Interim report Q1/2013: Uponor reports softer first quarter due to anticipated slowness in Europe

Uponor Corporation Interim report January-March 2013 29 April 2013 8.00 EET

Interim report Q1/2013: Uponor reports softer first quarter due to anticipated slowness in Europe

The long winter burdened demand in the first quarter, compared to the exceptionally strong first quarter in 2012
Net sales in January–March totalled €177.7 (192.5) million; a decrease of 7.7%; organic growth was negative at -3.5%
Operating profit for January–March totalled €6.1 (9.3) million; down by -34.0%
Earnings per share were €0.05 (0.06)
Return on investment was 7.0% (11.2%), and gearing 77.6% (79.8%)
Cash flow from business operations came to €-15.5 (–21.4) 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:

Our good progress continued in North America, with double-digit percentage growth for the seventh consecutive quarter. While this growth has strained our manufacturing capacity, it has made a solid profit contribution to the Group.

We continue to focus on cost management, and have succeeded in keeping our expenses in Q1 below the previous year’s figures in comparable terms. The new organisational structure we launched in early April will reduce complexity and further support efficiency in execution.

Concerns for the stability of the recovery of the European economies remain high on the daily agenda, hindering the steady recovery of the building and construction markets. Despite high volatility and the anticipated slower first quarter, we achieved our second highest operating profit in five years, second only to the exceptionally strong first quarter last year.

Information on the January – March 2013 interim report bulletin
This document is a condensed version of Uponor’s January-March 2013 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, of the results briefing will be broadcast on 29 April at 10:00 am EET. Connection details are available at www.uponor.com > Investors. Questions can be sent in advance to ir@uponor.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 26 July 2013. During the silent period from 1 to 26 July, Uponor will not comment on market prospects or factors affecting business and performance.

Markets

Overall, the national economies in Uponor’s key markets continued to develop according to much the same pattern as evidenced in the last quarter of 2012 and earlier in the year. However, in comparison to the previous year, whose first quarter was exceptionally lively, 2013 began on a clearly more subdued note. First quarter demand was primarily affected by three factors. Firstly, despite promising signs in the second half of 2012, the economic situation in Europe remained difficult, causing investor and consumer sentiment to remain weak, and even to deteriorate from there in the last quarter of 2012. Secondly, and again mainly affecting the European markets, the winter was long and harsh, in some regions – such as Austria and Switzerland – historically so, impacting on activities related to residential building demand. A third reason, also with a notable impact, was the lower number of business days compared to the previous year.

In Europe, building solutions demand held up reasonably well in Germany, while steeper drops were noticed in some other Central European markets. In southwest Europe, the earlier declining trends continued more or less as before. Also the UK and French markets, where demand for Uponor products has until now remained reasonably strong, began to deteriorate. In northern Europe, Swedish and Danish demand stabilised on a lower level, while Finland maintained a reasonable level of activity and Norway continued to rise. In Eastern Europe, the Baltic and Russian markets continued to show strength, while the other markets were more or less flat.

In North America, positive sentiments continued in the building market, particularly in its residential sectors, and demand in the US developed well. The trend in Canada softened somewhat after a lengthy period of high activity and also as a result of the authorities’ efforts to cool down the market.

As far as the infrastructure markets are concerned, demand in Northern Europe, where Uponor is active in this business segment, continued to be slow due to lack of public investment, intense competition and the harsh winter.

Net sales

Uponor’s net sales declined considerably compared to the exceptionally strong first quarter of 2012, but slightly exceeded those of the first quarter of 2011, which was also reasonably strong. The Group’s consolidated net sales in the first quarter of 2013 were €177.7 (192.5) million, down by 7.7%. Adjusted for the divestment of the OEM manufacturer Hewing GmbH in the end of the first quarter last year, this represents a change of -3.5% in consolidated net sales and -8.6% in net sales for Building Solutions – Europe.

The translation impact of currencies on consolidated figures increased net sales by €1.0m, or 0.6%, in comparison to the previous year.

The above-mentioned factors impacting on market demand, i.e. a lack of economic confidence in Europe, the long winter and fewer business days, all affected building market activity levels, and thus had a negative effect on the net sales of Building Solutions – Europe. In 2012, the sales price increases that affected organic growth in the first quarter, mainly driven by raw material price increases, did not have a similar growth effect in the first quarter of 2013.

Building Solutions – North America reported strong growth in net sales for the seventh quarter in a row. This was a result of continued lively building and construction activity in several key US regions, and successful sales and marketing programmes.

In terms of the Building Solutions business group, sales development of plumbing solutions and indoor climate solutions diverged from one region to another. Plumbing developed better in markets where renovation activity was lively, while sales of indoor climate solutions followed the development of residential building and the related project business. Growth in North America favoured plumbing systems, in particular.

Infrastructure Solutions’ net sales were hit by the strong winter, in comparison to the milder first quarter last year. Negative development was also partly due to exchange rate developments in the Swedish krona, which attracted more foreign competition than normal.

