Glaston Corporation Interim Report

Orders received in January-June totalled EUR 55.8 (56.4) million. Orders received in the second quarter were EUR 26.9 (28.2) million; The order book on 30 June 2013 was EUR 33.8 (34.1) million; Consolidated net sales in January-June totalled EUR 60.1 (58.7) million; Second-quarter net sales were EUR 33.7 (28.5) million; EBITDA was EUR 6.8 (-0.8) million, i.e. 11.2 (-1.3)% of net sales.

Glaston President & CEO Arto Metsänen reported the Corporation’s second quarter results as follows.
“Despite market uncertainty, Glaston’s second quarter went according to our expectations. Glaston’s net sales in the review period totalled EUR 60.1 million, slightly higher than the previous year.
Glaston’s machine sales in Asia exceeded expectations. The North American market was rather buoyant. In the EMEA area, our sales were at the previous year’s level, with the focus of orders being in the Central Europe and in the United Kingdom. In the Middle Eastern market, there was clear growth in activity, but the political uncertainty has slowed decision-making. We expect the positive development of the heat treatment machine market to continue also during the latter part of the year.
With respect to the Services segment, it is notable that, after a challenging first quarter, sales picked up in the second quarter and the segment’s operating profit rose by 20% compared with the previous year.
Now that our financial position has been strengthened, Glaston’s main goal for 2013 is a positive operating result. The January-June operating result, excluding non-recurring items, was EUR 0.7 million.
The second-quarter operating result, excluding non-recurring items, was a profit of EUR 1.1 million, with the comparison figure being a EUR 2.7 million loss. I am particularly satisfied that the impact of the adjustment programme implemented at the end of last year is now fully realized in the result.”
In the second quarter of 2013, a cautiously positive development of Glaston’s markets was evident. The recovery of the North American market continued, boosted by a pick-up in the construction industry.
Stable development of the South American market continued. The EMEA area, which is Glaston’s biggest market area, remained challenging, as in previous review periods.
The Machines segment’s first part of the year went to according to plan with respect to heat treatment machines. The market for pre-processing machines continued to be challenging as price competition intensifies.
In the second quarter, the pick-up in the heat treatment machine market continued and positive development was evident in North America and Asia. For pre-processing machines, demand in South America and in the EMEA area was on a good level. In North America and in Asia, demand for preprocessing machines was weaker.
The second quarter saw the launch of the technologically advanced GlastonAir™ flat tempering machine, in which glass is supported by hot air instead of rollers. The main advantage of air flotation is uniform support, which facilitates the tempering of glass as thin as 2mm without compromising optical quality. Another new product launch was IriControL™ technology, with which glass processors can measure and minimize so-called anisotropic phenomena in tempered glass. Both products, which were presented at the China Glass Fair in Beijing and in connection with the Glass Performance Days Conference in Finland, were positively received by customers. With respect to the GlastonAir™ technology, interest was stimulated not only by the tempering of 2mm glass, but also by low energy consumption in the tempering of thicker glasses and the high optical quality of the tempered glass.
In the second quarter, Glaston closed a deal worth around EUR 2.2 million for two flat tempering furnaces, a Glaston CHF™ and a Glaston CCS900™, with the Chinese company Xianning CSG Glass Co. Ltd. The orders are a follow-up to sales of several CCS™ and CHF™ flat tempering furnaces installed during the last five years. A deal valued at around EUR 4.8 million was also closed with the Columbian company Tecnoglass for four Glaston FC500™ flat tempering machines. These machines will be delivered to the customer during 2013. The orders were distributed across the first- and second-quarter order books.
In January-June, the Machines segment’s net sales totalled EUR 45.5 (43.6) million. The operating result, excluding non-recurring items, was a profit of EUR 0.7 (2.6 loss) million. Second-quarter net sales totalled EUR 26.4 (21.7) million and the operating result, excluding non-recurring items, was a profit of EUR 1.0 (1.7 loss) million.
