Valmet Oyj

Good afternoon ladies and gentlemen and welcome to Valmet second quarter 2024 result publication webcast. My name is Pekka Rouhin, I'm the head of investor relations here at Valmet and with me today are Valmet's president and CEO Pasi Laine and CFO Katri Hokkanen. After the presentations as usual you will have the chance to ask questions over the phone lines but without further ado Pasi please go ahead.

Thank you Pekka, welcome. So our headline is that orders received remained at previous year's level and amounted close to 1.3 billion and comparable every day decreased to 141 million in second quarter. So the content is like normal. So first quarter two in brief, then some words about development of segments and business lines. Then one slide about our strategic path forward. Then Katri will come to talk more about financial development, and then I'll join again here talking about guidance and short-term market outlook. So first, quarter two in brief. Like said, orders received remained at previous level amounted close to 1.3 billion. I will go through the business line segments later on, but we are very happy with this 1.3 billion euro order in. Net sale was at almost at the same level, about 1.3 billion. Our backlog, I'll come back, was 3.8 billion and comparable every day decreased 141 million and margin was 10.6. And gearing in the end of the period was 45%. Orders received were such that in services in quarter orders received was 497 and that's good number, so we had very good order intake. If I remember correctly, order intake in services grew by 15% compared to earlier year. In automation, quarterly order intake was 352, and there, if I again remember correctly, we had 4% growth. In process technology, comparing to last year, order intake decreased, but 434 million order intake is a good amount comparing to how the year started in quarter one. So we are happy with the orders received development in quarter two. Net sales, Katri will go through more in details, and then comparable epitane services, we were at 80 million, roughly at last year's level in automation, 58, and then there's declining process technologies to 15%. Here's the graph of how Valmet has been developing over the last 10 years. And now the happy day margin is at 11.2% cumulative for LTM. And like we have been saying, of course, the target is to get between 12 to 14% as soon as possible. Orders received, like we said, was at last year's level. And if we take H1 and think about the areas, then Europe was 43%, North America 26%, so both were active. China, Asia-Pacific and South America traditionally are about 10% each, and now Asia-Pacific was more active than normally, so amounting to 15% of order intake in the first half of the year. Stable business. So this is the story we have been saying over the years, We started our services with order intake about 1 billion and 55 million. Now our LTM is 1 billion 777 million, so good development. In automation segment, we didn't have it in the beginning, and now the order intake in automation segment for last 12 months is almost 1.3 billion, so all these together is about 3.1 billion. And this is of course good development that has been taking place in Valmet over the years. And stable business represents now 69% of the order intake, thinking about last 12 months, so it's of course majority of the business is now coming from our stable business. Then some words about the backlog. So backlog is decreasing, it's now 3.8 billion and now I think it starts to be at a good level. So when our backlog was at 4.4, then our delivery times for many of the products were too long. Then, of course, long from customer's perspective and then also long from our perspective. So the longer the lead times are, the more difficult it is to prepare oneself for, for example, inflation or some very rapid developments like the war which was started by Russia against Ukraine. So now this 3.8 gives customers good delivery times and also from risk management point of view it's better for us. From current backlog about 60% we are expecting to be materialized as net sales during 2024. Last year the corresponding percentage was 50%. This means that we have now calculated it out at about We have about 70 million now more backlog to be realized this year compared to last year. So roughly 70 million. And about 50% of the backlog is related to stable business. Last year about 40% was related to stable business. Then some words about the segments and business lines. So first, services. So in the beginning of the year, order intake grew a little bit compared to last year. So this year 1 billion 24 million, and this year 1 billion 24 million, and last year 1 billion 7 million. And we are very happy with the development of last quarter. And Katri will focus more on the quarterly numbers, but I told it already, 498 million in order intake. So that's good development. Net sales has been growing a little bit as well. And epi day is now about last year's level. So 140 million comparing last year to 142. And so roughly at the same level in euros. little bit down in March. Automation segment because for first half of the year we are decreasing and like I said in Last quarter it was increasing, but we had a very strong start for 2023. And that's the reason why we still have a situation that compared to the first half of the year, orders have been decreasing in automation. And I'll come back to business line specific topics later on. So the first half 681 million and last year 732. And then last year we had a very strong first quarter of the year. Profitability is roughly at the same level, 110 million last year and 109 million this year. Then flow controls business line orders received were 389 million in first half of the year and last year a little bit higher. The change is coming mainly from pulp and paper big projects, although that market hasn't been active earlier like we have seen in our process technology order intake. So mainly the change is coming from that segment. We have good activity in MRO business and services, which is very important from many perspectives. So we are selling small amount of valves to customers who already have installed base and doing services, and that business is doing reasonably well in flow control. So we are happy with the development of flow controls. And like we see, net sales and order intake are at par, so current business level continues and then of course the target is to grow the business every year and of course Simo has a target to grow this year as well in order intake. In automation system business, we had very strong quarter one last year. This year we had a good quarter two, so the activity is increasing. But the first half of the year, last year was 304 million, this year 291 million, so small decrease. We have good development in services and in energy and process, and then The market which is not very active is the package sales together with process technologies. Delta is mainly coming from that. The acquisition of analyzer products was completed 2nd of April, so we have about 22 million orders here in quarterly numbers from API in our numbers. Then process technology, first quarter last year, sorry, first quarter this year, our order intake was 195 million and now it bounced back to to good levels at 434 million. So good activity in process technology for the quarter. Profitability has been declining. So last year our profitability was 59 million and now it was 36 million. So LTM is now at 4%. Last year total year was at 4.5%. Pulp and energy business line, so orders received increased from 2004, from the first quarter when order intake was 57 million and now it was 187 million. So clear improvement in market activity in pulp and energy business line. And the same has happened in paper business line, so orders received for the first quarter were 138 million and now it was 247 million. So we are back at the normal order intake volumes both in pulp and energy and paper business line. No, then some words about the strategy. So, of course, we have been working on our strategy process in a very active way in the springtime. And we have been also telling to investors, to all of you, that there is a little bit change in the business scope of Valmet. So earlier we were mainly a pulp and paper and bioenergy focused company. And now, like we presented last time, about 1.4 billion of our business is coming from non-pulp and paper businesses. And this has to be reflected also in our mission statement. And that's why we have now developed our mission statement. In the mission statement, we continue to say we create sustainable results by converting renewable resources. So the same story continues. So with Valmet technology, our customers can take renewable resources in and make sustainable products. And then for other industries where flow controls, automation systems are mainly active, we say that we make industrial processes reliable and efficient. That's exactly the role of automation, so making processes reliable, safe, efficient, reducing emissions, and that's the mission of our automation segment for non-pulpan paper customers, so process energy customers. We are very happy with that definition and we are also happy that over the years Palmet has developed to that much that we are not only depending on pulp and paper business, we have also other businesses. So it's the same kind of big change that has taken place in in our stable business, so it was 1 billion to 3.1 billion. And this non-Palpan paper, we have been growing from 200 million to 1.4 billion. And of course, the development continues in the future as well. We haven't done any other changes, so strategy continues to be the same. Continuous improvement and renewal continues to be the same as early and the vision as well to become the global champion serving our customers and in moving the industries forward. So small addition, but very important change in our mission statement and we are very happy with that change. So, now I'll let Katri to continue the presentation.

