Financial statements bulletin 2016: Transformation

Uponor Corporation       Financial statements bulletin 1-12/2016       13 Feb 2017       8.00EET

Transformation drives comparable operating profit improvement in Europe in 2016

• Savings from the transformation and earlier streamlining programmes helped to improve comparable operating profit in Building Solutions – Europe and Uponor Infra in 2016; operating profit in Building Solutions – North America remained strong but stayed slightly behind last year
• Oct-Dec net sales at €268.9 (2015: 262.0) million; Oct-Dec comparable operating profit at 16.1 (16.5) million
• Net sales Jan-Dec: €1,099.4m (1,050.8m), up 4.6%; organic growth at 2.0%
• Operating profit Jan-Dec: €71.0m (71.4m); down 0.7%
• Comparable operating profit at €90.7m (75.8m), up 19.7%
• Earnings per share at €0.58 (0.51)
• Guidance for the year 2017: the Group’s net sales and comparable operating profit are expected to improve from 2016
• The Board’s dividend proposal is €0.46 (0.44) per share  

President and CEO Jyri Luomakoski comments on developments during the reporting period:

• Building Solutions – Europe progressed well in its transformation. The segment’s new setup, based on a stronger and leaner management structure close to growth centres, together with an efficient manufacturing network, will provide it with a firm foothold to be able to benefit from an anticipated recovery in the European building market.
• Performance in Building Solutions – North America continued healthy, although operating profit did not grow compared to the strong comparison period in 2015. The outlook for North America remains solid.
• Uponor Infra’s comparable profitability developed well in 2016, showing that the transformation programme and the streamlining initiatives from previous years are bearing fruit. Now that the change is well underway, the team will focus efforts on promoting Uponor’s value-adding offering and generating growth in net sales.
• Throughout our almost 100-year history, Uponor has continuously focused on renewal and innovation. In 2016, our R&D expenditure exceeded €20 million for the first time. Growth was driven by digital transformation in our plumbing business, including such recent endeavours as the joint venture company Phyn that develops smart water solutions, or the online measurement offering by our subsidiary company UWater. In both of the above, field tests are running according plan.  

The Board’s dividend proposal

The Board proposes to the Annual General Meeting a dividend of €0.46 (0.44) per share. When making the proposal, the Board considered the solvency of the company, the company’s dividend policy and the business outlook, recognising the high availability of external funding for the company’s growth plans.  

Key financial figures

Information on the financial statements bulletin This release is a condensed version of Uponor’s 2016 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 of the previous year. Unless otherwise stated, figures refer to continuing operations. Any change percentages were 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 13 February at 10.00 EET. Connection details are available at http://investors.uponor.com. Questions can be sent in advance to ir@uponor.com. The recorded webcast can be viewed at http://investors.uponor.com shortly after its publication. The presentation document will be available at http://investors.uponor.com > News & downloads.  

Next interim results Uponor Corporation will publish its Q1 interim results on 3 May 2017. During the silent period from 1 April to 3 May, Uponor will not comment on market prospects or factors affecting business and performance.

Interim results October – December 2016 Markets

Most of Uponor’s core European building solutions markets improved during the fourth quarter, compared to 2015, with construction activity and builder sentiment rising. In North America, demand for building solutions was assisted by marginal increases in U.S. construction, with growth probably being tempered by increasing mortgage rates and some labour shortages. In Canada, the residential market continued to be resilient.

Civil engineering markets remained stable overall, but demand for infrastructure solutions continued to decline in Canada and Poland. The energy price increases witnessed during recent months have not translated into new oil production related investments, but stimulus spending on civil engineering projects has helped to spur demand in other market segments.   

Net sales

Uponor reported net sales of €268.9 (262.0) million for the fourth quarter, which brings growth in reported numbers to 2.6%. In comparable terms, i.e. excluding the acquisitions in Germany in January 2016, growth was 0.2%. The currency impact came to €0.9 million, whereby the fourth quarter’s comparable growth in constant currency came to 0.5%.

