Glaston Oyj Abp (KRY.F) Earnings Call Transcript & Summary

Welcome to Glaston Corporation's Q2 and First Half 2025 results webcast. My name is Pia Posio, and I will be hosting this session together with my colleagues, our CEO, Miika Appelqvist; and CFO, Magnus Sjoblom. Soft architectural glass equipment market affected our order intake during the quarter. And today, you will hear more details about the Q2, we will go through the market review, financial development and towards the end, also discuss the outlook for rest of the year. You can share your questions during the presentation already. We have reserved time for those towards the end of the meeting. And today, also, Miika Appelqvist is on stage for the first time in his role as Glaston CEO, and we will discuss with Miika about his insights in the new role and the next steps moving forward after the questions have been covered. So welcome on board and welcome Miika. Would you guide us through the Q2 and discuss the market a little bit and let's carry on.

Absolutely. Thank you so much, Pia. First of all, I have pleasure to be here first time now during my Glaston career. So happy to walk you through now the quarter 2 market development as well as the outlook forward. Let's start with the quarter 2. So no doubt the quarter was challenging for us. If we look at all the markets, EMEA, APAC, Americas, then we look at our end segments, so automotive, architecture, especially. There were very few countries where these segments where the market developed positively during the quarter 2. So there were some headwinds definitely in the market. That resulted in our order intake falling quite significantly from last year's level, 24%. However, then we saw also very good things happening in quarter 2. I have to say that personally, I'm very happy to see that the development process where we are investing, especially in the Insulating Glass, there we had good success in quarter 2. So that's something that will support the future, and I'm very confident that, that success will continue. Now net sales, actually, we grew compared to the comparison period 4%, out of that compared to the prior year, EUR 51.7 million, and then net sales grew 3%. And actually service net sales and service was 38% of net sales. So that from -- even though the net sales was a bit lower than services was a good share of that. Now in terms of profitability, EBITA, we were roughly on last year's levels. So there EUR 3.1 million with an EBITA margin of 6.1%. So that's very shortly reviewed the financial development of quarter 2. Other things that happened during quarter 2, there was a reverse share split. And then personally, I started as CEO 1st of June. Let's look a little bit then more about the operating environment and what has happened in architectural and mobility markets all over the world, looking at our main markets. In EMEA that start from the architectural part. So there, we saw a very challenging market. So construction indexes in Europe, in general, there were Spain was one country that is growing, but that's one of the few countries where the architectural side is at the moment growing. If we continue then on the architectural side, then in Americas, we all know what has happened in quarter 2. So there, the tariff situation did impact quite a lot of the demand environment and customers proceeded quite slowly with the investments. China was twofolded, I would say so. But first of all, the kind of the basic market, volume market, that was still low. But then I mentioned the success that we have had in our development projects like the TPS technology Insulating Glass. There, we had good success in China. I'm Very happy about that. And I have to say that also gives then a great confidence. If you can make it in China, you can make it in everywhere in the glass industry. Then if we look at the mobility market, there, EMEA, Americas, both of them there, the EV boom happening at the moment is creating a lot of turbulence in the market at the moment. In China, it's very twofolded. So we can see, at the same time, new EV car manufacturers coming into the market, creating growth. But then we also see that there are several players that are struggling with big inventories, and that's why the building the supply chain is also slower than it was last year. Then if we look at services, EMEA, we saw relatively stable development. But in Americas, we saw that maybe the investments were not increasing as according to what we anticipated but then at the same time, services was very strong. So the lines are running services and the needs from the customers are there, and I'm very happy to see also our organizational performance there to increase the -- to grow the numbers in services. So that's shortly the operating environment. And now after challenging quarter 2 and the lower-than-expected order intake, we did announce this morning new actions to address the situation. We announced that we will launch a program, cost reduction program, with a target to result in EUR 6 million annual savings. So that program will be a wide-scale program. There will be several categories that we are addressing there. The target is to address the growing fixed costs and especially align the fixed cost to the current market situation to increase our long-term performance. We will do, at the same time, we will analyze a bit more and execute changes then into our operating model with a continuous target to keep driving towards our strategic goals and serve faster and more efficient our customers. This plan will have also personal impact. And overall, in Glaston at the moment, we have 800 persons globally working for Glaston. And we estimate that as a result of this program up to 40 employment contracts then will be -- can be changed. So that's the actions that we are now taking in the lower market situation. Then those of us who have been following our company for a longer period of time, you have may be seen recently several changes in the management team. I started personally 1st of June. I've been in Glaston over 15 years. So know the industry very well. But I want to say also a couple of things about the leadership team deemed now here. Personally, I'm super happy about the team composition. We have a great split on glass industry knowledge and industry knowledge. About half of the person you can see in this picture, have been in the industry for a long time, well over 10 years. So we have a great domain expertise here then supported by subject matter expertise. So good combination and I feel very confident in continuing the journey then together with the team. And next, I would then invite one of the colleagues to go through the financial part, Magnus.