Thank you, Pasi, and hello everybody on my behalf as well. I will walk through the financial development next. Here you can see the key figures after the second quarter, so order intake was 1.3 billion and roughly on the same level than the comparison quarter. Order backlog amounted to 3.8 billion. and net sales was 1.3 billion, and that was 7% lower than the comparison quarter. Comparable epithet was 141 million, or 10.6% for the quarter, and here the lower volume in net sales was impacting the comparable epithet. Adjusted earnings per share for the quarter was 43 cents, and that was 28% lower, and here the lower result as well as higher financial expenses were the reason. For the full year numbers, quickly, order intake 2.3 billion, so that is 17% lower than last year. Net sales was 2.5 billion, and that is also 7% lower, and then comparable EBITDA 262, or 10.3%. And I will come back to the other balance sheet numbers a bit later in my presentation. Moving then on to the services, starting from the order intake. So that was 497 million for the quarter, and that was 15% higher than the comparison quarter. And here, orders received from tissue converting, which was integrated into Valmet at the beginning of November last year amounted to 38 million. So actually, without tissue converting, the increase was 7%. Net sales remained at the previous year's level, being at 473 million, and here tissue converting impact was 38 million. Comparable epithelium remained at previous year's level, being at 80 million, and the margin decreased to 16.9%. And here the organic net sales decrease had a negative impact on the comparable epi day margin. The next automation, their order intake remained at the previous year's level being at 352 million. And in automation systems, orders received increased in automation services and decreased in capital. And orders received from the acquired API business amounted to 22 million in the second quarter. And good to note here that the comparison quarter last year included a large single order in flow control. Net sales remained at the previous year's level and it was 351 million and here the API impact was 19 million in the second quarter. Comparable EpiDay remained at previous year's level and it was 58 million and the margin was 16.5% and the margin decreased mainly due to integration of this API business. Lastly, some words about process technologies. Pasi mentioned already the order intake, so it was 434 million, and good improvement to the first quarter. Net sales was 500 million, and here we had tissue converting 41 million, and forgot to mention that in the bookings it was 42 million. Then comparable epithelium amounted to 15 million, and the margin was 3%, and comparable epithelium was impacted by lower volume. Then we have a traditional summary slide from the segments and here I want to highlight the other segments. So it was 12 million for the quarter and for full year 23 million. Comparable cross-profit was 27.8% of the net sales in the second quarter and here stable business represented 62% of the net sales. And when you look at the last 12 months curve, so we were now at 27.1% in comparable cross-profit and It has been developing well over the years. On comparable SG&A, the expenses were 27 million higher in the second quarter, and that was coming from the acquired tissue converting and analyzer products and integration mainly. And when you look at the SG&A chart, so for the last 12 months, we were now at 942 million level, and actually the increase compared to year-end, 901 million, is mainly related to previously mentioned issue converting as well as API. Then cash flow was strong, provided from operating activities amounted to 128 million in the second quarter, as said, very strong. And for the last 12 months, we were at 447 million. And networking capital amounted to 150 million, and that equals 3% of the last 12 months' orders received. If we compare to year 2021, our networking capital has increased mainly in capital business and also due to the integration of flow control and tissue converting. And nowadays our business mix contains much more stable business, which typically ties up much more networking capital than capital business. Net debt increased, if we compare it against the first quarter, it was 1.1 billion and gearing amounted to 45%. And the increase in the net debt and gearing compared to first quarter is mainly related to dividend payment as well as the acquisition of API. Net debt to EBITDA ratio increased also compared with the first quarter, it was 1.63. And the average interest rate of our total debt was 4.5% at the end of second quarter. And net financial expenses amounted to 32 million after the first half and the comparison number last year was 12. Capital employed was close to 4.2 billion and comparable return on capital employed 14%. And the acquisitions, analyzer products and integration this year, tissue converting last year, and then flow control in 2022 have increased the capital employed. Second quarter, last 12 months, adjusted EPS decreased, if we compare it with 2023, being at two euros and two cents. And this was mainly due to lower epithet and higher financial expenses. That was my part, so I will give the floor back to Pasi. Thank you.

