Glassworks profile. (second part)

Transcription

1 Glassworks profile Glaverbel A Belgian leader in flat glass (second part) In this second part of our overview on the operations of the leading international flat glass group, we look in more detail at Glaverbel s financial organization, industrial investments, R&D, safety and human resources policy, and also at its involvement with Glaverbel Czech (formerly Glavunion) in the Czech Republic and, more recently, with Russia s Bor Glass Works. Financial operations Consolidation After having attained the declared objectives for its financial structure in 1996, the Glaverbel Group was able to further reduce its leverage ratio in 1997, bringing it down to 0.67 (compared with 0.72 in 1996). The Group s financial structure has now been consolidated, mainly as a consequence of three factors: a) Increased free operating cash flow The increase in the free operating cash flow is mainly due to the Mr. Luc Willame, Glaverbel s CEO following developments: increased operating cash flow, up 13 per cent compared with the previous year; reduction in requirements for industrial investments, despite the cold repair of the Tiel float plant in the Netherlands: however, this reduction was offset in 1997 by large investments in information technology; the lower increase in requirement for working capital, which was brought under control. This resulted in a free 115

2 operating cash flow of BFr 2,196 million in 1997, compared with BFr 1,291 million in b) Increase in share capital by conversion of convertible zerocoupon bonds The early redemption of the convertible zero-coupon bonds issued by Glaverbel S.A. produced a take-up rate of 95.9 per cent, leading to the creation of 290,840 new shares in December This operation decreased the Group s indebtedness by BFr 1,040.3 million and increased its equity by BFr 1,281.4 million (the difference results from the conditions of conversion of the bond issue). c) Acquisitions The main acquisitions during 1997 were the purchase of a stake in the Russian glassworks Bor, costing US$ 20 million, and the buy-out of the minority interests in the Spanish operation Pedragosa S.A. The total investment came to BFr 1,270.6 million. GLAVERBEL GROUP: NAME CHANGES FOLLOW EU CLEARANCE FOR PPG DEAL Following a recent press statement announcing European Commission clearance for the acquisition of PPG s European flat glass activities reported in the first part of this report, Glaverbel has just announced name changes for both its European subsidiaries and its recent acquisitions from PPG. The PPG company acquired in Italy has been renamed Glaverbel Italy, while PPG Industries Glass SA, based in France, has been renamed Glaverbel France. The new headquarters of the French subsidiary are: Tour Pascal A - 6 Place des Degrés Paris La Défense Cedex - France - Tel Fax The PPG Maasglass unit in the Netherlands becomes Glaverbel Nederland while Glavunion in the Czech Republic becomes Glaverbel Czech. Glaverbel said its automotive activities would bear the name Splintex, which will also be used as the brand name for the unit s glass products. Together, these events contributed to an increase in equity of BFr 1,098 million, bringing it up to BFr 24,012 million, while the net debt was down by BFr 471 million to BFr 15,973 million. Stable financial charges Against the background of stable European interest rates, the relative gain in strength against the Belgian franc of various currencies in which the Group does business, and the devaluation of the Czech crown, the financial result made by the Group was stable, being relatively unchanged compared with Reduced interest charges offset by exchange rate losses The reduction in the Group s indebtedness, from BFr 16.4 billion at the end of 1996 to BFr 16 billion at the end of 1997, combined with the reduction in the average interest rate, enabled the Group to bring the debt charge down from BFr 1,163 million in 1996 to BFr 849 million in By contrast, foreign exchange operations led to a loss of BFr 161 million; mainly caused by the devaluation of the Czech crown. This exchange rate loss was due to the fact that part of Glaverbel Czech s financing is carried out in strong currencies in order to benefit from the interest differential between these currencies and the Czech crown. The financing structure 116

