Q1/2012 interim report: Uponor grasped opportunities in the low season
Uponor Corporation Interim report January-March 2012 27 April 2012 8.00 EET
Uponor grasped opportunities in the low season
- Full impact of past sales price increases supported by active low season sales boosted Uponor’s performance in the first quarter
- Net sales in January–March totalled €192.5 (173.2) million; an increase of 11.2%; organic growth at 8.0%
- Operating profit for January–March totalled €9.3 (3.2) million; up €6.1 million
- Earnings per share were €0.06 (0.02)
- Return on investment was 11.1% (4.7%), and gearing 79.2% (62.3%)
- Cash flow from business operations came to €-21.4 (–21.9) million
- Full-year guidance remains unchanged
(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 on developments during the reporting period:
- I am happy to report that our intensified focus on organic growth yielded positive results. The Hewing divestment, which closed the end of the quarter, further supports our efforts to focus and leverage our supply chain.
- Last year, we introduced strong new products and tools which, together with our intense customer programmes, helped us gain market share, especially in North America and our Nordic infrastructure business, thus generating payback on investments.
- While raw material costs remained stable over the first two months, March saw another significant increase in plastic resin prices. We are determined to adjust our selling prices to compensate for this increase in input costs.
Information on the January – March 2012 interim report bulletin
This document is a condensed version of Uponor’s January-March 2012 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 from the rounded figures published here.
Webcast and the presentation
A webcast in English from the results briefing will be broadcast on 27 April at 10:00 am EET. Connection details are available at www.uponor.com > Investors. Questions can be sent in advance to firstname.lastname@example.org. The recorded webcast can be viewed at www.uponor.com > Investors shortly after publishing. 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 10 August 2012. During the silent period from 1 July to 10 August, Uponor will not comment on market prospects or factors affecting business and performance.
Concerns about the world economy continued to be present in the daily decision-making of governments, businesses and consumers in the first quarter of 2012. While the prevailing sentiment in key customer markets ranged from caution to mild optimism, some geographic markets faced continued decline in terms of economic, and especially, building activity.
Demand for building solutions remained stable in most central European markets. The German market, in particular, remained resilient. The residential building sector there developed positively, continuing the trends witnessed in 2011. Building activity levels in France and the UK remained rather stable. In southwest Europe, the descent in Spain and Italy continued as the prolonged downturn in the region continued to constrain investment in construction projects. The Nordic market largely remained level with the previous year. However, construction activity has recently begun to slow across the region, particularly in Sweden, following tighter government policy on new-build and renovation incentives. Demand in Russia developed strongly, especially in terms of residential construction. The situation in the Eastern European and Asian markets varied country by country.
In North America, an upward trend, the first signs of which already emerged in the second half of 2011, continued and somewhat stabilised in the United States, while development in Canada was flatter. The number of housing starts and permits for residential construction increased, both in the U.S. and in Canada, while non-residential starts and permits have been declining, both year-on-year and compared to previous months.
Demand for infrastructure solutions in the Scandinavian countries benefited from the milder winter compared to the previous year, but not so in Finland and the Baltic countries, which were burdened by high snowfall. The public sector’s economic situation remained weak, but the markets stayed reasonably stable due to demand from residential and commercial building projects.
The period witnessed changes in Europe’s competitive environment as a result of mergers and acquisitions, and some locally-oriented manufacturers facing financial difficulties. Overall, competition was tight and price-focussed, with an increasing number of offerings with a low-budget value proposition entering the market, particularly in the heating sector.
Uponor’s net sales developed positively, even when compared to the strong first quarter of 2011. The Group’s consolidated net sales in the first quarter of 2012 were €192.5 (173.2) million, up by 11.2 per cent on a year earlier. Organic net sales growth, significantly driven by increases in sales prices, ended up at 8.0 per cent. Net sales growth was supported by sustained lively demand in some key markets, the introduction of new products, especially in the first and second quarters of 2011, as well as customers filling their inventories in anticipation of announced price increases, taking effect in March and April of the current year. Further, the top line development was positively influenced by the longer-term strategic focus on commercial projects and new target groups such as property owners and investors who are increasingly interested in the sustainable solutions that Uponor offers.
