Financial statements bulletin 2013: Uponor grows in healthy U.S. markets and declines in Europe
Uponor Corporation Financial statements bulletin Jan-Dec 2013 14 February 2014 8.00 EET
Uponor grows in healthy U.S. markets and declines in Europe
• Strong development continues in Building Solutions – North America in October-December, other segments suffer from slow markets and one-time issues
• Net sales 1-12: €906.0m (2012: 811.5m), up 11.6%; organic growth at -1.5%
• Operating profit 1-12: €50.2m (€57.7m), down -13.0%, burdened by non-recurring items
• Earnings per share at €0.38 (€0.45); earnings per share excluding non-recurring items at €0.43 (€0.45)
• Guidance for the year 2014: The Group’s net sales and operating profit (excluding any non-recurring items) are expected to improve from 2013.
• The Board’s dividend proposal is €0.38 (€0.38) per share
President and CEO Jyri Luomakoski comments on the reporting period:
• I am pleased to see the strong progress in the integration of Uponor Infra, the new joint-venture company. The results so far are confirming the planned cost benefits.
• The European building solutions markets have continued to be challenging and volatile in 2013, witnessed, for instance, by the temporary softening during Q4. We expect this kind of volatility to be part of the ‘new normal’, and it is likely to continue going forward.
• Building Solutions – North America, especially the U.S. part of the business, continued its healthy performance and, with the new manufacturing capacity in place, we expect the favourable development to continue.
• While the Group’s consolidated result performance cannot be deemed satisfactory, we ended the year with a solid balance sheet and a strong financial position, and I am confident about our ability to improve the result in 2014.
The Board’s dividend proposal
The Board proposes to the Annual General Meeting a dividend of €0.38 (€0.38) per share. When making the proposal, the Board considered the solvency of the company, the company’s dividend policy, and the outlook.
Information on the financial statements bulletin
This document is a condensed version of Uponor’s 2013 financial statements 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. Unless otherwise stated, figures refer to continuing operations. Any change percentages were calculated from the exact figures and not from the rounded figures published here.
Webcast and presentation
A webcast of the results briefing in English will be broadcast on 14 February 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 publishing. The presentation document will be available at www.uponor.com > Investors > News & downloads.
Next interim results
Uponor Corporation will publish its Q1 interim results on 28 April 2014. During the silent period from 1 April to 28 April, Uponor will not comment on market prospects or factors affecting business and performance.
Interim results October – December 2013
Markets
The market trends in the fourth quarter of 2013 did not offer great surprises compared to the developments in the previous quarters of 2013. The biggest change noted was the moderate slowing down of demand in some of the key markets of Building Solutions – Europe in November and December. As far as Building Solutions – North America and Uponor Infra were concerned, the market trends continued more or less unchanged.
Net sales
Uponor’s consolidated net sales came to €237.6m (€189.6m), showing an increase of 25.3% from the final quarter of 2012, driven mainly by the establishment of the new joint-venture company Uponor Infra on 1 July 2013.
In organic terms, there was a modest decline of -1.9% in net sales. This was mostly caused by the weaker than expected net sales development of Building Solutions – Europe, which suffered a -7.8% drop organically. The markets softened most in southwest Europe, while in the Nordic countries, promising growth was noted in Sweden while Denmark and Norway suffered from weak demand and Finland was more or less flat. A healthy net sales trend continued in Building Solutions – North America, despite weaker sales in Canada.
Uponor Infra, excluding its new businesses, recorded modest growth. The new businesses’ performance lagged behind the corresponding figures in 2012, with the biggest deviation coming from Canada.
Breakdown of net sales, October – December:
|
M€ |
10-12 2013 |
10-12 2012 |
Reported change |
| Building Solutions – Europe | 112.0 | 121.6 | -7.8% |
| Building Solutions – North-America | 43.6 | 38.1 | 14.4% |
| (Building Solutions – North-America, M$ | 59.6 | 49.8 | 19.8%) |
| Uponor Infra | 83.7 | 31.4 | 166.7% |
| Eliminations | -1.7 | -1.5 | |
| Total | 237.6 | 189.6 | 25.3% |
Profits and profitability
The rather satisfactory performance development that characterised the business in the second and third quarters of 2013 did not continue in the fourth quarter. The main reason for the deviation was a cancelled local French product approval concerning a central product system, which heavily impacted the performance of Uponor S.A.R.L., a French subsidiary company, part of Building Solutions – Europe. Related to this, Uponor accepted product returns from the distribution chain, which incurred costs. In addition, the drop in building solutions sales in some key markets impacted operational leverage in a negative way towards the end of the year.