Thank you, Katri. And now Kaidansan shot to a market outlook. So if I start from the short term market outlook. So in this year we keep the satisfactory level. It was satisfactory and it continues to be. Board and paper, we are increasing now to satisfactory from weak to satisfactory. So earlier we were saying that the market is weak even if we have satisfactory workload and now we have order intake has been increasing and we also have a market activity in front of us so that we have good reasons to say that the market activities at the satisfactory level. In energy, it goes from good level to satisfactory, and there the European market is less active than it was a year ago, and that's why we are reducing it. In pulp, like you saw, order intake has been improving in pulp site, and the market outlook also for coming product is more active, and that's the reason why we are increasing our our market outlook, short term market outlook from weak to satisfactory. In automation systems we have been keeping the good level and it continues to be at a good level and then we of course have to remember as well that last year we had not that active third quarter in automation and now we see that we are of course not guiding any quarterly numbers but we see that the market activity for coming end of the year is at a good level this year compared even with last year. In flow controls, we have good market activity, like said, MRO business services is active. Project hasn't been in pulp and paper that much active, but everything else is going on the active level. And then in services, we are saying that the market continues to be good. And there it might be good to compare with the third and fourth quarter of last year, when we were saying that our workload is still good, but the market activity is satisfactory. And now we say that the market activity is good and workload is good. And this is of course a big change in our market situation. And these are the reasons why we made a positive change to our guidance. So we estimate for the whole year that net cells will remain at the previous year's level in comparison with 23, and comparable epithelium in 24 will increase in comparison with 23. Good. Now I'll let Pekka to say two words.