Building Solutions – Europe reported an increase of 10.0% from the comparison period, with net sales coming to 125.8 (114.3) million. Just over half of this growth is due to German acquisitions made in January 2016, while the rest is from organic advances in markets, mainly in southwestern and northern Europe.

In Building Solutions – North America, net sales reached €77.2    (74.0) million. At 4.5%, the growth pace was slightly lower than in some recent quarters. This trend is partly due to the fact that while demand in the U.S. remains on a growth track, year-over-year growth of the market was stabilising in the second half of 2016. Secondly, in 2016, growth was curbed by volatility in sales originating in the plastic fittings resin shortage that began in late 2015. Judging from sales mix development, distributors who increased their fittings inventories in the first half of 2016, due to announced constraints in supply, began to assume normal buying patterns during the course of the fourth quarter.

Uponor Infra’s net sales amounted to €67.2 (75.0) million, representing a decline of 10.4%. While sales picked up encouragingly in northern Europe, the subdued markets of Eastern Europe and Canada influenced the segment’s sales in a negative way.  

Breakdown of net sales by segment, October–December:

Profits and profitability

Uponor’s comparable gross profit in the final quarter of 2016 totalled €91.5 (91.7) million. Comparable gross profit margin came to 34.1% (35.0%). All segments reported a slight decline in comparable gross profit margin.

Consolidated operating profit for the fourth quarter came to €7.5 (14.0) million, down by 46.5%. The operating profit margin came to 2.8% (5.3%).

Comparable operating profit, i.e. excluding any items affecting comparability (IAC), came to 16.1 (16.5) million in the quarter under review, with comparable operating profit margin reaching 6.0% (6.3%). IAC, which were connected to the European transformation programmes, and included also the streamlining programme in Uponor Infra’s Canadian operations, totalled €8.6 (2.5) million in the fourth quarter, of which Uponor Infra accounted for €3.0 (0.7) million and Building Solutions – Europe €5.6 (1.8) million.

Building Solutions – Europe’s reported operating profit declined sharply as a result of the initiatives related to the transformation programme. These included, among other things, the costs related to the announced transfer of PEX pipe production from Spain to Sweden and the relocation of the UK office, as well as personnel reductions in some countries. Adjusting for IAC, Building Solutions – Europe’s comparable operating profit came to €7.2 (5.1) million, up 40.4%. Furthermore, the price pressure caused by weak market trends over several years continued, affecting core product categories. The trend was somewhat offset by savings in overhead spend.

Building Solutions – North America’s operating profit did not quite reach the strong 2015 figure but profitability or the operating profit margin remained high, at 15.4% (16.3%). Profit development was mainly due to costs associated with managing the consequences of a shortage of a key resin for plastic fittings, as reported earlier. Uponor substituted brass fittings, which had a higher unit cost, for the fittings unavailable due to the shortage. By the end of the quarter, Uponor was able to offer a full range of plastic fittings made of the new, more expensive material. Volatility due to managing this issue markedly increased costs in securing the supply of fittings for customers.

Uponor Infra, too, reported a decline in operating profit driven by the costs related to its transformation. Furthermore, the 2015 figures included a gain from the divestment of the Omega-Liner® pipeline renovation business in December 2015. Comparable operating profit, without IAC, came to €-2.0 (€-0.5) million. The negative trend in performance was mainly a result of weak sales development in North America and in Eastern Europe, while business activities in Northern Europe developed more favourably. In stark contrast to 2015, the development in resin prices was rather stable, contributing to a more stable performance overall. In 2015, infrastructure solutions sales were curbed by resin shortages and pricing issues in the second and third quarters, which resulted in higher demand in the fourth quarter once the situation had settled down.  

Reported operating profit by segment, October–December:

Comparable operating profit by segment, October–December:

Uponor Corporation Financial statements January – December 2016 Markets

On the whole, construction activity in European markets strengthened during the year, albeit from a modest base. In North America, construction activity remained healthy in general, but the substantial year-over-year gains witnessed during previous years exhibited signs of waning.

