Valmet Oyj

Good afternoon, ladies and gentlemen, and welcome to Valmet's Q1 2024 result publication and webcast. My name is Pekka Rouhen and I'm the head of investor relations here at Valmet. And the presenters today are Pasi Laine, Valmet's president and CEO, as well as Katri Hokkanen, the CFO. After the presentations, as usual, you will have the chance to ask questions over the phone lines. But without further ado, Pasi, please.

So, welcome. So, headline today is that orders received amounted to 1 billion 50 million and comparable every day to 121 million in the first quarter. So the content is like traditionally, first Q1 in brief, then some words about the segments and business lines. Then I want to market our nice, new, fabulous Valmet DNA DCS system. Then Katri will go through financial development and then I'll come back to say some words about guidance and short-term market outlook. First, the quarter one in brief. So like I said, our orders received ended in 1 billion and 50 million. Net sales ended up in being 1 billion, 212 million. And backlog ended to 3 billion, 790 million. And every day, like I said, was 121 million and was 10.0%. And gearing in the end of the period was 39%. Orders received was now heavily weighting on the stable business. So services was about almost 530 million and automation almost 330 million. Process technology a little bit less than 200 million. So stable business has continued strong development, which has been taking place for years already. In net sales, process technology was bigger, so 500 million services, about 400 million, and automation about a little bit more than 300 million. And in comparable epithet, stable business contributed altogether 110 million, 111 million, and process technology is 21 million. In the end of the period, we employed 19,000 people. The company has grown over 10 years from 10,000 people to 19,000 people. Comparable everyday marching is one of the important targets we have had over the years. Now it's of course nice that we were in the end of the last year at 11.2%, and after the first quarter we are still at 11.2%. Our target is, like you all know, to reach 12-14% as soon as possible. But nice development over the years, and good that we were able to keep that 11.2% also at a sweep-a-day margin after the first quarter in 2024. Orders received has been dropping to pre-COVID levels. So if you look at the graph, 19-20, we were at 4.5 billion euro level, and now we are at 4.5 billion euro level again. So we are now at the pre-COVID levels from an order intake perspective. Europe has continued to be strong in the first quarter, representing 46%. North America is strong, 28%. And then South America is Pacific. China hasn't been active in capital cases, and that's why the share of them has been now dropping compared to the normal situation. Stable business orders received over the last 12 months is almost 3 billion. And that's of course the big change that has taken place in Valmet. So from 1 billion euro services company to the 3 billion euro stable business company. So 1.7 billion has been coming in last 12 months from services and almost 1.3 billion from automation. So this is the part of the business that continues to develop well and has been developing well in the past as well. Backlog is now at 3,790,000, 55% of it is related to process technologies, 30% in services and 15% from automation. And we are saying that about 75% of the backlog is expected to be realized as net sales during 2024. and what it means is that now we are in my mind more at the normal level in our backlog. We had years when the order intake was big and then myself and Katri were saying that our delivery times have been getting longer. Now we are at the situation that of course we need new orders but from the other perspective we have also delivery capability at normal level so we can deliver faster both process technology but also services and automation products and solutions to our customers. So I am still feeling comfortable with the current backlog level what we have now. Then some words about the segments and business line. First services, so for services order intake was a year ago 577 million. Then we had some extraordinary orders there from Chile, but then also the market was extremely hot. Now our order intake was 527 million, and I think it's a good order intake for services in the first quarter. So we are happy with the performance. So we have good activity in China, North America, EMEA and South America, where we still have a little bit less activity in the Asia-Pacific, but generally the order activity is good. In all the business lines, orders have been dropping compared to last year. Extremely good order intake, but we have good activity level in all the business units as well. So we are happy with that development. Then profitability dropped in the first quarter compared to last year, and Katri will go through that more in details, but LDM is at 17.2% level, so nothing dramatic has happened. Of course, we continue to push both the orders and EpiDay up during latter part of the year. Then in automation, orders were last year almost 391 million, now 328 million, so quite big delta. But again, I'm happy with automation