Additional financial insights

18. June, 2019

The Management Board of AS VALMIERAS STIKLA ŠĶIEDRA (with registration No: 40003031676, legal address: Cempu iela 13, Valmiera, LV-4201) (‘Company’) hereby provides additional financial insights following its announcement pertaining to the filing for legal protection proceedings (’LPP’) on June 17, 2019 [here] for the purposes of helping its shareholders and other stakeholders to better understand the present financial picture of the Company’s operations. 

As noted in the initial announcement and subsequent market communication, the Latvian and UK-based operations have been consistently profitable and cash-producing. For purposes of greater transparency, the following charts and commentary have been prepared. It is important to note that this data has been sourced from internal management systems, is unaudited and may not fully reconcile with actual published reports due to varying treatment of exchange rates and other factors. 

The first chart in the attachment shows the quarterly development of total sales (sales plus other operating income) for the Latvian (LV) and United Kingdom (UK) operations as a combined entity, with the US operations shown separately. Group management efforts have been focused on increasing the contribution from the US, while it is apparent that both sets of data display that a strong start to 2019 was achieved (please refer to the circle-based notation in the chart). It suggests that in Q1 2019 the Company generated sales in excess of EUR 46m, the strongest result ever.

While this is positive, management ultimately has to focus on profitable growth and sufficient cash flow generation in order to achieve shareholder value accretion over time.

With this in mind, the second chart uses EBITDA (earnings before interest, taxes, depreciation and amortisation) as a proxy for free cash flow. The resilient strength in the Latvian and UK operations ring true in the second chart, whereby it can be seen that since Q1 2017, these operations have consistently produced EBITDA of between EUR 3m to almost EUR 6m per quarter. Since Q2 2018 this has unfortunately been offset by negative EBITDA results in the US. Some encouraging signs were seen in the beginning of the year not only in sales but also EBITDA for the US operations (please refer to the circle-based notation in the chart).

Here it is important to note that the ramp-up operations for Phase 2 (the vertically-integrated fibreglass yarn producing operation) in the US also created a need to be more cautious about the validity of the cash flow proxy there due to heavy capital expenditure and growing working capital needs. 

The application for the LPP made in Latvia was effectively due to a financial guarantee relating to the US operations. With severely restricted resources available to now support these, it cannot be ruled out that significant operational adjustments will be necessary in the US by its local management in the near future. 

On the other hand, Latvian management are looking to focus on reaching agreement with their various creditors on the procedure to meet liabilities of all creditors.

Earlier today, June 18, it was announced that the court has approved the Company’s LPP application and initiates legal protection proceedings case. More information here.