Glaston Corporation Interim Report 1 January - 30 September 2011

Glaston Corporation Interim Report 1 January – 30 September 2011   26 October 2011 at 13.00
Glaston Corporation Interim Report 1 January – 30 September 2011
 

• Orders received in January-September totalled EUR 101.6 (107.6) million. Orders received in the third quarter totalled EUR 26.8 (38.5) million.
• The order book on 30 September 2011 was EUR 36.7 (39.7) million.
• Consolidated net sales in January-September were EUR 103.4 (111.8) million. Third quarter net sales were EUR 27.5 (31.9) million.
• EBITDA was EUR 3.8 (-1.4) million, i.e. 3.7 (-1.2)% of net sales.
• The operating result excluding non-recurring items in January-September was a loss of EUR 2.3 (7.3 loss) million, i.e. -2.2 (-6.6)% of net sales. Third quarter operating result was a loss of EUR 2.6 (2.8 loss) million.
• Return on capital employed (ROCE) was -1.6 (-8.3)%.
• January-September earnings per share were EUR -0.13 (-0.16) and third-quarter earnings per share were EUR -0.04 (-0.07).

Change to forecast for 2011
Glaston’s outlook has been revised. Weakened market prospects will impact the development of the final quarter. We expect 2011 net sales to be at the 2010 level, and the operating result to be a slight loss. (Earlier forecast: 2011 net sales expected to be least at the 2010 level and the operating result to return to profit.)

President & CEO Arto Metsänen:
“In the third quarter, uncertainty in the world economy grew. The weaker economic outlook was reflected in customers’ willingness to invest and this led to a postponement of larger investment decisions.

In the third quarter, our net sales did not develop according to our expectations and were at a lower level than the previous year. The weak third-quarter financial performance was mainly due to a fall in sales at the end of the quarter. Operational adjustment measures will be robustly continued during the final quarter of the year.

The final quarter will be overshadowed by a slowing of the world economy. The uncertain market outlook will also be reflected in demand for glass processing machines. For this reason, our forecast for our 2011 performance has been revised. We expect 2011 net sales to be at the 2010 level, and the operating result to be a slight loss.

We will purposefully continue our investments in those areas which do not require significant investments from customers, namely Services, Software Solutions and Tools. This week, at the Vitrum Fair in Milan, we will launch a number of new products in the Services segment: the new Warranty5 five-year guarantee programme for heat treatment machines as well as the web shop GlastOnline, which initially will offer a range of spare parts for Tamglass and Uniglass machines, a total of around 1,000 items.

Markets
Demand for glass processing machines weakened during the third quarter as demand developed unevenly in different market areas. In the South American market, positive development continued. In Western Europe, demand remained weak, while in Eastern Europe the machine market picked up. In Asia, the levelling off in the market that began in the second quarter continued in the third quarter. In North America, demand for machines continued to be weak, with customer demand being directed mainly at Services segment products.
Machines
In South America, the stable market development continued in the third quarter. In the EMEA area, uncertain economic development continued and was reflected in demand for machines. An exception was Eastern Europe, where the Polish and Russian markets showed strong signs of recovery. In North America, the market remained subdued, with demand being directed at the solar energy glass segment. In both the EMEA area and North America, caution among investors lengthened investment decision times,particularly impacting orders of Heat Treatment machines. In Asia, growth levelled off during the third quarter.

Measures to improve the profitability of the Machines segment continued. In January-September, the Machines segment’s net sales totalled EUR 63.8 (71.4) million.

Services
The positive development of the Services segment market continued in the third quarter. Demand was directed particularly at upgrade products and spare parts. Compared with the previous year, the Services segment grew in Asia, South America and North America.

Due to growing sales of upgrade products and spare parts, a higher invoicing rate for maintenance work, and faster spare parts deliveries, the profitability of the Services segment improved further. The Services segment’s January-September net sales totalled EUR 23.1 (23.3) million.
 

Software Solutions
There were no significant changes in the Software Solutions segment’s market during the third quarter. In Europe, the holiday season dampened sales, and economic uncertainty undermined customers’ willingness to invest, so no significant software investments were made during the third quarter.

Uwe Schmid began work as Senior Vice President, Software Solutions in July, assuming full responsibility for the Software Solutions segment on 1 September 2011. Under his leadership, organizational changes of the segment have been launched, with reforms being directed particularly at product development and sales. Extensive measures to enhance operational efficiency have also been initiated in the segment.