order intake as well, and I'll come back to reasoning why I'm happy with two next slides. Net sales has been developing roughly at the bar with last year's first quarter and every day is good level. So last year we ended up at 18.6 and LTM is now 18.7. So good development in profitability of our automation segment as well. Then if we first talk about flow controls, so order intake dropped from 217 million to 194 million and the LTM is now at 766 million, so some 23 million less than in the end of last year. And here the drop is mainly coming from pulp and paper capital. So we have good activity level in refining chemicals, energy, mining and all the others. But then we have seen less activity in pulp and paper capital business. That's where from the drop is coming. And it's logical then when we go through all the slides what we have had. We are still at a good level and Simoa and Simoa's team are continuing to push the order intake up also in the coming quarters. Net sales have been at the same level than last year, nothing dramatic there. And what's of course important is that the order intake is still higher than the net sales, which gives good momentum for the latter part of the year as well. Automation systems, 134 million, dropped by about 40 million compared to last year. And here the biggest explanation is the pulp and paper combined offering with process orders, combined orders with process technology, and then less activity in pulp and paper capital side all in all. The energy and process is developing well and the very important part of us, so automation services, have continued to develop well in the first quarter as well. And net sales has been developing favourably as well in automation and again, order intake is higher than net sales in the first quarter. Then process technologies, and that's where the biggest delta is coming. So at the end of 2021, our order intake was almost 2.8 billion, and now LTM is a little bit less than 1.5 billion. So a big delta. And I'll come back to a little bit later on how we have been preparing to that. But we have been, of course, saying all the time that there is volatility in capital and process technology order intake. And now we see that that's what we have been saying is also materializing. So the order intake was 195 million, which is, of course, in the long run too little. and it's very important to focus on order intake in coming quarters. Net sales was about 500 million and here the profitability end of last year was 4.5% and now it's 4.4%. So of course it's important that we start to get more orders but we still have healthy backlog for this year and the backlog will be of course delivered according to schedules to our customers. So then how we have been preparing ourselves for the volatility and cyclicality of process technology. So we have been talking about capacity costs last 10 years, and we have been saying that we haven't increased our capacity cost in pulp and energy and paper to make sure that when the little bit less active years and periods come, we are prepared for it. And here you see that in 2023 our capacity cost against net sales was 28% and in the beginning of Valmet it was 47%. And the corresponding percentage is for Palpan Energy at 24% and 21%. So over the years we have made sure that we are not unnecessarily increasing our capacity cost and that has been to prepare ourselves for periods when the volumes are not high level. Then we have started to do some actions to find you our capacity cost. So we had some actions in tissue machines earlier last year. This year, Palpan Energy and Paper Business Line have had some cooperation discussions and we have been reducing the headcount by about 40 and then we have been reducing the subcontractors a lot. And then in Finland, we have also a possibility to utilize temporary layoffs if we see in the future that that's necessary. So there is good flexibility still on top of this capacity cost in our cost structure. Then, of course, in this kind of situation, when the market is not very active, we have to be very active with our procurement actions to make sure that our profitability stays at the targeted level, and that's why we have been very successful in the beginning of the year. So, our supplier base is also having less volumes, and it means that they are more eager to give us competitive prices than two years ago. Then to the short-term market outlooks, I come later on in the end of the presentations. And then, of course, now our LTM was 4.4% in EpiDay, and now the work continues. We are, of course, not starting, but the work continues that we will reach better profitability levels in our coming quarters. So we need orders, but we have flexibility and we have been preparing ourselves for lower volume quarters as well. Then, if I say some words about pulp and energy first. So, water intake was only 57 million, and LTM is now a little bit less than 700 million. In 2017, we were roughly at the same level where we are currently. I'll come back to the outlook later on, but we are keeping the energy outlook as good. So we have many discussions ongoing with our customers. None of them, the bigger one, materialized as a contract in the first quarter, but there are