Valmet Oyj

Good morning and welcome to Valmet's fourth quarter and financial year 2024 result publication and webcast. My name is Pekka Rouhinen. I'm the head of investor relations here at Valmet and with me today are the presenters, President and CEO Thomas Innerskove and CFO Katri Hokkanen. The year can be summarized so that Valmet's orders received in 2024 increased to a new record, but net sales and comparable EBITDA did not grow. The market was challenging, especially for capital equipment, but we were of course very pleased to win a landmark order, which was booked to the fourth quarter. Today's agenda follows the usual routine. Tomas will first go through the year in brief and walk us through the development of the segments and business lines. And Katri will then discuss the financial development, especially from the fourth quarter perspective. And after that, Tomas will wrap up with the dividend proposal guidance and Valmet's short-term market outlook. But with that, Tomas, handing to you.

Thank you very much, Pekka. Great to be here. I'm really pleased with that we've closed the year and now looking into a new year. Maybe just to sort of start off, I really want to thank all our 19,100 and something of our materials around the globe who've delivered stunning job in a very challenging year and trying to take good care of all our customers globally. So thank you very much for that. Also thanks to the customers for their trust during the year in what for many customers also have been actually a challenging year. And then finally, thanks to the analysts and investors for some good discussions in Q4 on my last six months, or first six months here at Valmet. Actually that was yesterday, so we had the anniversary, which is a good way to start the new next six months. So, as Pekka said, if we look at 2024, sort of very overall, orders received increased to a new record. Raukku deal was obviously sort of a landmark order that was booked in Q4 with a value of more than one billion euros. Overall, market and the year was characterized by being sort of quite challenging, and particularly in the pulp and paper industry. Also strong order backlog of close to 4.5 billion, I guess the second highest in the history of Valmet, which gives a good sort of solid starting point going into 25. So, but despite those orders increased, as Pekka said, our net sales in comparable EBITDA did not grow in 24, which was in line with our guidance that we indicated earlier after the Q3 results. Margin, 11.4%, highest ever, driven by a sales mix or favorable sales mix. Cash flow increased to a new record for Valmet. And I have to say, that's one of the things I'm really happy with for 2024. It really sort of shows good quality of earnings, something that was criticized in some of the investor and analyst meetings that I had in the beginning of my tenure just after the Q3. So, I'm really happy to say that, you know, good development here and Katja will talk you more through the details of that. So, really happy with that. Row C, 12.7 percent, decent figure in our industry. However, I mean, we want to find ways to improve that. As you know, our current overall target is to be at least at 15 percent. Towards the end of the year, which is also one of the, I think, really exciting things that we have going, is that we initiated work to renew our strategy with the aim of defining our future growth areas, simplifying the ways we work, and simply making Valmet a more efficient operation than what we know today. And I'm very excited about that and believe that the things and the changes we're planning will enable us and Valmet to be much more faster, much more focused as an organization and as a partner for our customers, which will be an exciting journey that we embark on. Our legacy of more than 225 years, actually 228 this year I guess it will be, will be a solid foundation for that next chapter in the Valmet history books. So stay tuned for more information on that later this year. Going back to overall orders and net sales, rather evenly split between the different segments, comparable EBITDA, €609 million, came mostly from our stable business, I would almost say as usual. Service and automation together are already at €585 million. So, but I think it's also despite, you know, capital businesses, 43 million, it is good to sort of remember and take note that that does actually fuel the future service sales and service growth. So, you know, looking at it from a lifecycle perspective is important in our industry. Comparable EBITDA, you know, track record 15 to 2021 is really strong. However, the last three years of EBITDA has sort of largely been, or the growth there has been largely been driven by acquisitions. We saw tissue converting late 23, API this year. So, yeah. It's, yeah, you can see that it's, of course, not really happy with the net sales are going down. Comparably, it did not increase as we would like, so. And this is actually the first year in the Valmet's history where that has not happened, so. Primarily, I would say this clear decrease is both in revenue and profitability. We come back to that a bit later, is in the process technology segment. So going forward, we do need to make sure that we have sort of an efficient operation, just like I alluded to before in our strategy work that we have initiated, that will perform also in a challenging market like we've seen the last year. So the lack of organic growth and profitability is, of course, something that is high on the agenda when we look into this strategic renewal of Valmont. Orders received, yeah, clearly a record quarter for the orders. I think that's clear to everyone thanks to the Arauco. But overall, it was actually also a record year for orders received. Looking, then, if you double-click just into the sort of geographical split of that, South America and North America orders did increase, also in Asia Pacific, whereas in China and EMEA, the overall market was soft, and we saw a decrease there. In terms of the customer industry split, pulp and paper is, of course, still the biggest, you know, segment that we have or industry that we have with roughly 4.5 billion euros of orders received. However, it is, you know, not insignificant. If you think about 1.3 billion euro roughly is coming from energy and other process industries as well. So there is starting to be a good diversification of our exposure to different customer segments. Stable business, currently close to 3.4 billion euros. So speaking of the foundation that we're standing on, it does provide a good resilience to cycles and also has a good profitability level, which we're benefiting from also last year. Organic growth, 6 percent over the last 10 years. However, if you look at just last year, it was a challenging market, and we had organic growth of roughly 2 to 3 percent. Of course, something that we are working hard on to improve on and also wanted to take market share going forward. 2024 growth, overall 8%, 261 million. Of course, big impact from our M&A activities, like I said, you know, tissue converting and API that we bought as a carve-out from Siemens. Yeah, so then, yeah, we can see that stable part is almost 60% of Valmet's orders received during 2024, which actually is a very positive thing and provides a very good foundation for the future, but also for just the year to come. Order backlog, quite strong. Solid starting point for 25, increased from 23, and a bit higher than our previous record, which was in 2022. Capital order backlog is almost 200 million lower, however, than it was in 21. even though it is supported by tissue converting and also the round core. So this shows a little bit about that growth in the service part and the stable business part. Roughly 1.3 billion is expected to be realized as new sales in 2025. That's roughly 200 million less than what we expected a year ago going into 2024. And I'll come back to our guidance later, which is actually that we would expect, despite this 200 million less coming from the order backlog, that we will have flat sales for the year. 1.7 billion of the order backlog is related to stable business, an increase compared to last year, which is also a good foundation for going into 2025. So let's have a little bit of a deeper dive and look into the different segments and the business lines, how they performed during 2024. Process technology, orders increased actually pretty strong in 2024. However, it is also, I mean, before we celebrate too much, it is good to recognize that without the Arranco, which was one order, it was actually the lowest year ever. I would almost say ever, but at least in the last 10 years, so the latest development history. So it does show something about that we've had a market that was overall quite challenging when it comes to process technology. Trend in comparable EBITDA is also not positive, not something we're really happy about. Net sales decreased clearly and therefore also the comparable EBITDA was impacted by the lower sales. I think it's also fair to say that this lower sales did impact comparable EBITDA, including the margin quite a bit, and that is something that We need to work on going forward to have a more efficient operation that actually will perform also in challenging market like we've just gone through. So competitiveness and driving that is key and it's going to be key going forward and we'll put