In Central Europe, Germany continued to benefit from consumer-driven expansion in the economy. A strong labour market and low mortgage rates translated into increased demand for residential buildings, leading to a significant increase in residential building projects and several, all-time-high builder confidence readings. However, the much larger residential renovation segment remained flat. The non-residential segment was healthy but, in some cases, external political and economic uncertainties made businesses hesitant to initiate new projects. In the Netherlands, construction activity continued to grow, but at a reduced rate.

In Southwest Europe, construction market demand in Spain and France picked up modestly from rather low levels, while the Italian market continued to be soft. In the UK, the fallout from the “Brexit” referendum was muted, with both the residential and non-residential segments remaining steady.

Within the Nordic countries, construction activity trended upwards. Sweden’s residential boom endured, with housing starts clearly up from the previous year and reaching their highest level since the early 1990s. In Finland, after several years of slowdown, both residential and non-residential construction spending rose from 2015. Non-residential spending in Norway remained at the previous year’s level, while residential spending picked up slightly. Denmark remained flat.

In Eastern Europe, continued uncertainty took a toll on the residential and non-residential building segments. In East-Central European countries such as the Czech Republic, Hungary and Poland, residential investments rose, but non-residential investments fell from 2015. Construction spending in the Baltic countries was flat overall.

In North America, residential and non-residential construction remained largely healthy, but no signs could be seen of the substantial year-over-year gains witnessed since the recovery began. While home builder sentiment is near an all-time-high and consumer confidence remains strong, activity has probably been tempered by increased mortgage rates and labour shortages in some areas. Major volatility in leading construction indicators was witnessed during the latter half of 2016, which may have influenced purchasing behaviour patterns in the distribution chain. In Canada, the residential market experienced some softness in comparison to the previous year.

With regard to Uponor’s infrastructure solutions, demand in the Nordic markets was stable on the whole, with Sweden and Norway improving somewhat. The markets in Poland and other central-eastern Europe countries remained subdued, while spending fell significantly in the Baltic countries. Depressed energy prices continued to restrain oil-related investments in Canada, negatively influencing the infrastructure business in other market segments as well.  

Net sales

Uponor's 2016 consolidated net sales amounted to €1,099.4 (2015: €1,050.8) million, up 4.6% year-on-year. In comparable terms, i.e. excluding the 2015 divestments by Uponor Infra and the 2016 acquisitions in Germany by Building Solutions – Europe, Uponor's consolidated net sales grew by 2.0%. The currency impact totalled €-10.3 million, bringing 2016’s full-year comparable growth in constant currency to 3.0%. The negative currency effect was mainly due to the GBP, CAD, SEK, and RUB, and was therefore mostly affected Building Solutions – Europe and Uponor Infra.

Building Solutions – Europe’s net sales grew by 9.4%, or 2.6% organically. This positive trend is a reflection of sales picking up in several European markets, mainly south-west Europe and the Nordic countries, as well as acquisitions in Germany in January 2016. In Europe, sales in local currency grew in nine out of the ten largest countries. The biggest advances were made in Sweden, Spain, the UK and Austria. In Germany, growth came entirely from acquisitions. Offset by growth in the commercial project business, local systems sales in Germany declined as a result of competitive sales price pressure.

With a net sales growth of 10.7% in local currency, the year 2016 was twofold for Building Solutions – North America. In the USA, the first half of the year continued to see robust growth in sales, while during the second half, growth of sales stabilised, reflecting the general trends in the building and construction market. Additionally, challenges were posed by a shortage in the plastic fittings resin supply, which forced Uponor to offer a complementary brass fitting line for an interim period. This led to sales volatility and supply chain issues and impacted on pipe and fittings system sales growth throughout most of the year 2016. Despite this, Uponor’s PEX plumbing offering sales grew well in 2016 in the U.S. and also in Canada.

