Interim report January – September 2018: Net sales and comparable operating profit fell behind from exceptionally strong comparison period
Uponor Corporation Stock exchange release 24 October 2018 08:00 EET
Interim report January – September 2018: Net sales and comparable operating profit fell behind from exceptionally strong comparison period
- Net sales in July – September totalled €311.9 (317.5) million, with a decline of 1.8% or organic growth of 3.9% in constant currency terms
- Uponor Infra’s net sales increased, but the net sales of Building Solutions – Europe and Building Solutions – North America declined
- Operating profit for July – September came to €44.6 (40.4) million, a change of +10.6%. This includes the disposal gain from the divestment of Uponor Infra’s North American business (€12.2 million); the comparable operating profit in July – September came to €33.8 (40.4) million, with a decline of 16.2%
- Net sales in January – September totalled €913.7 (891.0) million, with growth of 2.5% or organic growth of 6.7% in constant currency terms
- Operating profit for January – September came to €89.6 (77.9) million, a change of +15.1%. This includes the disposal gain from the divestment of Uponor Infra’s North American business (€12.2 million); the comparable operating profit in January – September came to €78.8 (79.2) million, a change of -0.4%
- January – September earnings per share were €0.64 (0.64)
- The January – September return on investment was 19.1% (19.4), and gearing on 30 September was 42.2% (48.2)
- The January – September cash flow from business operations came to €35.5 (65.4) million
- Uponor revised its guidance on 5 September 2018 after the divestments of Uponor Infra’s North American business and Zent-Frenger GmbH: excluding the impact of currencies, Uponor expects its organic net sales to grow from 2017 and comparable operating profit to remain at the same level as in 2017
Uponor Infra’s North American business is included in the financial information until the end of August 2018, after which the business was divested.
President and CEO Jyri Luomakoski comments on developments during the reporting period:
- September was a disappointment for us, which impacted on the whole quarter’s result. The price increases introduced during the summer to compensate for increasing raw material costs and freight rates did not yet fully materialise as expected in Q3, which had an impact on our profitability together with declined net sales in building solutions segments.
- We announced two divestments of non-strategic, but profitable businesses: Uponor Infra’s North American business and Zent-Frenger GmbH, which had an impact on Uponor’s 2018 guidance. The divestments release resources to strengthen Uponor’s core businesses in the longer term.
- Building Solutions – Europe segment suffered from weaker sales than expected, which also impacted on the operating profit. In order to improve profitability, we continued to streamline our operational footprint during the third quarter and decided to close down loss-making sales offices in Switzerland and Australia by the end of this year, as well as review the European warehouse network.
- Net sales and operating profit of Building Solutions – North America decreased. However, the segment had a strong comparison period, which was related to delivery difficulties experienced in the second quarter in 2017, which, once overcome, resulted in a higher amount of orders shipped in the third quarter 2017. On the positive side, the profitability of the segment has improved quarter by quarter in 2018.
- Uponor Infra’s business in Europe has continued to improve its net sales and profitability. The divested business in North America continued its strong performance until the divestment on 31 August.