Thank you, Miika. So the financial development in Q2, let's dive into the numbers. The weakening market impacted our order intake in Q2. Glaston order intake was EUR 38.1 million, a decrease of 24%. If we look at that more from the product area split, we see the biggest decline in the tempering and laminating technologies falling 65% and landing at EUR 6 million. During this quarter, smaller orders were placed than in the quarter -- the comparison period quarter. That was also sent. This is against a rather small comparison period. Then when it comes to mobility display and solar technologies, we fell 49% and landed at EUR 2.5 million. In the comparison period, we had a MDS heat treatment line that was a big order in that comparison period that was now not placed in this quarter. Moving on to net sales then. Net sales was 4% up at EUR 51.7 million. We see that the comparison period was EUR 49.9 million, which was the lowest in the last 2 years. So the 4% up is a modest result. We look at the tempering and laminating technologies that was EUR 9.2 million and on par with the comparison period. Insulating Glass EUR 16.2 million, an increase of 10% against a rather modest comparison period. Mobility, Display and Solar up 3% and was EUR 8.3 million. Here, we see the PP in China taking -- lifting this a bit. Moving on then the net sales to the regional level. We have split of 31% of the net sales in Q2 was in Americas. Americas, EUR 15.8 million and 3% up, Insulating Glass is the biggest contributor here. EMEA, 45% of the Glaston total net sales landing at EUR 23.1 million and up 7%. Here, tempering and laminating was the positive sign in here. Then when looking at the APAC, that was flat quarter -- year-on-year for the quarter at 12.8%. Out of this 25% share, China cater for 18% of this. Then moving on to the comparable EBITA and EBITA margin. We had a decline of 5% compared to the last year similar quarter, landing at EUR 3.1 million. We had a 6.1% EBITA margin. And as you can see, in the trend, the typical trend has been that the quarter 1 and quarter 2 are always somewhat lower than the second half of the year. So moving a bit more into details into the reporting segments. Here, we see the order intake of architecture. Let's start with that one. So architecture order intake in total was down 22%. The machine part of that was down 32%. We see the softness really in the architecture market and the tempering and laminating was the most affected of that one. Order intake in Insulating Glass machines were increased. However, that was against a low comparison period. Service orders down 3%, and as said, in total, architecture order intake, minus EUR 22%. Net sales increased in machines by 6% and tempering and laminating at the same level, insulating up 10% and service slightly growing and the share of service in architecture is 37%. Comparable EBITA declined against a strong comparison period, landing at EUR 6.9 million. Mobility, Display and Solar profitability increased, however, are still modest. The order intake was down 32% from a high comparison period. Machine orders as said, down 49% and service down 13%. China continues still to be the most active market in the preprocessing technologies. Net sales also down by 3% here due to lower volume in service. Profitability increased, improved from EUR 0.1 million to EUR 0.5 million and that's mainly because of somewhat lower fixed cost and also the gross margin contributed now a bit positively. Comparable EBITA at 3.7%. Then moving on to the cash flow and net debt and gearing. So here, we see that the cash flow during Q2 was positive EUR 2 million. However, the gearing went up from previous quarter to 40% against a year-on-year comparison, it's somewhat lower, but 40% compared to 33% in previous quarter. And then reasoning being mainly that the capital repayment was burning the gearing as such. I guess that was then my part, and I hand over Miika to you about the outlook.

