CEO review

 

15 February 2023

Dear reader,

2022 was a good year for Uponor. Despite a volatile market environment impacted by the war in Ukraine, rising interest rates, high inflation and the cyberattack we faced in the month of November, we did well. Our full year 2022 net sales were record-high at €1.4 billion, growing by 5.6% year-on-year. Our comparable operating profit reached its second highest level ever and the margin remained solid at 11.1% (12.2), reflecting our strong operational performance as well as ability to successfully implement price increases and manage adverse conditions.

Market development was relatively positive in the first half of the year. However, as interest rates started to rise, construction activity began to moderate from multi-year highs, especially in the US single-family home segment, and builder confidence fell throughout our markets in the second half of the year.
 
In the fourth quarter, our net sales decreased by 16% mainly due to the impact of the cyberattack against Uponor on 5 November. After the attack, the company took immediate actions to investigate and remediate the situation. One of these actions was to shut down all systems and production as a precautionary measure. After one week of production interruption, operating levels started to recover, and they were back at normal levels from the beginning of December. Net sales declined in all divisions, but our Infra business was the least affected by the cyberattack and delivered a strong operating result due to successfully run designed solutions projects. Our Building Solutions Europe and North America divisions also recovered fast and posted a record result for the month of December. However, this was not enough to compensate for the impact of production interruption and related volume loss in November before the financial year ended.
 
We have executed well on our ‘Maximizing the Core and Sustainable Innovations’ strategy during its initial year. In Building Solutions – Europe, we focused on countries with high potential to drive organic growth with a systematic 4C approach (Categories, Countries, Channels, Customers). We also started the journey moving from component selling to selling more integrated solutions, which can significantly increase the sales opportunities per dwelling. In Building Solutions – North America, we continued to make inroads into the commercial market and to leverage on our global offerings and brought new, innovative products to the local market. In Uponor Infra, we continued successfully to transform the sales mix by moving towards industry projects with higher margin categories.
 
To accelerate sustainable innovation, we formed a new Technology organisation that will also drive manufacturing efficiency and supply chain resilience. We moved forward innovation initiatives to enable profitable growth in technologies where Uponor has a competitive advantage. We also renewed our ESG framework in line with our ambition to lead the construction industry towards net zero. We made progress towards our ESG targets, in particular, with regards to our aim of having a sustainable alternative for 50% of the product portfolio by 2027. We launched four new sustainable ‘Blue’ products based on renewable raw materials. The positive initial feedback that we have received from our customers is encouraging. Together with our value chain partners, we completed the technical development of a closed loop chemical recycling process for PEX-a waste, allowing Uponor, as the first one in the world, to recycle its PEX-a waste back to new PEX pipes. We harmonized the calculation of our lost time injury frequency rate, LTIF, across all divisions and have taken steps to transform the safety culture at Uponor to reach our ‘zero accidents’ target by 2025. In 2022, our LTIF was 8.3 (8.8).
 
Our People First efforts focused on building a new engaged performance-based culture, while creating an inclusive and diverse workplace that attracts and retains the best talent. I am also very pleased to have been able to welcome new members to our Executive Committee and Group Leadership Team. I feel confident we have a strong team to deliver the strategy.
 
Uponor’s updated vision and purpose statements are grounded in our strategy. Our vision is to be the leader in sustainable water solutions. The company purpose of unlocking water’s potential to protect the place we call home challenges Uponorians to continuously find new ways to conserve, manage and move water responsibly. Water is the catalyst that allows us to innovate energy-efficient systems and this is also captured in our new company tagline “Moving Water”.
 
Turning to 2023, we stay on course with our long-term growth strategy while improving our resilience. Our demand outlook is negatively impacted by the rising interest rates, a continued volatile environment and cost inflation pressures. To offset these headwinds and continue building a robust, lean and resilient company, we have initiated a transformation programme over the years 2023–2024. With the successful implementation of this transformation, Uponor aims to create a new Uponor-wide operating model strengthening Uponor’s long-term competitiveness, capability to adjust to changing market conditions and ability to better serve customer needs. The programme aims at efficiency gains and annual cost savings of €30 million with an estimated net reduction of up to 400 jobs globally.
 
Pursuing growth with a systematic 4 C approach, optimizing capacity and protecting our margins will be our key priorities in 2023 and 2024.
 
Looking on the long term, maximizing the core and sustainable innovation will support Uponor's profitable growth ambitions, also under tough market conditions. We believe the current energy crisis will further accelerate the transformation toward and growing demand for more energy-efficient systems. Uponor is well positioned to benefit from this trend.
  
Finally, I would like to thank everyone in our organization for their dedication, focus on delivery and outstanding work during a very exceptional year.
 
I am very proud of the leadership and how Uponorians, united as one team, managed the cyber incident in a short time frame. This shows that, while systems are essential, the knowledge and experience of our people are what makes this company stand out. We are also thankful for the support and recognition that we have received from our customers, suppliers and other stakeholders.
 
I am confident that the strong engagement and performance focus of our people, as well as the strength of our balance sheet and our diversified portfolio, positions us well to capture growth opportunities even if volatility in our markets remains high in the coming quarters.

Michael Rauterkus
President and CEO