Glaston announced its Q3 results today, and to discuss this, I have the company's CEO, Miika Äppelqvist, with me for an interview.

Hello, Aapeli.

Let's dive into the past quarter in our usual fashion, so how would you sum it up?

Well, there were both positive aspects and ongoing challenges. So let's start with the big picture, the top line. Our sales, the revenue there. It dropped significantly compared to the comparison period, by as much as 30 percent, which was of course our challenge that has been known throughout the early part of the year. But if we reflect our performance against that, you could perhaps even say that quite few companies are able to maintain relative margins at the same level when the top line comes down by 30 percent. Then elsewhere we have done many successful things, which relate to both fixed costs and positive developments in, for example, the Services business.

Exactly. Perhaps continuing on this theme, that indeed the defense of margins was driven particularly by the strong momentum in the MD segment. Overall, quite a turnaround has been achieved in the entire segment over the past year. Would you like to go over a bit of what has been done here, and on the other hand, whether we are now on a sustainable footing for the future in this regard?

Everything starts from the market, and we always need that in a turnaround of this kind. Internal solutions are needed as well as going to the right market at the right time. Both of these things have indeed happened, meaning major moves. What was done here is that we moved our organization's operating model as well as production closer to our customers. And the customers on this side are increasingly in China, meaning the Chinese electric vehicle boom comes through that, while in Europe all car manufacturers are struggling with this Chinese tsunami. In Europe and America, we have then succeeded in helping the winning chain, in this case at least so far. And in itself that has given us volume, and we have been able to take market share in that growing market. So that's where things start.

But then, of course, as a major factor, the decision to go there has helped our cost structure regarding both product cost structure and our fixed costs. Three things have indeed come together here, and perhaps as a fourth one could mention the positive services development. That means on that side we have packaged services for the existing installed base, and we have also achieved growth on the upgrade side.

Perhaps to elaborate a bit more on one point regarding that market share growth, what do you see as the factor by which Glaston has been able to grow it?

Well, it is purely a competitiveness issue. Technical performance plus the model with which we enter the market, i.e., a growing market. Production personnel close to customers. Production moved to a more cost-competitive country, in this case China. And all these things have raised our competitiveness in the eyes of customers, and that has then been reflected as successes in the market.

Perhaps then still when talking about a growing market anyway, haven't new competitors or tough players like that entered the market yet? Or is it a different battle than the one Glaston is fighting?

Well, competition certainly always arrives, and right now the largest market shares are held by our Japanese competitor, and Glaston currently comes in second in this market. And we certainly see that local competitors are also emerging, but the market shares of the rising players are very moderate. And now with these moves we have made, we have been able to take market share close to the market, and we believe that these moves made are also sustainable ones that will help us maintain that share in the future as well.

Right, perhaps then if we return to the market situation and look at order intake, indeed the highest orders of this year. But still we are talking about a subdued level. At the same time, that order intake was quite fragmented. So would you like to summarize a bit why, for example, architectural equipment orders plunged, but then the services side was performing well, and in MD there was nice order development on the equipment side too?

Well, large fluctuations are in a way built into our business, but perhaps in this third quarter the fluctuations were even a bit larger than usual, meaning 77% growth on the mobility side and a 25% drop on the architecture side, those are wild figures, and that partly reflects the nature of project business. It partly reflects also the cyclicality of new machines in this project business and the fact that ultimately there is not a huge volume of deals behind it, but rather it comes down to individual deals where timing has an extremely significant meaning. So let's say, from an investor's perspective for example, I wouldn't stare too much at the quarter-specific figure. The trend is important, and where the market is going and how. In the big picture, we see, not in the big picture. We have had a positive development. On the mobility side, whereas in the architecture market as a whole, our customers have had considerably more difficulties achieving growth, and through that the drivers for equipment-side growth have been quite few.

Exactly, let's get into the services side in more detail shortly, but perhaps turning to MD equipment. For a long, really long, long time, one wasn't taken. There was, there was. An actual order announcement came through. Um, would you like to share some background and perhaps the ballpark figure of what kind of order sizes are being discussed for equipment of this type?

Message received. Let's do it. Let's announce more. More of these, but the MD order. Our MD customer base is quite concentrated, meaning that in terms of numbers there are considerably fewer potential customers in the world than on the architectural side, and this dynamics leads to customers quite rarely. Behind these are then NDAs regarding what has been sold and to whom. And unfortunately I cannot disclose the value this time either. But the release stated that we sold a Matrix Evo bending line and then pre-processing technology there. And these are certainly in the millions, but not quite at the lower end.

Right, perhaps then if we move on to the services side, indeed as you mentioned in the report as well, upgrades and modernizations are currently in good shape and you expect that to continue, so what is driving customer decision-making in this direction?

