Glaston Oyj Abp (KRY.F) Q3 FY2025 Earnings Call Transcript & Summary

Hello all, and welcome to Glaston's Q3 Webcast. My name is Agneta Selroos, and I'm in charge of Investor Relations here at Glaston. Today, our CEO, Miika Appelqvist, will start with the Q3 highlights and market review. After that, our CFO, Magnus Sjoblom, will continue with the financials. After the presentation, there is a Q&A session. Miika, over to you.

Thank you, Agneta. Let's review our quarter 3 results and how did the markets develop during the period. We will go through the highlights. We will review the market, the financial development and of course, then the outlook for rest of the year. Let's start from the market. Architectural market overall remained soft, and that was visible in many, many parts of the world. There are some areas that are a bit picking up, but mostly the architectural market is soft. And as a result of that, order intake decreased from the previous comparison period, but then grew from last quarter. If we look a little bit about what are the market areas and how the market areas are doing. In China, the architectural market remains very soft. We have seen a strong decline over the last years. Now that is stabilizing, but growth is not yet there. North America, at the same time, driven heavily by the tariff situation and overall uncertainty, then in North America, the orders are still larger orders and larger projects are not proceeding fast at the moment. In EMEA, which, of course, includes a lot of areas at the moment, we can see that investment activity overall is still relatively low. There are certain countries where some picking up can be seen, but overall soft environment. What was positive is that we grew 2% with net sales. So the net sales in quarter 3 was EUR 56.5 million. And out of that, services share was 38%. So service continues to be important for us in this challenging market environment. And as a result of, we could say, strong net sales, our profitability improved. Our comparable EBITA was up 15% to EUR 4.8 million with our -- for us, strong potential margin at 8.5%. During the period, we also launched the cost reduction program. We informed about that in conjunction with the quarter 2 results, and that program has proceeded as planned. At the same time, we work with a strategy update and with about that, we do have some news to share also today. If we look a little bit more about the operating environment and different business lines and different geographic areas. Architectural market overall, as said, is at the moment, a challenging environment. There are certain countries, certain areas where some bright spots can be seen. I will mention here, again, China, even though the overall architectural development is not strong in China, for us, there is a niche where we are strong, and we can demonstrate our technology competitiveness, which is especially in this insulated glass category and TPS technology. If we look at then other parts, Americas and EMEA, both very important markets for us in terms of our orders and profitability. EMEA continues to be challenging in several parts of the EMEA area. The construction indexes are still going down and forecast are going downwards. And that's why we don't see at the moment any bigger fast recovery in the architectural environment. Americas is a little bit twofolded. In Americas architecture, we can see that some of the household market development is a now a bit under pressure, not a lot of growth at the moment, whereas then some commercial part of the architectural market is still going forward, but driven mostly by the tariff and all the related uncertainty, the market environment as a whole has been soft. Then if we look at the mobility market. In the mobility area, China has been the place where the market has shifted during the last couple of years. And we continue to see success in China. We had a positive market environment or positive development, we could say, in quarter 3. And in China, the EV growth, especially electrical vehicles continue to grow, and that supports then the growth that can be -- is visible now in the numbers overall in EV market, whereas then European and American car manufacturers are in a difficult position. And that, of course, is reflected to the investments in the supply chain, which is reflected to our environment. And there, we did not see a positive development in EMEA and Americas. Services market, as said, in overall soft market, services is super important for us for our profitability, especially. Now Americas is doing very strong. At the same time, when new investments are being considered maybe more than in the past years, services growth is there. This is driven by many things. Still the utilization rates are relatively good in Americas, and that drives the overall kind of standard service business. But of course, the lack of labor continues to be an issue in Americas, and that is then visible to us as a growing demand in services. So that is an opportunity for us. In EMEA, the service business has been quite stable. And also in the downturn market, services is performing well in EMEA. China services market continues to be a challenging service market for us. We are doing growth investments over there, but the overall services logic and the services environment has not changed in China. That's about the operating environment. And now when we go to a couple of updates regarding other development during the quarter 3. First of all, we announced 3 months ago, a cost reduction program with a target to improve our profitability in -- during this more softer market environment to ensure our profitable performance. And as a result of that, this has been one of our main priorities during quarter 3 to advance in this area. I mentioned a couple of things that went forward during this period. There were personnel-related items in Finland and in other locations where we completed personnel reductions to decrease the fixed costs. In addition to already done actions, we have prepared ourselves then for flexibility. As an example, this temporary layoffs that give us flexibility in terms of our utilization and then a guarantee and give us a good position to cope with the softer market demand. Other things, supply chain operations, we concluded as part of a larger project of moving Switzerland production to China. We also -- so mobility production from Switzerland to China, which is now completed. And then we also -- during this quarter 3, we transferred our spare part operations from Switzerland to Germany to further centralize our supply chain and gain efficiencies through that. As a result of our cost reduction actions, as published earlier, we announced EUR 6 million program and the timing for that EUR 6 million program was that we will reach an annual run rate saving of EUR 6 million by the end of '26. And now by the end of quarter 3, we have reached already EUR 2.6 million, and we are well in track with the overall program. Then a couple of other things about the strategy. We started our strategy update process during the summer of this year. And the purpose of that is to ensure we have right actions to meet our medium-term growth and profitability targets. And even though we will come out a bit later on the overall strategy update, but we do have a fast track because we want to implement certain things very fast as part of the new or updated strategy. And one of them is something we launched today, which is another brand to Glaston Group. And this is called Uniglass. One of our challenges in Glaston and in our growth has been and still is our addressable market and how much we can grow with our current offering in our current addressable market. And to expand this to enable further growth, we are launching now Uniglass with new offering that broadens our offering to the market and especially targets wider customer base than today. We will do it also with a new way to this industry. It's digital buying experience. We invest -- we believe strongly that this digital buying and digital way of getting information is important for our customers increasingly also now in B2B, and we utilize now this sales strategy with our new Uniglass strategic growth initiative. With that -- and with that summary, I would like to give then the floor, Magnus, to you for financial numbers.