even more emphasis on it in the years to come. Just want to show this slide I also showed in Q3. Let's come back to it because it was a highlight of the year and it was booked in Q4. World's largest single-phase pulp mill, capacity of 3.5 million tons a year. World startup production in the second half of 27. Significant milestones showcasing Valmet's sustainable technologies. And, you know, I was actually there in December visiting the team again and the customer. It's just great to see that they're working full steam ahead, really good collaboration with the customer, and we're ready to start doing the job on the site and then being ready for the second half of 27. So, you know, important milestone and really exciting stuff. Speaking then of exciting stuff, or a problem paper at least, let's talk a little bit, sort of a double click on that and look at the more detail. They were strong due to the Arauco. It is clear that because of that, we become number one after having been number two in the market, second player in the market for a couple of years. What I also took note of in 24 was that activity in energy was actually lower than 23, a bit surprising maybe if we look sort of a bit on the trends and how the energy market is. But, and we had recently sort of, we still had an okay year with 300 million euros in orders, and we did actually win all three boiler deals that were in the market in Europe in 24, which of course, does testify, I think, that we do have a strong technology offering and we have a good value proposition into that market. Overall, South America dominated, North America basically close to zero, but I think, you know, the install base there in North America is notably old, so we could potentially see some at least sort of Bigger modernization projects coming. Hopefully that will materialize in the not too distant future as well. Scope-wise, Single Islands products were roughly 30% of our order. Arauco was sort of the only complete mills that was, I think, actually even tendered in the market last year, so it was very pleased that that went to Valmet. Paper business line, or board paper and tissue business, Orders overall decreased. Think about, you know, tissue market was rather active, actually, and tissue converting supported our orders. So we're happy with that we went into that market in 23 or into 23. And that's also why you see that's actually growing as part of our overall business in this business line. So, yeah, global leader, I would say, in tissue in the addressable market. Board orders were generally very weak and market activity were low. We also saw some minor, I would say, lost market share to competition. And then, you know, most of the business came from new installment like in previous years. So, service. Service orders increased to 1.9 billion. That's actually an all-time high. It is fair to admit that the market was difficult and organic growth was only 1% to 2%. We then benefited from a bit more tissue converting services as well. However, what I would say is that Q4s were strong. Great to see that our proactive sales teams are getting more mill improvement projects. There is more appetite for customers to actually modernize and upgrade their productions, as well as fabrics also were developed well in Q4. Net sales increased 1.9 billion. Margin were flat, but comparably, we did increase due to the integration of our tissue converting business. So, service segment, market position continues to be number two, one number one, number two globally, depending on where you see it and how you cut it. In customer segment split, there is this change in tissue which we talked about. It was 5% last year, now it's 14% with tissue converting. In business split, we've consolidated the early solution in the business units to mill improvement projects and field service. it's easier and actually also makes more meaningful data and input for investors and analysts to understand it in that way. And I actually find it easier myself as well to see it in that way. More or less the same as in 2023. We have big performance part business as well as in roles and fabrics. These are largely driven by customer activity or capacity utilization. Of course, something we monitor quite closely and see how that develops going into the future. Mill improvement projects and field service were 35%. Automation. Orders increased to 1.4 billion Biggest reason for that was API. Organic growth was, however, sort of modest, roughly around the 2%, especially in the pulp and paper packages, whereas they were low and low on what we've seen historically as well, which is also an indication of this lower utilization rate, profitability challenges for some of our customers. But overall, orders increased in automation system and were flat in flow control. And we'll come back to that in a second. The share of other process industry, other than pulp and paper, are already at 60%, which is actually a positive thing to do. It shows that, you know, we do have a strong value proposition also outside pulp and paper that does diversify our, you know, our exposure to industry segments, and it's a good development, I would say. Also, maybe good to note that you see the margins are slightly going down. API and the acquisition we made there did have a negative impact on margins for last year. So flow control, clearly leading position in the pulp and paper industry, then number one or number two in industrial gases and one of the big ones in refining and chemicals, sort of top ten positions I would say. Soft market in pulp and paper shows that, you know, you see that it decreased from being 24% or to 24% from being 28% last year. From an area perspective, you know, market in Europe was soft in 24 while activity in North America, also a bit in Middle East, was quite much better than what we saw in some other parts of the world. Renewable energy and gases, metal and mining, and other industries are growing also as a consequence of the softer pulp and paper market. MRO service, 68 percent, a bit higher than a year ago. Nice to see that we still have a very strong foundation for our overall flow control business when this sort of operational services that we are supporting our customer with on a daily basis. So orders for projects decreased. Maybe good to note that the Arauco order, there's of course some flow control involves including the Arauco order. They were not booked in Q4 for flow control, yet that comes later in the cycle of the project. So automation systems, pulp and paper, 58%. Energy and process, 42%. API increased the share of energy and process by a 10 percentage point from last year. DCS was 52%, and we'll come back to that a little bit more on the next slide, but an analysis and measurements including API, which explained the rise in that share of our business. So, what I would say here is, you know, automation system service basically mean all the business that we're doing to our existing automation systems installation base. I would maybe highlight, Katri, that and maybe Tom Skogman, you should pay extra attention. We talked about this in one of our meetings, you know, automation system actually for the full year of 24 organically, so taking out the API acquisition, did grow 7% in a quite challenging market, and a challenging market in particular in pulp and paper, which was 58% of the overall business. So I do think that that pays testimony to strong value proposition also outside the pulp and paper, which I think is really a positive and something that You know, we take pride off and also, you know, I want to thank the team for that and also something that goes into the whole strategy process as well. So really good development in automation system. Just to maybe show a little bit of granularity of meat on the bone, we probably noticed that back in May last year we did launch the Valmet DNAe. That was one of the highlight of 24. I'm very pleased to see, I mean, even though these are long sales cycles, you know, it is already getting traction. We received a good amount of orders on the D&A. Raulco was mentioned earlier. But this Mercer is also a great example. So Mercer actually selected D&E for their digitalization journey. They are renewing one of their old pulp mills in Canada, replacing the old system with the NAE. And with this change, Mercer can increase the efficiency of their current operation. I mean, it's clear that it delivers better daily utilization, stronger cybersecurity, better collaboration, but also operational efficiency, not just in the exact mill, but also how you operate the mill. And it is getting harder and harder for some of our customers to actually find qualified staff for sort of operating the mills. And here, D&E can actually help reducing the need for that going forward. So, happy to see that it's gaining traction. You know, strong value proposition, I think, and, you know, very happy with Mercer being a strong reference for us. and solidified that we sort of are in the leading position in automation when it comes to the pulp and paper industry definitely as well. So, exciting. Looking forward to more success stories on this front and I want to thank Mercer for their trust and being one of the sort of trail braces on this and actually taking it on and saying, okay, we want to do this. So, with this, handing over to Katri for the financials and a little bit of more deep dive into that.