Key financial figures
| Consolidated income statement (continuing operations), M€ | 1-9 2018 | 1-9 2017 | 2017 | 2016 | 2015 | 2014 |
| Net sales | 913.7 | 891.0 | 1,170.4 | 1,099.4 | 1,050.8 | 1,023.9 |
| Operating expenses | 807.1 | 786.8 | 1,038.4 | 991.0 | 942.7 | 926.4 |
| Depreciation and impairments | 29.6 | 29.1 | 39.2 | 41.6 | 39.1 | 36.5 |
| Other operating income | 12.6 | 2.8 | 3.1 | 4.2 | 2.4 | 2.4 |
| Operating profit | 89.6 | 77.9 | 95.9 | 71.0 | 71.4 | 63.4 |
| Comparable operating profit | 78.8 | 79.2 | 97.2 | 90.7 | 75.8 | 67.7 |
| Financial income and expenses | -7.0 | -2.9 | -5.4 | -10.0 | -8.9 | -7.4 |
| Profit before taxes | 79.0 | 73.4 | 88.2 | 60.4 | 62.8 | 56.3 |
| Result from continuing operations | 56.5 | 50.3 | 65.4 | 41.5 | 37.1 | 36.3 |
| Profit for the period | 56.5 | 50.3 | 65.4 | 41.9 | 36.9 | 36.0 |
| Earnings per share | 0.64 | 0.64 | 0.83 | 0.58 | 0.51 | 0.50 |
Uponor Corporation's long-term financial targets
(issued on 12 February 2013)
| Annual targets and actuals | Last 12 mths | 2017 | 2016 | 2015 | 2014 | 2013 |
| Organic net sales growth to exceed GDP growth(1 by 3 ppts (2018E: 5.5%) | 3.6 | 6.5 | 2.0 | 5.2 | 2.0 | -1.5 |
| Comparable(2 EBIT margin >10% | 8.1 | 8.3 | 8.2 | 7.2 | 6.6 | 6.1 |
| Return on investment, ROI (p.a.) >20% | 14.7 (3 | 16.3 | 14.1 | 15.5 | 14.2 | 12.5 |
| Gearing (annual average for the four latest quarters) 30 – 70 | 54.1 | 58.4 | 56.7 | 40.4 | 45.8 | 57.9 |
| Dividend payout > 50% of earnings | - | 59.0 | 79.3 | 86.3 | 84.0 | 100.0 |
(1)GDP growth based on weighted average growth in the top 10 countries, measured by net sales. 2) The targets issued in February 2013 referred to reported EBIT margin. 3) Average of four quarters.)
Information on the January – September 2018 interim report
This document is a condensed version of Uponor’s January – September 2018 interim report, which is attached to this release. It is also available on the company website. This interim report has been compiled in accordance with the IAS 34 reporting standards and is unaudited. The figures in brackets are the reference figures for the equivalent period in the previous year. Any change percentages are calculated from the exact figures and not the rounded figures published here.
Webcast and presentation
A webcast of the results briefing in English will be broadcast on 24 October at 10:00 EET. It can be viewed via our website investors.uponor.com or via the Uponor IR mobile app. The recorded webcast can be viewed via the website or the app shortly after the live presentation. All presentation materials will be available at investors.uponor.com > News & downloads.
Next interim results
Uponor Corporation will publish its financial statements 2018 bulletin on Wednesday 13 February 2019. During the silent period from 1 January to 12 February 2019, Uponor will not comment on market prospects or factors affecting business and performance, nor will the company engage in any discussion of events or trends related to the reporting period or the current fiscal period.
Markets
On the whole, construction markets in Europe and North America continued to benefit from a positive macroeconomic environment and buoyant consumer confidence, with the industry remaining in a steady, but mature, growth cycle. While modest year-over-year construction growth was posted in many countries, others displayed some signs of retreating from their multi-year highs, especially in the residential new build segment. A pronounced lack of skilled labour also continued to limit builders’ ability to take on more projects, which may have the effect of dampening, but also extending, the cycle in some markets.
In Uponor’s largest Central European market, Germany, builder confidence stayed at an all-time-high. Construction levels remained healthy and residential building permits, whose levels had been slowing since peaking in early 2017, appear to have stabilised during the summer 2018. Other new build and renovation segments were largely steady. In the Netherlands, construction activity was healthy, with builders reporting improved order books and overall confidence.
Developments in the Southern European region were uneven. The brisk increase, from a low base, in construction activity witnessed during previous quarters in Spain was sustained and the French market expanded, but at a lower rate than in earlier quarters. Meanwhile, the markets in Italy and the UK were mostly steady, but probably hampered to a certain extent by economic and political uncertainties.
The Nordic construction markets remained robust overall, despite weakening in the Norwegian and Swedish new build residential markets. Notably, builders reported a significant reduction in construction activity levels in Sweden compared to the third quarter in 2017. Meanwhile, builder confidence in Denmark and Finland grew from a year earlier and non-residential construction activity across the region was mostly stable.