Uponor Infra’s net sales for 2016 declined by 7.7%. The decline was mainly driven by continued weak development in Poland and North America, offsetting the budding increase in demand in northern Europe.

Within the business groups, the share of Plumbing Solutions represented 49% (45%), Indoor Climate Solutions 25% (25%), while Infrastructure Solutions represented 26% (30%) of Group net sales.  

Net sales by segment for 1 January – 31 December 2016:

Measured in terms of reported net sales, and their respective share of Group net sales, the 10 largest countries were as follows (2015 figures in brackets): the USA 25.1% (23.9%), Germany 14.7% (13.0%), Finland 11.2% (11.8%), Sweden 9.1% (8.9%), Canada 7.3% (7.9%), Denmark 4.4% (4.5%), the Netherlands 3.6% (3.5%), Spain 3.2% (2.8%), the United Kingdom 2.9% (3.4%), and Norway 2.7% (2.9%).  

Results

The consolidated full-year gross profit ended at €376.0 (370.2) million, a change of €5.8 million. The gross profit margin came to 34.2% (35.2%). Comparable gross profit came to 383.9 (371.0) million, or 34.9% (35.3%). The gross profit was burdened by price competition and product mix issues in Building Solutions – Europe as well as plastic fittings challenges in Building Solutions – North America, offset to a large extent by operational efficiency improvements in all segments.

Consolidated operating profit came to €71.0 (71.4) million, which is close to the level of the previous year. The operating profit margin ended at 6.5% (6.8%) of net sales. Currency exchange rates did not have a material impact on the full-year operating profit.

Comparable operating profit, i.e. excluding any items affecting comparability, reached €90.7 (75.8) million, an increase of 19.7%. Comparable operating profit in Building Solutions – Europe came to €38.0 (27.6) million and €6.4 (0.9) million in Uponor Infra. The net total amount for items affecting comparability was €19.7 (4.3) million, of which €12.4 (3.6) million was reported in Building Solutions – Europe and €7.2 (0.7) million in Uponor Infra, all of the above being related to the transformation programmes in the respective segment.

Overall, market conditions in Europe improved slightly in 2016, contributing to the positive trend in operating profit in Building Solutions - Europe, in particular. Another factor, mainly influencing Uponor Infra, was the more stable cost environment and availability of plastic resins, in stark contrast to the comparison period.

Building Solutions – Europe reported an improvement in full-year operating profit, albeit at a low level in a longer-term comparison. This growth was a result of higher net sales and lower expenditure enabled by the savings due to the transformation programme. The initiatives carried out included the closure of a total of 10 offices, including one relocation, as well as the reduction of office space in three locations during 2016. The net reduction in personnel totalled 164 persons in 2016, in line with the original plan. Profitability was burdened by increasing competition in both indoor climate and plumbing solutions, mainly from private label and other competing offerings using lower price technologies, as well as tighter competition within the distribution channel.

Building Solutions – North America reported continued strong profits, although the profit margin weakened against the strong comparison period in 2015. Operating profit fell in the third quarter in particular, due to extra costs associated with managing the shortage of a key resin for plastic fittings. Uponor substituted brass fittings, which had a higher unit cost, for the fittings that were unavailable due to the shortage. By the end of the fourth quarter, Uponor was able to offer a full range of plastic fittings made of a new, more expensive material. In addition, the volatility involved in managing this transition markedly increased the costs of ensuring the supply for customers.

Burdened by IAC costs related to the transformation programme in Europe and the cost reduction programme started in Canada in the fourth quarter 2016, Uponor Infra reported a decline in operating profit. Comparable operating profit without IAC improved and came to €6.4 (€0.9) million. The improvement mainly resulted from reduced cost level thanks to earlier streamlining programmes and improving performance in most of the Nordic countries, despite the negative profit trend in North America and Eastern Europe. In addition, performance was affected by temporary challenges encountered in Denmark. In stark contrast to 2015, the resin price development in 2016 was rather stable, contributing to a more stable input cost environment and gross profit.