Thank you, Pasi. So now it's time to go to the Q&A. And I also invite Katri to join Pasi here to the front. So if you are ready from that part, I will now hand over to the operator, please.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Sven Weier from UBS. Please go ahead.

Yeah, good afternoon. Thanks for taking my questions. The first one is just on the outlook change, right? I mean, you obviously just upgraded it back to satisfactory after one week quarter. I mean, looking a little bit ahead, if we look at the current pulp and paper results, And if we think more about maybe bigger capacity projects, would it be fair to say that it will probably take more than one quarter until the outlook goes back to good? That's the first one.

No, now we are of course guiding for coming six months and there we say that it's at a satisfactory level and we have seen now more activity, customers buying single island projects where we are competitive so that's why we have now and we have had also better order intake in quarter two, and we have good visibility for coming quarters. And then for the activity to go to the good level, I would say that in PALP, it means that the big project pipeline should become even more active. And then in paper and board, it should mean that paper and board market should be even more active than it's today.

Yeah, that makes sense. Thank you. That was the first one. The second one, I was just wondering, I understand obviously project technology EBIT margin was down because of the negative sales development. I was just wondering where you stand on those legacy projects that were lower margin. Have they been largely completed in the meantime? Is that maybe also a reason why you became a bit more upbeat about the guidance that you think you've done on these and you have a better margin in the second half?

We haven't been kind of commenting the old projects, but what we said about the margin that of course, net sales has an impact, but we have also been closing some of old projects and smaller ones, and that has also impacted the margin this year, this quarter.

Which leads me to the next question, because I was wondering, because you also talked about the first time integration of API, how they diluted margins, were there maybe also some, what you would normally call one-off costs that were not really adjusted in the comparable EBITDA, but were maybe more one-off in nature?

Well, I can comment kind of in general, the automation segment profitability of the comparable EBITDA. So it was flat, but the margin decreased. And we also said that this integration of API impacted the margin. And we have also published in the interim report that its impact to Valmet's net profit was minus four million. So it was impacting that.

But that was the integration cost that you do however adjust?

No, integration cost you would book under comparable, but it's so that the organization was using all the Siemens systems until 2nd or 1st of April and then they had to change to all Valmet systems, so meaning ERP, so we had full ERP rollout, we had full HR system rollout, we had all the systems rolled out in that organization and it takes a while before they are effective with all those tools and at the same time they had some capacity limitations in some of their units so I would say more that it's a normal situation having that kind of so big change happening in an organization in so short time period of time.

Okay, understood. Maybe one final remark from my side, Pasi. Just wanted to congratulate you on a great career and your achievements also at Valmet in the last 10 years. It's been great and I'm wishing you all the best for the next chapter. Thanks for everything.

Thank you. I'll come to a little bit longer answer at the end. Thanks, Pasi.

The next question comes from Ponu Leytinmaki from Danske Bank. Please go ahead.

Thank you. I have two questions. Firstly, on the guidance and the kind of implied second half improvement. I mean, you had both revenue and EBITDA down in the first half year on year, but then you are getting flat sales and higher EBITDA for the year. It implies a clear improvement in the second half. The question is that what is driving this and how does this split into different divisions? So are they all going to improve or some of them more than the others? Any comments on that?