3 is justified by Glaverbel Czech s exporting position. The interest rate savings thus achieved almost exactly offset the exchange rate loss incurred as a result of the devaluation of the Czech crown in 1997 and the exchange rate profit made in 1996, thanks mainly to the relative devaluation of the Belgian franc in relation to the other currencies in which the Group operates. On balance, the remaining financial charge was almost identical to that in Management of debt In order to draw full benefit from the structure of interest rates, management of the debt throughout 1997 was based mainly on a policy of floating interest rates, and partly on rate swaps. The weighted average of the interest rates, all currencies combined, worked out at about 4.78 per cent for 1997, compared with 5.65 per cent for However, this average rate was pushed upwards by the relatively high rates for the Czech crown throughout The weighted average debt term fell from 3.15 years at the end of 1996 to 2.61 years at the end of The reduction in the average period was caused by the early redemption of the convertible bond issue, and by the maturity dates of some long-term loans falling in 1998 and Refinancing of the latter amounts is now under negotiation, with a view to periods of five to seven years. Management of exchange rate risks Most cash operations within the Group are carried out in currencies which will soon be converted into Euros. The setting of parities in 1998 will therefore greatly reduce the Group s exposure to currency exchange risks. As regards the other currencies, the Group uses forward buying and selling of currencies to cover the exchange risks to its balance sheet caused by large imports and exports. As a result, the net positions of the Group in these currencies are not significant. For example, an unfavourable movement in the dollar of one per cent against the BFr would lead to a maximum loss for the Group of BFr 4 million. However, Group investments in the form of shareholdings in foreign companies are not covered for exchange rate differentials against the BFr as regards the parent company, Glaverbel S.A. As at 31 December 1997, 68 per cent of the Group s net assets were in western Europe, with practically all of this amount being booked in Euro-zone currencies (mainly Belgian and French francs, Dutch guilder, and Spanish pesetas); of the remainder, 28.6 per cent was invested in Czech crowns and 3.4 per cent in Russian roubles. Own shares Following the disposal of the stake in AFG Industries of the United States, the Group holds 678,088 shares in Glaverbel S.A., representing about 9.6 per cent of total shares. These were acquired at a unit price of BFr 3,095, calculated on the basis of the average stock exchange price less a markdown of 3 per cent. On the basis of the stock exchange price on 31 December 1997, this shareholding represents a latent capital gain of BFr 1,834 million. For the time being, the Group intends to keep these treasury shares, which will enable the consolidated result to be spread to a smaller number of shares. The shares will only be sold off by the Group if and to the extent that the proceeds of the sale are required to finance a major strategic investment. Industrial investments Industrial investments in 1997 amounted to BFr 4.2 billion, more or less the same as in The main features in l997 were as follows: in the Raw Glass division, complete revamping of one float glass line, and installation of equipment for producing antisolar glass with pyrolytic coating; installation of new processing equipment for the purpose of improving productivity 117