Other operating income includes funds received in royalties and compensation for patent infringement as part of a settlement in Canada in 2016.  

Reported operating profit by segment for 1 January – 31 December 2016:

Comparable operating profit by segment for 1 January – 31 December 2016:

Uponor’s net financial expenses came to €10.0 (€8.9) million. Net currency exchange differences in 2016 totalled €-3.9 (-3.4) million.

Share of result in associated companies, €-0.6 (0.3) million, includes the product development and other start-up costs related to the establishment of Phyn, the joint venture company with Belkin International, Inc.

Profit before taxes was €60.4 (62.8) million. The effective tax rate came to 31.3% (40.9%), which is below the anticipated longer-term level but does include one-time R&D tax credits in the USA, granted to Uponor retrospectively. Income taxes, including the tax credits, totalled €18.9 (25.7) million. The 2015 income taxes included €1.6 million in taxes paid in Estonia due to dividends distributed, as well as an additional €0.5 million deferred tax liability related to remaining retained earnings in the Estonian subsidiaries, corresponding to a one-time effective tax rate increase of 3.3 percentage points.

Profit for the period totalled €41.9 (36.9) million.

Return on equity reached 13.1% (12.1%). Return on investment declined to 14.1% (15.5%). Return on investment, adjusted for items affecting comparability, came to 18.3% (16.5%).

Earnings per share were €0.58 (0.51). Equity per share was €3.60 (3.39). For other share-specific information, please see the Tables section.

Consolidated cash flow from operations amounted to €59.9 (58.2) million, while cash flow before financing came to €-31.9 (16.5) million due to the German acquisitions in January 2016 and the $15 million investment in the joint venture company Phyn in July 2016.

Key figures are reported for a five-year period in the key financial figures section.  

Investment, research and development, and financing

In terms of capital expenditure, Uponor aims to maintain a balance between targeting resources at the most viable opportunities, while keeping overall investment levels tight.

In 2016, such funds were allocated to new production technology in Building Solutions – Europe, capacity expansion in Building Solutions – North America, as well as production enhancement projects in Uponor Infra. In China, the new factory in Taicang (Shanghai) was equipped with production lines and production commenced in December 2016. A high proportion of the funds spent are being directed towards selected productivity improvements and maintenance.

In 2016, gross investment in fixed assets totalled €50.7 (50.1) million, clearly below the anticipated level due to delays in projects. Net investments totalled €48.4 (49.2) million.

Further investments in shares were made in January 2016, when Uponor Holding GmbH acquired the companies KaMo Group and Delta Systemtechnik GmbH, in Germany, and in July, when Uponor Corporation signed the joint venture agreement on the establishment of a new business, Phyn, with Belkin International, Inc.

Research and development costs grew to €21.4 (18.5) million, or 1.9% (1.8%) of net sales. The main reasons for the increase were setting up the new Group Technology function with added personnel, increased investment in digitalisation initiatives, and direct project costs related to new product and application development, as well as materials development.

The main existing funding programme on 31 December 2016 was an €80 million bond maturing in June 2018. In addition to the outstanding bond, Uponor took out 5-year loans of €50 million in January 2016 and €20 million in July 2016, in order to fund M&A and joint venture activities.

Four committed bilateral revolving credit facilities, which will mature in 2019–2021, totalled €200 million; none of these back-up facilities were used during the year.

For short-term funding needs, Uponor’s main source of funding is its domestic commercial paper programme, totalling €150 million, none of which was outstanding on the balance sheet date. At the end of the year, Uponor had €16.3 (49.2) million in cash and cash equivalents.

Accounts receivable and credit risks received special attention throughout the year. Accounts receivable increased due to changes in the management of key accounts in North America.

