Glaston Oyj Abp (GLA1V) Earnings Call Transcript & Summary

Welcome to Glaston Corporation's 2024 Q4 and Full Year Financial Reports session. The markets are soft, but Glaston continued steady development in comparable EBITA. My name is Pia Posio, and I'm your Investor Relations contact at Glaston. And together with me, we have CEO, Toni Laaksonen; and CFO, Päivi Lindqvist, who are going to share with you the highlights, market review, financial developments. And of course, we have a look at the outlook for 2025. Please share your questions during the session in the chat, and we have reserved time to go through those towards the end of our webcast. With this, I would like to welcome Toni Laaksonen to guide us through the Q4 and full year highlights.

Thank you, Pia, and welcome also on my behalf to the Q4 results review. So as Pia mentioned, the markets were pretty soft still in Q4 and especially the architectural glass markets remains slow. But then on the other hand, the bright spot in the market was China on the Mobility side, which developed well from our perspective. Our overall order intake was down by 8% in both segments. So the group result was year-on-year down. But all in all, we were doing great compared to Q3. So our positive development on a quarterly basis continued the order intake grew on Q4 compared to Q3. So that was positive. On the net sales side, the result was pretty good, I would say, even though we were down compared to last year and year-on-year. And then on the comparable EBITA side, we were almost at the same level compared to the comparison period, and the result was 7.5% compared to last year, which was 7.6%. Then on the other hand, what we were doing heavily during the Q4 was that we were accelerating our strategy execution and profitability improvement programs through the new organization. So the implementation continued, and we got the new organization ready by the end of the year, and now we are functional with the new organizational model. On top of this, the Board of Directors is now proposing to the AGM a reverse share split and a capital repayment plan, which is EUR 0.055 per current share. Then a few words about the full year highlights. So the architectural market overall remained soft throughout the year, as we discussed, also the Q4 was low. So the same development we were seeing throughout the year. Then on the Mobility market side, the preprocessing equipment business was developing very favorably, especially in China. But then on the other hand, the other markets like U.S. and Europe were also down in the Mobility market side. And this was then reflected into our order intake, which was down compared to 2023. On the net sales side, we were almost at the same level compared to '23. So the overall result was a bit below EUR 280 million, which was a pretty good result in this market situation. And then on the comparable EBITA side, we had slight improvement, which was a very positive sign compared to the market conditions and that was really a good performance from our perspective throughout the organization. And then the preprocessing production transfer, which was started during the summertime last year continued and it was proceeding well throughout the year, and we are in full speed with the implementation phase and proceeding according to the plan. And then also, our strategy was slightly updated as part of the organizational renewal and slight updates were done related to our main KPIs. And then, of course, also I had the pleasure to join Glaston in August and now have been experiencing the glass industry for a while and enjoying the business. Then a few words about the operating environment. As mentioned during the previous slides, the market has been very soft, all in all, on the architectural side. So the only green spot on the map has been Asia Pacific, where we have been seeing some positive development, but the other areas have been relatively soft throughout the year. And then the Mobility and Solar side has been developing very well, especially with the preprocessing orders in China. But then as mentioned, the other markets have been down or soft throughout the year. And on the services side, the bright spot has been the Americas market where we have been seeing positive development in Q4, but also throughout the year, and that has been also giving certain boost to us on the services side. China, Asia Pacific were pretty slow and some negative progress in Europe also related to the architectural services side. Then about the long-term targets. So comparable EBITA is one of our key targets strategically. And with that one, we had good progress in '24, so slight improvement compared to '23, so 0.2% improvement, which is in line with our strategic targets and a good result compared to the market environment. On top of this, we have a solid plan how to then go forward with our profitability improvement and the target remains at the 10% level in the long run. So through the reorganization and preproduction transfer to China, we are seeking for more sourcing benefits, operational efficiency as we are decreasing our footprint globally. Of course, we