No, I can start and then Katri will give the correct answer. So if we start from services, so we had very low order intake in services last year, especially in third quarter and also fourth quarter. And then we had still high backlog and we had long delivery times. And market was, like you maybe well remember, was quite challenging. And now we don't see that kind of situation. So we have good market activity. Our delivery times are shorter in services. So based on that market activity and delivery capability, we estimate that our performance in services is better than a year ago. And the same applies in automation segment. And there, of course, we have also the impact of API integration. So now we have added for one quote with all the challenges I explained and then in coming quarters we will have the full positive impact of API coming in the picture as well. In process technology the revenue recognition from all new projects is not that big anymore for the year but it has of course impact to every day from the workload perspective and then also from margin perspective.

maybe maybe just to add kind of to the net says what was he mentioned also in his presentation that we have now 70 million more in the backlog to be recognized this year and the delivery times are now back in in pre-covered levels so of course those are also important drivers together with the market activity thank you uh the second question is is still on the process technologies margin i mean

I get the comment that revenue was down year on year, but it was similar to Q1 sequentially. So was there something like one of negative in the process technologies margin in Q2? And what's your kind of thought of how soon could you return back to 6%, which I believe is the kind of target?

So like Katri said, we were closing some projects So I wanted to close some approach now.

Yeah. So PASI has been very active and of course that was good for us, but they were smaller ones.

Okay. Thank you.

The next question comes from Antti Kansanen from SEB. Please go ahead.

Hi, it's Antti from SCB. Thanks for taking my questions. I'll start with a comment on delivery times. And if you look at kind of single islands in pulp and then your paper, board and tissue machines, kind of the demand that you're facing right now, what are actually the delivery times? What I'm trying to kind of understand is the level of 25 sales. So is it still like Q1 and Q2 orders next year that would impact the full year revenues in 25?

Of course, it will impact. But if I start from the delivery time, so at the longest, I think we started to be at three years delivery times in board machines, which was way too long. And now the delivery time would be under two years. So now we would be having that kind of delivery time what the customer needs in any case for its construction work and everything else. So now we are back in normal delivery times. That same applies to PALP and NHC single island deliveries, where typically the construction work takes two years when the groundwork starts. And then I don't remember now, or we haven't, you can of course calculate actually it from our backlog. We have been telling that how much is related to process technology backlog and from that you can actually calculate how much typically we recognize revenue from the projects which we booked during the year in process technology. I think we haven't published that number, but now, of course, when the delivery times are short, we can recognize more revenue from the new coming orders than in the situation that we are actually selling capacity, which will be free in a year.

Yeah, because what I'm trying to maybe better understand from next year's perspective is that obviously the existing backlog for 2025 and beyond is quite a lot slimmer than it was, for example, a year ago. And if we just look at PT, I mean, you have grown the business, you have made acquisitions, and there are quite a lot of more personnel in there. Is the activity level that you are seeing in the marketplace sufficient to have a satisfactory workload in 2025 or do we need to see a further acceleration to be in the clear for next year's earnings?

We have been reporting this capacity cost and we are of course managing that capacity cost all the time and we have this year done already some actions energy and then of course, if needed, then there will be further actions. But all in all, we have tried to be very careful, especially in process technologies capacity cost. But if there is too much capacity cost or if there is a possibility after the acquisitions to make the footprint even more effective, then of course we'll do it.

And if I may add what we also discussed after the first quarter call, that procurement savings, of course, is a very important topic for us. And we then said that we have actually been having a good start on that. So, of course, we work in many fronts.

And I guess also kind of the backlog margin for delivery is better given the impact from legacy projects. But I don't know if you want to quantify anything on that front.

You guessed correctly.

Yeah, I thought so. All right, thank you.

The next question comes from Mikael Doppel from Nordea. Please go ahead.

Yes, thank you and good afternoon, everybody. Just a couple of quick questions. Following on the earlier one regarding the delivery times, just wondering if you could talk a bit about that also in terms of automation segments as well as the service business. So what is the lead time now from orders to sales in those segments?