several discussions ongoing with our customers. And long-term and mid-long-term situation in energy hasn't changed at all, even if the quota is weak. Then, if we talk about pulp, we have been saying that we have to focus now on small to medium-sized projects in pulp, and here is the same situation that nothing materialized, not that much materialized as an order in quarter one, but we still have good discussions and activities to continue the discussions with our customers in small and medium-sized pulp projects. And then again, if we go to a little bit longer term view, the longer term view hasn't changed anywhere. So more and more pulp is needed because of the megatrends we have been talking about. So when meeting with our customers, they all, especially in Latin America, talk about future investments coming to increase the pulp capacity in the world. So, we have had two not that good quarters. Medium term, I see the activity level coming back to improved levels. Then paper business line, quite much the same story, but if we first go through it in a way business by business, so in this year we have had satisfactory order intake in end of the last year and beginning of the year as well, and we see market activity at the satisfactory level. In paper and board, the board market is the one where we have seen the biggest hit. So actually paper machine market is now reasonably active and we are reasonably active compared to board machine market. In tissue, we see of course that the long-term development is still there. So everybody needs more tissue, both in developed countries, but also in developing regions. So the long-term view is intact. In paper and board, there's a situation that because of a lot of investments, especially in Europe, there is currently overcapacity, especially in cardboard. And it will take some time before this overcapacity is eating out. But then from the other perspective, there are areas where we already have discussions about increasing capacity and needing to increase capacity. And then we of course have to remember that one third of the investments also during the peak years were such that they were to replace old machines with the new machines. So we have a short-term challenge with order intake, but if I see now the activity with our customers, we continue to have good discussions about increasing capacity and need of new machines in board and paper segment as well. Tissue converting has started well and the activity has been good. So one of my messages is of course that in paper business line we have bigger variety of products currently compared to the past. So we are active with tissue machines, we are active with tissue converting, we are active with paper machines and we are active with board machines and dominance of board machines will be less than it was during the peak years. Good. And then my favorite subject. So I have waited for years to be able to talk about it. So like you all know, I'm an old DCS engineer, so I started my career in programming DCS with my own little hands. That was 1988. and the product was called then Valmet Classic. Then the next one which was then launched in end of 80s was called Valmet XD. And we have been now working with that system over 40 years. The core of the system is from end of 80s, beginning of 90s. And now over the last years, we have spent a lot of effort in renewing the product. And now it has been launched to the market on April 9th. So it has taken 10 years to develop, and now it's ready. Now it's available for the majority of our customers, and it's the first in the market for maybe 30 years as a totally new DCS system. and it's called Valmet DNAe. It's called Valmet DNAe to emphasize that it has full compatibility with our earlier Valmet DNAe and that's very important in our business. So we have to be compatible with earlier generations and that's what we are. Now, what have we done new? We have done new user interface. It's totally web-based, which means that the operator can use it over the normal screens, or somebody can see the screen somewhere in mobile phone, so it's full web-based. We have new configuration tools, so the tools which I have been using are now totally renewed, and of course they are web-based as well. We have now new analytical tools to help customers to improve the reporting and performance of their assets, And then we have also new controllers, new IEOs for the system. So actually all the components have been redone. And so that it's compatible with earlier Valmet DNA systems. And what's very important is that it's totally built in cybersecurity. So all the customers are worried now about cybersecurity. And this system is totally built in has totally built in cybersecurity. So we are very happy that now we have the product on the market. We haven't capitalized R&D, so all the R&D has been spent in our profit and loss statements. So now I of course want to thank automation systems management and personnel for the excellent work that they have been doing. improving the business, growing the business, improving profitability, and then at the same time invest into next generation DNA. So well done. And now after long technical speech, I let Katri to talk about financial numbers.