Thank you, Tomas, and thank you for the first six months together. I also want to send my big thanks to everybody who contributed for the successful closing of the year 2024. So I know what it takes, so big thanks to all of you. I will go the fourth quarter in brief first. So Thomas already discussed some of the full year numbers, and that's why I'm focusing here on this. In Q4, as I said earlier, the orders were 2.5 billion, and this was a record quarter for us and obviously impacted by the Araukko order. I used to work in Pulp and Energy business, and I'm super proud of the team there. Net sales remained flat at 1.5 billion, and it was the highest quarter in terms of net sales last year. And this is a very typical seasonal pattern for Valmet. Comparable epithet increased to 192 million, and actually we were 20 million behind after Q3, and needed really to catch up to reach the guidance, which we did. And I'm really pleased for the performance, especially in services who made a strong Q4 with 19.8% margin. And I will get back to the segment soon in my presentation. Margin was 12.6%, which is one of the best quarterly margins for us. And the margin was boosted by services and increase and the overall mix. Cash flow was 178 million for the quarter and quarterly cash flows can fluctuate a lot and one should not look too much in a single quarter. However, of course, I'm very pleased that we made a record cash flow for the full year, as Thomas already mentioned. Gearing was 39% coming down sequentially and from the 45% level reached during the second quarter last year. Few words about the key figures as well. Q4 orders more than doubled to all-time high, like I said earlier. Order backlog is 12% higher than a year ago, and Q4 net sales was slightly higher than in the comparison quarter, and minus 3% for the full year. Comparable epithet increased 5% in Q4, but the full year decreased by 10 million. And of course, this is disappointing for us. And like Thomas said earlier, we need to make sure that we have an efficient operation that will perform also in the challenging market. Items affecting comparability was minus 19 million for the fourth quarter and minus 53 million for the full year. And IACs were mainly related to M&A and restructuring, for example, in paper that we communicated earlier. The full year operating profit decreased as depreciations and amortizations increased, and amortizations were impacted by the acquisition of tissue converting and API. And going forward, the quarterly amortizations are expected to be roughly in similar level as in Q4 in the quarters going forward. And all in all, the amortizations totaled 108 million last year. Then adjusted EPS and EPS both decreased, so lower operating profit, like discussed, and higher net financial expenses are behind the decrease. Comparable ROSI decreased 1.8 percentage points, and this was due to increase in capital employed. Cash flow increased to a new record, as said, and this really shows that our cash conversion ability continues to be strong. Net debt to EBITDA increased, but gearing decreased. Then let's take a look at the segments from the Q4 perspective, and I will start from process technologies. Again, mentioned record orders due to Arauco, and almost double from the previous quarterly high, which was actually in Q1 2021. Tissue converting has been developing well and orders there were 56 million and net sales however decreased by 78 million or 13% and Arauco did not yet have an impact on the net sales. Comparable EpiDay was disappointing with 2.8% margin and it was impacted by lower net sales. Then moving to the services segment key figures, it was very good quarter in terms of orders received. Headline figure is plus 19%, and even without tissue converting and currencies, the growth was 16%. As Thomas already mentioned, so the meal improvement project orders were higher, and also fabrics developed favorably in the fourth quarter. Net sales also increased by 12%, and that was supporting then the comparable EPI day, which increased quite strongly in the Q4. And comparable epithet was 112 million and margin just a notch below 20% threshold. And this was the best quarter ever for services in terms of margins. Then some words about the automation segment as well. The orders increased strongly to 443 million, and actually this is 39% increase. And of course the orders were impacted by Arauco package, which was booked to automation systems. And please do note that the flow control also has a smaller package to Arauco, but that will be booked later. API was supporting the orders by 43 million and FX didn't play a role here. And automation systems orders grew double digit even without the Arauka and API impact. So while the uncertainty in pulp and paper market continues, we actually saw really nice growth and I'm very pleased for the strong finish to the year. Net sales increased by 13 million, but this was inorganic due to API. Then in terms of comparable EPI day, that was up by 2%, but the margin was down by 2 percentage points and the margin decrease from the high margin in the comparison quarter partly due to integration of API business. Here's the summary of the segment key figures. We already covered most of these numbers. Maybe worth pointing out that while the full year comparable every day margin increased slightly, none of the segments margin increased. And the expenses in other were 17 million in the fourth quarter and 49 million for the full year. And this was in line with last year and also with our expectations. Comparable cross-profit increased to 28.2% last year, and sales mix contained about 62% stable business, which is clearly more than what we had last year. Comparable SG&A expenses increased to 18.4% of net sales last year, and good to mention here that the net sales decreased 10% organically. which then had an impact on the percentage. And all in all, when you look at the absolute number in SG&A, so the increase is mainly coming from the acquisitions. Cash flow increased to 554 million, which is a new record for us. I'm very, very pleased to see the good cash conversion, and of course, networking capital was the biggest driver behind the cash flow increase. CapEx was 107 million for the year, and that was lower than a year ago. And networking capital amounted to 134 million, which is 2% of the orders. And I'm also pleased to see the improvement here compared to last year. And if you compare 2022, then 41% of orders were coming from stable business. And last year that was close to 60%. And maybe good to mention that stable business typically ties up more networking capital, and that is then also visible in those numbers. ROSI that has decreased to 12.7% and capital employed has increased due to acquisitions, which then had led to lower ROSI. Adjusted EPS decreased compared with 2023, and this was mainly due to lower operating profit and higher net financial expenses. Net debt remained at the previous quarter's level being at 1 billion and net debt has increased in the recent years due to mergers and acquisitions. Gearing was 39% and net debt to EBITDA 1.55 and gearing decreased sequentially from the 43%. And, of course, these are higher levels than what we have had before, but Kytöken mentioned that we have much more stable business now in our portfolio. Interest rate was 4%, so some decrease sequentially from 4.4% at the end of Q3, and net financial expenses were 65 million last year, and that was clearly higher than a year ago. This ends my part of the presentation, so back to you, Tomas.