Building Solutions – North America was the only segment that was able to improve its performance. It continued to benefit from strong operational leverage in the tailwind of increased volumes, supported by careful cost management.
Uponor Infra’s performance was burdened by integration costs, amounting to €3.9 million in the fourth quarter, as well as weak demand overall, and especially in Canada. The integration is proceeding according to plan, with integration costs remaining somewhat below original expectations.
Uponor’s consolidated gross profit in the final quarter of 2013 ended up at €72.0 (€72.2) million or 30.3% (38.1%). This adverse development was mainly driven by an increased share of infrastructure business and the temporary cancellation of a local product approval in France.
Group operating profit ended up at €-3.8 (€10.2) million, or -136.7%, for the reasons stated above, or -96.0% excluding the new Uponor Infra businesses. The operating profit margin in the fourth quarter came to -1.6% (5.4%), or 0.2% in comparable terms. The impact of the temporary cancellation of a product approval constituted roughly half of the drop in Building Solutions – Europe’s operating profit.
Breakdown of operating profit, October – December:
| M€ |
10-12 2013 |
10-12 2012 |
Reported change |
| Building Solutions – Europe | 0.3 | 9.4 | -97.4% |
| Building Solutions – North-America | 5.8 | 3.5 | 66.1% |
| (Building Solutions – North-America, M$ | 8.0 | 4.6 | 73.8%) |
| Uponor Infra | -9.0 | -2.7 | -236.5% |
| Others | -0.5 | 0.3 | |
| Eliminations | -0.4 | -0.3 | |
| Total | -3.8 | 10.2 | -136.7% |
Events during the period
As part of Uponor Infra’s integration programme, the company concluded its collaborative negotiations with its personnel in Finland on 8 November, and subsequently decided to close its production units in the towns of Ulvila and Forssa, southern Finland. The negotiations, which were restricted to the subsidiaries Uponor Suomi Oy and Uponor Infra Oy, resulted in the decision to reduce the workforce by 111 employees, out of a total of 740 persons.
These restructuring actions caused a total of €3.9 million in non-recurring costs in the fourth quarter. The costs were related to the personnel reductions, manufacturing relocations and write-offs. The restructuring should be carried through by the end of the first quarter of 2014.
On 15 November 2013, Uponor Infra announced it had completed the sale of extrusion lines as required by the Market Court, and thus complies with the Market Court ruling.
One of the major endeavours in 2013 was an expansion to the manufacturing facility in Apple Valley, Minnesota, completed towards the end of the year, providing Building Solutions – North America with an addition of more than 1,600 square metres in manufacturing space.
Financial statements January – December 2013
Markets
The European building and construction markets remained challenging throughout most of 2013. The revitalisation of demand in some of Europe’s larger markets, in particular, that was witnessed in the third quarter turned out to be short lived and, towards the end of the year, demand started to slacken again. This was mostly felt in the building solutions markets in Iberia, Italy, the Netherlands, Norway, and Finland. Demand in Germany continued to be rather resilient and positive signals were also recorded in Sweden.
In Building Solutions – North America, the business environment stayed healthy throughout the year, reflected in new housing development trends and consumers showing more lively buying patterns. The Canadian market was softening from its previous year’s levels.
The infrastructure solutions demand in Uponor Infra’s core European markets remained subdued, much like in the comparison period. The Canadian market was somewhat weaker than in 2012, reflecting the general economic trends in the country.
Net sales
Uponor's 2013 net sales from continuing operations amounted to €906.0 (2012: €811.5) million, up 11.6% year on year. In comparable terms, excluding the new Uponor Infra businesses for 2013 and the divested Hewing GmbH for the first quarter of 2012, net sales went down by -1.5%, or by -0.1% when considering currency exchange differences.
Building Solutions – Europe had unsatisfactory net sales development, reflecting the challenging market conditions throughout the continent. The reasonably strong development in the third quarter of 2013 weakened in the final quarter, and the situation was adversely affected by the product approval cancellation in France in the fourth quarter.