4 (architectural glass), boosting production capacity (automotive glass; rear-view mirrors), extending the range (mirror glass), and getting closer to the market (thin glass); continuation of the programme for raising administrative productivity among personnel, through the development of office automation and reengineering of information management systems. Capital investment in 1998 will be financed out of cash flow, as in The main items will be as follows: repair of the patterned glass furnace in Barevka (Czech Republic); laying the groundwork for the modernization programme at Bor, with design studies for renovating a float glass line, revamping of a laminated automotive glass line and a flat glass tempering furnace; making preparations for building a float glass plant in Sagunto (Spain). Research and development R&D expenditure in 1997 came to a net total of BFr 501 million saw the completion of several projects of major strategic significance, including the development of Atherplus 426, a highly selective glass which improves thermal comfort inside vehicles, combining high light transmission with high absorption of the IR and UV portions of sunshine. Then, there was the development of two new types of Stopray glazing which are now going into full-scale production. Research efforts on behalf of the Mirrors business unit led to the launching of two new types of decorative mirror. The Maruga antique mirror is obtained by controlled oxidation of the silvering, while the Old Gold copper-backed mirror is produced using environment-friendly thin coating techniques. The R&D department continued its largescale research into application of anti-solar coatings by CVD (chemical vapour deposition), and intensified its efforts in metrology for the purpose of improving the quality of glass for special applications (automotive glass, electronic displays, etc.). The department also geared up its policy of applying for patents. R&D and the environment In 1997, the Group continued its programme of making its manufacturing activities more environment-friendly. The policy was given formal shape by attaching the environment department to R&D. Success came in 1997 when the Group won two environment awards for industry from the FEB (Belgian Employers Federation). In the Ecoproduct category, Glaverbel won first prize for its new Mirox New Generation Ecological mirror developed by the R&D Centre. This product has a special surface treatment instead of the copper coating normally used to protect the reflecting silver layer. Furthermore, practically all lead has been eliminated from the paint layers used to protect the mirror. In the Waste recovery category, Glaverbel received a special mention for the fume scrubbing project carried out at its Moustier float plant in Belgium with the help of the R&D Centre. In this technique, unique in Europe, the dust from fume scrubbing is recovered and introduced into the glass furnace as raw material. By achieving the objective of zero waste, the technique is truly environmentfriendly and, furthermore, significantly reduces the consumption of non-renewable materials. Safety Despite the large-scale GlaverSafe plan carried out over the past few years with the aim of reducing risks, 1997 saw a deterioration in safety results, in particular as regards the number of accidents recorded. In order to give new impetus to accidentprevention efforts, a new method was developed by a working party, in the form of a competition between production units. The GlaverSafe prize is intended to gain recognition for and promote a methodical, motivated approach to the problem of accidents at work, by highlighting the most successful projects. 118

5 Quality In 1997, the Group continued its policy of improving its performance in quality and customer service. A systematic search for potential improvements was carried out, in order to assure the confidence of customers. This involved clarifying the responsibilities of each individual, carrying out a critical analysis of work methods, and streamlining the flow of information. Apart from the renewal of certificates already acquired, this commitment to action resulted in certification being extended to vacuum coating activities, along with the introduction of special quality programmes in the automotive sector. Human resources In the firm conviction that human and social performance is both the result of economic performance and the driving force behind it, the Group is committed to developing a policy of human resources management that combines employment with productivity, and employability with motivation. This ambition is based on welldeveloped communication, both at strategic and at operational level, and on the willingness of both sides of industry to reach consensus on new concepts. Employment and productivity Against the background of a buoyant economy, the overall level of employment within the Group rose by 3 per cent during 1997, while in Belgium the growth was as much as 7 per cent. This rise in employment levels is mainly concentrated in the automotive and coated glass activities, and in the development of data processing systems. At the same time, productivity drives continued in all of the Group s activities. These led to restructuring which, among other things, involved the closure of heavily loss-making units in France and Germany. The Group continued to implement training and mobility programmes, aimed not only at reinforcing the management structure and nurturing fresh talent to take over in the longer term, but also at stimulating motivation all round, by raising the level of knowledge and enabling people to gain experience. In all, some 20 per cent of managers have had a change of position, activity or country during the past three years. At the same time, the total number of training hours has increased considerably, in Belgium by a factor of three. Constant reskilling of personnel goes hand in hand with empowerment, based on development of the attitudes necessary for commitment to independent responsibility and efficiency. One example is the experiment carried out in 1997 at Kempenglas (Belgium). This involved setting up independent teams of twenty or so people, with each team setting its own objectives and being responsible for production, work organization and quality. Communication and industrial consensus Important progress was made in 1997, with the process of collective labour agreements in Belgium being completed without a single day of strike action, for the first time since A major innovation in industrial relations was achieved with the modular application of these agreements, with variations to suit the different collective entities, while observing the need for wage moderation. As regards general communication within the Group, 1997 saw the appearance of new projects with, among other things, the setting up of an Intranet service and the design of a new corporate image featured in recruiting campaigns. 119