Thank you very much, Kater. So from good cash to then to what to use it for, at least some of it. So let's look at the dividend proposal, also the guidance and the short-term market outlook. So dividend, our policy is to pay out at least 50% of net profit as a dividend. Here the board proposes to the AGM, or the Annual General Meeting, that the dividend is going to be on the same level as last year, which means 1.35 euros per share. This then represents a payout ratio of 89%. So payout ratio is higher as the earnings per share, Katja alluded to that, is lower, has decreased. And then sort of if you think about from overall euro perspective, that means that we will roughly pay out 250 million euros to our shareholders as dividend next year or this year in 25. Like last year, we'll pay it out in two installments. First installment will be paid in April or on April 8th and the second one on October 7th. So, yeah. Then... In terms of guidance and short-term market outlook, our guidance for net sales and comparable EBITDA will remain flat for 2025 compared to 2024. Like I showed earlier, we expect roughly 200 million less from the order book backlog to be recognized as sales than we did a year ago. Backlog is 479 million higher, but that relates to capital business, which takes longer to turn and recognize as revenue. Comparable EBITDA guidance mainly reflects the challenging market environment, in particular in the sort of pulp and paper segment. Then you'll notice that we've simplified the short-term market outlook and aligned that more with our segments and how we discuss and report to you. Previously, we had a short-term market outlook composing of seven different categories, and that was just simply too complex, and we also received feedback from both analysts and investors that, you know, Does this granularity really adds value to the overall discussion? So we've consolidated that and aligned it with how we report. If you just double click a little bit on the process technology, customer activities is estimated to remain stable, of course, with some variations overall stable. Albright probably on a low level, as we've seen last year. Tissue market is active. There's not much activity in energy, as we talked about earlier, but there is some sign of starting to improve. Board and paper activity continues to be low. Pulp, as you know, is very binary, sort of very few things, and it's often what we see is mega deals in the market that can be only one, like last year, which we won, but that, of course, makes the swing factor quite big there. Service or services, service customers, the activity is estimated to start gradually improving capacity utilization rates and profitability of customers cause some concern or some, I wouldn't say concern, but uncertainty there. There's also some new startup machines coming particularly into the Europe market that will mean sort of hard to predict what the actual utilization rate will be, but we do see some sign of more demand. Area-wise, North America, South America looking positive. Like last year, EMEA and China continues to be soft, and then Asia Pacific is somewhere in there between. Seasonally, Q1 has typically been the strongest quarters for orders. Of course, trying to make sure that that also happens this year. Overall, production volume for customers slightly up. More machines coming to market, utilization rate is a bit sort of hard to predict currently, but we do see a little bit of a positive wind blowing in that area. Automation, we estimate customer activity remains stable. Again, some variations between areas, North America, Middle East, active markets, Europe, China, more soft, more muted, less activity. activities generally quite good outside pulp and paper, like we saw last year, whereas pulp and paper continues to be in a soft spot. So I guess that was all in terms of our presentations. Then I'll hand back for Pekka for further instructions and Q&A, I guess.