are boosting our services through the customer intimacy. And through that, we target to have higher service share in the future. And then, of course, we are investing in research and development to boost our innovation. With these actions, we, of course, want to tackle cost inflation and then pricing pressure, which we are seeing in certain markets. Then around the other targets, we saw mixed development, I would say. So from the growth point of view, as the overall market was pretty slow, we saw the same development in our top line figures and that minus 1% decline was visible on our side. But then on the other hand, we see that the market overall decreased slightly last year. So in that sense, we are pretty much in line with the market development. EBITA was a positive figure from our perspective. And then another very bright spot in our strategy was that our employee engagement reached the highest level in last few years. And that was a very good result from the whole organization and shows that we have very committed employees in -- throughout our organization globally. The biggest negative thing in our figures is definitely the health and safety side, where we have 5.7 LTI figure, which is not in line with our expectations. We saw some positive improvement related to health and safety, but the room for improvement is still big, and we are developing actions and developing our practices continuously to make our company safer in the future and to secure that we see less LTIs in coming years. Then on the other hand, we have emissions reduction targets, which we have defined and developed. We have been developing those so that they are more and more accurate and the figures are, in that sense, very well aligned with our plans. And the measurement accuracy has been increasing now this year through our work, which is then also visible there when we check the Scope 1 and 2 emissions. There, we saw some slight increase due to the measurement accuracy changes. Also the Scope 3 emissions, we are capable of measuring and that was good development by the organization that we did hard work to secure that we have these measurements in place globally throughout our network. Then a few words about the strategy execution and what's happening. So as said, we are focusing on the customer interface and trying to enhance our customer experience through the market area organization, which we introduced last year and which is now operational starting from January. And we continue to invest in services so that we have more and more customer focus in the market areas, and we are capable of supporting the customers in a timely manner and fast in case they need our help. Then a big part of the strategy is the preprocessing production transfer, which is proceeding. And through that, we aim to gain significant production efficiency savings and also sourcing savings globally. There, the target is that we will be ready by this summer, and we are still proceeding according to the original plan. Then on the other hand, on the new business function side, the new solutions and operations function is now operational, and we have implemented the new way of working, which then means that all the factories are now under one umbrella, which should provide us clear savings in the future when we can then harmonize our supply chains and sourcing for all of the factories. Then on the other hand, the service supply and development organization is also proceeding, and we are still seeking for the new leader. And hopefully, we'll have some news about that in coming months, to finalize the service supply and organization to get it fully implemented. Then on the other hand, one important topic for us is still, of course, the technology leadership and that position we want to keep now and in the future. And therefore, we are really committed to invest significantly in our R&D projects to secure that we can develop together with our partners, innovative technologies to keep us as the leader in the marketplace. Then a few additional words on the sustainability side. So the strategic targets we have in place, the measurements are there, and we are getting more and more accurate with our measurement practices. But then some other highlights from the sustainability side is that we were capable of finalizing the Double Materiality Assessment. So that was done during the spring time. We are ready with that one. We also got an award during last year, which was this EcoVadis Bronze Medal. And good results from the company point of view as we were really high in the rankings. Then on top of that, in December, we were then defining and approving the diversity equity inclusion road map, which is now ready and we start proceeding accordingly. And we also have the EU taxonomy in use in our business, and we are continuously now measuring how much share of our net sales is coming from the, let's say, aligned -- taxonomy aligned targets and activities. And we are closing to the 50% share in those ones, especially due to our Insulating Glass Technologies and related services. All right. And now I hand over to Paivi to go through the financial development.

