Welcome to Glaston Corporation January-September 2023 Interim Report audiocast. My name is Pia Posio, and I will be hosting this session today. We have reserved time for questions towards the end of the session, but you can share those during the chat function already during the presentation. Today, I have with me our CEO, Anders Dahlblom, and CFO, Päivi Lindqvist, who will share more insight into net sales growth, leading to strong profitability in the third quarter and details about the interim report itself. Our content today is to go through the highlights for the quarter, have a look at the market and discuss financial development, and have a look at the outlook, and after that, we have time for questions. With that, Anders, would you start the presentation with the Q3 highlights? Please, Anders. Thank you, Pia, and welcome to Glaston Q3 review on behalf of me as well. Let me start with sharing, 2023 third quarter highlights. Starting from the market, the market, position, we reported last quarter that the market is slowing down, especially in Europe, EMEA area. This trend is continuing, no big changes, but continuing, and the big, part is EMEA being slow. But the positive part here is that the U.S. market, especially North America, is holding up rather well, and the APAC region, pretty stable. China, with some mixed feelings. We'll come back to that. Then when looking into the new orders or new business, we have modest order intake for the heat treatment business, while the insulating glass, has picked up from previous quarters, so good signs there. And also the automotive order intake improved by more than 18%. At the same time, the automotive profitability continued on an unsatisfactory level. And due to the fact that we saw a lower order intake in the heat treatment business and the automotive unsatisfactory profitability, we have taken some actions to adjust our costs, and these actions have mainly been taken in Finland and Switzerland, but partly in other locations, by terminating some employments, both internal and external contracts, not prolonging fixed-term contracts, and also we have reorganized some responsibilities. And this is to make sure that we target to maintain our margins in the heat treatment business, and we want to increase our profitability in the automotive business. Then moving to the Q3, top line, 12% growth in Q3, and the EBITDA margin highest during the revised strategy period, amounting to 7.3%. And then we have launched a new organization that kicked off first of October, and this is to further accelerate our strategy, actions, and also to improve the focus on our life cycle solutions. Then let me, on the following, show more detailed figures from the third quarter, and I wanted to open up some things here. The order intake, so the new orders, on a like-for-like basis, they show a 22% increase to the Q3 2022. And why is this? We reported, last quarter, that we have a partial cancellation of one of our big projects of seven... EUR 19.4 million, and taking that into consideration, the change is 22% down from Q3 2022, which was a record high order intake despite this cancellation. So the decline took place in Heat Treatment, partly IG, though growing from previous quarters, and the automotive up by north of more than 18%. Also, when we look at the backlog, it's worth noting that this partial cancellation of the project, if that was taken out from the 22 figures, the like-for-like order backlog would be -8%, compared to the 21% up. Then the net sales part, so the 12%, the biggest increase comes from the Architecture part, especially the Heat Treatment business, north of 20% growth. Previous quarter, we reported that there were some seasonal differences between Q3 and Q2, therefore, we see now a strong effect on the heat treatment growth here, whereas the last quarter was the opposite. Insulating glass, 12.5% up, steadily growing well, and automotive, slight order decline of about 9%. The positive note we have is the growth in the service business. The service business had been rather flattish for the first quarters, but now in third quarter, we saw growth again, amounting to 8% of the business, and that also means that the service business, as a proportion of sales, increased in the third quarter somewhat. The EBITA, as said, a 7.3% margin amounting to EUR 3.9 million. This is a good outcome in the current environment, and this is a 58% improvement from the quarter 3 2022. Let me then continue with the market environment, divided into our key regions. The softer market continues, and Europe being the softest part here in various countries, U.S. holding up pretty well, and the APAC a bit mixed, depending on countries. I will come back to that shortly. So let me first start with the EMEA region. Here, we have the decreased new order intake. If we adjust for the partially canceled order, EMEA region would be down close to 15% in the new orders in the quarter. Fifteen percent down from Q2. And both the insulating glass and the heat treatment business were soft this quarter, and the same also for the upgrade business. But then on the service part, the daily service flow and spare parts, we clearly saw a pick-up, which is a positive part here. Then, moving to the Americas. Here, we had a very strong growth in the new orders, 63% growth, so big growth in the Americas, and this was seen in basically all our businesses. The IG business, after a slow first half, we saw a pick-up there. Heat treatment continued on a good level, and also the automotive continued, especially the special products and recreational vehicles performed well, whilst the service was a bit modest, and the same with the upgrades in Americas region. Then, moving to the Asia APAC, the order intake growth. We had growth in the third quarter, amounting to 26%, so a rather significant