The Services segment’s early part of the year passed on a challenging note, particularly with respect to spare parts sales for heat treatment machines. In the second quarter, particularly in North America, demand for upgrade products also slowed down. This was reflected in the upgrade products’ second-quarter order intake, as demand shifted towards sales of new machines. The company’s market position remained strong, however. Sales of maintenance work on heat treatment machines developed according to expectations during the first part of the year.
In spare parts sales for pre-processing machines, very aggressive price competition continued. Despite this, Glaston succeeded in increasing spare parts sales for pre-processing machines in the EMEA area and in Asia.
The most significant deals were modernizations of old tempering machines in Japan, Saudi Arabia and Hungary. In upgrade products, demand was focused particularly on energy-saving upgrades.
In January-June, the Services segment’s net sales totalled EUR 14.7 (15.6) million and the operating profit, excluding non-recurring items, was EUR 2.4 (2.7) million. Second-quarter net sales totalled EUR 7.0 (7.0) million and the operating profit, excluding non-recurring items, was EUR 1.2 (1.0) million.
Glaston completed the sale of its Software Solutions business area in the first quarter. The sales price was approximately EUR 18 million of which a portion is contingent. The result of Glaston’s Discontinued Operations in 2013 includes the result of the Software Solutions business area for the period 1 January – 31 January 2013 as well as the 2013 result on the sale of the business area. The Discontinued Operations’ result for January – June 2013 after income taxes was EUR 0.0 million.
During the first quarter, Glaston also completed the sale and leaseback of the Tampere factory property complex in Finland. The sale resulted in a non-recurring capital gain of EUR 3.8 million.
Glaston’s order intake during the first six months of the year totalled EUR 55.8 (56.4) million. Of orders received, the Machines segment accounted for 75% and the Services segment 25%.
Orders received during the second quarter of the year totalled EUR 26.9 (28.2) million.
Glaston’s order book on 30 June 2013 was EUR 33.8 (34.1) million. Of the order book, the Machines segment accounted for EUR 32.2 million and the Services segment for EUR 1.6 million.
Net sales for the review period totalled EUR 60.1 (58.7) million. The Machines segment’s net sales in the first half of the year were EUR 45.5 (43.6) million and the Services segment’s net sales were EUR 14.7 (15.6) million.
April-June net sales totalled EUR 33.7 (28.5) million. The Machines segment’s net sales in the second quarter were EUR 26.4 (21.7) million and the Services segment’s net sales were EUR 7.0 (7.0) million.
The operating result, excluding non-recurring items, in January – June was a profit of EUR 0.7 (3.5 loss) million, i.e. 1.2 (-5.9)% of net sales. The Machines segment’s operating result, excluding non-recurring items, in January – June was a profit of EUR 0.7 (2.6 loss) million and the Services segment’s operating result, excluding non-recurring items, was a profit of EUR 2.4 (2.7) million. Of the non-recurring items totalling EUR 3.8 million recognized in the first quarter of the year, the most significant was a capital gain of EUR 3.8 million from the sale of the Tampere property complex. A goodwill impairment loss of EUR 3.0 million directed at Pre-processing operating segment, which belongs to the Machines segment, was recognized as a non-recurring item in the first quarter of 2012.
The second-quarter operating result, excluding non-recurring items, was a profit of EUR 1.1 (2.7 loss) million, i.e. 3.2 (-9.6)%. The Machines segment’s operating result, excluding non-recurring items, in April – June was a profit of EUR 1.0 (1.7 loss) million and the Services segment’s operating result, excluding non-recurring items, was a profit of EUR 1.2 (1.0) million.