Thank you, Toni. Yes. Let's start the figure part of this session by looking at the new orders and order intake. Like I said, the order intake declined 8% in the quarter and was EUR 53 million. This was against a rather high comparison figure, especially in the Mobility, Display and Solar segment. Architecture suffered -- continued to suffer from the soft market. Then if we look at the product areas and the full year '24 figures, we can see that the architectural machine product areas both declined quite strongly. We have this kind of decline also in '23 for the Tempering and Laminating Technologies, but Insulating Glass Technologies then was last year, then also kind of hit by the software market. In Insulating Glass Technologies, the last quarter orders were flat compared to previous year. So there -- actually, the order intake was quite good level. In Mobility, Display and Solar technologies, the full year development was flat. Q4, like I said, in the machine area was lower than previous year because of the strong comparison. Services as a whole continued to increase in order intake. It was 4%, both in full year and the final quarter. Then if we move to net sales, which was 5% down in the final quarter, and this came from two different product areas, the Mobility Technologies and then also Tempering Technologies. Also there, I would say that the final quarter of last year was rather strong. So for that reason, maybe not that kind of low net sales for a quarter, quite kind of a good level, but lower definitely compared to the previous year. If we look at the product areas, Tempering and lami went down in full year and also in the final quarter was lower than the previous year. Insulating Glass Technologies have had steady growth in net sales throughout the year also in the final quarter, supported by the good order backlog that this business has enjoyed for quite a while. Mobility, Display and Solar Technologies had a full year -- strong full year net sales growth even though the last quarter was not that strong. So the first 3 quarters were very good in terms of growth. And then Services, 3% growth in full year. So that was net sales. And then if we go to the regions. The regional split did change a bit in 2024. The EMEA share declined to some extent because of the difficult markets that EMEA has really been the region where we see most of this architectural decline. Americas also for full year had negative net sales development, but fourth quarter, it returned to growth. So we had 7% growth in Americas in Q4 and rather stable share of net sales. And then APAC is really the region where the growth has taken place. The growth was very strong in the first 3 quarters. In the final quarter, a little bit kind of still growing nicely, but a bit slower as we start to see some impact from the comparison figures already in Q4. China share of net sales in the full year increased from 8% to 18% and China share of order intake in '24 was 22%. Then let's move forward to profitability. So comparable EBITA was EUR 4.2 million, 7% lower than the Q4 '23 and margin of 7.5%, rather close to the margin that we had at previous year. And there, we -- in Q4, we have a negative impact from volume, obviously, but then the services share especially then contributed positively. In the full year, we also have a slight increase in the comparable EBITA margin to 7% from 6.8% in '23. And then this improvement is mainly coming from the machine margin improvement. And then if we move to the reporting segments, and let's start with Architecture. So this is clearly our bigger segment. And the Q4 order intake went down by 10% in the quarter. Insulating Glass, like I said earlier, a good level, flat year-on-year, and it's really the Tempering and Laminating area where the decline came from. Services orders were at the same level as previous period. And especially in the U.S., we had a very nice demand for upgrades at the end of the year. Net sales for the quarter was flat and quite big differences here between the different business lines. Insulating Glass and Services were increasing and then Tempering and Laminating Technologies were declining. Profitability, 8.7% comparable EBITA margin, a good level, but somewhat lower than we had in '23 when it was, I would say, excellent level. And the reason why the Architecture margins were a bit lower now was mainly the machine margins, which were, I would say, having some impact from this kind of softer market. So of course, the margin development is reflecting the competitive situation and the market environment, but that happens with a delay then when those orders that we take will start to show in the revenue recognition. Then if we go forward to Mobility, Display and Solar and the orders we have now discussed quite a bit. So they were down in final quarter year-on-year against strong comparison. So with Services orders developed nicely, up 5%. The net sales was on the weak side, definitely in this quarter compared to the earlier 3 quarters of the year. And this is partly because of timing of -- in the preprocessing. So there, we had a very strong Q3, and that had some impact on the Q4 revenue recognition. And then another reason is the low order intake that we had the whole year in the MDS heat treatment area. Then if we go to profitability, of course, it is definitely not satisfactory. We did have some small improvement in the profitability. So in the quarter, very close to breakeven. If we look at the comparable EBITA and 1.4% margin, the previous year quarter was close to this, but slightly on the loss-making side. And obviously, the low volume impacted profit, but then it was supported by a higher share of services and then also lower fixed costs. And why we had lower fixed costs was because we are going forward with this production transfer of the preprocessing equipment. So we already had some fixed cost improvement in Switzerland. But then this is creating restructuring costs. And in '24, we had roughly EUR 2 million of restructuring costs related to the transfer and the expectation of roughly EUR 6 million in total still holds. So there will be more costs coming from this exercise also this year. And then if we look at the cash flow, final quarter was EUR 3.5 million on the positive side. Full year was a small number, EUR 1.5 million on the positive side. And obviously, clearly, lower operating cash flow than we had in '23. Working capital consumed roughly EUR 11 million of cash last year, and that is mainly reflecting the lower order intake. So the advanced payments then move very dynamically depending on the new orders that we receive. Gearing, 30% at the end of the year, so clearly higher than we had end of '23. So that was cash. And then a couple of words about the profit distribution and then the Board's proposal to the AGM on executing reverse share split is planned to be done before the profit distribution. So the Board is now proposing that kind of 2 shares would be merged into 1 share, meaning that the number of shares would be halved after this exercise. And more details of this then will be following when we publish the Annual General Meeting notice. Then -- if we look at the profit distribution, then the comparable earnings per share was EUR 0.09 compared to EUR 0.10 in '23. And then the Board's proposal is to make a capital return of EUR 0.055 based on this profit. And then after the reverse split, then this would mean EUR 0.11 with the new share count. So this was my part, and now I invite Toni back to discuss the outlook.

