7.0%), and gearing 56.9% (77.6%)
• Cash flow from business operations came to €-18.4 (-15.5) million
• Uponor repeats its full-year guidance announced on 14 Feb 2014
(This interim report has been compiled in accordance with the IAS 34 reporting standards and is unaudited. Figures in the report are for continuing operations, unless otherwise stated.)
President and CEO Jyri Luomakoski comments as follows on developments during the reporting period:
• We believe that the mild and construction-friendly winter weather had a positive impact on net sales development in Europe in the first quarter. In North America, however, unusually severe winter weather had an adverse impact on construction. Despite this, we are happy to report double-digit growth there, measured in the local currency.
• In Building Solutions – Europe, we are continuing our efforts to improve customer service, while reducing our environmental impact and improving cost efficiency. The reported Q1 operating profit is burdened by €3.8m in non-recurring expenses related to our initiative, effective as of Q1 2015, to consolidate our central European distribution and warehousing operations, bringing them closer to our customers and existing production facilities.
• Uponor Infra’s integration is proceeding as planned and we are on track to generate the expected savings, partly during the current year and fully in 2015. Largely thanks to the favourable weather, net sales grew modestly from the combined historic figures for 2013, but were still affected by the lack of infrastructure projects, especially in Finland.
Information on the January – March 2014 interim report bulletin
This document is a condensed version of Uponor’s January – March 2014 interim report bulletin, which is attached to this release. It is also available on the company website. The figures in brackets are the reference figures for the equivalent period in the previous year. Figures refer to continuing operations, unless otherwise stated. Any change percentages were calculated from the exact figures and not the rounded figures published here.
Webcast of the results briefing and the presentation
A webcast in English will be broadcast on 28 April at 10:00 a.m. EET. Connection details are available at www.uponor.com > Investors. Questions can be sent to email@example.com. The recorded webcast can be viewed at www.uponor.com > Investors shortly after publication. The presentation document will be available at www.uponor.com > Investors > News & downloads.
Next interim results
Uponor Corporation will publish its Q2 interim results on 25 July 2014. During the silent period from 1 to 25 July, Uponor will not comment on market prospects or factors affecting business and performance.
While the general economic environment in Uponor’s key markets in January – March remained more or less similar to the latter half of 2013, business conditions were influenced by extreme weather: exceptionally mild throughout the European continent – Central and Northern Europe, in particular – and rather harsh winter conditions in most of North America. In the comparison period in 2013, the European markets suffered from a severe and long winter.
This year’s mild weather conditions were apt to boost building and civil engineering projects in Europe; it is likely that some projects planned for execution in the spring were initiated earlier due to favourable working conditions. In North America, on the other hand, heavy snowfall and low temperatures postponed and delayed building projects. Notwithstanding the weather, demand in the residential segments was more satisfactory than in the non-residential and civil engineering segments in several geographies.
In Europe, after the softer final quarter of 2013, building market activity improved and was relatively favourable in much of Central Europe. Contrary to expectations, there was an improvement in the Netherlands, whose market had been subdued for a lengthy period of time. In Southern Europe, the national markets remained sluggish and even worsened in France and Italy, while in the UK the emerging signs of recovery witnessed last year were again visible. In the Nordic countries, Sweden continued to show an improving demand trend in the residential segment while demand in Finland declined; no major trend changes were witnessed in Norway and Denmark. The Russian market, whose importance to Uponor has steadily grown over several years, continued to boom.
In North America, the U.S. building markets continued to develop in a healthy manner, although they were a little softer than in some previous quarters. The Canadian market, which declined in 2013, showed signs of stabilising.
Demand for infrastructure solutions slowed after the previous quarter, due to normal seasonality. Year-on-year, modest improvements were noted in the Scandinavian markets, driven by the mild winter weather.
Uponor’s net sales grew considerably in the interim period January – March 2014, mainly driven by the establishment of the new Uponor Infra company on 1 July 2013. The Group’s consolidated net sales reached €230.9 (177.7) million, up 30.0%. Adjusted for the addition of the former KWH Pipe’s infrastructure businesses and the consequent establishment of Uponor Infra, this represents a change of 6.5% compared to the combined historic figures for 2013.
The translation impact of currencies on net sales, mainly from the CAD, USD and RUB, was considerable. The negative translation impact of all currencies reduced consolidated net sales by €7.5m, or 3.1%, compared to the first quarter of 2013.
Net sales growth in Building Solutions – Europe, year-over-year, was supported by recovering demand in several key markets – such as Central Europe, Sweden and Russia – which benefited from the mild winter. In euro terms, however, Russian net sales growth was reduced by the weakening rouble. Overall, Uponor performed well in keeping up sales of its differentiated, value-adding offering, while taking market share in selected volume segments.
Although Building Solutions – North America’s net sales growth slowed slightly from the level of the previous quarters, it reached double-digit percentage growth in the local currency, despite the inclement weather. In the U.S., good progress was made in the Southeast and Western regions. The strongest growth was recorded in plumbing revenues, particularly large-diameter plumbing.
Uponor Infra reported modest growth in net sales compared to the combined historic figures for 2013. Apart from in Canada, the above-mentioned weather conditions supported Uponor Infra’s business, which was facing flat demand due to financing constraints which are limiting investments in public infrastructures.
Customer buying trends are estimated to have enhanced net sales in the first quarter, with a varying impact depending on the geographical market and business segment in question. This is the result of distributors filling their inventory after the year-end closing in some markets and a pre-buying impact in advance of sales price increases announced by Uponor in various geographies, due to currency value changes, for example. Some price increases took effect in the reporting quarter, while further increases are scheduled for implementation in the spring season.