6 Glaverbel Czech Improved performance Despite a marked slowdown in the Czech economy in 1997, Glaverbel Czech (formerly Glavunion) saw its sales increase by about 20 per cent from one year to the next. For the same consolidation perimeter (i.e. including Splintex and Glavostav, which were made into subsidiaries), sales by Glaverbel Czech reached Kc 6.9 billion in 1997, as against Kc 5.8 billion one year previously. This growth was due mainly to the increasing proportion of exports to central and eastern Europe, which accounted for 25 per cent of sales compared with less than 20 per cent the year before. This performance by Glaverbel Czech has been achieved against the background of farreaching internal reorganization, with the Glavostav architectural glass workshop and the Glavunion-Thorax automotive glass plant being made into subsidiaries. The latter has been renamed Splintex Czech. In parallel with its growth, Glaverbel Czech has made extra gains in productivity resulting from the massive programme of investment begun in 1991, amounting to Kc 6.5 billion, and from the learning curve on its new production equipment. In its final stages in 1997, this investment programme saw the installation of technology for producing Stopsol anti-solar glass, the extension of the mirror production capacity, and the transfer of the rear-view mirror plant from Krajkova to Olovi. The programme is being continued in 1998 with the start-up of new automotive tempered glass capacity in Splintex Czech. The implementation of the SAP accounting software package, the compression of production costs by more than 5 per cent compared with 1996, and the introduction of a plan for optimizing the transport systems are all elements that have helped to raise Glaverbel Czech s profits, despite the increase in the level of depreciation, the sizeable financial charges and the growth in wages. Eastern focus in 1998 By boosting its marketing operations and expanding its distribution network in eastern Europe, Glaverbel Czech should substantially improve its position in that region. This, combined with the bright economic prospects in central Europe, the expansion of its processing capacity in the automotive and other sectors, and the widening of its raw glass range, should help to consolidate Glaverbel Czech s profitability on the central and western European markets. Bor Glass Works Activities Founded in 1930, Bor Glass Works is Russia s largest producer of float glass and automotive glass. The company, located in Nizhny Novgorod on the Volga, was privatized in Its production facilities include: two float lines with a total capacity of 1,060 tonnes/day (installed in 1970 and 1986 respectively under licence from Pilkington); equipment capable of making glass for 900,000 cars per year; mirror, double glazing and tempering units. 120

7 Since privatization, Bor Glass Works has developed a distribution network that now includes fifteen subsidiaries in Russia and four in the former Soviet republics. Bor Glass Works has a large share of the market for float glass in Russia, and is the main glass supplier for the Russian car industry. Moreover, the quality of the glass produced by Bor gives it access to certain export markets, such as Finland, Turkey and the Middle East. The company employs some 6,000 people. Terms of the agreement Through the intermediary of a consortium of investors led by it, the Glaverbel Group concluded an agreement with the Russian investment company Alfa Capital (representing the interests of Bor s main shareholders) with a view to obtaining 75 per cent of Bor shares. The operation was carried out by purchasing existing shares and by subscribing around Rbs 90 million (BFr 540 million) to a new share issue, the proceeds of which will be used to finance a first tranche of modernization investment. As at 3l December 1997, the consortium held 73.8 per cent of the shares in Bor Glass Works, with Glaverbel holding 25 per cent directly. This latter stake represents an investment of around BFr 768 million. Under the terms of the agreements, the consortium will be able to expand its stake to 75 per cent in the course of The other members of the consortium are the EBRD (European Bank for Reconstruction and Development), International Finance Corporation (a company affiliated to the World Bank, responsible for financing private sector investment in emerging countries), Alfa Capital and a group of private investors. By agreement, Glaverbel has a majority among the directors representing the consortium on the board of Bor Glass Works, and acts as the industrial operating partner. The agreements between the consortium members specify that Glaverbel has the obligation to acquire the entire block of 75 per cent within ten years. The put options held by the partners can be exercised by 2003 at the earliest, valued according to Bor cash flow. Furthermore, under a three-way agreement between Glaverbel, Bor Glass Works and the local authorities, the latter have granted Bor various tax concessions, and have given it an assurance of support for its restructuring programmes. However, these concessions are subject to the condition that Glaverbel supports a five-year investment programme by Bor amounting to at least US$ 65 million. The investments could eventually reach US$ 100 million if justified by the economic situation. Reasons for the investment This investment forms part of Glaverbel s policy of geographical diversification and represents a long-term investment opportunity, permitting it to maintain its strategic position as the leading flat glass producer in the emerging markets of central and eastern Europe. Against the twin backgrounds of economic reform and the stabilization of its political situation, Glaverbel feels that Russia now offers real possibilities for growth, in particular in sectors which are consumers of flat glass, such as the construction and automobile industries. 121