growth. The China architectural and the housing market continues soft. The positive note for us is that we have seen quite good opportunities, especially in the insulating glass and the more high-end products. For us, the thermoplastic spacers, TPS, and automotive business has also been good in terms of new business in the third quarter. And then in the rest of the APAC, the new machine business was low-ish or slow, but at the same time, the service business, we saw a very strong growth here. And the strong insulating high-end market was a big contributor to the growth of 26% in the new business in APAC. Then I would like to share a couple of words on the strategy execution. The first one is here, the new organization. So with the new organization that was launched first of October, we want to increase our focus on life cycle. We want to accelerate our strategic actions with more focus on efficiency than we have done in the couple of two years. The changes worth noting is that moving from three BAs to two BAs, so we will have Architecture business being one BA, and then we will have the other BA, Mobility, Display, and Solar. And this will then get a stronger focus when it comes to display and solar than we had in the previous part. Then we also have two new functions, that is automation and innovation, and the other one is supply chain management. Also worth noting is the ramp-up of our pre-processing in the Chinese factory in Tianjin continues well, and we have our first machines that we have produced in China also delivered to the customers. The first acceptances have been done with great success, which means we are now up and running in the Chinese pre-processing. The local supply chain goes well, though it has been a bit slower, as indicated already in the previous quarter, but this continues now according to plan. On a good note, on the solar, which is our strategical growth area, we had a follow-up order from our existing customer, and this is a good note on this growth area. We will come back in our Capital Markets Day on more strategic updates and information that will take place on the twenty-first of November, but we will come back to that a bit later. With this, I would like to move further to the financials and hand over to Päivi Lindqvist. Thank you, Anders. Let's start with the order intake. Like Anders said already, the order intake in Q3 was at a good level if we consider the softer market, and also the fact that typically, the third quarter is the lowest in terms of order intake because of the holiday season, especially in Europe. The orders totaled a bit more than EUR 52 million, and this is 39% lower than Q3 last year. But there we have to take into account the very high comparison period figure, which was inflated by one EUR 31 million order, out of which over EUR 19 million was canceled this year. Considering that the canceled part, the decline is 22%. Then, if we look at the cumulative figures for the different product areas, we can see that our kind of mainly architectural kind of technology areas, Heat Treatment Technologies, and IG Technologies have negative development. Automotive Technologies is increasing strongly, still rather kind of a low level, and then Services is flat in the nine months. Now, if we take the latest quarter development in these areas, we can see that in Heat Treatment Technologies, the decline was 61%, so that is quite dramatic decline. It is partly because of market development, but in addition, there is quite strong kind of impact from timing of certain orders, both in terms of having rather strong second quarter, considering the market, and then also the fact that this kind of level that we experienced in third quarter cannot be kind of considered as kind of the level going to the future. Then if we look at Insulating Glass Technologies, the decline in Q3 is 53%, but again, if we take out this canceled part that was within this business, then that decline here also is 22%. Then finally, a note about services. Services in the third quarter experienced nice growth of 14%. The kind of flow business, spare parts and field services has been growing nicely, and now we also saw a clear year-on-year recovery in upgrades. The comparison period in the upgrades in the third quarter was the lowest, so that was really the quarter when the upgrade orders started to go down strongly, and then we've had a kind of gradual pickup from there. Okay, then if we move forward to net sales. So in net sales, we have 12% growth, EUR 53.5 million, and here, on the other hand, we have a rather kind of weak comparison, especially in heat treatment business. Last year, the quarterly split was quite different from what it usually is and what it is has been also this year. In 2022, in the heat treatment business, we had a very strong second quarter and then on the other hand, very kind of a weak third quarter. And in addition, last year in the third quarter, we had issues with component availability, and for that reason, the net sales for that quarter was lower than it would have been in a normal supply situation, and that was then, on the other hand, caught up in the fourth quarter. So if you look at the quarterly development last year, you can see that fourth quarter was extremely strong, and now, this year, we've had clearly more even quarters, and this we also expect to continue going forward. If we take the product area net sales figures, there, then, on the other hand, quite different development from the order intake. Insulating Glass has the highest growth, 11%, followed by Heat Treatment Technologies, 5%. On the other hand, then here, the Automotive and Display Technologies has a decline of 17%, and Services is close to flat, with 1% growth. With more details into the third quarter figures, there we actually then have the highest growth in