Perfect. Thank you, Magnus. Let's go through the outlook. Basically, we are reiterating what we announced a couple of weeks ago in connection with the profit warning. So we expect the net sales to be between EUR 206 million and EUR 215 million and comparable EBITA to amount starting from EUR 13.1 million to EUR 15.1 million in that range. So basically, net sales and comparable EBITA will decrease from the previous year's levels. Thank you very much. That was quarter 2 in brief. And now we move on to questions.

Yes. Indeed, we do. Thank you, gentlemen for so far. We have quite a few questions related to orders quite naturally here.

So let's start with the timing. So was there any timing issues on the weak Q2 orders? Or is it about closing enough deals during or is it customer hesitancy or whether it's a lack of actions altogether?

Well, I would say it's a combination. So there were -- we are in a project business. We are in a certain, we could say, cyclical part of architectural part ,for example. So we could see less activity than in the market overall. So that was clear. Then at the same time, there were external items like the tariff situation that clearly impacted each of the market areas more than we expected in the beginning of the year. So there were both. There were certain timing issues, investment did not move forward as planned because of the increased uncertainty that was present basically in the whole global world during the quarter 2, especially hitting then the architectural side of our business.

Continuing on that one, as the tempering and laminating segment has seen very high order volatility on top of quite a negative trend over the past few years. How do you see the segment growth opportunities mid- to long term? A bit speculative, but what could you elaborate?

Yes. This is definitely -- if we think about the longer term, especially tempering development. So market as such has changed its could say, the form and the competitiveness during the -- or competitive logic during the past 15 years. And there seems to be now market is forming so that there is a clear segment, certain part is a bit commoditized. And there, we are fighting heavily to keep the market shares. But we do have a good share in that top segment. For the moment, these are the bigger companies who are especially hesitant with the investment in this kind of increased uncertainty environment and that's why we could see that especially in tempering and laminating the orders a fair long quarter 2, but I would not say that's any sign of that being a competitiveness problem as such.

Have you seen any positive indications regarding demand on Q3 compared to Q2, following up the previous ones. The other way around, do you see Q2 as a bottom due to turmoil in the markets.

Well, I could say so that we estimate that our second half is stronger in terms of orders than the first half. So that's something that we can see at the moment. So I guess we could also say that, yes, we don't think that this is -- definitely, we don't think this is a new normal. So we do see that there will be demand stabilizing, I would use that word then in the coming quarters.

Let's continue a bit on the demand and the drivers impacting the drivers. You've discussed the megatrends and the -- especially the energy efficiency boosting the Insulating Glass business. So how do you see the development on that side?

That megatrend has not went anywhere. So the mega trend is there. And we trust that 100%. And that makes me very confident on the future of the Insulating Glass business. Having said that, it's also important that we need to understand what drives in general these investments. One is capacity available in the market and demand for that capacity. And second thing is capability. So what are you -- what kind of new features, new energy efficient features to the units we can then provide to our customers through our equipment. And these are quite different drivers. So if we see that during the last year and year before, there were heavy investments in creating in Europe, for example, actually all market areas to create that capacity. And if we now see what's happening in the architectural market, now the demand for our customers is weakening. So from a capacity point of view, there is a lower driver for our customers immediately to move forward with the larger investments. But then having said that, and this is really where we have good success at the moment is with these newer technologies, I will mention this, too. So there is TPS technology, super proud of that, that we are succeeding in China with that. So that growth -- that is going forward, and we see good growth also coming later this year, the second half of this year but then also there's some, we call the thin triples where we -- our equipment enables triple glazing units that is as thin as double glazing unit providing then much better energy performance values. And that is really gaining traction at the moment, and we have so strong IP protection there, and we see good development now happening in that area.