The translation impact of currencies on consolidated net sales increased net sales by €1.9m, or 1.0% per cent, in comparison to the previous year.
In Building Solutions – Europe, net sales growth was reported for Norway and Finland, largely offsetting the weakening trend in Sweden, where housing starts have plummeted following changes to regulations on loans for new homes. In Germany, net sales grew thanks to the acquisition of Zent-Frenger. Southwest Europe saw polarised development, with a drastic drop recorded in Iberia and Italy, in spite of healthy market share development, and a strong sales boost in the UK and France, in particular.
Building Solutions – North America reported healthy first quarter figures, for the first time since the beginning of the housing crisis in 2007. Both the U.S. and Canadian markets reported favourable growth numbers in local currencies.
In Building Solutions, sales of plumbing solutions, in particular, were robust both in Europe and North America, supported by major new product launches executed in 2011.
Infrastructure Solutions net sales increased by 14.3 per cent from the same period last year. A good sales performance was noted in the Baltic countries, Norway and Sweden, in particular. In addition to sales price increases, this positive development is largely attributable to well-received new products such as the IQ storm water management system and the Ultra Classic sewer system.
Breakdown of net sales by segment (January–March):
|Building Solutions – Europe||133.0||122.3||8.7%|
|Building Solutions – North America||31.0||26.7||16.2%|
|(Building Solutions – North America (M$)||41.4||37.2||11.3%)|
Among the largest geographic markets in the reporting period, measured by net sales in local currency, business grew most in Norway, up 24.6 per cent. Other markets with major net sales growth were the UK (up 17.3%), USA (up 12.2%) and Sweden (up 12.0%). Net sales in Germany (including the Zent-Frenger acquisition) grew by 18.3 per cent against a background of robust year-on-year comparables. Except for Spain, all of the ten biggest countries posted higher net sales figures.
Results and profitability
Uponor’s consolidated operating profit for continuing operations in the first quarter of 2012 was €9.3 (3.2) million, representing growth of 189.3 per cent year-on-year. Operating profit margin improved to 4.8 per cent from the 1.8 per cent reported a year ago.
The improved performance in the first quarter 2012 strongly reflects the full impact of price increases implemented in various phases, since the first quarter of 2011. At the same time the continued steep upward trend in raw material prices in 2012 is not yet visible in the first quarter results. To secure future margin development and offset the impact of rising input costs, Uponor is introducing further price increases in the second quarter of 2012.
Expenses in the first quarter were somewhat higher than in the comparison period, partly acquisition and divestment related and partly coming from variable marketing costs and higher sales commissions.
In addition to the positive net sales development in several markets, Building Solutions – Europe’s operating profit benefited from the introduction of new products and tools in 2011 as well as from continued streamlining. Margins were under pressure in indoor climate as a result of a sales mix transition towards a more low-end offering, in the face of increased price competition in the market place. Profitability declined in the poorly developing markets of Iberia and Italy, partly due to the weakening of net sales, and intensified promotional activity, designed to win market share. Active measures are being taken in these markets to adjust operations to the weak market situation.
In Building Solutions - North America, operating profit clearly improved over last year, driven by increased sales, margin improvement, and effective control of overhead spending.
The operating profit of Infrastructure Solutions remained negative but improved markedly from the previous year, largely driven by volume growth and increases in sales prices.
Profit before taxes for January-March totalled €7.1 (2.1) million. The effect of taxes on profits was at €2.6 million, compared to €0.6 million in the first quarter of 2011. Profit for the first quarter of 2012 amounted to €4.5 (1.5) million.
Breakdown of operating profit by segment (January–March):
|Building Solutions – Europe||11.7||6.6||78.4%|
|Building Solutions – North America||2.7||0.7||263.7%|
|(Building Solutions – North America (M$)||3.5||1.0||248.4%)|
Investment and financing
Uponor’s capital investments during the reporting period were mainly targeted at maintenance and development. No major new investments were initiated.