Thank you, Paivi. A few words on the '25 outlook. So as we have been discussing today, the market conditions are pretty soft. And therefore, it impacts, of course, on our outlook. And how do we see the situation is that on the net sales side, we estimate that the current net sales level will remain compared to last year. So we will be staying at the same level. But then we have several profitability improvement actions ongoing. And therefore, we are forecasting that on the EBITA side, we will stay at the same level or improve this year slightly compared to 2024. So that's the current outlook compared to the market situation, and now it's time for the questions.

Thank you, Toni. Thank you, Paivi. We have good amount of questions already with us. And to the audience, there is still time to share something that you have in your mind to be clarified. Let's start with the MDS side. Do you think that currently solid order intake level is sustainable? Moving forward, as we related to the outlook and things moving forward, you note the high short-term volatility in the segment. Does this indicate softer coming quarters?

Yes. On the Mobility side, the volatility is coming mainly from China. There we have a few larger companies who are our main customers. And normally, they are placing bigger orders at once, which is then causing certain volatility in our order intake. But then on the other hand, the underlying service development is pretty solid on the Mobility side globally. So there, we see positive development and upgrade opportunities also outside of China. So that baseline development with services is not that volatile. It's actually pretty stable from our perspective. But with the Chinese machine orders, we are seeing certain volatility.

Let's stay in China for a moment. Can you elaborate how has the transfer of preprocessing equipment production from Switzerland to China developed in addition to something you already shared with us?

So basically, we announced the plan last summer that we will implement the transfer and complete it. So everything has been proceeding according to the plan. So in that sense, positive development. We haven't been seeing any negative surprises. And like mentioned previously in the presentation, we should be very well ready by next summer with the transfer activities. And that will, of course, then help us with the fixed cost side.

On Architecture side, lower machine margins affect profitability negatively. Could you elaborate what were the main reasons behind this? And how has the order book margin profile developing?

Maybe, Paivi will take this one.

Yes, the -- in Q4, we started to see some impact from the machine margins being lower, whereas the most part of the first 3 quarters, we had a kind of stronger margin performance. And I kind of took this up briefly in the presentation. It is mainly coming from the Tempering side where the markets have been softer longer and also the order intake has not been as steady and stable as it's been more on the Insulating Glass side. And there, we do see some kind of decline in the backlog margin. So it means that when those projects are coming to revenue recognition, then the margin is lower than it was a year before. Then, of course, the question is that how much can we then compensate this margin development in the backlog by different actions that also Toni explained when going through the strategy.

On that note, could you elaborate a little bit more to the audience, the margin drivers in '25 in terms of pricing versus the costs?

Yes. Of course, on the pricing side, there is pressure coming from the marketplace. As we described, the markets are pretty soft. So usually that then impacts on the prices in general -- in a negative manner. But then on the other hand, we have been initiating several actions on the cost side, which then help us then to improve our cost base, both with our margin and then also with the fixed costs, certain sourcing activities through the transfer of production, which then naturally will transfer our supply chain towards Asia. So that will definitely help us. Then on the other hand, we are focusing on 3 factories, which then means that the factory efficiencies should go up as we only have 3 factories when moving forward after the summertime. So that should increase then the productivity and then impact on the unit costs.

