Valmet Oyj

Good afternoon ladies and gentlemen and welcome to Valmet's third quarter 2024 result publication and webcast. Valmet's third quarter was characterized by the fact that comparably the margin was the highest for a third quarter ever at 12%, but then the market activity was slower than expected. My name is Pekka Rouhenen. I'm the head of IR here at Valmet. And in this conference call, we have a new representative, Valmet's new president and CEO, Tomas Hinnerskov, who started in the mid-August. Welcome, Tomas. Thank you. And then, of course, CFO Katri Hokkanen. The agenda today will be so that Thomas will first go through the third quarter results and brief, discuss about the development of the segments, discuss about the guidance and short-term market outlook, and Katri will then later present the financial development in more detail and after that we will be opening the phone lines for Q&A and this time there's also the possibility to ask questions through the online platform so please also utilize that opportunity. But with that I hand over to you Thomas.

Thank you very much, Pekka. Despite having lived in eight countries across three continents, it really feels like coming back home to this strong Finnish engineering company, which I worked for early as well, not the same one, but also a strong Finnish engineering company. So very happy to be here and it feels very good. So let's look at Q3 just in overall terms before Katja goes into the details of what happens during Q3. Overall, orders received amount to 1 billion euros. Market activity was a bit slower than what we actually anticipated a quarter earlier or end of June in particular. We did see stable business order increase, still a little bit short of what earlier expectation in particular in the service business. On the process technology, best orders did decrease and also behind on early expectations as well. However, we did have one big highlight during the month, which was the Arauco order, which is not part of the Q3 orders and will be booked in Q4. As you probably noticed, we did sign the contract yesterday, so now it's sort of the final orders there, and it will be starting. There will be prepayments and booking during Q3. On a positive thing, I think order backlog, $3.5 billion, quite a sizable amount. And what I really also like about it is that roughly half or 50% of the backlog is in the stable business of ours. So that's actually a good profit pool that we have in the backlog there. On the net sales, exactly the same as last year, comparable EBITDA, just like Pekka said, 12%, best ever Q3 margin. Albright was sort of supported by a sales mix that actually support a higher margin. So overall, came in quite positively. Also cash flow, quite nice to see that the operating activities and the operating cash flow is amounting to 110 million. Looking more into the numbers for Q3, orders received, net sales very evenly split in sort of three quarters or three thirds. Whereas then, of course, our higher margin stable business is amounting to the most parts of the whole EBITDA or comparable EBITDA. So still continuing the same way as we've seen in previous quarters. On the comparable EBITDA development, it is really nice to see that we have a good track record of growing the margin over the past 10 years. Last 12 months was, I guess, another record of 11.3%, slightly higher than last year. And again, also supported by SalesMix, which you can also see on the color split on the Q3 24 LTM. Still aiming to achieve the 12% to 14% margin over time, and that is definitely an ambition of ours. Orders received 1 billion euros, flattening out the last 12 months. The last couple of quarters have been more roughly on the same level, 4.5 billion. Those will increase, expect to increase in Q4 due to the Arauco order that will be booked there. Geographical mix right now, North America, Europe, biggest part of the pie. Of course, with Arauco, South America will expand and be a significant part of that orders received for 2024. Maybe also worthwhile noting that China has decreased since it peaked in 2022. Let's just see, there it was. Overall, when we're looking then at taking a double-click on the orders received, just looking at the stable business, currently 3.2 billion euros last 12 months, which, of course, very positive to see still, even though it was not as fast and as much growth that we expected some months earlier, but it was nice to see that this provides sort of a very stable foundation and resilience to whatever cycle we will come through. and it also has good profitability and therefore good profit pool for our future quarters to come. Organic growth, a little over 5% CAGR over the last 10 years. What I would also highlight that within the last 12 months, actually 70% of Valmet's orders received is coming from this stable business, whereas if you look all the way back to 2015, it was less than half of the orders received. So CLEAR has been a development of expanding the stable business. That also, when we look at the order backlog, overall decreasing, but that's because the capital part is decreasing, whereas the stable business is actually increasing. Also there, now 50%, roughly, of the overall backlog, whereas going back to 2015, it was 25%. One of the things that will also help us into Q4 on the bottom line side is that we do expect 70 million more sales coming out of the backlog in Q4 versus what happened actually a year ago. So that will support our Q4 results. Let's have a quick look into the different segments. Process technology has been trending down since sort of the peak end of 2021. Naturally, for the full year of 2024, we do expect to see a strong process technology order due to the Arauco order that will be booked. We