8 BOR GLASS WORKS ACCOUNTS Balance sheet (in Rbs million) Tangible/intangible fixed assets Financial fixed assets Net current assets (1) Provisions for risks/charges (258.2) (249.1) Provision for deferred taxes (2) (115.8) (133.9) Shareholders equity (1) Income statement (in Rbs million) Sales Cost of sales (458.7) (478.1) Gross margin Other operating charges (109.3) (111.4) Operating income Financial result Result before taxes Taxes (25.9) (7.5) Net result Depreciation Net cash flow (3) (1) Increase explained by new share issue worth equivalent of Rbs 90 million. (2) Provision due to revaluation of tangible fixed assets as depreciation of extra amounts will not be tax-deductible in future. (3) Net result plus depreciation for the year; depreciation for 1996 and 1997 takes account of revaluation of tangible fixed assets. Since the signing of the agreements, several large car manufacturers (including Fiat, Renault and General Motors) have announced their intention of investing in Russia. Bor Glass Works will therefore put the Group in a better position to meet with the trend towards global sourcing by carmakers in their dealings with suppliers. Furthermore, the financing of the operation is structured so as to limit the initial risk for Glaverbel, and to reduce the impact on its debt/ equity ratio. Balance sheet and income statement The Bor Glass Works accounts for the 1997 financial year (together with those for 1996 by way of comparison) are given for information only, since they are not consolidated in the Group accounts. As of 1998, Bor Glass Works is to be consolidated by the equity method. GLAVERBEL: INTERIM RESULTS IN BRIEF Glaverbel recently released figures for the first half of 1998: net profits are up 67 per cent to BFr billion. The annual accounts shown here are drawn up in accordance with International Accounting Standards (IAS). Following the international rules for inflation accounting, the 1996 accounts in roubles, shown by way of comparison, have been brought into line with those for 1997 with allowance made for inflation of 11 per cent. Comments on 1997 activities and prospects for 1998 The volume of activity in 1997 was slightly up on 1996 in terms of volume. However, prices could not be raised in line with inflation, so the sales figure remained about the same. Since prices of the main raw materials went up with inflation, the margin (excluding depreciation costs) shrunk from 36.6 per cent in 1996 to 31.6 per cent in The significant decrease in depreciation costs for 1996 and 1997 was due to several production facilities being depreciated in full at the end of The margin was further reduced by an annual charge of around Rbs 9 million per year (some BFr 55 million) as new provision for furnace repair. The high level of tax is due to the fiscal legislation in force in Russia. As of 1998, the tax breaks negotiated with the authorities will enable this tax burden to be progressively reduced, while the development of tax legislation in the longer term should in principle lead to rates comparable to those in western Europe. The volume of activity is expected to expand in 1998, due to sustained demand from the construction sector in particular, and due also to the impact on productivity of the investments now in progress. The effects of the projects now being carried out by western automobile manufacturers in Russia will probably not start to make themselves felt until 1999 at the earliest. Source: Glaverbel 1997 Annual Report Entire contents 1998 by Artech Publishing S.r.l. 122