Breakdown of net sales by segment (January–March):

M€	1–3/ 2013	1–3/ 2012	Change
Building Solutions – Europe	113.9	133.0	-14.4%
Building Solutions – North America	37.2	31.0	20.0%
(Building Solutions – North America (M$)	49.0	41.4	18.5%)
Infrastructure Solutions	27.6	29.7	-7.2%
Eliminations	-1.0	-1.2
Total	177.7	192.5	-7.7%

Among the largest geographic markets, measured by net sales in local currency, business grew most in the USA, up 25.1%. Sales development in Finland was also modestly positive, at 1.2%, while other markets failed to reach previous years’ levels. Looking beyond last year’s exceptionally strong first quarter, and comparing to the first quarter of 2011, Uponor’s sales to customers in five of the biggest national markets clearly grew in euro terms.

Results and profitability

Uponor’s consolidated operating profit for continuing operations in the first quarter of 2013 came to €6.1 (9.3) million, representing a decrease of -34.0% year-on-year. Profitability, as measured by operating profit margin, declined to 3.4% from the 4.8% reported a year ago.

The main reason for the decline in operating profit in Building Solutions – Europe was lower net sales. An improved cost structure as a result of efficiency measures implemented last year, as well as the positive impact of fewer promotions, helped to partly offset the decline in results.

In Building Solutions - North America, operating profit clearly improved over last year, driven by higher sales, operational leverage of production and effective control of overhead spending.

Weak development of net sales also influenced Infrastructure Solutions’ profit. In addition, margins were under pressure due to higher input costs and unfavourable developments in the product mix.

Expenses, totalling €63.2 million, fell by €2.4 million as a result of the Hewing divestment and the cost savings measures implemented in 2012.

Profit before taxes for January-March totalled €5.0 (7.1) million. The effect of taxes on profits was €1.7 million, compared to €2.6 million in the first quarter of 2012. Profit for the first quarter of 2013 amounted to €3.3 (4.5) million.

Breakdown of operating profit by segment (January–March):

M€	1–3/ 2013	1–3/ 2012	Change
Building Solutions – Europe	6.7	11.7	-42.4%
Building Solutions – North America	4.6	2.7	74.6%
(Building Solutions – North America (M$)	6.1	3.5	72.5%)
Infrastructure Solutions	-3.7	-1.9	-92.4%
Others	-1.2	-2.4
Eliminations	-0.3	-0.8
Total	6.1	9.3	-34.0%

Investment and financing

Apart from ongoing manufacturing capacity expansions in the Apple Valley factory in Minnesota, USA, Uponor’s capital investments during the reporting period were mainly targeted at maintenance and development.

Gross investments in the first quarter came to €4.6 (3.8) million, clearly below depreciation, which amounted to €7.1 (7.3) million. Cash flow from business operations improved to €-15.5 (-21.4) million, mainly due to the fact that in 2012 cash flow included 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 affected by the dividend payment on 28 March, which amounted to €27.8 (25.6) 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 2013 included an €80 million bond maturing in 2018 and a €20 million bond maturing in 2016. Committed bilateral revolving credit facilities, maturing in 2015, totalled €190 million; none of these back-up facilities were in use during the period under review. At the period end, €40.0 million of commercial papers were issued under the €150 million domestic commercial paper programme.

The Group’s solvency, at 34.4% (33.6%), has remained at a good level. Net interest-bearing liabilities were €142.1 (145.3) million. The period-end cash balance totalled €8.1 (12.0) million. Gearing came to 77.6 (79.8)%.

Short-term outlook

Despite the progress achieved in stabilising the political and financial climate in Europe and the euro zone, in particular, prospects in Europe remain challenging. This is especially true in the southwest part of the continent and some central European markets. The outlook in northern and eastern Europe is more stable, i.e. no big moves upwards or downwards are anticipated. Thus, the markets in Europe remain fragile and vulnerable to major international economic developments.

In North America, the recovery is expected to continue throughout the year, albeit not as strongly and steadily, perhaps, as during the last one and a half years, and with Canada, in particular, continuing on a softer path than last year.

For the reasons stated above, visibility in Uponor’s key application areas remains rather weak. Uponor is planning for a lengthy period of low activity levels in the European market, while making efforts to meet increasing demand in North America and some other smaller geographical pockets of growth.

The management continues to keep a sharp eye on cost efficiency and cash flow, while aiming to secure growth where possible.

Uponor repeats its guidance for the year 2013, announced on 12 February 2013:
Uponor expects its net sales and operating profit to show modest organic growth from 2012. This guidance is based on the current business portfolio and organisational setup and on the company’s anticipation that the external environment faces no major, unexpected changes.

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 2012.

Uponor Corporation
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

Tarmo Anttila
Vice President, Communications
Tel. +358 20 129 2852

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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. 3,000 persons, in 30 countries. In 2012, Uponor's net sales exceeded €810 million. Uponor Corporation is listed on NASDAQ OMX Helsinki in Finland. http://www.uponor.com.