also see sales last 12 months, of course, with the decreasing process technology orders since 21. There will be less, the order book is also declining, therefore also less sales, roughly 300 million less in what we've seen in the last 12 months. That's also led to, which you might also have picked up in our announcement, that we're restructuring the business, the paper business line. and had taken 112 people out, or are taking them out as we speak, in order to counter that order book that is also declining in this business line. Last 12 months, profitability slightly down in the process technology. However, I would, or at least I take note of that The Q3 margin was better than the Q2 margin. We had 4.4% in Q3, this Q3, whereas it was 3% in Q2. Also impacted by some settlements on prior projects. But anyway, I think it's good to see that it's coming up, all right on a too low of a level. Then Arauco project. I have to say it was really great to be in Chile together with the team when we closed this deal and partnered up with Arauco on delivering the most amazing single-phase pulp mill in the world, the largest one. really worked on how could we optimize the outcome and the output of this mill together with the customers and that was basically what I would say was the key to winning this order and very proud of the team and how they sort of on the spot in Santiago de Chile worked in war rooms and creating the right solution for the customers and then delivered this complete full scope Valmet mill that basically have everything that we can do in terms of full automation, flow control, mill-wide optimization. It was just a very, very nice solution and still based on proven technology, which I think is also important to say also from a managing or mitigating the risk perspective when we actually have to deliver this important project and all of Valmet's sustainable technologies in one go, so to say. Really nice project, of course, also proves some or delivers some future service and automation potential after its startup in 27. Services, probably something we're going to talk a bit more about also later today, but orders did grow, which was nice to see. The last 12 months, it was actually record high, 1.8. Still not quite as what we thought some months ago, but the activity has been a bit lower than expected, but it is on a growing path, which is nice to see. Then net sales increased also with that to 1.3 billion. Margin is a little bit down on this compared to previous years, but comparable EBITDA is therefore staying flat versus what we've seen last year. Automation remained the last year's level, orders flat both in automation services, a little bit down in flow control. Net sales went up and also comparable EBITDA remained on last year's level. We're integrating the API as we speak, and I was actually in Singapore a few weeks ago and visiting our new team members there, one of their important sites for API. Really great to meet the team and the passion and the knowledge technology we have. It's a very exciting acquisition that we've made, and I think we will see more of that in the future. Good to see, and very much appreciating the new Val materials that are joining us. I should also note that already now we're two-thirds of the automation orders are actually coming from outside pulp and paper industry. That's important to note. We now see that orders are basically flat. However, I think it's important to note that the pulp and paper industry orders in this segment is slightly down, but actually other industries are up and mitigating or countering that. So that shows that I think we have a strong value proposition and things to offer outside the pulp and paper industry, and I think that is super important. That's something we're going to build more on into the future. So then guidance, short-term market outlook. Probably not a big surprise to anyone that we are changing the short-term guidance or outlook in the service business to satisfactory down from good. Came out of or end of Q2 in June last year or this year. Was a lot of sort of good momentum and we felt strongly about that we were getting into sort of even more growth than actually happened. Now we've seen more that customers' decisions are taking a bit longer time. There is utilization rates of the equipment. Customers' equipment is lower, therefore the consumable spend is lower. Some of the packages and decision making is also taking longer time. A bit slower than expected market activity, but still growth. I think it's important to note that. So, yeah, just something to keep monitoring and keep driving that growth and taking share where possible. Flow control, automation system, as I said, problem pair a bit slower, but actually good development in other process industries is generally good, so therefore we're keeping that on good level. Problem energy, both satisfactory. We sort of view this that this is a view without these kind of mega Arauco orders because that becomes then just too much of an anomaly and swing factor, so satisfactory there. Board and paper, going down a bit, sort of activity, market activity is weak. Pipeline is somewhat there, but the discussion just takes longer time, and there is overcapacity in Europe, so that's also impacting the overall business there, and that's why we're also restructuring that business to take out some capacity in order to adjust that to our actual market situation, but also backlog in that. Tissue, no big changes there, both in terms of tissue and tissue converting. I think market activity is satisfactory, and we have good, healthy activity levels with our customers on discussing that. With that, I'll actually hand over to Katja on the financials, and then we'll see what it means more in details.

