Valmet Oyj Unsp/Adr

Good morning everyone and welcome to Valmet's third quarter 2026 result webcast. My name is Pekka Rouhiainen from Valmet Investor Relations and with me today is our president and CEO Thomas Hinnerskov. Valmet had strong orders and the comparable EBITDA increased in the third quarter. Next, Thomas will take you through the key highlights and what drove the results this quarter and what it tells us about the strategic development of Valmet in the bigger picture as well. I will then cover the group financials and Thomas will conclude on the outlook and key takeaways. And after the presentations, we will open the line for questions as As usual, you can submit written questions through the webcast platform to us at any time as well. Thomas, the floor is yours.

Thank you, Pekka. The central theme today is how customer value translates into value performance. Let me start with the headline messages from the quarter. Four things stand out. First, orders received were 1.4 billion euros and increased 25% organically. The strength came from multiple sources. Biomaterial services grew broadly, process performance solutions delivered growth, and biocapital landed some major project wins. Secondly, comparable EBITDA reached 169 million euros with a margin of 12.4%. This was a record third quarter result. Thirdly, both our net sales and comparable EBITDA are now ahead of last year, year to date. We reiterate our full year guidance while recognizing the Q4 remains an important quarter for us. Third quarter gives us encouraging evidence of execution, but uncertainty and volatility in the market does remain high. Finally, the strategic review announced this summer is progressing according to plan. The fundamental questions remain the same, whether the two businesses can create more long-term shareholder value independently than under the current combined structure. While no decision on a potential separation has been made, Valmet will initiate activities in Q4 to strengthen the segment's readiness to operate independently. We'll provide an update at the latest in connection with our financial statements review for 2026. Now, let's then step back from the numbers briefly to see why these results matter beyond the quarter. Everything we do at Valmet starts with one key question. How can we help our customers become more competitive? For our customers, competitive means running more reliable, producing more efficiently, using fewer resources and operating with less manual effort. And the stakes are high. These are extremely valuable production assets. If a major plant goes down unexpectedly, the cost can run into the millions. So reliability, productivity and efficiency really matter to our customers. We help them improve each of these throughout the lifecycle of their assets. When we deliver an asset, our relationship with the customer does not end here. In many ways, that's where the lifecycle opportunity really begins. Over the years, we can support the asset through services and upgrades. That's why lifecycle growth is a central part of our strategy. It deepens customer relationship, increases recurring business, and reduce our dependency on timing of capital projects. And this is the value creation model behind our 2030 targets of 5% organic growth, 15% comparable EBITDA margin, which equals 20% return on capital employed. With the value creation model in mind, let's look at how it translates into orders during this quarter. Orders received increased 25% organically to 1.4 billion euros. Importantly, this was not only a capital project story. The key highlight of the biomaterial service order grew 12% organically, reversing the decrease during the first two quarters of this year. Process performance solutions also deliver 3% organic growth, despite a low growth market. In addition, major project wins support the quarter in biomaterials. We saw particularly strong order intake in China and Asia Pacific, demonstrating our competitiveness in these markets. This reflects good execution by our teams across the businesses. I'll now take the two segments in turn, beginning with process performance solutions. Process performance solutions serve customers with automation and flow control that are critical to reliability, safety, and process performance. In a market characterized by low growth due to continued geopolitical uncertainty, orders increased 3% organically. That is a resilient outcome and reflects the mission-critical nature of our offering. I was particularly pleased to see the development in services and MRO. Reported orders increased 16% to 399 million, including 44 million euros from Severn, which we now call engineered severe services, to reflect the critical nature of the business. Customer decision-making in the business was affected by geopolitical tension during the quarter, impacted Demand is special in the Middle East region, which is a reminder that visibility remains limited in parts of the market. Net sales increased 13% to €408 million and were stable organically. Comparable EBITDA was €82 million and the margin remained strong at 20.2%. The Severn acquisition was completed at the beginning of the quarter and integration is progressing according to plan. As we said when we completed the acquisition, this is primarily a growth and strategic positioning opportunity. Our focus is to combine the broader offering with disciplined execution to build the install base and aftermarket opportunity over time. I'm also pleased to be able to present the latest strategic milestone, which is the MES acquisition we signed yesterday. One way we can help customers become more competitive is by taking them further on the path of autonomous mills. That really is the rationale behind the MES acquisition. A manufacturing execution system connects production planning with real-time process control. In practical terms, it helps customers coordinate production, improve visibility, and move towards more autonomous mills. The acquired business brings an established platform with around 300 installations worldwide and approximately 32 million euros of annual revenue. It also creates recurring aftermarket opportunities through software maintenance and support. Strategically, the fit is clear. It strengthens our already leading position in pulp and paper automation, making process performance solutions even stronger. It also brings planning and process control together and gives us another way to create value across the customer asset lifecycle. By building on Valmis customer base, technology and global reach, the transaction also creates long-term growth opportunity in process industries. So also very happy that the standalone valuation was attractive for such a high quality strategic asset. We expect to complete the acquisition during the second quarter of 2027. From automation, I'll now move to our biomaterial business, where service growth and major project wins were defining the quarter. Biomaterial solutions and services delivered the strongest improvement in the quarter. Orders received reached €1 billion. Within that, biomaterial services orders increased 12% organically, with broad growth across regions, cross-service categories and business areas. This is encouraging following early signs of stabilization we discussed in the second quarter, although we still want to see the development continue before drawing broader conclusions. And why does this matter strategically? It matters because biomaterials, we have the industry's largest install base. Servicing those customers more broadly throughout the life cycle of their assets represents a significant long-term growth opportunity for Almond. And this opportunity does not depend on customers continuously building new greenfield capacity. Capital projects orders increased to more than €550 million. Major wins demonstrate our competitiveness in some of the customers' largest and most critical investments, including in China and Asia Pacific. At the same time, large capital projects are inherently lumpy and the timing of customers' investment decisions will continue to have a significant impact on market activity from one quarter to another. That's why we're working on right-sizing our production footprint, making our cost base less dependent on when the next large project is awarded. Net sales were 952 million euros and increased 1% organically. Comparable EBITDA increased to 102 million euros and the margin improved to 10.7%. The improvements were supported by high net sales, benefit from efficiency and cost reduction actions. So we're seeing the first sign of a combination where we're targeting organic growth and services together with improved profitability. With that, I'll hand over to Pekka to take a closer look at the financial development.