Continued positive progress was recorded in Building Solutions – North America throughout 2013, and record numbers were reached both in terms of sales and production. A good development was noted in the non-residential plumbing market, in particular, as a result of the fact that the share of PEX-plumbing strengthened in specifications, and it gained in popularity among installers.
Uponor Infra’s net sales, at €261.4 million, includes the joint-venture business for the second half of 2013, reporting growth of 75.5%. Organically, including only Uponor Infrastructure Solutions, the growth was negative at roughly -1.4%, reflecting the subdued market environment.
In 2013, as a result of the expanded role of the infrastructure business, the share of Plumbing Solutions of Group net sales came to 42% (47%), Indoor Climate Solutions to 30% (35%), and Infrastructure Solutions to 28% (18%).
Net sales by segment for 1 January – 31 December 2013:
| M€ |
1–12 2013 |
1–12 2012 |
Reported change, % |
| Building Solutions – Europe | 479.5 | 517.7 | -7.4% |
| Building Solutions – North America | 171.5 | 151.1 | 13.5% |
| (Building Solutions – North America (M$) | 228.2 | 195.4 | 16.8%) |
| Uponor Infra | 261.4 | 149.0 | 75.5% |
| Eliminations | -6.4 | -6.3 | |
| Total | 906.0 | 811.5 | 11.6% |
The largest 10 countries, in terms of reported net sales, and their respective share of consolidated net sales, were as follows (2012 figures in brackets): Germany 15.9% (17.9%), USA 15.8% (14.1%), Finland 13.8% (11.6%), Sweden 9.5% (9.8%), Canada 6.1% (4.5%), Denmark 4.9% (4.1%), Norway 3.9% (4.8%), the United Kingdom 3.3% (3.8%), the Netherlands 3.2% (4.0%), and Russia 3.1% (2.8%).
Results
In 2013, Uponor’s gross profit margin went clearly down from 2012. The main influencers for this trend were the higher relative share of the infrastructure business in the Group and the case of the cancelled product approval in France in the fourth quarter. Further, the input cost development was not as volatile as last year, which had a favourable impact on returns. The consolidated full-year gross profit ended up at €320.1 (€310.8) million, a change of €9.3 million or 3.0%.
Consolidated operating profit came to €50.2 (57.7) million, down -13.0% from the previous year or -10.8% organically. The operating profit margin came to 5.5% (7.1%) of net sales. Operating profit was down from last year, driven by the Uponor Infra integration costs at €5.0m, Uponor Infra transaction related costs at €1.7m and the impact of the French product approval case
Building Solutions – Europe’s operating profit deteriorated markedly in the fourth quarter as a result of negative operational leverage, due to weakening demand in key markets as well as the cancellation of a central product approval in France, resulting in lost net sales and buyback of inventory from the distribution chain.
Building Solutions – North America’s performance continued to improve as a result of strong operational leverage in a steady market growth environment in the U.S., while the Canadian market showed signs of slowing down.
Uponor Infra’s operating profit was burdened by the one-time integration and restructuring costs of €5.0 million in the third and fourth quarters of the year. On a pro forma basis, its operating profit deteriorated somewhat, mainly due to the weakening business conditions in Canada.
Operating profit by segment for 1 January – 31 December 2013:
| M€ |
1–12 2013 |
1–12 2012 |
Reported change, % |
| Building Solutions – Europe | 32.7 | 47.2 | -30.7% |
| Building Solutions – North-America | 24.7 | 17.8 | 39.0% |
| (Building Solutions – North-America (M$) | 32.9 | 23.0 | 43.1%) |
| Uponor Infra | -2.3 | 0.0 | -7,020.3% |
| Others | -3.4 | -6.1 | |
| Eliminations | -1.5 | -1.2 | |
| Total | 50.2 | 57.7 | -13.0% |
Uponor’s financial expenses came to €7.1 (€8.6) million. Net currency exchange differences in 2013 were €-0.6 (-1.9) million.
Profit before taxes was €43.2 (49.4) million. At a tax rate of 37.3% (33.4%), income taxes totalled €16.1 (16.5) million.
Profit for the period totalled €26.8 (32.8) million, of which continuing operations accounted for €27.1 (32.9) million.
Return on equity decreased to 10.8% (15.7%). Return on investment reached 12.5% (16.5%).
Earnings per share were €0.38 (0.45), and €0.38 (0.45) for continuing operations. Equity per share was €3.00 (2.84). For other share-specific information, please see the Tables section.