Thank you, Thomas, and hello, everybody, on my behalf as well. I will walk through the financials as traditionally, and starting from the key figures. Orders received increased 6% to 1 billion in the quarter, and as Thomas said earlier, so it was lower than what we expected. Order backlog was 3.5 billion and 14% lower, but good to remember that we have 70 million more in the backlog for Q4 than what we had a year ago. Net sales was flat at 1.3 billion and a comparable everyday margin increased to 12% and this was due to more stable business in the sales mix. Items affecting comparability were minus 17 million for the quarter and this was mainly related to process technologies as well as services segments. On the operating profit side, it decreased 14%, and this was due to items affecting comparability and higher amortizations. And I will come back to the rest of the figures in the following slides. Then some words about the segment starting from process technologies. There the order intake was 307 million for the quarter, and as Thomas said earlier, so it was lower than what we expected. Tissue converting orders were 28 million for the quarter, and some orders didn't materialize in paper as we expected in the third quarter, and therefore we are hopeful that the Q4 will be sequentially better quarter for orders in the process tech. Net sales decreased to 488 million and comparable epithelium margin increased from the second quarter to 4.4%, but overall the comparable epithelium is impacted by lower net sales. Then next, services, there the orders increased 18% to 412 million, and this was less than what we expected. As Thomas said earlier, tissue converting orders were 34 million, and currencies had 9 million negative impact on the quarter. And good to remember that the Q3 is typically seasonally lower quarter in services orders, and we did see some customers postponing the meal improvement projects. Then going into the fourth quarter, so tissue converting will support the orders by one month and then the comparison quarter was not so strong last year. On the net sales side, we were 5% higher at 453 million and comparable epiday was exactly flat at 79 million and organic net sales decrease had a negative impact on the margin in services segment. Then next automation, there the orders received increase to 322 million and that was supported by acquisition of analyzer products and integration and FX had a negative impact on the orders. Net sales increased 14% to 354 million and this was also supported by API and here also the FX was negative. Comparable epithet increased to 65 million and even though the API business was at break-even level here and the increase in the comparable epithet was driven by the changes in the sales mix and the margin decreased due to integration of API. Here's the summary of the segments and we've already covered most of the numbers except the other where the expenses have decreased. The comparable epithet in other was minus 10 million for the quarter and here today we were at 32 million which is in line with our expectations. Then regarding comparable cross profits for the last 12 months actually the margin increased to record level of 27.8% and in Q3 comparable cross profit margin increased clearly and this was mainly due to higher portion of stable business. Comparable SG&A costs increased in the third quarter, and this was mainly due to acquisitions. And when we look at the SG&A cost as a percentage of sales, they have increased this year, and it has been impacted by organic net sales decrease. And of course, we are constantly evaluating our cost base and take actions if needed. Then on the cash flow, we are very pleased that the operating cash flow has improved to 500 million for the last 12 months. And the increase there is mainly due to the change in the networking capital. And the networking capital was 3% of the last 12 months orders or 155 million. And acquisitions have added 100 million to networking capital if we compare it to Q3 last year. And as said many times, our networking capital profile has changed during the last year, so we have more stable business and we don't expect to go below zero in the short term here. Net debt remained at the previous quarter's level being around 1 billion, and it has increased in the recent years due to the merger and acquisitions. Gearing was 43% and net debt to EPDA ratio 1.59. And of course, these are higher levels than before, but good to remember that we have more stable business now in Valmet. And the interest rate was 4.4% and net financial expenses 49 million. Return on capital employed has decreased to 13% and capital employed has increased due to acquisitions, which then has led to lower ROC. And last 12 months adjusted earnings per share decreased to €1.98 compared with 2023 and this is mainly due to lower epithet and higher financial expenses. And now I will give the floor back to Pekka. Thank you.