Thank you. There's a question actually related to factory utilization. Is there something that you can say about the current situation in addition to what you just shared with us?

Yes. As described during the previous answer that the production efficiencies we are seeing that they should be going up when we get all the production transferred by the summertime. So at that point, as we are only in 3 factories, it means that we can level load the factories in a better manner than last year.

Thank you. Still related to profitability. How do you expect the phasing with potential margin improvements in 2025? Will the most EBITA improvement come in the second half of the year? So a little leading question.

Yes. Of course, when the production transfer has been completed, then after that, we should be seeing more impacts on our profitability side. At that point, we don't see any like restructuring costs, which we will still have during the first half of the year. And then on the other hand, then at that point, all the fixed costs related to the Swiss operations, which we are planning to take down are then taken down and we have the cost base at the targeted level. So naturally, that will lead to a situation that the second half of the year should be better for us.

Yes, I would agree that it's always good to remember that the different actions that are initiated, it takes some time before they really show in the P&L. So for that reason, the impact is not happening immediately, but it will take some time.

Yes. May you explain in a little bit more detail the bridge from EBIT to EBITA of EUR 15.3 million and how the bridge looks like in '25?

If we think of our reported EBIT and then comparable EBITA. So there are two items between those two. One is items impacting comparability, and we had a lot of them definitely last year. We had -- we started this transfer of the preprocessing from Switzerland to China. We also had some other restructuring costs. We've announced the reorganization after the summertime. And then also, we have costs from a bigger kind of a patent case in the U.S. where we have kind of sued our competitor for patent infringement. So those are the main reasons for the items affecting comparability. And out of these, at least this kind of Swiss transfer to China is continuing and the costs last year were roughly EUR 2 million. The total expected roughly EUR 6 million. So there will be more costs coming from that. Then the other part between these two is amortization. And that is mainly coming from capitalized R&D. And in '21, we launched a strategy, which was a lot about investing more in product development and new products. And now we have started to see the amortizations of those capitalizations hitting the P&L. And for that reason, the amortization also increased last year compared to '23, and there will be some increase also in '25 as those kind of capitalized projects then enter to a phase where the amortization starts.

Thank you. Paivi, I think you may continue with a couple of more, okay? What do you expect on change in working capital in '25 as well as the CapEx levels, including the capitalized expenditures?

Working capital, if we start with that is totally dependent on the order intake. So -- and that is dependent on two things, I would say. One is the market situation, whether we'll see a recovery this year or not? Or then -- and then what is our capability then to capture all other potential opportunities that are there in the market with our new products or our service offering and so forth. So for that reason, it's practically impossible to give any indication. I would say it very much depends on the new order intake. Then CapEx, if you then look at the amount of capitalized development that we had last year compared to '23, it went down quite a bit. And then I would expect that to be roughly the same level for this year.

And then there's a very specific number suggested here. Do you expect your CapEx to sales return to around the 3% level now in '25?

Well, I think it's better not to answer that question considering what I said about CapEx because then that would indicate something about the net sales.

Absolutely understood. But on that note, related to the outlook, what are the assumptions within the guidance given the trend in order intakes? Do you expect stronger second half sales and the profitability numbers? Do you already see better order intakes, which underpins the expectations? What is the sentiment behind the outlook?

Yes. Maybe I'll start at least with the order intake. So what we are seeing is that, of course, the global market is soft. And we believe that the second half might be a bit better, but we are not expecting any major jumps during the year. So steady development, most likely what we should be seeing and in a similar way as we saw last year. So nothing significant expected as such that there would be bigger jumps in our forecast. Then on the other hand, from the profitability point of view, what we are doing is that we need to maintain strict cost control, especially in this type of a situation. And through that, we believe that we have a fair chance to improve our profitability during the year.

Thank you. Let's move with a couple of questions towards the market areas and the customers. Let's start with Europe. What are the biggest headwinds in EMEA currently? And what is the key pushback from bigger clients for the lack of investments, specifically referring to Europe?