Consolidated net interest-bearing liabilities rose to €159.5 (91.3) million, driven mainly by the German acquisitions and the establishment of the joint venture Phyn. Also accounts receivable grew in North America and inventories were increased to serve as buffers in connection with production transfers in both Building Solutions – Europe and in Uponor Infra. The solvency ratio was 42.8% (44.3%) and gearing came to 48.8% (29.3%). Average quarterly gearing was 56.7 (40.4), in line with the range of 30–70 set in the company's financial targets.  

Events during the period

On 4 January, Uponor Holding GmbH completed the acquisition of all of the shares in the German companies KaMo Group and Delta Systemtechnik GmbH. In 2014, KaMo and Delta combined generated a total turnover of €32.8 million and employed 119 employees. On 7 January, Uponor Corporation announced the acquisition of the entire shareholding in a Finnish start-up company specialising in online water quality monitoring. The company, renamed to UWater Oy, has developed a unique and revolutionary technology for the online measurement of water quality. The above acquisitions strengthened Uponor’s competencies in assuring water quality and hygiene, both of which are of growing importance in modern-day water services, whether such services involve municipal, industrial or residential water supply applications.

In January, Uponor’s Finnish subsidiaries Uponor Infra Oy and Uponor Suomi Oy concluded co-determination negotiations in Finland, resulting in the termination of 126 jobs. The negotiations were related to the European transformation programmes announced in the autumn of 2015. Uponor Infra also decided to relocate pressure pipe and standard chamber manufacturing operations from Vaasa to Nastola, Finland.

On 13 July, Uponor Corporation and Belkin International, Inc. formed a joint venture company in the United States and Europe for the development and commercialisation of intelligent water technology. The new joint venture, named Phyn, develops water sensing and conservation technology for both consumers and the building industry. As a minority-owned business, the joint venture company was consolidated into Uponor’s financial accounts using the equity method. Uponor initially invested $15 million in exchange for a 37.5% shareholding in the companies. The parties also agreed on a time frame within which Uponor has an option to invest an additional $10 million and increase its shareholding in Phyn to 50%. Uponor regards the partnership as an important step in its growth strategy, particularly in the emerging Internet of Things (IoT) market and a major development in digitalisation, which is perfectly aligned with the company’s commitment to creating safe and sustainable buildings and infrastructures.

On 10 October, 2016 employees moved into Uponor’s new office in Taicang, China, the latest addition to Uponor’s family of manufacturing units and the first in Asia. Production and deliveries began according to plan in steps by December. Additional lines will be introduced in 2017. The factory's overall floor space is 10,000m².

On 23 November, Uponor announced a plan to close PEX pipe production in Mostoles, Spain and concentrate it to Virsbo, Sweden. The final decision was made in December. As a result, a maximum of 50 job positions will be terminated most of them by the end of February 2017. Uponor will continue to have its logistics centre and the sales & marketing organisation in Spain. The initiative was part of Uponor’s European transformation programme, launched in autumn 2015, targeting the rationalisation of manufacturing and reduction of costs in the supply chain and production operations.

Other initiatives related to Building Solutions – Europe’s transformation programme included closing a total of 10 offices across Europe, as well as the relocation of the UK office to a location close to London. The net reduction in personnel, relating to the transformation programme, was 164 persons in 2016.

Uponor Infra continued to streamline manufacturing by centralising production in fewer locations in Finland and Denmark. A total of 75 job positions were terminated in Uponor Infra as part of the transformation programme during 2016.

On 12 December, Uponor’s Board of Directors resolved to continue the key management Performance Share Plan mechanism decided on by the Board in 2014. Targeting roughly 30 managers, the new plan covers the years 2017—2019 and offers participants the opportunity to earn Uponor shares as a reward for achieving targets. The potential reward will be paid in 2020. The purpose of the plan is to continue aligning the objectives of the management and Uponor shareholders in order to increase the value of the company, boost profitable growth and retain the services of participants over the longer term.