Thank you, Tomas and Katri, for the presentations, and now it's, like Tomas indicated, time to move on to the Q&A session, then next, and as a reminder, you can post the questions through the online platform, and they will come here to me, and I will read it to Tomas and Katri, and then later on we will also... take questions with the phone line, but first we start with the questions here that I already have in the iPad. So Thomas, firstly here a question about the tariffs which are now enforced in Mexico, Canada and China from the US. So what are your comments regarding those?

Yeah, that's, of course, thanks, Becca. Very topical question and discussion, I think, in most boardrooms and a lot of companies. Overall, I think, you know, good to remember that Mexico and Canada are new. That's sort of 25%, which we've not seen before. China is 10% additional on top of the 25% we have seen since Trump was in office last time. What i would say is if we split it up in service, process take And automation, i think that varies a little bit between Start with services. We basically have 2,500 people In north america. Most of those are deployed in Services but also in production of parts and spare Parts and materials that we sell to our customers. So there we're actually very much in line with what Trump wants sort of this made in America. So I'm quite sort of confident on that area. Then process tech, I mean none of the equipment that we are selling from a process technology perspective is being made in the US, also not with the competition. So there I think we are on par with competition and we'll see how it translates into pricing and transfer the tariffs onto that. Automation system, I think we're also on par with competition. We do have some production there as well for our flow control business in particular. It's just a thing. It needs to be managed. It needs to be constantly monitored. We need to react on what is happening. That's clear. All right.

Thanks. Thanks for that. And then a follow-up here maybe to the potential tariffs that might or might not come towards EU. So what do you comment on the potential tariffs, I guess, that could be imposed by US towards EU?

Yeah. I think, again, Pekka, I mean, important to monitor, constantly being ready, also think about what could consequences be. However, it's hard, even though it could happen, we don't know the details of what would it look like. Also, we don't know what would be the response from EU if it happened. I think about being prepared, monitor, being ready, but also maybe from an investor perspective, just think about that our supply chain is, in that sense, quite on par with competition. I think that gives some stable ground to stand on from that perspective.

All right, thanks. Then moving on to some other questions here over the line. So Thomas mentioned at the beginning of the presentation that most of the EBITDA came from the stable businesses. We had 609 million euros of total comparable EBITDA and if I now recall correctly 585 coming from the stable business. The question here is that do you see this as the kind of a normal level going forward and what should we expect from this business in the next couple of years?

Good question. I think it is important to sort of note that you can't be in one business and not the other. So you need to really think about this as process technology. Yeah, we were not happy with the profitability level, very much driven by also volumes that they were lower, also driven by sort of how we've leveraged operationally. We're looking into that as well. So can we have more flexibility in our production that we had? We're taking action on the profitability level as well. We can come back to that later as well. I think it's important to think from a life cycle perspective that the process technology or the orders and the projects, they actually fuel the service business later on. You have to think from a life cycle perspective and seeing as a whole and then it's about how do you then optimize that.

Thank you, Tomas. Now, as a reminder, you can post questions here, written questions as well. But now, I think for the time being, we're done with those. We will get back to these if needed and if there are more. But we will move to the questions over the phone lines. So, operator, please, I hand over to you now.

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 Auntie Kansanan from SEB. Please go ahead.

