Review by the President and CEO

Dear investor,

In 2017, we began our 100th year of operation, which will culminate in our 100th anniversary in August 2018. We can look back on a huge number of changes that have impacted on our company. Many were externally driven, but several - particularly those with the most positive impact - were proactively initiated by Uponor.

A company is not an island, living in solitude and unaffected by its surroundings. Rather, it is a boat that is actively steered, being equipped with instruments for gauging the wind. This is what we kept in mind when we led Uponor forwards in 2017.

In our company strategy, we have chosen to examine our business on the basis of three horizons, each of which is tailored to different businesses and offers us different ways of achieving growth.

The first horizon focuses on remaining competitive and achieving growth in our traditional distribution channel business, which mainly consists of our business serving the residential markets. This is the most mature part of our operations, in which the roads have been well-trodden and the entry barriers have been lowering for decades, attracting the most competition. The second horizon, which more or less builds on the same technology platforms as the first, represents our entry into the commercial markets, where we need to combine technology with planning know-how and installation methods, in order to create a differentiated competitive advantage. The third horizon, which is somewhat bolder and represents a longer leap ahead than the others, offers longer-term opportunities created through digitalisation, new manufacturing technologies such as 3D printing, and the use of renewable materials.

In 2017, we forged ahead on all three fronts.

In our traditional business, i.e. the first horizon, we continue to see the growth of competitive pressures. These partly originate from familiar competitors within our own industry, as well as among our distribution partners, many of whom are entering the market with their own private label offerings. This is a clear indication of maturing markets, where not all of the auxiliary services Uponor is known for are valued anymore. Hence, through our transformation programmes, completed in 2017, we worked hard to regain our competitiveness by reallocating customer support activities from the traditional residential business to our growing commercial business. We also invested in technology renewal, in order to introduce new features and improve our cost position so as to continue growing in this segment. In addition, our prefabrication initiatives have been supporting our residential growth, even if they are more relevant to the commercial construction segment.

For the commercial building segment, or the second horizon, we have continued to invest heavily in our competencies and offering capabilities. Much of our current product and technology development is directed towards supporting growth in the commercial segment, in a similar manner to our talent management activities. The commercial segment is where we see the biggest opportunities for our prefabricated solutions. In an environment where installation resources are scarce in many key markets, moving work phases from the construction site to a controlled industrial environment, and thereby delivering more consistent quality and speed of installation, is providing us with a clear competitive edge. Simultaneously, we need to remember that the complexity of on-site installations will continue to grow, mainly due to energy efficiency and hygiene requirements.

Our third growth horizon is about creating and shaping future options and possibilities, such as those presented by digitalisation. The most visible, digitisation initiatives within Uponor are Phyn and UWater, two pilots we began in 2016. With Phyn, our joint venture with the U.S. company Belkin International, we aim to address the issue of costly water leaks and damage, and bring our contribution to managing clean water, our most precious natural resource. Water is also in focus when we discuss UWater, our second digital spearhead initiative. UWater technology detects foreign particles such as bacteria from flowing water. Health issues caused by the presence of legionella or E.coli in potable water are a major issue in most of our geographies. With smart technology, we believe that we can contribute to managing these risks more effectively.

With these three growth horizons in focus, we were able to grow Uponor organically by 6.5% in 2017 – while also somewhat expanding our operating profit margin, in spite of our major investments intended to generate short-term growth and our exploration of our future options. This is a good platform to continue with into 2018 – growing our business and continuing to invest in its renewal.

Change has been a buzzword in the corporate world over the last decade or so, referring to the increasing speed and nature of change. Our era has been termed an era of change. Today, however, questions are also being raised about the sustainability of our lifestyles and habits. Our take-make-waste way of life is facing pressure for redirection towards the circular economy. In this respect, we are witnessing a change of era in terms of the megatrends that change societies fundamentally over time.

These trends are bringing new requirements and opportunities to organisations like Uponor, which are committed to enhancing living environments. In addition to providing sustainable operations, solutions and products, Uponor is committed to improving the world by being a strong corporate citizen in the communities in which we live and work. By aligning our sustainability activities with our core business model and leveraging our resources to create partnerships and value in our community, we are seeking to create true, shared value for our business and society.

Very much linked to this evolution, the EU has passed legislation requiring companies to disclose more than just financial information. In our annual report 2017, you will therefore find a section in which we try to cover the essentials of such non-financial information as it relates to Uponor. For this purpose, and to ensure the proper focus, we completed our first-ever materiality analysis in 2017.

Sustainability is a key, positive business driver for Uponor. Almost all of our offerings are related to energy or water in one form or another. With our systems and solutions, we can help to secure clean water, save energy and reduce harmful emissions. Naturally, as a company we will try to serve as a good corporate citizen, fostering a positive work environment of engaged employees, enhancing stakeholder trust, and creating brand differentiation in support of this. Our work in this respect is one illustration of our values – Connect, Build, Inspire – in action.

I would like to express my thanks to all of you – our employees, customers, other stakeholders and shareholders – for your continued support for our company, most of all in 2017 and beyond. We are building on our 100-year heritage, i.e. everything we have learned and accomplished together with you.

Jyri Luomakoski
President and CEO