Thank you, Pasi, and hello everybody on my behalf as well. I will walk through the financial development next. Here are the key figures for the quarter. Order intake was 1.05 billion, and it was 32% lower than a year ago. Order backlog was 3.8 billion, and that was roughly on the same level than what we had at year end. Net sales was 1.2 billion, and that was 8% lower, and comparable epithet was 121 million and 10% of net sales. Adjusted earnings per share was 41 cents for the quarter, and that was 19% lower than the comparison quarter, and this is due to lower epithet and higher financial expenses. I will come back to the balance sheet numbers later in my presentation. Then moving on to the segment numbers, starting from services, orders received decreased to 527 million. And as Pasi already mentioned, last year's orders were the highest one ever for Valmet, and this was the second highest for us. Orders received from tissue converting, which was integrated into our numbers in the beginning of November last year, amounted to 39 million in the first quarter. Net sales remained at the previous year's level being at 406 million, and tissue converting part here was 35 million. Comparable epithelium remained at the previous year's level at 60 million, and margin decreased to 14.6%. And good to note that the organic net sales decrease and changes in the FX rates had a negative impact on the comparable epithelium. Moving to the automation next, their orders received decrease to 328 million. And on the automation system side, orders remained at the previous year's level in the automation services and decreased in capital. Orders received increased in energy and process and decreased in pulp and paper. Then on the flow control side, the orders from pulp and paper industry decreased and remained at the previous year's level from other customer industries. And also good to note that the orders received in the comparison quarter were record high for both business lines. Net sales remained at the previous year's level at 309 million, and comparable EBITDA also remained at the previous year's level at 51 million, and the margin was 16.5. Then lastly, process technologies. Pasi went this through already quite thoroughly, but just to summarize the main points here, orders received decrease to 195 million and their tissue converting orders amounted to 48 million. Net sales decreased to 497 million and tissue converting was 28 million in that number. Comparable epithet amounted to 21 million for the quarter and the margin was 4.2%, and this remained at previous quarter's level. Here you can see a summary of the segment key numbers. I will not walk them through again, but worth mentioning that the other segment was 11 million for the quarter. Regarding the comparable cross-profit, that was 28.3% of net sales in the first quarter and stable business represented 59% of the net sales. And as you can see from the chart, last 12 months we were at 26.6% and the cross-profit has been developing well over the years. Comparable SG&A expenses were 14 million higher in the first quarter compared with the comparison quarter. And the issue converting SG&A, comparable SG&A amount to 19 million in the first quarter. And when you look at the chart, 915 million is the last 12 months comparable SG&A, and it represents 16.9% of the net sales. And also SG&A we have been managing well over the years. Regarding cash flow provided by operating activities, it amounted to 138 million in the first quarter. For the last 12 months, we were at 282 million. CapEx amounted to 29 million in the first quarter. Moving to the networking capital, so that amounted to 173 million at the end of Q1, and that is 4% of the last 12 months orders received. And here, good to note that this number is now without the dividend liability. And the acquisition of tissue converting increased the networking capital by approximately 79 million, if we compare it with the comparison quarter. And with a longer trend, if we compare to 2021, the networking capital has increased mainly in the capital business and due to the integration of flow control and tissue converting. And today our business mix contains much more stable business, which typically ties up more networking capital than capital business. Net debt decreased compared with year end, and it was 939 million, and gearing amounted to 39%. And the increase in the net debt and gearing in the fourth quarter was related to tissue converting, and second quarter in 2022 was related to flow control. And net debt to EBITDA ratio, it decreased to 1.36, and the average interest rate of our total debt was 4.3%. 6% at the end of Q1. And worth mentioning that during the first quarter this year, we successfully issued 200 million green bond with 4% fixed annual coupon. And net financial expenses amounted to 13 million in the first quarter. Capital employed was 4.1 billion at the end of Q1 and comparable return on capital employed was 15%. And in Q1, last 12 months, adjusted earnings per share decreased to €2.18. And this was due to lower epithet and higher financial expenses. This was my part. I will give the floor back to Pasi. Thank you.