Hi, Thomas, Katri, and Pekka. A couple of questions for me, and maybe I'll start with the 25 earnings guidance, which doesn't indicate a notable margin expansion. But like you said, I mean, the sales decline is from the backlog, which is mostly low margin equipment business, which you then expect to catch up during the year from the shorter cycle business, which I assume carries a much higher margin. So how should we think about the lack of margin expansion on the guidance? even if your sales mix should, I guess, improve this year.

Here and thanks for the question. I think, yes, as you said, you know, order backlog, 200 million short of what we actually had last year. So, of course, something else needs to come through. And, of course, that is also about, you know, can we drive service business and stable business to a higher degree or shorter rotating the smaller projects that actually rotates during the year. And, of course, that should come with good margins as well. I think you need to think about sort of how you see it for this year is that The volume, just like we said in the process technology, that we are challenged with, we have been challenged, been a challenging market overall. Volumes have been low. That has impacted our profitability. There are some operational leverage in that where it just drops then faster in the wrong direction when it comes to the bottom line. We have taken some actions. PaperLime, I think we've announced that more than 100 people have gone out of the production. That's roughly 10%. We're doing temporary layoffs, which goes into the first half of this year. We're clearly looking at, and particularly in our sort of strategy process that we're going through, on cost competitiveness. That is key. That will be even more key in the future. But also this agility in how we set up in our whole supply chain is going to be key, and we need to, as a company, to sort of, you know,

get used to that the market can be on a lower level than what we've seen in the past if we go back to sort of 12 years or something where we've been uh growing on the process technology until 2022 right all right uh and and maybe a follow-up on that one regarding kind of automation margins and i guess the api integration has been a bit slow in a sense that it has furthered the margins a bit so how should that trend going into Is there a strong year-over-year margin contribution on that business?

I think API, first of all, we're very happy with the acquisition. I think it strategically fits really well into automation systems. It also opens up doors to new customer segments that we have not been so active with historically. Here we have a world leader in its solutions, which means that you're really there with the customers and an important part of their integrated production. What is also, and that is something I think is important to realize, is that this was a carve-out out of Siemens. Carve-outs are not the easiest ones to do, but they can actually also drive quite a bit of value there. So, of course, it was a difficult thing to carve it out first of Siemens and then integrate it into Valmet. and we acquired it, was it April, Katrin? Sorry, April, May? April, yes. So nine months within the business, both carving out of an existing business and getting into a new business. That is, of course, something that does not come without cost and without also that you then see lower profitability of the business than what we would expect going forward. So we have good ambition for the API going forward. Also clear, I visited them in Singapore last year. I'm going to Houston during this quarter, as well as visiting them there. They are very happy about joining Valmet. They really sort of feel that, wow, we're not just sort of this side business, , as the Germans would say, but we're really sort of into core business of Valmet, so they feel energized and excited about being as part of automation system. very happy with it. And I think we will see more good things coming from them.

All right. And then the last question from me is on the paper business line. And I mean, it was a strong order intake compared to the previous one on Q4. And you talk about a rather stable market on the PT as a whole. But could you maybe talk about how should we reflect the Q4 and like your pipeline of potential projects going into 2025 versus what it was some time ago? I mean, you clearly converted some of that on Q4, but is it also filling up, kind of going into 2025, or what's the outlook?

Yeah, good question. Two things good to note in Q4. We were definitely happy with the order intake in paper business there. mainly driving by two large orders, one paper mill in Asia and one tissue in North America. Very strong value propositions there, happy to win it. There was also a little bit of, what can we say, timing effect between Q3 and Q4, so that also impacted the strong Q4 as well. Overall, and that's, I think it's a little bit sort of, you have tissue, there's good activity. But overall, some of these deals, because there are fewer of them, they become a bit binary in terms of the overall market. But yeah, I think the team is having, you know, building up a good pipeline for going into this year, despite that it is a challenging market. Any further on that, Decatur, you think, or?

I think it was well said that, you know, you need to look at the tissue separately, but on the board and paper, as you said, the market continues to be low. And of course, it was very, very good to see a strong close for last year. But there are some variations, of course, always between the quarters.

And the pipeline of bigger paper board tissue deals going into 2025?

There are some deals in the pipeline and of course it's our target to win the deals, but you never know the timing and overall good to remember that the market activity is on a low level there.

But it's a bit digital. That sort of binary is maybe the better word. But there are some good deals being discussed. And, of course, that can come out positively. But, yeah, let's see when we do our utmost to make sure we stay number one in this market.

All right. Thank you very much. Thanks, Antti.

The next question comes from Sven Weier from UBS. Please go ahead.

Good morning. It's Sven from UBS. Thanks for taking my questions. The first one was on the process technology margin in Q4. You mentioned, obviously, negative sales effect, but I was also wondering if you did do kind of maybe a final cleanup on the legacy projects in Q4? That's the first question. Thank you.

I can take it, or do you want to?

No, it's okay. Okay. Yeah, no, please. Go ahead. Okay.

So as I said, it was impacted by the lower volume, and of course, very disappointing thing for us. About the cleanups, you're probably referring to what we discussed in the second quarter. So there were some closures of old projects. So this didn't happen now in the fourth quarter. So all in all, it was coming from the lower volume.

Understood. Thank you. The second question is just to follow up on the board pipeline. I mean, we all know it's a difficult market. We've now seen that Metza is closing some capacity. I mean, what is your sense, what does it take for the market to come back eventually? Do you think that the capacity cleanup has to go further and we have to go through a certain adjustment phase for maybe a few years? before the market can recover? Or do you also see material regional differences that this is maybe a problem that is just limited to Europe? So any further color would be appreciated.