During the first quarter, Glaston repurchased convertible bonds with a nominal value EUR 2 million at a price below the nominal value. This repurchase yielded financial income of EUR 0.9 million. Similarly, during the first quarter, the remaining convertible bond and debenture bond with accrued interest were used as payment in a share issue (conversion issue). As the subscription price of the conversion issue was higher than the fair value of the share at the time of subscription, financial income of EUR 1.9 million arose to Glaston in connection with the conversion issue. These financial income items had no impact on cash flow. The Group’s net financial items in January – June were EUR 0.9 (-3.4) million. In the second quarter net financial items were EUR -1.4 (-1.9) million of which a significant part was exchange rate losses deriving from Brazilian reais denominated financial items.
Continuing Operations’ result in January-June was a profit of EUR 4.3 (9.9 loss) million, and in the second quarter a loss of EUR 0.4 (4.9 loss) million. The result, after the result of Discontinued Operations, was a profit of EUR 4.3 (9.3 loss) million. Return on capital employed (ROCE) for Continuing Operations in January – June was 16.8 (-10.2)%. Return on capital employed was 17.0 (-8.9)%.
Continuing Operations’ earnings per share in the review period were EUR 0.03 (-0.09) and Discontinued Operations’ earnings per share were EUR 0.00 (0.01), i.e. a total of EUR 0.03 (-0.08).
In the first quarter, the Group implemented extensive measures to strengthen the company’s financial position. These measures included a share issue, the conversion of convertible and debenture bonds into shares by using them as payment in the conversion issue, a new long-term financing agreement, the completion of the sale of the Software Solutions segment, and the sale and leaseback of the Tampere factory property complex.
In February 2013, Glaston signed a new long-term financing agreement. The financing agreement is for three years and it is valid until 31 January 2016. The covenants in use are interest cover, net debt/EBITDA, cash and cash equivalents, and gross capital expenditure. The covenants will be monitored, depending on the covenant, monthly, quarterly, semi-annually or annually. With respect to the interest cover covenant, the first monitoring date is after the first quarter of 2014.
The Group’s liquid funds at the end of the review period totalled EUR 14.2 (11.1) million. Interest-bearing net debt totalled EUR 12.3 (55.6) million and net gearing was 22.8 (126.3)%; net gearing was 188.4% on 31 December 2012.
The share issues executed during the first quarter improved Glaston’s equity ratio significantly. The equity ratio was 46.5 (27.7)% on 30 June 2013, and was 21.6% on 31 December 2012.
At the end of June, the consolidated asset total was EUR 130.2 (172.3) million. The equity attributable to owners of the parent was EUR 53.4 (43.7) million. The share issue-adjusted equity per share was EUR 0.28 (0.39). Return on equity in January – June was 20.5 (38.4)%.
Cash flow from the operating activities of Continuing and Discontinued operations, before the change in working capital, was EUR 3.0 (0.6) million in January – June. The change in working capital was EUR -1.3 (-3.0) million. Cash flow from investing activities was EUR 23.5 (-3.0) million. Cash flow from investing activities was influenced by proceeds from the sales of the Software Solutions segment and the Tampere factory property, a total of EUR 25.4 million. Cash flow from financing activities in January – June was EUR -21.7 (-1.9) million.
The gross capital expenditure of Glaston’s Continuing and Discontinued Operations totalled EUR 1.7 (3.0) million. Continuing Operations’ capital expenditure totalled EUR 1.4 million. In the review period, there were no significant individual investments; the most significant investments were in product development.
Depreciation and amortisation of Continuing Operations on property, plant and equipment and on intangible assets totalled EUR 2.3 (2.7) million. A EUR 3.0 million goodwill impairment loss, directed at the Pre-processing operating segment, which belongs to the Machines segment, was recognized in the first quarter of 2012.
Glaston’s Continuing Operations had a total of 592 (630) employees on 30 June 2013. Of the Group’s employees, 22% worked in Finland and 28% elsewhere in the EMEA area, 34% in Asia and 15% in the Americas. In the review period, the average number of employees was 595 (837).