In January-September, the Software Solutions segment’s net sales totalled EUR 17.5 (18.1) million.

Orders received
Glaston’s orders received in the review period totalled EUR 101.6 (107.6) million. Of orders received, the Machines segment accounted for 61%, the Services segment 23% and the Software Solutions segment 16%. Orders received in the third quarter totalled EUR 26.8 (38.5) million.

Order book
Glaston’s order book on 30 September 2011 was EUR 36.7 (39.7) million. Of the order book, the Machines segment accounted for EUR 33.1 million, the Services segment EUR 1.4 million and the Software Solutions segment EUR 2.2 million.

Net sales and result
Net sales for the review period totalled EUR 103.4 (111.8) million. The Machines segment’s net sales in the review period were EUR 63.8 (71.4) million, the Services segment’s net sales EUR 23.1 (23.3) million and the Software Solutions segment’s net sales EUR 17.5 (18.1) million.

Third-quarter net sales were EUR 27.5 (31.9) million and distributed across the business segments as follows: Machines EUR 16.2 (18.5) million, Services EUR 6.3 (7.8) million and Software Solutions EUR 5.3 (6.1) million. The development of net sales was particularly affected by customers’ unwillingness to invest, which was reflected most strongly in sales of Heat Treatment machines.

The operating result excluding non-recurring items was a loss of EUR 2.3 (7.3 loss) million, i.e. -2.2 (-6.6)% of net sales. The adjustment measures taken were not sufficient to balance weaker sales.

Of the January-September operating result the Machines segment’s contribution was EUR -3.4 (-5.8) million, the Services segment’s contribution EUR 4.7 (2.1) million and the Software Solutions segment’s contribution EUR 1.0 (1.4) million.

The third-quarter operating loss was EUR 2.6 (2.8 loss) million, of which the Machines segment accounted for EUR -1.7 (-2.6) million, the Services segment for EUR 0.9 (0.6) million and the Software Solutions segment for EUR -0.3 (0.2) million.

The loss for the review period was EUR 13.3 (13.2 loss) million, and the loss for the third quarter was EUR 4.6 (5.4 loss) million. Return on capital employed in January-September was -1.6 (-8.3)% and earnings per share were EUR -0.13 (-0.16). Earnings per share in July-September were EUR -0.04 (-0.07).

Glaston’s net financial expenses in the review period were EUR -9.9 (-5.9) million. Financial expenses were increased by a EUR 3.4 million expense recognition arising from additional compensation granted in connection with the conversion of the convertible bond. This recognition had no impact on equity or cash flow, however.

Financial position, cash flow and financing
At the end of the review period, the consolidated asset total was EUR 187.9 (215.1) million. The equity attributable to owners of the parent was EUR 54.0 (57.5) million, i.e. EUR 0.51 (0.70) per share. The equity ratio on 30 September 2011 was 31.5 (28.9)%.

Cash flow from operating activities, excluding the change in working capital, was EUR -8.6 (-11.2) million in the review period. Reasons for the negative cash flow were among other things financial expenses, such as payment of interest on convertible bonds, and the settling of provisions recognised in 2010. Working capital developed positively compared with the corresponding period of the previous year, with the change in working capital being EUR 6.6 (–6.3) million. Cash flow from investments was EUR -3.9 (-2.2) million and cash flow from financing activities was EUR 8.1 (15.0) million.

Glaston’s financing is mainly arranged through a financing package of approximately EUR 74 million concluded in February. In addition, Glaston has a convertible bond with a nominal value of EUR 8.8 million, and a EUR 4 million debenture loan.

Adjustment measures
In the current year, the operational development priorities have been a clear improvement in business profitability and completing adjustment measures. During the third quarter, adjustment measures proceeded according to plan. The restructuring of the Pre-processing product line was completed in July with the merger of Heat Treatment and Pre-processing production operations in Brazil. Measures to adjust production capacity to correspond with demand continued in Finland and Italy during the third quarter. In Finland, a programme to enhance operational efficiency and improve the profitability of the Heat Treatment product line was launched at the beginning of September.

Capital expenditure, depreciation and amortisation
Glaston’s gross capital expenditure totalled EUR 4.1 (3.2) million. In the review period, there were no significant individual investments; investments were mainly directed at development expenditure on new products.