I think overall, Europe and Asia are soft. Europe mainly because of an economic perspective, Asia maybe because more from a sort of, they have over capacity in the market, so there needs to be some capacity consolidation on the when can I put it, the least productive or efficient part of the market, which will probably eventually happen, I'm sure. So I think, Sven, think about it from three dimensions. One is least effective or efficient capacity needs to go out. More effective capacity could come in at a point in time. That's one. Modernization, maybe particularly in the North American market, we've got sort of older capacity installations. You see more modernization, or more modernization demand could be building up to come out at an opportunistic time. And then the last, the third part is And that's where maybe the terrace is sort of putting a little bit of a potential terrace or potential trade will put a bit sort of cloud over the future is sort of how that's going to impact our economic growth in the world and in different parts of the world. And therefore, the overall demand of tissue and board and paper, right? Especially if you think about sort of global trade, container board, how is that going to be impacted short term by the different talks?

I mean, have you delivered now all the major board projects that you have been winning in the last years? Is that done or are you still in the process of finally delivering some of them?

We don't comment. Do we comment on this? No.

And typically it takes on the on the board and paper side for only 18 months to complete the project. So you can a little bit use that in the calculations when you estimate that. Okay.

Yeah. Final question was just on Arauco. I was just curious if you already received the prepayment in Q4 and that was also helping the cash flow. Or is that still to come?

No, we actually received in Q4. So that was in our numbers.

But I guess you wouldn't quantify it.

You're right with that. So unfortunately, we haven't been disclosing the number. But of course, we are really happy that the project is booked and has started, as Thomas said earlier in his presentation.

And, of course, the percentages of these kind of prepayments would vary from project to project as well. But we always try to make sure that we have cash positive during the life cycle of the project in order also to have no sort of credit risk.

Understood. Thank you both.

Thank you. Anything else, Sven, or were you about to say something?

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

Hi, Thomas, Katrin, Pekka. This is Johan at Kepler Chevreux. Just a minor question regarding the dividend, which was flat year over year. Thomas, your predecessor was always very proud of every year being able to add a few cents on the dividend payment. Has that sort of ambition stopped now going forward, or is there something in the pipeline ahead that makes the board a bit cautious with the balance sheet? Thank you.

Overall, I think my ambition and my focus is that it's about total return to shareholders. It's not about really how it comes, but it's about making sure that the shareholders are getting the best possible return overall. We have then a dividend policy that's been 50%. We now kept it flat from a Euro perspective, but it is increased from a payout ratio perspective. So I think that sends sort of a signal. Of course, with the strategy review that we're doing, we will also review our financial targets. We will also review the dividend policy. I think, David, you need to also, going forward, take into consideration how do we see the investment opportunities within the company, both from an M&A perspective, so would we actually prefer to retain more cash, pay less out, or also wouldn't rule out that we would also have to look into would there be potential benefits from actually having share buybacks as well? So, and return additional cash to the shareholders via share buybacks instead of dividends, and look at that from a very sort of international investor perspective. But of course, the board this year is recommending that we pay out the same Euro amount, which is a percentage from a payout ratio higher than last year.

Good. Looking forward to your outcome of your review and the new targets. Have you set the date when this will be communicated? I think I remember something about the Captain Marcus Day ahead. Yes.

We have not sent out formal invitation, but maybe, you know, put a placeholder in your diary. So we'll organize and arrange a capital market day on June 5th this year, and it will be in Finland. We'll send out formal invitations later, but, you know, fill out the date and save the date for what hopefully becomes exciting news and good discussions.

Excellent. Thank you.

So, we will do it before midsummer.

The next question comes from Ponu Leighton-Maki from Danske Bank. Please go ahead.

Hi, thanks. I have a couple of questions. Firstly, on the process technologies margin. So, I mean, it was down sequentially. And you said that it's due to lower volumes, but the revenue was not that different than what we have seen in the past few quarters. And then for the past couple of years, you have been commenting that you had some projects burned by inflation, burning margins. So I just can't kind of get to why it came down sequentially. Did you still have these projects there or where they're going?

So maybe just, Katja, you can add as well, but I think, you know, just like Katja said before, there was no sort of cleaning up on the portfolio or settlement of certain challenging client situation in Q4, so it was, in that sense, a normalized Q4 that was What can I say? Yeah, so true margins in that sense. Not that it's a great margin and not that we're happy about it. That's also why we took some actions on layoffs and temporary layoffs as well. And it's also why the talk about discussions about cost competitive, both from a product perspective, but also overall supply chain footprint perspective, is key part of our strategic discussions and review.

Okay, then on the guidance, so there was a question that why you're not expecting much in expansion due to mixed chains. So did I understand correctly that you expect the process technologies kind of declining earnings to offset whatever kind of benefit you get from growth in services, and then you are causes on the automation margin near-term due to the acquisition burdening it.

I'm not sure, Toni, I fully followed your question. Can you just repeat again? There was a bit sort of noise on the line. Sorry for that.

On the guidance, so flat EBIT, despite what I believe is probably growth in services, does that imply that you expect process technologies earnings to go down in 2025?