Thanks, Thomas. Moving on to financials. We combined modest organic sales growth with the meaningful increase in earnings this quarter. Net sales increased to 1.4 billion euros, which was 66 million higher than in the comparison period. The reported increase included approximately 13 million euros of positive effects impacts and 46 million euros from the acquired engineered severe service. Organically, net sales increased 1%, supported by 4% organic growth in biomaterial services. Comparable EBITDA increased to 169 million euros and the margin was 12.4%. This was a record comparable EBITDA for a third quarter for Valmet. The improvement reflected the consolidation of engineered severe service and the positive impact of efficiency and cost reduction actions under the Lead the Way strategy. The development of SG&A shows the structural side of the lead-to-way strategy. Since 2024, we have reduced our comparable SG&A cost base substantially. On a last 12-month basis, excluding Severn, the reduction is 85 million euros. Importantly, these results reflect more than just cost reductions. The operating model renewal was designed to simplify the organization, improve accountability and bring us closer to customers through a stronger lifecycle focus. The lower cost base is therefore a result of structural improvements in how we operate the business rather than short-term cost cutting. At the end of the quarter, the order backlog was close to 4.5 billion euros. That was 164 million higher than at the end of 25, including the impact of 7. The last 12-month book-to-bill ratio improved to 0.96 from 0.91 in the previous quarter. While it remains below 1, the direction is encouraging, supported by the stronger order intake in the third quarter. Based on current delivery schedules, we expect roughly 3.7 billion euros of the backlog to be recognized as net sales in the fourth quarter of 2026 and during next year. Let me also give you an update on our landmark Arauco project in Brazil, as I know this is important when you think about the backlog and its conversion. The project is proceeding according to plan and schedule and we are now approximately 70% complete. The startup is expected in the second half of 2027. We recognized approximately 400 million euros of net sales from the project in 2025 and approximately another 400 million euros during the first nine months this year. As we have said previously, we expect approximately 500 million euros of net sales for the project for 2026 as a whole. The backlog provides visibility for upcoming deliveries. Our focus for the remainder of the year remains on disciplined execution, profitability and cash generation. But with that, let's now turn on to the cash flow. Cash flow improved clearly in the third quarter. Cash flow from operating activities increased to 210 million euros and free cash flow increased to 183 million. As we expected in the second quarter, cash conversion improved from 62% to 79% on an LTM basis. At the same time, underlying networking capital remains elevated. Excluding the 123 million euro dividend liability, net working capital was 138 million euros higher than at the year end. Part of this relates to Severn, but we continue to see opportunities to improve working capital efficiency. Our balance sheet remains healthy also after the Severn acquisition. Net debt increased by 239 million euros from the end of the second quarter to 1.2 billion mainly because the acquisition was completed during the quarter. Gearing increased to 47% and remained below our financial target of 50%. Net debt to EBITDA was 1.78. Following the 7 acquisition, our focus is on strong cash flow generation. At the same time, our balance sheet continues to give us flexibility to pursue attractive bolt-on acquisitions when we see opportunities that fit the strategy. The MES acquisition we completed after the end of the quarter is a good example of this. The average interest rate on total debt was 3.6% unchanged from a year ago. This leads us directly to returns on capital. Capital employed increased following the Severn acquisition, while comparable ROSI remained broadly stable at 12.9% on an LTM basis. Adjusted earnings per share was €1.86, slightly up from the full year 2025. Our 20% ROSI target is important because growth alone is not enough. When we invest capital, whether organically or through acquisitions, we need to generate attractive returns on that capital. And with Severn, we have deployed additional capital. Our task now is to integrate the business successfully, capture the top-line synergies and make that capital work for our shareholders through higher earnings and overtime higher returns. This is why our 5, 15, 20 targets belong together. We need organic growth of 5% and a comparable EBITDA margin of 15% while remaining disciplined in how we use capital to reach our 20% ROCE target. So before handing back to Thomas, let me bring the quarter and the first nine months together in one set of key figures here. The third quarter was stronger than the year-to-date development in several aspects. Orders received increased 30% in the third quarter, net sales 5% and comparable EBITDA 6%. For the first nine months, net sales is now up 5% and comparable EBITDA up 3%, while orders received were 2% below the comparison period. Let me also highlight a few items below comparable EBITDA. The items affecting comparability were negative €25 million in the quarter and negative €59 million in the first nine months. These were mainly related to efficiency and cost reduction actions under Lead the Way. Going forward, we expect to incur approximately 10 million of costs related to activities in Q4 2026 to strengthen the segment's readiness to operate independently. Moving further down the income statement, the effective tax rate was 29.3% in the first nine months, which is above our long-term average level. Our tax rate can fluctuate between quarters due to profit mix and timing effects, so individual quarterly tax rates should not be considered indicative of the level going forward. Our longer-term average effective tax rate has been approximately 25%. Together with higher financing expenses, these items explain the difference between the development in comparable EBITDA and the reported earnings in EPS. With that, I hand it back to Thomas.