Heat Treatment Technologies, exactly for the reasons that I already mentioned about the quarterly differences, but then, of course, also kind of a good order backlog supporting. The Insulating Glass has been on a growth track and continued with 14% growth in the third quarter. The services also here, because of a strong spare parts business, 8% growth in the third quarter. Let's move forward to the regional split of net sales. Americas is really the growth driver this year. So 9 months, 35% growth, about one third of our business in this region. In the third quarter, the growth was 42%, so it was even accelerating from the earlier quarters. EMEA, our biggest region, with over half of our business, in the 9 months, has been flat, but already kind of had growth figures in the second quarter, and that continued in the third quarter with 5% growth. APAC then has been the region with declining net sales... and this is quite a bit driven by China. In the third quarter of this year and also in nine months, the share of China's net sales was 6% of the group total. In last year third quarter, this was 11%, nine months, 13%, so there is a clear decline. On the other hand, we've seen now in two quarters, nice growth in order intake. So in third quarter of this year, the orders increased over 80% compared to last year. So China is kind of showing kind of improving figures when it comes to new orders. And then next slide about profitability. Like has been mentioned now already, profitability in the third quarter was very strong, 7.3%. The highest quarterly figure we've had in the new Glaston era after kind of Bystronic Glass acquisition. And this is thanks to our architecture-driven business areas, insulating glass and heat treatment performing very strongly in the quarter. The biggest driver for the profitability improvement compared to last year is volume increase, and this then combined with the fact that kind of the fixed cost increase that we experienced earlier this year has clearly moderated. And that—but that is kind of the volume increase is a little bit taken down by kind of having a clearly lower other operating income than last year in the third quarter, when we had some exceptional items there. But very, very strong performance in the third quarter. Seasonally, I have to also say that typically, the third quarter, margin-wise, is the strongest because of the personnel expenses being lower due to holidays. But this applies to the kind of margin only and not the absolute figures. All right. Then let's move a little bit into more details of the performance of the reporting segments, and start with heat treatment, where we have this a very big decline in order intake. Like mentioned already, market softness, timing impacting that. On the other hand, services had a nice performance, already mentioned upgrades, and they have the biggest impact here, with services increased 16%. Net sales, then on the contrary, with a big increase of 20%, machines up 29%. There, like mentioned, the weak comparison figure last year, and services increased by 10%. EBITA margin profitability clearly higher, and volume here being the biggest driver. Because of the low order intake in the quarter, we kind of proactively take some measures to adjust the operations and the costs, and this has taken place in Finland, and where we are reducing the use of external resources, and in addition, then kind of terminated three employment contracts, and kind of took some other measures, like not continuing fixed-term employment contracts in addition. All right. The next one is insulating glass, where we have a good level of orders, even though the percentages are not that nice. But there was a clear kind of uptick in order intake compared to the earlier quarters in the machines area. But like I said now several times, the year-on-year comparison is extremely challenging, and for that reason, the percentages are clearly negative. Services here also a great performance in terms of order, 14% growth. The business is operating at very high capacity. Net sales increased by 12%, and both machines and services were over 10%. We have kind of had a good spare parts business here in the quarter, which then supported the growth. And here as well, volume growth, biggest driver for boosting the profitability, which you can see the margin is totally different level, so 4.2% last year in Q3, and now 9.6% EBITA margin. Now, of course, when the machines are increasing or growing more than services, especially with the bigger base, it means that the services share decline in the business, but this was compensated by improving margin and improving margin both in machines and services. Okay, and then finally, the segment that is not performing according to expectations, automotive and display. In that way also here we see an inconsistent performance in that way that order intake is improving. The levels are still not very high, but good to see almost 20% increase in order intake. Services orders also grew at 10%. But then if we go to the P&L side, net sales were down 9%. Machines net sales were declining 22%, and this is because the order intake since Q1 has been low. On the other hand, services are holding up better with 1% growth. There we did see some decline in spares business. And then, of course, the satisfactory part is especially the profitability. And here we had kind of strong quarter last year in the third quarter. So it had 9% EBITA margin, the business in the third quarter of last year, so it was very different from the other quarters. Now, this year, we have been having losses in the first quarter, and then second and third have been roughly at break-even. Volume is of course a big explanation here, but then in addition, the ramping up the supply chain, which has taken time, is then burdening the profitability, and