Gross investments in the first quarter came to €3.8 (2.9) million, clearly below depreciation, which amounted to €7.3 (6.9) million. Cash flow from business operations improved to €-21.4 (-21.9) million. Cash flow includes the payment of €15.0 million in taxes, surtaxes and interest, related to the decision by the Finnish tax authorities in December 2011. Cash flow from financing and thus cash flow for the period was also impacted by the dividend payment on 27 March that amounted to €25.6 (40.2) million.
Uponor continues to have a special focus on safeguarding liquidity at a good level, as well as following up accounts receivable, among other issues, in order to reduce credit risk.
Available committed bilateral credit lines amount to €190 million, none of which was in use at the end of the reporting period. At the period end, €46.0 million of commercial papers were issued under the €150 million domestic commercial paper programme.
The Group’s solvency at 33.9% (39.8%) has remained at a good level. Interest-bearing liabilities were €145.3 (130.8) million. The period-end cash balance totalled €12.0 (8.5) million. Gearing rose to 79.2 (62.3) per cent.
On 24 January, Uponor announced the divestment of the shares of Hewing GmbH, a non-core OEM unit based in Ochtrup, Germany. The deal was valued at €11.9 million, and led to an impairment of €10.5 million for the financial year 2011. The deal was closed at the end of the reporting period. Contrary to what was communicated in the stock exchange release of 2 April 2012, the divested Hewing GmbH business is included in the income statement for the first quarter of 2012. The net impact on the result was immaterial in the reporting period.
On 17 February, with reference to the December 2011 taxation decisions by the Finnish tax authorities, Uponor filed an appeal against the decisions and a request for rectification to the Board of Adjustment.
On 12 March, Uponor acquired the remaining 49.7% of the shares in the German company Zent-Frenger Gesellschaft für Gebäudetechnik mbH, utilising the purchase option in the contract signed in spring 2011, when Uponor became a 50.3% shareholder in the company.
Initiatives to further develop the structure and performance of Uponor’s supply chain organisation continued actively in the first quarter. The logistics centre in Wettringen, northwestern Germany began to serve all central European countries and will be developed into a logistics hub for the entire region, delivering the complete Uponor building solutions product range. In Västerås, Sweden, construction work on Uponor’s new distribution centre has begun. The new centre, which is expected to be functional in December 2012, will represent a step forward in ensuring an efficient warehousing process and improved product availability and delivery service for building solutions customers in the Nordic markets.
Uponor continued the active promotion of new products whose market introductions began in selected markets in 2011. Uponor was also involved in several major trade shows in all key markets. During the reporting period, the RTM fitting and the Quick & Easy expansion tool launches began in Italy and France.
Events after the period under review
The sales price related to the divestment of Hewing GmbH was received on 2 April 2012.
Turbulence in global economic development and financial stability, especially concerning Europe, has continued into the first quarter and beyond. This has, and will continue to have, a detrimental impact on European governments, businesses and individuals, affecting their longer-term planning and decision-making with regard to building and construction investments, particularly in the case of southern European countries. In contradiction to this, the development of some stronger European economies and the United States has been more robust, enabling them to continue to outperform the countries in economic difficulties.
The last few years have been difficult for the building and construction segments of the market in all geographies in which Uponor operates, and visibility remains weak. Uponor therefore continues to prepare itself for a lengthy period of low activity, with limited expectations of market growth.
The management is keeping a sharp eye on actions required to improve the company’s focus, cost efficiency and cash flow. Meanwhile, it is speeding up organic growth by using Uponor assets, such as its internationally strong brand name, powerful partner network and strong range of new product and system innovations in customer satisfaction and conversion.
Uponor repeats its guidance for the year 2012, announced on 10 February 2012:
Uponor's net sales are expected to grow organically from 2011 and operating profit is expected to exceed €50 million. The Group's net investment in fixed-assets is not expected to exceed depreciation.
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 2011.
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. Uponor offers its customers solutions that are sustainable and safe and reliable to own and operate. The Group employs approx. 3,200 persons, in 30 countries. In 2011, Uponor's net sales totalled ca €800 million. Uponor Corporation is listed on NASDAQ OMX Helsinki in Finland. www.uponor.com.