Thank you, Miika. So let's start with the order intake. The soft market impacted order intake. It improved from previous quarter, however, still on low level and not what we are targeting. The third quarter order intake was EUR 43.4 million, which was 18% down from last year comparison period. Looking at the order intake from product area, tempering and laminating technologies were most affected by the challenging market conditions. And the received orders was EUR 5.3 million and down 50% against a rather strong comparison period. In the quarter, FC and RC Series lines orders were placed in Poland, France and Mexico. IG was up by 16% and being at EUR 13.8 million, positive was the IG orders that were gained from China. Mobility at EUR 4.1 million, down by 62% against the comparison period. Services, on the other hand, at EUR 20.2 million and up 5% compared to Q3 '24. Moving on then to net sales. The Q3 net sales were at EUR 56.5 million and up 2% against the also strong comparison period. When looking at Q3 net sales by product area, tempering and laminating technologies were up 3%, being at EUR 9.3 million. Insulating Glass Technologies were down 6% at EUR 17.1 million against a somewhat high comparison period. MDS technologies at EUR 9.5 million and up 15% due to increase in preprocessing technologies in China. Services at EUR 21.2 million and up 1% with increase in upgrades. Then let's move on to net sales by region. Americas at EUR 15.3 million, an increase of 9% year-on-year and catering for 27% of the total revenue in the quarter, increase mainly coming from Insulating Glass. EMEA at EUR 25.1 million and 44% of the total revenue, an increase of 6%, mainly coming from tempering machines. APAC was minus 9% against the comparison period and total at EUR 16.1 million, which is 28% of Glaston net sales in Q3 '25. China share was 24% of Glaston total net sales in Q3. Then moving on to the profitability. So our comparable EBITA was up 15%, landing at EUR 4.8 million. And the comparable EBITA margin was up to 8.5% from 7.5% in comparison period. I will then go into more details in the reporting segments. So let's start with Architecture segment first. The order intake, machine orders were down by 15%. Softness of the market affected order intake, where tempering and laminating technologies were especially lower against the comparison period, only partly offset then by Insulating Glass Technologies that increased from the low comparison period. Service order intake up by 7%. Net sales were in total up by 1%. Tempering and laminating technologies were up 3%, insulating technologies down 6% and services, 7%, which was more than offsetting then the machine decline. EBITA margin at healthy 8.6% and landing at EUR 3.6 million, which is a decrease of 6%, mainly coming from lower machine margins. Moving on then to Mobility, Display & Solar. The order intake was down 42% against a very strong comparison period. Machine orders down by 63% and new orders gained mainly in preprocessing orders in China. Services on the same level. Net sales up by 6% and landing at EUR 14.3 million, increase coming from higher share of preprocessing machines. Service down minus 17% year-on-year. Comparable EBITA was EUR 1.2 million with an increase from comparison period of EUR 300,000. The profitability improvement mainly due to lower fixed cost and higher volume. Then about the cash flow. Our operating cash flow was minus EUR 2.8 million in Q3 '25. Operating cash flow was impacted by the soft market, meaning the amount of advanced payments from the customers were smaller due to lower order intake. The balance sheet is then reflected the negative net change in the cash flow, hence, gearing increased to 45%. That, I guess, is now my part and I hand over to you, Miika.