Depreciation and amortisation recognised during the review period totalled EUR 5.9 (5.6) million, and impairment losses on tangible and intangible assets were EUR 0.0 (0.3) million.

Organisation and personnel
On 30 September 2011, Glaston Corporation had a total of 898 (997) employees. Of the Group’s employees, 17% worked in Finland and 40% elsewhere in Europe, 28% in Asia and 15% in the Americas. The average number of employees was 907 (1,046).

Shares and share prices
Glaston Corporation’s paid and registered share capital on 30 September 2011 was EUR 12.7 million and the number of issued and registered shares totalled 105,588,636. The company has one series of share. At the end of September, the company held 788,582 of the company’s own shares (treasury shares), corresponding to 0.75% of the total number of issued and registered shares and votes on 30 September 2011. The counter book value of treasury shares is EUR 94,819. 

Every share that the company does not hold itself entitles its owner to one vote at the Annual General Meeting. The share has no nominal value. The counter book value of each registered share is EUR 0.12.

On 30 September 2011, the market capitalisation of the company’s shares, treasury shares excluded, was EUR 67.1 (100.6) million. During the first nine months of the year, approximately 5.2 million of the company’s shares were traded, representing around 5.3% of the average number of shares. The lowest price paid for a share was EUR 0.61 and the highest price EUR 1.27. The volume-weighted average price of shares traded during January-September was EUR 1.03. The closing price on 30 September 2011 was EUR 0.64.

The share-issue adjusted equity per share attributable to owners of the parent was EUR 0.51 (0.70).

The 2011 Annual General Meeting authorised the Board of Directors to decide on a share issue, including the right to issue new shares and/or convey treasury shares. The share issue authorisation covers a maximum of 20,000,000 shares and is valid until the end of the 2013 Annual General Meeting. The authorisation includes the right to decide on a share issue without payment. The Board of Directors also has the right to issue and/or convey shares in derogation of the pre-emptive subscription right of shareholders.

The Board of Directors decided on 28 April 2011 to implement a directed share issue without payment. In the share issue, a total of 3,092,501 new company shares were issued without payment. At the end of the review period, the Board of Directors still has an authorisation to issue 16,907,499 shares. The Board of Directors has no other authorisations.

Decisions of the Annual General Meeting
Glaston’s Annual General Meeting, held on 5 April 2011, confirmed the financial statements and discharged the President & CEO and the Members of the Board of Directors from liability for financial year 2010. The Annual General Meeting approved the proposal of the Board of Directors that no dividend be distributed for the financial year 2010.

The Annual General Meeting decided that there should be six Members of the Board of Directors. Claus von Bonsdorff, Carl-Johan Rosenbröijer, Teuvo Salminen, Christer Sumelius, Andreas Tallberg and Pekka Vauramo were elected as Members of the Board of Directors.

Public Accountants Ernst & Young Oy were elected as auditor for 2011.

Uncertainties and risks in the near future
Financial uncertainty increased further during the third quarter. Market instability may lead to the postponement of orders and changes in machine delivery schedules. Customers’ difficulties relating to finance arrangements may restrict customers’ investment opportunities, which might be reflected in the development of Glaston’s final quarter.

The underlying nature of the sector is expected to remain unchanged, so development in the coming years is expected to be positive. If the recovery of the sector is delayed or slows, this will have a negative effect on Glaston's result. The shift of the geographical focus of activity to areas of higher economic growth will, however, dampen the economic effects of a possibly slower recovery in Western Europe and in North America.

Glaston performs annual goodwill impairment testing during the final quarter of the year. Due to the prolonged market uncertainty, it is possible that Glaston’s recoverable amounts will be insufficient to cover the carrying amounts of assets, particularly goodwill. If this happens, it will be necessary to recognise an impairment loss, which, when implemented, will weaken the result and equity.

Outlook
Glaston’s markets slowed significantly during the third quarter. Demand in the rapidly growing Asian market, particularly China, levelled off. Market conditions in North America and Europe continued to be challenging. Only in the South American market did stable development continue.

In 2011 the business development priorities have been improving profitability and completing adjustment measures. The cornerstones of Glaston’s operations remain the architectural glass segment and the solar energy market. Over the longer term, prospects for the solar energy glass segment are good.

Due to weakened market prospects, the company will robustly continue its adjustment measures.