Consolidated cash flow from operations was €92.1 (32.7) million, while cash flow before financing came to €67.2 (22.5) million. Cash flow from operations improved as a result of a change in net working capital, due to the new units entering Uponor Infra in high season, and lower taxes year-on-year as the 2012 figures were burdened by the surtaxes paid in the first quarter 2012.
Key figures are reported for a five-year period in the financial section.
Events during the period
Uponor Infra Ltd, a new subsidiary company to Uponor, owned jointly by Uponor Corporation (55.3%) and KWH Group (44.7%), began operating on 1 July 2013, thus merging Uponor’s Infrastructure Solutions and KWH Pipe’s infrastructure businesses into one company. In this connection, Infrastructure Solutions ceased to exist as an IFRS segment name and was substituted by Uponor Infra as of 1 July 2013. A detailed description of the structural changes related to the integration process was given in the January-September 2013 interim report.
During 2013, the main targets of Uponor Infra were to set the strategic direction and design a new organisation, as well as to execute activities to ensure that the majority of the integration and restructuring savings can be achieved in 2014.
During the autumn, Uponor Infra started collaborative negotiations in Denmark, Sweden, and Finland, with the aim to optimise the production and administration structure. The outcome of the negotiations was that more than 130 employees will leave the company, and production in Ulricehamn, Sweden, and Ulvila and Forssa in Finland, as well as two offices in Denmark and Finland, will be relocated to other existing facilities. The majority of the production equipment and personnel movements are being executed during the low season, starting in December 2013.
Announced on 24 May 2013, the Market Court’s approval of the Uponor Infra merger was subject to certain conditions, as proposed by Uponor and KWH Group. Uponor divested the required extrusion lines in the autumn of 2013, and complies fully with the conditions.
In addition to the above events, in April 2013, the Board of Adjustment of the Finnish Tax Authority rejected Uponor’s appeal for the rectification of an earlier decision of the Tax Authority requiring Uponor Business Solutions Oy to pay €14.4 million in back taxes and penalties in a case concerning the market-based transfer pricing of Uponor's internal service charges. Uponor placed the issue before the administrative court on 15 July 2013 and applied for rectification of the Board of Adjustment’s ruling, while seeking a counter-rectification associated with taxable income in countries where the company should, according to the Board of Adjustment, have charged service fees.
In June, the Board of Adjustment of the Finnish Tax Authority rejected, for the most part, Uponor’s appeal on a €0.5 million transfer price issue concerning the parent company Uponor Corporation. On 24 July 2013, Uponor applied to the administrative court for a rectification of this ruling.
Events after the period
On 2 January 2014, the U.S. company The Capital Group Companies, Inc.’s ownership in Uponor fell below 5% as a result of share transactions. The total holding and voting power of The Capital Group Companies, Inc. came to 3,616,201 shares, representing an ownership of 4.9396%. The shares are owned by various funds and clients of The Capital Group Companies, Inc. and its affiliates.
Uponor has initiated preparations to renew the existing committed bilateral revolving credit facilities, targeting completion in the first half of 2014. To start with, €50 million of the facilities was renegotiated and signed in February 2014. The renegotiated facility now matures in February 2019.
Short-term outlook
The economic outlook in Uponor’s key markets is twofold for 2014: North America – the U.S., in particular - is expected to stay lively and offer room for reasonable construction industry growth. The European markets, however, are expected to develop in a rather steady manner, but offering no real growth in the building solutions or in the infrastructure solutions markets.
The development will continue to be fragile, and there is a risk that short-term variances to the general trend may take place.
Uponor will continue to promote its value-adding sustainable solutions, which have a tailwind of significant global megatrends. Uponor has kept on renewing its offering portfolio over the last few years and expects the new products and systems solutions to offer possibilities for increased sales and profitability.
The management continues to keep a sharp eye on the company’s focus, cost-efficiency, and cash flow, in order to secure a solid financial position in the longer term, while simultaneously being alert for new business opportunities. If the outlook remains weak, further action to cut overheads and other costs may become necessary in selected markets.
Uponor issues the following guidance for 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. No meaningful change in the risk scenario has been observed compared to the year before, except for the fact that the establishment of Uponor Infra in July 2013 did increase infrastructure solutions-related business risks and also some country risks. A more detailed risk analysis is provided in the ‘Key risks associated with business’ section of the Financial Statements 2013.
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. 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.