During 2016, Uponor introduced a range of new products on the market. These included, for instance, the new Uponor Smatrix Aqua that helps improve drinking water safety and hygiene. In North America, alongside Milwaukee, Uponor co-developed a unique new-generation tool, Milwaukee Force Logic, which makes fitting large-diameter PEX pipes easier and much more competitive than with traditional tools. In Europe, Uponor launched 75mm Q&E fittings and a new Milwaukee expansion tool extending the offering range from 63 mm/6 bar pipes all the way up to 75 mm and 10 bar pipes, for use in tap water riser installations and local heat distribution (LHD) installations. Uponor Infra launched Uponor Decibel, a modern silent soil & waste pipe system that combines an aesthetic visual appearance with the product’s inner mineral layer, which helps to eliminate noise. Another Uponor Infra novelty was Uponor Barrier PLUS, the first 100% plastic potable water pipe for use in water transport in areas with contaminated soil. The new Uponor Barrier PLUS is based on a non-permeable polymer in place of the aluminium layer, resulting in a durable but fully-recyclable pipe system.  

Short-term outlook

Overall, the market outlook for Uponor’s core businesses and core geographical markets remains rather stable and positive although, based on negative scenarios, there are certain risks that may materialise and influence the development of the business going forward.

Until very recently, many European construction markets had not begun a meaningful recovery from the global financial crisis that shocked economies almost a decade ago. Following the emerging signals of a pick-up that materialised in Europe in the second half of 2016, the gradual recovery of European building and construction markets is anticipated to continue throughout 2017. This trend is supported by the fact that housing permit development is reasonably strong in most European countries and market trends are positive in some countries, such as Germany, the Netherlands, France, as well as some Nordic countries. The recovery thus seems broad-based and is supported by improving confidence, attractive credit terms, immigration and, naturally, pent up demand over the longer term. Another factor adding to the credibility of the recovery is the fact that governments in several countries are beginning to emphasise infrastructure projects as part of their near-term investment plans.

The North American economy is expected to remain on a growth path, although the pace of growth may begin to decelerate. This trend was already in evidence in late 2016, when housing start growth in the U.S. temporarily slowed although several key fundamentals, such as mortgage rates, unsold inventory of homes, and job growth in the construction industry, remained fairly favourable. Furthermore, the new presidential administration in the U.S. has discussed providing support to boost infrastructure and manufacturing investments, which, once they materialise, should act as an economic stimulus, particularly in the longer-term.

The above market scenarios are not without risk, even if such risks are unlikely to materialise. The year 2017 will see elections in several large European economies and surprises may occur. Some major issues may re-emerge: the progress and impact of the UK’s EU referendum; the debt crisis within the EU; political issues within the EU, in Eastern Europe, and now perhaps in the global arena. Any or all of these could derail economic development from its expected heading in Europe, North America and in other markets in which Uponor does business.

Uponor has invested a considerable amount of human and monetary resources into making the company stronger. In the autumn of 2015, Uponor announced extensive transformation programmes in its European businesses, involving both Building Solutions – Europe and Uponor Infra. Both of these programmes have been carried out diligently, with most of the planned initiatives completed on plan by the end of 2016, and more or less with expected results. The organisations are leaner, the decision-making is more agile, and performance is improving. Both segments now have an up-to-date production network from the production technology perspective, as well as regional spread.

Assuming that economic development in Uponor's key geographies otherwise continues undisturbed, Uponor issues the following, full-year guidance: the Group’s net sales and comparable operating profit are expected to improve from 2016.

The Group's capital expenditure, excluding any investment in shares, is expected to be in the range of €50-60 million. Funds will be directed towards new product and offering development, such as strategically significant hygiene solutions, and the expansion of business in Asia, among other activities.

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 2016.

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

Distribution: Nasdaq Helsinki Media www.uponor.com

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 3,900 employees in 30 countries, mainly in Europe and North America. In 2016, Uponor's net sales totalled €1.1 billion. Uponor is based in Finland and listed on Nasdaq Helsinki. www.uponor.com