Well, starting from the architectural field. We have this across all our core technologies, and customers are currently struggling with how they can grow and how they can be more profitable. And that means for them that they must be able to keep their production technology in a competitive condition, even if due to market challenges there might not be the capability to make significant new investments. There is still a need to keep up with market developments, and through that this drives us down the upgrade path, meaning they can upgrade capabilities quickly and thereby increase their own competitiveness without making major new investments.

Exactly. Perhaps then looking at the market situation with an eye on the late year and next year as well, how else is decision-making among the customer base at the moment? Is there truth to it? It could be interpreted a bit between the lines that activity levels on the architectural side might also be on the rise, for instance. We are presumably not quite at normal levels, but rising from very low levels, so how? How would you summarize the situation right now?

Yes, indeed we. Last week we actually had a fantastic opportunity to meet a large number of customers because it was the industry's biggest trade fair event. And from this we get market sentiments more than usual. And to sum it up, no one expects to a large extent that the average architecture market would take off into any massive boom and that a large investment cycle would follow from that. Like what we saw in 2022, for example. But we certainly see here that since quite a few companies in many different sectors, also in this architectural chain, have been playing a bit of defense because growth has been challenging for many customers. On the contrary, capacity utilization rates may not have been high, and through that. Now we certainly see that there is some pent-up demand there as well. Projects that have been postponed and postponed. Some of these projects seem to be activating now, and we are close to them, and we believe that will help us going forward.

And perhaps it's worth mentioning what has been ongoing here, namely that there is a certain technological shift, a change. Especially on the insulating glass side, where Aapeli and I have talked many times about this insulating glass TPS technology and the fact that this TPS spacer technology is the fastest growing in the market. Spacers have been around for a long time, but last week we saw, you could say, unprecedented demand specifically on this side. How these timings will materialize is what we are working on commercially. But, but. Demand was quite clearly on the rise. So to sum up, a still cautiously positive market development outlook from our customer base, and that added to a certain technology-driven nature or technology-shift driven nature, and then moderate pent-up demand which now creates positive opportunities for us going forward.

So should we read between the lines a bit here that the trade fair might act at least as a temporary booster regarding that decision-making?

Yes, as strange as it sounds. And when talking about investment products, it is still felt in our industry. The fair warrants its place, and our customers certainly see it as a certain kind of point where they ensure that they at least do not invest in outdated technology, because many equipment manufacturers target their new innovations and launches. Then to this Glasstec event. A typical thing for the industry, and perhaps this is the logic why historically too, this has acted as a certain catalyst for this positive boost. Let us say now however that certainly in the long run, as this industry is not any different. Indeed. The fair. The role of trade fairs in people's decision-making is not growing, but. Positive things were seen here now, and through that we will start. We will start building a good final quarter.

Right, let us wait and see. When the boost eventually materializes. Perhaps still regarding that decision-making, indeed Glasstec is after all an event held in Europe, so do you notice, how about on the American continent? What is of course another key area for you on the architectural side, do you notice any revision there regarding decision-making?

Well yes, in America there is their own biggest event as well. And that actually coincided with this. Was it the turn of September and October? It seemed to be, where we were also present. And a clear caution can certainly be seen there. Perhaps I could say that this time even this Glasstec and the customer base seen at Glasstec was even a bit more positive than the comparable event in North America, so we interpret this as meaning that there is plenty of activity in that market. But they are still waiting for drivers that would speed up decision-making.

Yes, indeed. Perhaps. Then right at the end, indeed you kept the guidance unchanged, but perhaps regarding that revenue one could ask a more technical question, that indeed at present after 9 months we are 24% behind last year, but you nevertheless guide for decreasing revenue, so at what point? Or will it come anywhere? Would any adjective appear anywhere for example, when the signaling value is nevertheless moderately small regarding the performance of the final quarter at this point? And then at the same time regarding earnings, you are able to give quite a tight one. Range, so how should one approach that revenue guidance?

Well this revenue portion in our business logic comes from the order backlog side and the service development side. And we have chosen here to follow our historical line, meaning that we guide earnings. And the earnings estimate, which was already given in connection with the previous quarterly earnings report, was kept in force in this case, and in itself then only repeated this same guidance for revenue that was given in the previous one. In this case we did not start narrowing or widening it. Then further than that, that. But if I comment on that now, we actually have the development of revenue as in itself one of the most predictable things in our operations, because on the backlog side we can see quite well the revenue development of machines for the following quarter. And when again from service and service development we try to tell at least. Tell about it here in connection with the quarterly earnings, then by combining these two, I do not believe that anyone will face any surprises from there at the end of the year.

All right, thank you very much Miika for the interview and good luck with those end-of-year sales efforts.

Excellent! Thank you very much! Aapeli.