In Uponor’s largest market, the USA, construction spending through August rose modestly from the same time last year across nearly all residential and non-residential segments. Labour shortages and increasing material costs continued to hamper growth, posing a key challenge for builders. As in earlier quarters, some signs of softening were visible in pockets of the Canadian residential segment.
With regard to Uponor’s infrastructure solutions, civil engineering expenditures in the Nordic countries remained steady in Finland and Denmark. Meanwhile, both governments in Norway and Sweden have significantly increased investment levels from 2017. In Canada, industrial investments, a key demand driver, grew notably from 2017.
Net sales
Uponor’s consolidated net sales for the third quarter 2018 reached €311.9 (317.5) million, a decline of 1.8% or growth of 0.7% in organic terms. There was a negative currency impact of €9.9 million in consolidated net sales, mainly originating in the USD, SEK and CAD. In constant currency terms, net sales growth was 1.3% or 3.9% in organic terms.
Building Solutions – Europe reported net sales of €131.8 (136.3) million, a decline of 3.3%. Net sales increased in Finland, but declined in other main markets in Central Europe and Nordic countries. The biggest impact on net sales in Germany was caused by weaker sales of indoor climate solutions. The decision to discontinue direct project sales in Austria and Switzerland had a negative impact on net sales, but it will support profitability development going forward. In Sweden, availability issues, together with distributors’ performance and buying patterns impacted negatively on sales. Net sales increased year-over-year in Asia, where the competitive situation remains demanding.
Net sales in Building Solutions – North America came to €88.9 (91.2) million, down by 2.7% in euro terms or 2.9% in USD. Due to the price increases in July, the company estimates that some distributors changed their behaviour and shifted volumes from Q3 to Q2. The comparison period for the segment was also extremely strong: this was related to delivery difficulties experienced in the second quarter 2017, which, once overcome, resulted in a higher amount of orders shipped in the third quarter.
Uponor Infra’s net sales came to €92.6 (90.6) million. Net sales grew in both North America and Europe, particularly in Finland, Denmark and Poland.
Net sales by segment (July – September):
| M€ | 7-9/2018 | 7-9/2017 | Change |
| Building Solutions – Europe | 131.8 | 136.3 | -3.3% |
| Building Solutions – North America | 88.9 | 91.2 | -2.7% |
| (Building Solutions – North America (M$) | 103.8 | 106.8 | -2.9%) |
| Uponor Infra | 92.6 | 90.6 | +2.2% |
| Eliminations | -1.4 | -0.6 | |
| Total | 311.9 | 317.5 | -1.8% |
Uponor’s January–September net sales reached €913.7 (891.0) million, or growth of 2.5% or 3.5% in organic terms. This was driven by the growth in net sales in Uponor Infra during all three quarters of the current year. In constant currency terms, net sales would have been €29.0 million higher than reported net sales. The main currencies impacting were the USD, SEK and CAD. In constant currency terms, net sales growth was 5.8% or 6.7% in organic terms, excluding the impact of the divestiture in August.
Net sales by segment (January – September):
| M€ | 1–9/2018 | 1–9/2017 | Change |
| Building Solutions – Europe | 395.7 | 396.2 | -0.1% |
| Building Solutions – North America | 250.0 | 248.7 | +0.5% |
| (Building Solutions – North America (M$) | 298.3 | 279.0 | +6.9%) |
| Uponor Infra | 272.0 | 248.0 | +9.6% |
| Eliminations | -4.0 | -1.9 | |
| Total | 913.7 | 891.0 | +2.5% |
Results and profitability
Uponor’s consolidated gross profit in the third quarter was €106.1 (109.3) million, a change of €-3.2 million from the comparison period. At 34.0% (34.4%), the gross profit margin declined from the previous year’s level. There were no items affecting comparability on gross profit.