Breakdown of net sales by segment (January – March):
|Building Solutions – Europe||120.9||113.9||6.2%|
|Building Solutions – North America||40.5||37.2||8.7%|
|(Building Solutions – North America (M$)||55.5||49.0||13.2%)|
Results and profitability
Uponor’s consolidated operating profit for continuing operations in the first quarter of 2014 came to €4.8 (6.1) million, representing a change of -20.8% year-on-year. Profitability, as measured by operating profit margin, came to 2.1% from the 3.4% reported a year ago. The operating profit is burdened by a €3.8 million provision for a non-recurring cost related to the plan to relocate the German distribution centre to new premises by the first quarter of 2015 at the latest. Excluding the non-recurring cost, operating profit was €8.6 million and operating profit margin 3.7%, representing a growth of 40.8% year-over-year.
The favourable performance trend, excluding the non-recurring cost, in Building Solutions – Europe in the first quarter was supported by operational leverage due to higher net sales, especially in comparison to the lacklustre development in the comparison period.
In North America, due to rising demand, plastic resin prices began to trend upwards. This affected Building Solutions – North America’s operating profit, which was further burdened by the weakening Canadian currency.
In Europe, plastic resin prices remained fairly stable in the first quarter as the impact of the rising price of USD-based feed stock on resin prices was offset by the stronger euro.
Uponor Infra’s operating profit improved from the prior year’s combined historic numbers supported by higher net sales in several markets. Further, Uponor Infra’s integration programme has been executed according to plan and the benefits from consolidation measures are beginning to show. The operating profit improvement was somewhat offset by delayed customer projects in Central Europe and in Canada where business also suffered from severe weather and higher input costs.
Expenses, totalling €73.5 (63.2) million, increased by €10.3 million. This was a result of multiple factors, such as the consolidation of the new Uponor Infra businesses, the €3.1 million in closing expenses related to the upcoming distribution centre relocation in Germany, as well as an impact of changes in currencies.
Profit before taxes for January – March totalled €2.7 (5.0) million. The effect of taxes on profits was €0.9 million, compared to €1.7 million in the first quarter of 2013. Profit for the first quarter of 2014 amounted to €1.8 (3.3) million.
Breakdown of operating profit by segment (January – March):
|Building Solutions – Europe||5.7||6.7||-15.7%|
|Building Solutions – North America||4.4||4.6||-3.8%|
|(Building Solutions – North America (M$)||6.1||6.1||0.2%)|
Investment and financing
Apart from increased investment in new product development and the related manufacturing capacity in Building Solutions – Europe, Uponor’s capital investments during the reporting period were mainly targeted at maintenance and development. Gross investments in the first quarter came to €4.4 (4.6) million, clearly below depreciation, which amounted to €9.1 (7.1) million. Cash flow from business operations came to €-18.4 (-15.5) million. Cash flow from financing and thus cash flow for the period was further affected by the dividend payment on 31 March, which remained at €27.8 (27.8) million.
Uponor continues to have a special focus on maintaining a high level of liquidity, as well as following up accounts receivable, among other issues, in order to reduce credit risk.
The main existing funding programmes on 31 March 2014 included an €80 million bond maturing in 2018 and a €20 million bond maturing in 2016. Committed bilateral revolving credit facilities, maturing in 2015-2019, totalled €150 million; none of these back-up facilities were in use during the period under review. At the period end, €24.0 million of commercial papers were issued under the €150 million domestic commercial paper programme.
The Group’s solvency, at 37.9% (34.4%), has remained at a good level. Net interest-bearing liabilities were €147.8 (142.1) million. The period-end cash balance totalled €30.2 (8.1) million. Gearing came to 56.9 (77.6) %.
Macro-economic trends in Uponor’s key markets, Europe and North America, are expected to continue following their current course in the near future. In addition, it is anticipated that demand in the building and civil engineering markets will follow much the same pattern witnessed during the first quarter of 2014. Reflecting the stabilisation of the economy and gradually recovering consumer and business confidence in Europe, demand for building solutions is also expected to develop steadily and even show modest growth in some key markets. In North America, the market is expected to continue growing both in the U.S. and in Canada, although the pace may slow. Demand for infrastructure solutions is likely to remain weak, largely driven by tight public spending on utility infrastructure.
Uponor is cautiously optimistic and well prepared for a lengthy low-growth environment in which market conditions remain stable. The company has undergone an evolution through structural enhancements, focussed streamlining and a major strategic transaction to strengthen the platform of its infrastructure solutions business. Its offering portfolio has been developed further to meet topical customer needs such as those related to sustainability, the utilisation of renewable resources and energy-efficiency. The company’s financial standing is solid.
Despite this positive view, the related scenario involves economic and political risks, for which reason the management continues to keep a sharp eye on cost efficiency and cash flow, while pursuing growth in key markets and utilising the company’s competitive product and services offering.
Uponor repeats its guidance for the year 2014, announced on 14 February 2014:
The Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2013.
Uponor’s financial performance may be affected by a range of strategic, operational, financial and hazard risks. A more detailed risk analysis is provided in the section ‘Key risks associated with business’ in the Financial Statements 2013.
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
Vice President, Communications
Tel. +358 20 129 2852
NASDAQ OMX - Helsinki
Uponor is a leading international provider of plumbing and indoor climate solutions for residential and commercial building markets across Europe and North America. In northern Europe, Uponor is also a prominent supplier of infrastructure pipe systems. The Group employs approx. 4,100 persons, in 30 countries. In 2013, Uponor's net sales exceeded €900 million. Uponor Corporation is listed on NASDAQ OMX Helsinki in Finland. http://www.uponor.com.