especially the machine margins have suffered from this. On the other hand, because of the low machines net sales, the services share is extremely high, and then that is supporting the margin to some extent and compensating some of these negative impacts. Because of the profitability challenges also here, we've taken measures to improve that going forward, and that has taken place mainly in Switzerland, where we have terminated five employment contracts. And then finally, let's end with the cash flow. Operating cash flow in the quarter was EUR 800,000 positive. Working capital is increasing further, and this is because quarter-over-quarter order intake is not growing, but is roughly same level or slightly down. And then this means that our kind of inventories for the delivery projects are increasing at the same time when the advanced payments from the customers are not increasing that much. And this results into working capital increase. Also in the third quarter, we have in working capital the negative impact from the vacation day accruals diminishing in the balance sheet. But all in all, gearing at the same level as at the end of the second quarter, so no increase there. And of course, the good profitability is supporting then the cash flow as well. All right, this was my part, and then let's get back to Anders. Thank you, Päivi. Let me then share our outlook for the remainder of 2023. We have made a marginal update here, and that is that the net sales is specified, and we estimate that the net sales will marginally increase or remain flat compared to 2022. The EBITA, we estimate, remains unchanged. The reason for this marginal specification in the net sales is the softer market environment, and this has had some impact on the speed of the investments for some customers, especially in China. This is the reason why we want to be a bit cautious that it's marginally increasing or flat, but the profitability remains unchanged, and that's the profit guidance for the full year. Then I mentioned a couple of times our Capital Markets Day. It has been roughly two years since we updated on our strategy there, and now in connection with our new organization change that kicked off first of October, we will host an update Capital Markets Day in Helsinki on the twenty-first of November, and Pia will share more about the details in the end about that event. With those, we are ready to move over to the Q&A session. Thank you. ... Thank you all. Like mentioned in the beginning, you can use the chat function to share your questions, and, we will now start with the first ones coming in, related to this guidance. Along with the lowered net sales guidance, it seems that your sales growth seems to be turned negative already in Q4. Did the partial order cancellation have any impact to the downgrade? Let me first start with the partial order. The partial order does not have any impact on the fourth quarter or full year estimate for 2023. 2022, looking at the Q4 net sales, it was clearly higher than any of the other quarters. So there is, in the reference for Q4 2022, there is a very high number of close to EUR 60 million, whereas we did now, in, well, the third quarter, 53.5 million. Yeah, I would say the main reason for this is that we didn't get some orders we were expecting in China. In China, we have clearly shorter lead times than in the European factories, and that then explains mainly this kind of change. Thank you. What caused the notable increase in the non-recurring items for the quarter affecting adjusted figures? Well, there is actually three different restructuring type of items now impacting in the same quarter, and one of them is this reorganization. So there has been certain changes in the organization, creating some kind of restructuring costs. Then, there is some costs still from this automotive preprocessing move to China. That starts to be kind of ending now, but in Q3, still some costs there. And then we have these adjustment measures as well, that we have been discussing here, and that had some kind of smaller impact. So there's kind of a three, three different restructuring items happening in the same quarter. Thank you. What is the importance of renovation construction for your customers? How does it currently impact the glass demand and accordingly, the utilization rate of the machines? So the renovation business is part of construction, and looking at the energy efficiencies, energy efficiency is one single strong driver for the customers to do renovation work. And changing windows will have a meaningful impact on the energy consumption. So that renovation is a rather strong driver for us, and it's relevant in combination with new buildings. This is probably one of the reasons why the IG order intake is so strong, that there is a need to do these energy efficiency-driven, kind of, renovations. Any reflections about the utilization rates on the machines with that? Well, I mean, producing glass is, of course, the renovation is part of the glass production, glass processing production. So with increased demand for renovation and energy-efficient solutions, it will of course have a positive lift. And as Päivi said, that by that, we have the clearest link visible in the insulating glass business from that. Let's move to regions, and let's start with China. So, you mentioned already in the presentation some reflections, but now with the Tianjin factory holding all the VA products production, could you reflect on the future prospects and the status of the factory utilization in China? Yeah, I think as I mentioned, that we have the factory acceptances for our first produced preprocessing lines for the automotive business in China. That is super good and promising that the strategy we made is paying off. And obviously, this gives us more flexibility in our utilization of people and