So in flow automation segment first, so valves, typically if you sell a project, then the project delivery time goes together with the process technology order, or delivery time, so customers are ordering them well in advance, so it can be that delivery time is one year or even longer. In services, the delivery time can be some weeks, and then typically if customers buying maintenance and repair operations valves, let's say three, four, five, seven valves, ten valves, then the delivery time is from three months to six months. Systems business, of course, service goes quick. So that's where it goes quickly. And then if you buy a QCS system, the delivery time is something like four to five months and DCS about, no, six months to one year and then of course in this bigger project we use POC method in revenue recognition so the revenue recognition from our perspective happens when the costs are coming in.

Okay now that's helpful thank you and then just a final one from my side on this service business just wondering if you could talk a bit about What kind of a dynamics you currently see in that your service division or segment? I mean, I think you've been talking about customer operating rates improving in the past couple of quarters, listening to your customers. It sounds like that's going to continue. But is there something else also happening? I think there might be some upgrades and that kind of a work that didn't really materialize last year. Do you see any Any kind of change into the dynamics? Do you see some pent-up demand coming through? Any call you can give, that would be helpful.

Thank you. Thanks, Mikael. That was a good point. I think neither of us remembered to say it, that in services, we can now say that all market areas are active. So earlier we were hinting that a couple of market areas haven't been that active. And now in the last quarter, actually all market areas, so North America, South America, Europe, Asia Pacific and China all have been active. And then we have seen also good activity level in all the PEUs. So all the PEUs have also good activity level. And I think that tells that whole industry is back in normal business. Maybe there is still room for improvement in operational rates and prices in some of the segments, but currently the good services order intake is coming from all parts, which is positive. I don't know if Katri wants to add.

No, you are absolutely right. So all businesses and all market areas. So that's very, very good.

All right. That's good. Thank you very much.

reminding us, because that was in our question and answer story, but we forgot to tell it.

Good that it came true. Thank you very much.

The next question comes from Johan Eliasson from Kepler-Civriax. Please go ahead.

Hi, Posse and Katri. This is Johan at Kepler Chauvre. I have two questions. First, you talk about this improved market activity on pulp. I understand that from single island orders and similar. But I've also understood there's been some news articles about three pretty big pulp projects all in Brazil. And I was wondering a little bit how you view your competitive projects I mean, at the last CMD, you sort of indicated that your market share had fallen to 30, 40% from previously, I think 40, 60 or something like that in pulp equipment. What's your view on these orders? Will any of these materialize? And would you be willing, or first of all, would you be competitive to win them? And would you be willing to take them as a, EPC contracts or would you still sort of prefer to take parts of these potentially very big projects? I guess now that's a bit up to your successor CEO obviously, but what's your view on those projects?

First of all, we cannot comment about the projects themselves. and you can follow our customers communication and they are talking about the project but you are right that there are projects developing in Brazil and they are all in Brazil and it's good that they are in Brazil. Then you were saying that like we have been saying ourselves that the market share dropped during one and a half years to 30 percent last year again When there were not big mega mill decisions done, then actually our market share was again 50-50 with hundreds. We have a very capable team in Brazil making EPC projects. Why we have been not that successful lately in a couple of big projects, one reason was that we were executing at the same time very big paper machine project. So we couldn't take the risk of overloading our organization. Currently, we have a reasonable workload in our organization, and we are sure that our organization can take full meal supply if customer so decides. And we are, of course, working hard with our competitiveness. Like Katri said, it's quite a lot of depending also on the supply chain. And then we have been, of course, making sure that we have good references in Brazil. So we have excellent references and our customer base and all the mills we have been delivering are working with very good efficiency. And that, of course, helps us also in discussions about the future cases.

Excellent, sounds good. Then just coming back to these somewhat underperforming legacy projects, with the Q2 numbers, can we now say going forward that that's all behind you, or will there still be some lingering project impacts in the coming quarters?

In projects, you always have a situation that some projects go well and some don't, and like Katri said, we wanted to close some of the lengthy discussions where I have been myself involved and wanted to close them now before I leave the company.

Okay, excellent. I must say I've been impressed how the company has developed under your leadership, especially compared with the previous decade when it was part of Metso. And I wish you all the good luck for your future endeavors. Thank you, Pasi.