Thank you, Magnus. Let's then go to the outlook. And here, we reiterate what we said after the second quarter, both in terms of profitability as well as the net sales. So we expect the net sales to be between EUR 206 million and EUR 215 million and comparable EBITA to amount to EUR 13.1 million -- from EUR 13.1 million to EUR 15.1 million. In 2024, our figures, sales was EUR 217.9 million and comparable EBITA was EUR 15.3 million.

So thank you, Miika. Thank you, Magnus. And now we are ready for the questions. And we have received some questions already, and let's start with the first one. The question is as follows: clear profitability improvement in MDS. What were the main drivers? And was there some timing tailwind? Or should we expect these levels to continue?

Yes. We -- last year, we had a very strong order intake development in MDS, and we received a couple of larger, which we also announced separately larger orders from China. And mostly the profitability development was driven through volume. So the volume was high. And since our orders now this year are not at the same level, we expect there to be some stabilization, but it's also a result of the kind of the internal work that was started then when moving the production from Switzerland to China and now working on the localization items to improve the profitability of the projects.

Thank you. And then the next one, what kind of one-off costs are you expecting related to the cost reduction program? And when will these be recognized? And overall, how do you see the one-offs in the coming quarters?

I can start here. So first of all, restructuring will be visible in one-offs in the fourth quarter. So we did the restructuring items, many of them now during quarter 3, and there will be visible one-offs then during quarter 4. What we are happy about is that after we could say even a long period, we were able to now in quarter 3 demonstrate that the one-offs are kind of -- that they are one-offs, and there were less one-offs now in quarter 3. And that, of course, showed immediately in the EBIT level and that we can be proud of. So overall, we have a clear target to reduce the one-off level that we have had now during the last couple of years.

Magnus, do you want to add something?

No, I would say that I think as Miika said about one-offs, there will come of those naturally, our ambition is to reduce the one-offs going forward, and we want to manage that carefully. But there will be one-offs from the restructuring still in next quarter and so.

Then the next one related to services. How sustainable do you see this current positive momentum is in services? Has your underlying service margins improved from previous years?