The Extraordinary General Meeting held on 12 February 2013 authorized the Board of Directors to decide on one or more issuances of shares. At its meeting on 28 February 2013, Glaston’s Board of Directors decided, based on the authorizations granted by the Extraordinary General Meeting held on 12 February 2013 and by the Annual General Meeting held on 5 April 2011, to execute a share issue by offering a maximum of 50,000,000 new shares for subscription by the public, in derogation of the pre-emptive subscription right of shareholders, at the subscription price of EUR 0.20 per share. Furthermore, the Board of Directors decided, based on the authorization granted by the Extraordinary General Meeting held on 12 February 2013, to execute a share issue directed at the holders of the convertible bond issued by Glaston in 2009 and the debenture bond issued by Glaston in 2011. This conversion issue offered a maximum of 38,119,700 new shares in the company for subscription by the holders of the convertible bond 2009 and debenture bond 2011, in derogation of the pre-emptive subscription right of shareholders. The conversion issue was executed as a private placement arrangement to the holders of the bonds. The subscription price of the new shares offered in the conversion issue was EUR 0.30 per share.
On 11 March 2013, Glaston’s Board of Directors approved the subscriptions of 50,000,000 issued shares made in the share issue and the subscriptions of 38,119,700 new shares made in the conversion issue. As a result of the share issue and the conversion issue, the number of the company’s shares increased by 88,119,700 shares to 193,708,336 shares. The new shares were entered in the Trade Register on 27 March 2013. The total subscriptions of the share issue and the conversion issue were approximately EUR 21.4 million.
The Annual General Meeting of Glaston Corporation, held in Helsinki on 17 April 2013, adopted the financial statements and consolidated financial statements for the period 1 January – 31 December 2012. In accordance with the proposal of the Board of Directors, the Annual General Meeting resolved that no dividend be distributed for the financial year ending 31 December 2012.
The Annual General Meeting discharged the Members of the Board of Directors and the President & CEO from liability for the financial year 1 January – 31 December 2012.
The number of the Members of the Board of Directors was resolved to be six. The Annual General Meeting decided to re-elect Claus von Bonsdorff, Anu Hämäläinen, Teuvo Salminen, Christer Sumelius, Pekka Vauramo and Andreas Tallberg as Members of the Board of Directors for the following term ending at the closing of the next Annual General Meeting. After the Annual General Meeting, the Board of Directors elected Andreas Tallberg as Chairman of the Board and Christer Sumelius as Deputy Chairman of the Board.
The Annual General Meeting resolved that the annual remuneration payable to Members of the Board of Directors shall remain unchanged. The Chairman of the Board shall be paid EUR 40,000, the Deputy Chairman EUR 30,000 and the other Members of the Board EUR 20,000.
The Annual General Meeting elected as auditor Public Accountants Ernst & Young Oy, with Authorised Public Accountant Harri Pärssinen as the responsible auditor.
The Annual General Meeting authorized the Board of Directors to decide on the issuance of shares as well as the issuance of options and other rights granting entitlement to shares. The authorization covers a maximum of 20,000,000 shares. The authorization does not exclude the Board of Directors’ right to decide on a directed issue. It was proposed that the authorization be used for executing or financing arrangements important from the company’s point of view, such as business arrangements or investments, or for other such purposes determined by the Board of Directors in which a weighty financial reason would exist for issuing shares, options or other rights granting entitlement to shares and possibly directing a share issue.
The Board of Directors is authorized to resolve on all other terms and conditions of the issuance of shares, options and other rights entitling to shares as referred to in Chapter 10 of the Companies Act, including the payment period, grounds for the determination of the subscription price and the subscription price or allocation of shares, options or other rights without payment or that the subscription price may be paid besides in cash also by other assets either partially or entirely. The authorization is valid until 30 June 2014 and it invalidates earlier authorizations.
Glaston Corporation’s paid and registered share capital on 30 June 2013 was EUR 12.7 million and the number of issued and registered shares totalled 193,708,336. The company has one series of share. At the end of June, the company held 788,582 of the company’s own shares (treasury shares), corresponding to 0.41% of the total number of issued and registered shares and votes. The counter book value of treasury shares is EUR 51,685.