Thank you, Johan.

The next question comes from Tommy Raylow from DNB. Please go ahead.

Yes, hi Pasi and Katri, it's Tommy from DNB. I'm still coming back to the guidance upgrade earlier in June. You mentioned then that overall general positive development And reading is now, I guess, that it's more second half tilted profit improvement year on year. My first question is that what do you mean by increasing clean EBITDA year on year? And I'm not very optimistic to get an answer, but I'm still trying.

You will not get a clear answer. Sorry, Tommy. Good try and thanks for letting us know that your expectations were not very high. But we mean, of course, that it's increasing.

And the second question is that... This is then, as everyone has seen, second half tilted, and I hear you that you are saying services automation improving. Is there something that you know but we can't see? For example, PT having easy comparison for the second half, where the numbers last year impacted by cost overruns included in the numbers, so you can comfortably yourself see that you will beat those numbers, hence profit improvement is coming from PT side especially as well, or maybe savings timings or so, which is triggering the second half profit improvement year on year.

So of course we have to be confident ourselves, otherwise we shouldn't have done it. And we We have our estimation process and based on that process we are giving the guidance and when the estimation process is giving the numbers then of course management has to make the profit warning to whichever direction so you have to do it when your numbers are showing that and we are not guiding quarters we are guiding for the full year. And like you said yourself, and maybe I have been saying, Katri as well, that comparison quarters, for example, in services are not that challenging from last year. And that's why we believe that we can make better numbers in latter part of the year.

Thank you. And I'm still continuing that you practically refer to services now, especially with the latter comment, but would you be able to comment kind of ranking? Is it services tilted? Is it automation tilted? How much is the kind of weight from PD side? Because, of course, there is expectation that it's really second half improvement because you are behind for the first half.

Where is it coming from? We can't give business line numbers like you know we are guiding only for the whole company and then it's not acceptable to give guidance for segments or business lines.

And if you look now where we are today, you're talking about the comparable epithets. So stable business is flat year over year, and then the decrease is related to process technologies. And Pasi has been talking a lot about the improved market outlook compared to last year in services. So market outlook is good, and also in the automation segment it's good, and upgrade also in pulp and board and paper. So all of these ingredients, and then of course what we mentioned earlier about having 70 million more order backlog for this year to be recognized. So it's a combination. Of course, the market activity is really important there.

All right. Thank you very much. And all the best, Pasi.

It's been a pleasure. Thank you, Tomi.

The next question comes from Tom Skogman from Carnegie. Please go ahead.

Yes, hi, this is Tom from Carnegie, and also congratulations from me to you, Palsy. Ten good years as well, that's a big achievement. But I would like to use your knowledge that you have built up just to talk about the industry sentiment. I mean, last year was a big shock for your customers, and some pulp and paper companies were forced to cut dividends aggressively. We have heard that there is overcapacity being built in Europe and in China in board machines, etc. But could you open up this landscape, you know, not for next quarter, but just the next three to five years? I mean, how do you see this playing out as you still work on it?

That's a good question. And I was visiting some customers and I'm not saying in which area, and I was asking them, two different CEOs said, okay, how do you see the market? And the first question that, okay, that it's good market. And then the next comment was, of course, depending on which year you compare. And both were saying that they themselves have to forget the exceptional COVID years when it was very easy to make money. And said that comparing to earlier years market is good and they continue to develop their companies. And that's somehow the sentiment in many of our customer discussions that they continue to believe in the industry. They know that there were a couple of quite easy years and now they have to work hard on making good numbers. But nobody is somehow in long or medium term suspecting whether they are in good business. So if we think about between 2000 and 2010, when there was bad years, then everybody was losing their confidence in long-term development. Now that's not the case at all. And then what is interesting is that now when, for example, we have overcapacity in Europe, then actually the ones who have modern machine and can run lightweight are having a good situation because their cost base is lower per product produced package and because of energy and raw material and many other things. So actually now we start to see again that the ones who have been investing in new machines are doing better than the ones who haven't been doing it. Which then of course gives confidence to those customers who have been buying big and modern machines from us.