also increased volumes. So I would say the volumes currently is at a reasonable level there, though the slower markets in the architectural and the challenges with the housing market has had an impact, especially that can be seen in our net sales. So if we look at our net sales in the third quarter, it's significantly lower than what it was in 2022, when it was about a double-digit number north of 10%. But on the other hand, the positive note that we have seen was the higher end in the insulating glass especially, but also the automotive business, which means that new orders for third quarters are up to 14% of our total orders in Q3, whereas they were 5% in the corresponding quarter in 2022. So in that sense, it's a bit trivial that net sales is, is decreasing, but on the order intake side, it's actually improving quite significantly. Staying in China, so you've made your first customer deliveries in China. What has the customer response been, and what is your experience in Tianjin in terms of quality, operational effectiveness, and profitability? ... I think this is one thing that where we are very happy that the project to start up pre-processing in Tianjin has proven to very successful in terms of quality. So the customer feedback now with the acceptance and also the ongoing projects, we see that the quality we are able to make in China, which is of course super important, and that is the only way to be sustainable, to continue good business there. I think the profitability, it goes without saying, we are not satisfied with the first three quarters in the pre-processing, and what we see in China. What we are happy about is that we, looking into the future, see that we have the right elements to make good both quality and profitability, which means that our strategy decision to go there is absolutely right and starts to pay off. Then Americas. What are your key actions in terms of capitalizing the better market conditions in the Americas at the moment, and is there potential for further improvement? Well, I think what we saw already in the third quarter, north of 60% growth in new orders, so I would say we have done many actions there. We have strengthened our capabilities in there. We are also looking in the product developments that will pay off, and we will... We clearly want to strengthen areas where we are not as strong and want to keep up the areas where we are strong and want to continuing. So I think a lot has been done there, and that's also visible in the figures, but we want to further continue our strategic roadmap to capitalize and make sure we get shares in areas where we believe we should be stronger. Thank you, Anders. And as a side note, one of the biggest exhibitions is actually taking place in the Americas next week, and the GlassBuild America is kicking off. Something related to components. So what is the pricing situation at the moment, in addition to availability? Yeah, I think on the component side, which goes to the supply chain, that has been a big topic in the past, and north of a year, I think now it's the first quarter when we can happily say that now we see the availability of all the components being totally different. So I think that challenge is aside from what it has been in the past year. When it comes to prices in the components and the raw material, we see many raw materials, many components have actually a declining trend. But however, there are also components where we see an opposite trend. And I think now with our new organization, the supply chain, we have a different grip of capturing these capabilities and being more proactive in this going forward. We see what has happened in the third quarter, the price of the components and raw materials have been on an increase path on a 3%-5% basis, roughly. This we see we have been able to compensate from our prices in both new business and service. Thank you. Then a slightly broader perspective. The market situation is soft and, and different on the regions, but you seem confident about the future. Could you share some insight behind this? Yeah, that is. I think that is a very important thing, that. What is behind that? I think we touched already here the energy efficiency and what we see there, and the strong mega driver that is helping us. As said, we see the biggest link in the insulating glass, but however, there is also some link with the heat treatment and in the mobility business. That is one part. We have also talked in the past couple of years that a lot of our investments in expanding our products and making sure we have the right offering for the customer, satisfying their needs, which part is also related to sustainability and energy efficiency. We have been investing into that, and that cost we have had to take in the past couple of years. Now we see also that this starts to pay off. I think those are the two key things why we stay fairly positive in this challenging market condition. Thank you. Thank you, Anders. Thank you, Päivi. Seems like those were all the questions for today. Before we close, welcome to already 2024. So we have published the financial statement schedules, and all the other reports as well. In addition to these, still reflecting on the Capital Markets Day taking place on November 21, you'll find more information through Pia's investor relations pages, where you have a button directing to the Capital Markets Day information. We look forward to meeting you in Helsinki, face-to-face on site or via online webcast, and there we are going to dig deeper into strategy progress and then discuss the reflections of the new business areas and also the market trends impacting and boosting our business. With that, I would like to thank you for participating this results audiocast, and we wish you a wonderful rest of the day. Thank you. Thank you. Thank you. Bye-bye.