Weakened market prospects will impact the development of the final quarter, and the outlook for Glaston has been revised. We expect 2011 net sales to be at the 2010 level, and the operating result to be a slight loss. (Earlier forecast: 2011 net sales expected to be least at the 2010 level and the operating result to return to profit.)

Helsinki, 26 October 2011

Glaston Corporation
Board of Directors

For information, please call
CEO&President  Arto Metsänen, tel +358 10 500 6100
CFO Tapio Engström,  tel +358 10 500 6419

Sender:

Agneta Selroos
Director, Communications and Marketing
Tel. +358 10 500 6105 

Glaston Corporation
Glaston Corporation is an international glass technology company and a pioneer of glass processing technology.Its product range and service network are the widest in the industry. Glaston's well–known brands are Bavelloni in pre-processing machines and tools, Tamglass and Uniglass in safety glass machines, and Albat+Wirsam in glass industry software.

Glaston's share (GLA1V) is listed on the NASDAQ OMX Helsinki Small Cap List.

Distribution: NASDAQ, OMX, key media, www.glaston.net

GLASTON CORPORATION

CONDENSED FINANCIAL STATEMENTS AND NOTES 1 JANUARY - 30 SEPTEMBER 2011

These interim financial statements are not audited. As a result of rounding differences, the figures presented in the tables may not add up to the total.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED STATEMENT OF PROFIT OR LOSS

CONSOLIDATED STATEMENT OF COMPEREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

KEY RATIOS

⁽¹ EBITDA = Operating profit / loss + depreciation, amortization and impairment.

DEFINITIONS OF KEY RATIOS

Definitions of key ratios are presented in 2010 financial statements as well as in January – March 2011 interim report.

ACCOUNTING POLICIES The consolidated interim financial statements of Glaston Group are prepared in accordance with International Financial Reporting Standard IAS 34 Interim Financial Reporting as approved by the European Union. They do not include all of the information required for full annual financial statements. The accounting principles applied in these interim financial statements are the same as those applied by Glaston in its consolidated financial statements as at and for the year ended 31 December, 2010, with the exception of certain new or revised or amended standards and interpretations which have been applied from 1 January, 2011. These amended standards and interpretations are presented in 2010 financial statements as well as in January – March 2011 interim report. 

SEGMENT INFORMATION
The reportable segments of Glaston are Machines, Services and Software Solutions. The reportable segments apply Glaston Group's accounting and measurement principles. Glaston follows the same commercial terms in transactions between segments as with third parties.
 

The reportable segments consist of operating segments, which have been aggregated in accordance with the criteria of IFRS 8.12. Operating segments have been aggregated, when the nature of the products and services is similar, the nature of the production process is similar, as well as the type or class of customers. Also the methods to distribute products or to provide services are similar.

 The reportable Machines segment consists of Glaston's operating segments manufacturing glass processing machines and related tools. The Machines segment includes manufacturing and sale of glass tempering, bending and laminating machines sold under Tamglass and Uniglass brands, glass pre-processing machines sold under the Bavelloni brand as well as manufacturing and sale of tools.

Services segment includes maintenance and service of glass processing machines, machine upgrades and sale of spare parts.

Software Solutions segment’s product offering, sold under the Albat+Wirsam brand, covers enterprise resource planning systems for the glass industry, software for window and door glass manufacturers, and software for glass processors’ integrated line solutions.

The unallocated operating result consists of head office operations of the Group and in 2010 also unallocated share of joint venture's result.

In segment reporting net working capital consists of inventory, external trade receivables and trade payables and advances received.

Order intake and order book of Software Solutions has been restated.

QUARTERLY NET SALES, OPERATING RESULT, ORDER INTAKE AND ORDER BOOK

CONTINGENT LIABILITIES

Pledged assets include EUR 125.0 million shares in group companies and EUR 59.0 million receivables from group companies.

Glaston Group has international operations and can be a defendant or plaintiff in a number of legal proceedings incidental to those operations. The Group does not expect the outcome of any unmentioned legal proceedings currently pending, either individually or in the aggregate, to have material adverse effect upon the Group's consolidated financial position or results of operations.

DERIVATIVE INSTRUMENTS

Derivative instruments are used only for hedging purposes. Nominal values of derivative 
instruments do not necessarily correspond with the actual cash flows between the 
counterparties and do not therefore give a fair view of the risk position of the Group. 
The fair values are based on market valuation on the date of reporting.

PROPERTY, PLANT AND EQUIPMENT

EUR million