Yeah, and would you expect that equipment sales will tilt more to pulp the next five years after five really good years in paper?

There was an exceptional time in paper, so like you remember, we had about 700 million order index, then it went to 1 billion and then suddenly 1.7 and was it 1.3 thereafter. this was this extraordinary COVID time, so I'm not of course saying that what's, let's say so that this kind of market volume, one billion is good volume for our paper business line. And then in PALOP, there is more lumpiness in order intake. So sometimes the order intake is a lot of over one billion, sometimes less. And then it depends just on timing that which year it happens to be. So I wouldn't be saying that there is tilt from other market to another one. It's more that the share depends more on how the timing of individual projects is happening. both are needed so if there's new pulp then the pulp needs to be used as well and like we were saying also in our capital markets day or it was Jari who was telling that that about 30 percent of our our board machines and paper machines even on the high market were sold to replace old capacities

And how would you see plantations being developed? We hear every now and then that there's a lack of good locations for plantations, which could be a limiting factor for the whole industry.

That discussion was very active two years ago, and now it has disappeared again. So in South America, when they are developing new plantations, then it takes seven years for the trees to grow. So if somebody starts a new plantation now, then he could start to build a pulp mill after four years. And now our customers are saying that they have active projects and then of course they have secured the raw material supply if they are talking about investments.

And then a question to Katri. I mean, networking capital has changed a lot and the business mix has changed a lot. Can you provide some kind of a range where you expect it to be with Valmet's current business mix? Are we really on a high level at the moment or not?

I think if you look at the developments, of course, it improved from year end. So that was a positive thing. And inventories is the topic where we are mainly working with. So we have said that on the stable business side, the inventories have been on an elevated level. And we have been actively working with those. Some changes there were now, especially in the finished goods. So they came down. On the other hand, the work in progress has increased a bit and that is then linked to the stable business where majority of the revenue recognition is done in point in time. But inventory is the topic that we have been working with and I cannot give you exact amount because of course then when you have capital projects, the prepayments can have a big impact and now capital volume has been lower as we have been discussing a lot. So it's a combination of that, but of course we want to optimize the levels and we are working hard with that.

But it's like, you know, five to minus 5% of orders, or what is some kind of an acceptable range for current Valmet?

I think you have to look at it also kind of from historical perspective. So Pasi was mentioning the stable business part. So close to 70% is stable business from the booking. So you have to take that into account that it ties more capital than capital business.

And then finally, the service sales mix. What will it be in the second half, based on what you have booked as orders in the first half? Will it tilt more or less to spare parts or modernization projects?

Like I said, we have now good activity in all the businesses, so I would more say that it's stable. We'll close the meeting. I would say some words. So 11 years ago we started IR work with Valmet. So now we have been listed over ten and a half years. We calculated, I have participated in roughly 600 IAR meetings over the years, and I think all of them are not calculated. So I have done over 600 meetings with our analysts and investors. And first to the analysts, I have to say that we have had the luxury of having very good and professional analysts. So you all who have been working and analyzing us, who are now doing and who have been earlier doing, you have been very professional and you have been doing very good questions and good reports and have been treating Valmet in fair and professional way. So that has been very nice. And then, of course, we have had a lot of discussions with investors as well. And I have to say that I have learned a lot from this investor and IR meetings. So investors and analysts is a bunch of people you end up if you have good brains and good mathematical thinking. And I have enjoyed a lot discussing with you and debating with you and trying to answer to your difficult questions in a way that it helps you, but that I'm not opening too much. But I have enjoyed a lot to work with you and I hope you all personally all the best in the future and continue to be very constructive and supportive to Katri and Valmet and then I am happy as well. So thank you.

Thank you, Pasi, for those words. I'm sure also on behalf of all the analysts and investors as well. So for Valmet, the next larger event is, of course, the August 12th, when Tuomas Hinnerskog will start as the president and CEO of Valmet. And then that, of course, means that Pasi Laine will also be leaving Valmet. So on my behalf, thank you very much, Pasi, for these years. And Palmet's next result webcast will be then on October 30. So until then, have a nice summer, everybody.