Operating profit in the third quarter of 2018 came to €44.6 (40.4) million, up by 10.6% year-over-year. Comparable operating profit, i.e. excluding items affecting comparability, reached €33.8 (40.4) million, a decline of 16.2%. Items affecting comparability include the disposal gain from the divestment of Uponor Infra’s North American business as well as restructuring costs from Uponor’s decision to streamline Building Solutions – Europe operational footprint by closing down sales offices in Australia and Switzerland, as well as closing down warehouse operations in France. Profitability, as measured by the comparable operating profit margin, came to 10.9% (12.7%).
Building Solutions – Europe’s operating profit in the third quarter came to €9.0 (14.4) million, down by 37.0%. The segment’s comparable operating profit amounted to €10.4 (14.4) million. The decline is due to weaker net sales, higher operational expenses in the Virsbo manufacturing facility and rising raw material prices (aluminium, brass and plastic resins). Price increases were introduced in the summer, but did not yet have the desired impact. In addition, the sales mix had an impact on profitability.
Building Solutions – North America reported an operating profit of €13.9 (19.0) million for the quarter, representing a year-over-year decrease of 26.7% in euro terms, or 25.4% in USD. The comparison period for the segment was strong, but price increases introduced in the summer began to take effect at the end of the quarter. The segment’s profitability shows positive development in comparison to earlier quarters in 2018, which were burdened by the start-up costs for Hutchinson and higher raw material costs and freight rates.
Uponor Infra’s operating profit came to €21.9 (7.4) million, an increase of 197.4%. This includes the profit (€12.2 million) from the divestment of Uponor Infra’s North American business. The segment’s comparable operating profit came to €9.7 (7.4) million, representing a change of 31.6%. The operating profit improved in both Europe and North America, of which the North American business was divested at the end of August 2018.
Operating profit by segment (July – September):
| M€ | 7-9/2018 | 7-9/2017 | Change |
| Building Solutions – Europe | 9.0 | 14.4 | -37.0% |
| Building Solutions – North America | 13.9 | 19.0 | -26.7% |
| (Building Solutions – North America (M$) | 16.3 | 21.9 | -25.4%) |
| Uponor Infra | 21.9 | 7.4 | +197.4% |
| Others | -1.7 | 0.2 | |
| Eliminations | 1.5 | -0.6 | |
| Total | 44.6 | 40.4 | +10.6% |
Comparable operating profit by segment (July – September):
| M€ | 7-9/2018 | 7-9/2017 | Change |
| Building Solutions – Europe | 10.4 | 14.4 | -27.5% |
| Building Solutions – North America | 13.9 | 19.0 | -26.7% |
| (Building Solutions – North America (M$) | 16.3 | 21.9 | -25.4%) |
| Uponor Infra | 9.7 | 7.4 | +31.6% |
| Others | -1.7 | 0.2 | |
| Eliminations | 1.5 | -0.6 | |
| Total | 33.8 | 40.4 | -16.2% |
Profit before taxes for July – September totalled €41.4 (41.0) million. Taxes for the period came to €11.4 (12.4) million. Profit for the third quarter came to €30.0 (28.6) million.
The January – September gross profit came to €306.6 million (33.6%) against €299.1 million (33.6%) in 2017. Comparable gross profit amounted to €306.6 million (33.6%) against €300.1 million (33.7%) in 2017.
The January – September operating profit came to €89.6 (77.9) million, or €78.8 (79.2) million in comparable operating profit, a change of +15.1% or -0.4% respectively from January – September 2017.
IAC for the January – September period amounted to €+10.8 (-1.3) million. The current year’s items include the disposal gain from the divestment of Uponor Infra’s North American business (€12.2 million) as well as restructuring costs from Uponor’s decision to streamline Building Solutions – Europe operational footprint by closing down sales offices in Australia and Switzerland as well as closing down warehouse operations in France.
Profitability, or the operating profit margin, for the January – September period was 9.8%, against 8.7% in the comparison period. The comparable operating profit margin was 8.6% (8.9).