Thank you. We've now discussed the architecture quite a bit. So on the MDS side, where the good MDS margin and gross margin contributing in Q2 result from the completed production transfer to China? And I would say, okay, maybe asking also the progress on the preprocessing transfer from Switzerland to China?

Well, I think the short answer is yes. Short answer is yes. So it's been now 1 year with that project. We have proceeded in an excellent way. The team has done a great job in that the localization rates are very high. And you can see that already in the margin development when we have been able to localize that. And at the same time, when the Chinese -- the amount of China deliveries and the China market now we have a strong backlog at the moment there. And that, combined with successful projects and successfully developing projects with the localization rates going up, that is now resulting in the margin improvement that we can see.

I would maybe continue there still that I think that the efficiency in the factory is also improving, thanks to the knowledge transfer and the project has been rather successful because of that.

Yes. How has the pricing environment developed this year on the weakening market?

Well, that's twofolded also, and I would split it into these 2 categories. So in certain product groups, which are more capacity-driven there, the pricing pressure has been -- has increased. We can see that in all investments. But then we do have categories where we have very unique value proposition towards the customers, and that supports then our pricing. And in general, that has resulted in a situation that the margin performance has not significantly changed.

You still had a lot of one-offs in the Q2 numbers. Are these finally decreasing in second half? And how do you elaborate the situation?

Yes. So we had EUR 2.5 million one-offs in Q2 mainly most of them coming from restructuring and from the PP move to China. We see that the one-offs should be declining then when it comes to these earlier activities than also in Q3. So there are still some one-offs coming in Q3 because of the move, but not as much as this but this quarter.

Thank you. One more before Miika, we will have a little discussion together. You now have modified the outlook? What is your confidence levels and reasons behind trusting that for the rest of the year?

Well, we do have still a good backlog supporting now the rest of the year performance. At the same time, we are taking decisive measures now to guarantee the profitability. So we trust fully the guidance that we have given to the market, and we are executing on that.

Thank you, gentlemen, for your answers and taking the time to discuss with us. Miika, wrapping up towards the end of the session. You mentioned 15 years in the industry. You've been with Glaston quite some time. So your first observations and maybe to the audience, what are the next steps in Glaston's journey?

Well, I think now we have discussed quite a lot about the market today and certain headwinds that are against us now in the architectural market at the moment, then force the next steps into being that we will now make sure that we adjust and go to a level that is in line with the business environment. So next months and let's say, near-term future, that will be very high focus, we will execute on that. But then at the same time, we are very aware that the main target for us is to do actions that have an impact to the top line. And we have good things coming up. We are committed into the strategical targets that we have set already in the past, this midterm targets. We will not change those. So all the actions that we are planning is to accelerate the development towards those targets. And what we are doing in terms of strategical actions and initiatives, we are now -- we have a new team, new setup, although a lot of cluster experience at the same time we are reevaluating at the moment, the main programs to get there. And I think good things cooking and happy to work now together with the team towards the target as we have said.

If you need to describe the foundation that Glaston is built on, so what is your experience? And what do you believe in?

I think that's kind of easy question actually because everything -- probably even in any company, but I will highlight this in Glaston is the people and the competence. There is a significant amount of experience from the industry. The future is built on people. The thing that is happening, what is strong, has been strong part always and will continue to be main focus is the technological leadership. So people and technological leadership continue to be the focus areas. And then the third part, which will -- has always been the main value proposition of Glaston towards the customers, and we will put even more focus on that is service. This is from both 2 perspectives. Of course, we also know that service business is profitable. But more importantly, that's how we serve our customers, and we increased the market share overall in our offering in the market.

Yes, a very important point. As we've discussed before is the life cycles in this industry can be fairly long, hence, the customer relations as well. We are looking forward to continued discussion with you and with Manka and with you, our viewers in end October when we are about to release the Q3 financial report. And when you see the material afterwards, we've talked about the market situation and the indicators. So here, you have a couple of examples of our way of following the progress in the industry and the impact on our future. Thank you for watching us. Thank you, Miika. Thank you, Manka, and we'll look forward to seeing you again. Thank you.

Thank you.