Services for us is super important. And now 38%, a bit even more from the net sales, of course, that impacts also to profitability. We do see stable development there. So this was not kind of a huge jump there, but we see stable positive development, a bit differentiates then between business line, between area, but Service is our #1 strategy initiatives and continues to be that. We want to increase the share of Service. And this is where we -- even in the challenging environment, this is where we invest and we put a lot of efforts there. Regarding overall kind of margin development in Services, we don't see any huge jumps there. But it's about this incremental continuous development services, more transactional business compared to our equipment business. And there, every development matters. And of course, we aim to keep and increase the profitability. But most important for us is to grow in Services. And this goes to the traditional areas like parts, like different kind of upgrades or retrofits or service work. But it also goes in general that we want to be close to our customers. And at the same time, when creating continuous customer value, also then get a larger share to our direction then through that value creation to our customers.

We go to the next one. Your year-to-date cash flow is negative. How do you see the cash flow developing in short term as orders and thus advances are on lower levels?

Maybe I can start here. So I think, first of all, we are doing actions all the time to cash management actions and the net working capital actions should have positive naturally. We are dependent on the order intake and the advances plays an important role. So that will have an impact on the cash flow and the development. Hence, order intake in the coming quarters are naturally important that we continue to gain.

Okay. And then we go to the next one. How much less are the IG margins in China compared to EMEA and North America?

We don't comment on exact margin level of our product level. But we can say that they are slightly lower in China, very competed market overall, but also the operation is a bit different if you compare to Europe versus China, but they are slightly lower than in Europe, for example.

And the next one is related to order intake. How do you see the current order intake trends? Your orders did -- your orders grew quarter-on-quarter. So should we expect similar momentum to continue?

For us, at the moment, there is a very clear priority, and that's to increase orders. Increase of orders is -- goes at the moment beyond any other priority what we have at the moment and all our efforts go there, and we have a clear target to increase the order levels from what we have seen now in the past 2 quarters.

Then the next question is about MDS. So the MDS margins were very strong, likely supported by the strong Service sales in the big picture. Can we rely that MDS margins will stay positive despite the lower order backlog?

Services there very important. And for Service, we have a strong installed base where actually, if we look at the kind of a comparison period from last year from an installed base perspective, there is even a -- we could say, even negative development in some of our customers have closed some manufacturing facilities, for example, in Europe, which have a negative impact on that. But still the performance and overall impact on our profitability there is significant. But MDS, especially, I would maybe repeat that the revenue growth that we have had there has a very big impact on the overall profitability development in MDS.

Yes. I would maybe continue still that -- also, I think the actions taken when it comes to the fixed costs is then also supporting the EBITA improvement in MDS.

Thank you. And then the next one is about the order backlog. How worried are you with the order backlog development if looking already into the next year?

Well, here, I maybe repeat what I said about what is our priority and our priority is orders. So at the moment, the main thing is to increase the orders, and that will have then a positive impact on everything else. And we know that the market is not at the moment, giving us a lot of support, and there are fierce competition at the moment from the -- on those projects that are on the market. But we trust our offering and we trust our kind of team performance. And from that point of view, we believe that we can get the orders now what are available in the market.

And then one final question, at least at this point. You have today launched the Uniglass brand. What are your expectations?

Yes. This is a big step for us in terms of strategic approach on how do we approach customers and which customers. So in this case, our target is to expand our addressable segment and grow then mostly to new customers. And that, of course, is important. And this is now a second brand, second sales channel also for us, and we can -- we believe we can increase our overall coverage among glass processors as a whole. So strategically important steps. Having said that, of course, when we are doing something new, there are risks and uncertainty involved. And we have internally talked about internal start-up, and that's the spirit how we are now launching and running Uniglass. So we aim to keep the operations lean. We aim to keep the model towards our customers. The sales model is then driven by this digital sales experience and buying experience and that kind of lean, fast, transparent way is what we are aiming with the Uniglass initiatives. But at the same time, regarding the expectations, we are -- we will -- we have internally high expectations, but we need to remember this is a new initiative for us, and then we approach it a bit like a start-up company.

Thank you. So now there are no further questions. So I think this now concludes our session today. Thank you, Miika. Thank you, Magnus, and thank you all for the good questions. I want to thank you all for following our webcast today and wish you all a lovely day. Thank you.

Thank you.

Thank you.