Operating profit by segment (January – September):
| M€ | 1-9/2018 | 1-9/2017 | Change |
| Building Solutions – Europe | 26.0 | 29.8 | -12.7% |
| Building Solutions – North America | 32.9 | 40.1 | -18.0% |
| (Building Solutions – North America (M$) | 39.2 | 45.0 | -12.7%) |
| Uponor Infra | 35.3 | 10.2 | +247.7% |
| Others | -4.0 | -1.7 | |
| Eliminations | -0.6 | -0.5 | |
| Total | 89.6 | 77.9 | +15.1% |
Comparable operating profit by segment (January – September):
| M€ | 1-9/2018 | 1-9/2017 | Change |
| Building Solutions – Europe | 27.4 | 32.6 | -15.9% |
| Building Solutions – North America | 32.9 | 40.1 | -18.0% |
| (Building Solutions – North America (M$) | 39.2 | 45.0 | -12.7%) |
| Uponor Infra | 23.1 | 8.7 | +167.0% |
| Others | -4.0 | -1.7 | |
| Eliminations | -0.6 | -0.5 | |
| Total | 78.8 | 79.2 | -0.4% |
At €7.0 million, financial expenses were €4.1 million higher than in the comparison period. In the third quarter in 2017 Uponor received favourable decisions from the Finnish Supreme Administrative Court regarding the taxation of Uponor Corporation and Uponor Business Solutions Oy. As a consequence of these decisions, the interest paid earlier by Uponor was returned to the company and they reduced financial expenses by €3.6 million in the third quarter in 2017.
At €-3.6 million, the share of the result in associated companies is related to Uponor’s 50% share in the joint venture company, Phyn, established on 2016. Uponor increased its ownership from 37.5% to 50% in February 2018, by investing an additional $10 million. Sales of the new Phyn Plus smart water monitoring and shut-off device began in the second quarter in the USA.
Profit before taxes for January – September totalled €79.0 (73.4) million. Taxes had a €22.5 (23.1) million effect on profits. The estimated tax rate for the full year is 28.5% (31.5).
Profit for the period came to €56.5 (50.3) million. Earnings per share, both basic and diluted, for January – September totalled €0.64 (0.64). Equity per share, both basic and diluted, was €4.02 (3.68).
Short-term outlook
The building and construction market has remained on a healthy level in all countries where Uponor operates, although there are signs of especially Nordic markets having reached their peaks. The political uncertainties, e.g. Brexit and the challenges posed by tariff increases, have remained, but have not yet impacted on consumer or business behaviour.
Assuming that economic development in Uponor's key geographies continues undisturbed, Uponor repeats its full-year guidance for 2018 (revised on 5 September): excluding the impact of currencies, Uponor expects its organic net sales to grow from 2017 and comparable operating profit to remain at the same level as in 2017.
Uponor repeats its earlier estimation that the Group's capital expenditure, excluding any investment in shares, will remain at roughly the same level as in 2017, mainly driven by the capacity expansion programme in North America.
Uponor’s financial performance may be affected by a range of strategic, operational, financial, legal, political and hazard risks. A more detailed risk analysis is provided in the section ‘Key risks associated with business’ in the Annual Report 2017.
Uponor Corporation
Board of Directors
For further information, please contact:
Jyri Luomakoski, President and CEO, tel. +358 20 129 2824
Maija Strandberg, CFO, tel. +358 20 129 2830
Susanna Inkinen, Vice President, Communications and Corporate Responsibility, tel. +358 20 129 2081
DISTRIBUTION:
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Uponor in brief
The year 2018 marks Uponor's 100-year anniversary. Our success is built on strong partnerships with our customers and stakeholders in the past, present and future.
Uponor is a leading international systems and solutions provider for safe drinking water delivery, energy-efficient radiant heating and cooling and reliable infrastructure. The company serves a variety of building markets including residential, commercial, industrial and civil engineering. Uponor employs about 4,000 employees in 30 countries, mainly in Europe and North America. In 2017, Uponor's net sales totalled nearly €1.2 billion. Uponor is based in Finland and listed on Nasdaq Helsinki. Uponor builds on you - www.uponor.com
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