So in Europe, I would say that the customers are in still the same mode that they are not looking for additional capacity. So not too many companies are seeking out to invest in additional production capacity. Instead of that, they are looking for production efficiency, energy efficiency and so on. And through this development, we are seeing more and more upgrade orders, more and more service orders and also individual machine investments, which the customers are implementing in the middle of their production lines, to gain more cost efficiency, for instance, or productivity in their current facilities. So they are not ramping up new facilities. And for instance, this upgrade development, positive development on that side was visible last year in our figures and our upgrade sales increased. So that would be the overall market outlook, both for Architecture and Mobility in Europe.

Thank you. Expanding to global level, is there something in addition to operating environment sentiment that we discussed earlier that you can elaborate on the market sentiment per market area? Or on the other hand, what are the customer segments? And what is the behavior in each of the market areas?

In that respect, the development is pretty similar as in Europe. So also in North America, in Asia, we are seeing similar development that not so high investments or even moderate investments in new capacity, but many customers are looking for improvements with their existing production facilities. And then the only like a major difference compared to this trend has been China with the Mobility segment. And there, we have been seeing these reprocessing orders. And like I said previously, some fluctuation with those, but still the trend is positive over there, and we still see that, that demand continues.

Thank you. Then something that I interpret this outside our reach of impact, but a couple of questions. Would the end of the war in Ukraine help you, so especially on the Architecture side?

I would say that it could create demand for certain countries, like, for instance, we have certain customers in Poland. Most likely, they could gain some new business out of this situation because, of course, a lot of construction work needs to happen in Ukraine, hopefully, when the war then ends sooner than later. But we believe that it would mean investments, especially in the surrounding countries with our existing customer base, but the magnitude of investments, that's difficult to estimate in advance.

Thank you. And then a very typical question related to tariffs, which are happening. Let's say, around the world, and one could even speculate. What is the estimate and the impact on Glaston's business should those be in place?

All in all, again, I would say that we are well positioned in that respect. So for instance, if we compete against players who have only manufacturing in China, then when they are exporting to countries which might raise up these tariffs, then they don't have any options than to face the tariffs. On the other hand, in our case, we have the flexibility between our factories that we can supply both from Europe and China, which then benefits us in many ways, especially against competitors who are just operating in individual countries. Also, this benefits us if China is then implementing certain tariffs and actions against Europe because then we have local manufacturing in China. So with our global network, we should be very well positioned against tariffs.

I would maybe add to this also the fact that, of course, no one is enjoying this uncertainty. So it's then something that is kind of adding to this global kind of uncertainty and making customers hesitant to make those investment decisions.

Thank you. It seems like we are running out of questions. And at this point, a little reminder about the upcoming financial reports for this year. So early May, early August and end October, we look forward to seeing and hearing you again. But Toni, is there something specific we would like to raise at this point.

Yes, definitely. So the next report will be then provided together with Magnus Sjöblom, who will then start as the CFO in March. And Paivi is then moving to a new company, to new challenges. And I want to thank Paivi for her great career with Glaston. So she has been with us for many years and has been involved in several major topics in the Glaston's history, including the major acquisition, what we did a few years ago. And all those have been happening successfully throughout Paivi's career with Glaston, we have been seeing positive developments in many ways in our figures and in our organization. Paivi is very well liked throughout the organization. So that I can say. So we will be missing her when she's leaving us. But I really want to give big thanks to Paivi for her contribution and hope her very successful career with the new employer.

Thank you, Toni. Overwhelming words. And of course, it's -- I also want to say to everybody that I'm very thankful for the actually 8.5 years with Glaston. This company is very different from what it was when I started. But that also, I think, makes me proud and hopefully also makes everybody at Glaston proud that it's not an easy industry, but I think we continue to kind of move forward. And I think that Glaston is a great company with great people, and I will be following up very closely what is happening. So thanks, everybody.

Thank you, Paivi. And on behalf of the people in this stream, I trust that they share their greetings with you as well. With this, I want to thank Paivi. I want to thank Toni, and thank everybody for joining us and listening and sharing very, very good questions like always. Thank you, and happy Valentine's Day.

Thank you.

Thank you.