Every share that the company does not hold itself entitles its owner to one vote at a General Meeting of Shareholders. The share has no nominal value. The counter book value of each registered share is EUR 0.07.
During the first six months of the year, a total of around 15 million of the company’s shares were traded, i.e. around 9.9% of the average number of registered shares. The lowest price paid for a share was EUR 0.22 and the highest price EUR 0.38. The volume-weighted average price of shares traded in January – June was EUR 0.29. The closing price on 30 June 2013 was EUR 0.33.
On 30 June 2013, the market capitalization of the company’s registered shares, treasury shares excluded, was EUR 63.7 (28.3) million. The share issue-adjusted equity per share attributable to owners of the parent was EUR 0.28 (0.39).
Glaston’s business environment remains challenging. Low economic growth and uncertainty in the financial markets may affect the timing of large machine orders. The general economic uncertainty continues to affect customers’ investment activity.
Global economic uncertainty and its impact on development of the sector have been taken into account in the short-term forecasts. If the recovery of the sector is delayed further or slows, this will have a negative effect on future cash flows.
Glaston performs annual goodwill impairment testing during the final quarter of the year. In addition, goodwill impairment testing is performed if there are indications of impairment. Due to 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 recognize an impairment loss, which, when implemented, will weaken the result and equity.
Glaston has recognized in total approximately EUR 3.8 million of loan, interest and trade receivables from a counterparty, whose financial situation is challenging. Glaston monitors the situation of the counterparty continuously, and if needed, recognizes an impairment loss of the receivables.
General business risks and risk management are outlined in more detail in Glaston’s 2012 Annual Report and on the company’s website www.glaston.net.
We expect that the cautious pick-up in the market will continue in the second half of the year. In North America, the recovery of the construction industry has continued and the market outlook is more positive than in 2012. We expect that the cautiously positive development in Asia will continue, supported by a slightly higher order intake. Stable development in South America is expected to continue. In Europe, the market will continue to be challenging.
As a result of economic uncertainty and overcapacity, the market for new glass processing machines will remain challenging. A recovery in demand for heat treatment machines was perceptible in the second quarter and we expect this positive trend to continue in the second half of the year.
The Group’s financial position improved significantly in the first quarter of 2013. Due to the measures implemented, the company has good prospects for business development. We will continue our investments in product development and in the further development of glass processing lifecycle services.
Glaston adjusts its outlook for 2013. We expect 2013 net sales to be on the 2012 level and both the EBIT excluding non-recurring items and EBIT to be positive. (Earlier forecast: Glaston expects 2013 net sales to be on the 2012 level and EBIT to be positive.)
During the first quarter Glaston had two share issues. A EUR 10 million share issue was directed to the public and another share issue was directed to the holders of the convertible bond and the debenture bond. In this conversion issue the principals as well as accrued interest, in total EUR 11.4 million, were used as payment for the shares. Both share issues were recognized in reserve for invested unrestricted equity. The expenses arising from the share issue, in total EUR 0.9 million, have been deducted from the reserve for invested unrestricted equity.
During the first quarter Glaston purchased back convertible bonds with a nominal value of EUR 2 million. The price paid for the bonds was less than the nominal value which resulted in a EUR 0.9 million financial income. In addition, during the first quarter the remaining convertible bonds with accrued interest as well as debenture bond with accrued interest were used as payment in a share issue (conversion issue). As the conversion price was higher than the fair value of the share at the time of conversion, a financial income of EUR 1.9 million was recognized. Neither of the financial income affected cash flow.
Glaston announced in October 2012 that it was negotiating of sale of Software Solutions business area. Glaston published in November 2012 that it has signed a binding contract of the sale of the business area. The closing of the sale took place on 4 February, 2013. The result of Software Solutions business area as well as the result from the sale transaction is presented as profit / loss for the period from continuing operations.