Yes, I think, good question. Overall, I mean, we are guiding on top level and bottom level for the overall company, not for the specific segments and specific business parts. So, yes, flat sales, flat EBITDA, yeah, there might be mix changes, there might be margin changes within the segments, but overall, that's how we guide. And of course, as you know, we still have the financial target of 12% to 14% EBITDA margin or comparable EBITDA margin. And that's, of course, not gone away just because we're doing a strategic review of the business.

Thanks. Just a final one quickly. On the guidance, so I assume it is something that you expect to kind of reach and have some buffer in it. So, I mean, What is the key uncertainty at this point of the year that you kind of don't know? Is it the service market? Is it the automation margin? Or kind of what is the key uncertainty?

I think it's maybe fair to say that, of course, our guidance is our guidance, and we strongly believe in that. That is how it is. I think it's also fair to say that the overall market and economy is in a situation, not just for Valmet, but in general, there is quite a bit of fog out there. It looks a bit like the Finnish winter this year, looking out from Kiel and Imi. quite a lot of gray days, and sometimes it shines, and sometimes it snows, and sometimes the ice is melting. A bit hard to predict. It is sort of average, average kind of thing, but it goes a bit in different directions. I think it's fair to say that... Most companies and management teams struggle really to sort of really truly sort of have a very firm prediction of where the world is heading and especially if they have a global business like we have. But, you know, we stand fully behind the guidance and that's sort of what we believe in currently.

And if I just build on top of that, so just as a reminder, you mentioned it already during your presentation that going towards this year, the backlog is 200 million lower. So actually we have book and bill in all of the segments, maybe worth mentioning. Of course, this Arauko, which we also mentioned many times. So even if it was a high or big order, but there actually the revenue is split to 25, 26 and 27. So it's not going to materialize all this year. And maybe a final comment, which also I mentioned during my presentation, that actually in all of the segments, the margin didn't improve. So services was flat and the others were down. So, of course, to reach our targets, so, of course, we are looking for improvement overall.

But good to see Q4 in service and stable business really coming out strong. So that, of course, gives some good feelings about going into 25. Yes. All right, thank you. Despite the fog, if I can put it that way.

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

Thank you, and good afternoon, I guess, now, everybody. I have a couple of questions on the pulp market and a bit more on Arauku, but if you can start with the market overall, how would you describe the pulp project pipeline currently? Do you expect to see any more big tenders in 2025 as well?

Yeah, good question, Michael. I mean, it's fair to say that just like in 24, a pop market is sort of not, what can I say, a bit soft, but also if you think from a capital project perspective, it is very, very binary, right? There could be one, there could also be none, but it's clear that South America, it is a place where there are good opportunities in terms of if you have the right land there to establish and have some good cost in terms of producing pulp to the world there. Of course, the world also needs to absorb all that market pulp, so that's of course another dimension that our customers need to relate to when they make these big investment decisions. Hard to say in terms of the timing, but I think it's clear that we will see more large pulp mills in South America in the future, but when, it's a bit hard to predict.

Okay. No, that's fair. And then just another question on pricing and maybe costs as well. So how do you see your selling prices trending into 2025 vis-a-vis costs? I guess the question is more how do you view the price-cost dynamics going into the year, both in terms of your order intake as well as on the revenues that you're fair to assume a fairly neutral impact on that or something else.

Yeah, I think first of all, the big part of that, what we'll realize into sales in 2025, we already sort of know the pricing on that, as Katja alluded to in terms of the order backlog. So that's pretty well known. Of course, pricing, we have inflation in certain markets is much more manageable than what it was a few years ago. So that's a good thing. Then thinking about some of the markets which are quite binary, low market activity, of course that can be a bit more price competitive than what we've seen historically. Of course, we're trying, that's also why I'm saying this thing that, you know, the cost competitiveness is really key and it's going to be, you know, even more vital going forward and that's one of some of the things we're looking at because, you know, the demand also, you know, making sure that you do actually have a flexible supply chain so that you can gear up and down on how much you want to produce. But also, you know, swapping between, you know, what are you, delivering to an Aramco pop project, or are you doing a board project, right? Some of those things, making sure that, you know, how can you modelize some of this and actually make it a bit more flexible from a production perspective. And of course, you know, pricing is not an art, it's a science, right? So actually understanding the whole pricing dynamics in the market, having the data, looking at that is quite important.

Okay, good. Thank you very much.

There are no more questions at this time, so I hand the conference back to the speakers.

All right, thank you for the questions from the phones, and there are still a couple here, so actually quite a bit, but some of those have already been addressed, so maybe not going through each one of those, but first about the items affecting comparability, so a question on the IAC side, second quarter in a row with close to 20 million in IAC, so any comments?

Thank you. Good question, whoever sent it. I already mentioned in my presentation that they were mainly related to M&A as well as restructuring what we have done last year.

All right, thanks Katri. Then a question on the underlying growth, kind of organic growth without Arauco that came in nicely in services and especially in the automation systems business line in Q4. So any additional color on why the services orders in Q4 were so strong excluding Arauco and same for automation systems?

Just briefly on Q4 and services, of course we did get a service package from Morocco deal which did impact the services, but I think also overall there was actually good underlying growth. Back to what I said earlier, great to see that our mill service teams actually managed to sell some of the mill packages we've not seen really early in the year. So we've seen more customers buying the consumables and the consumables part of the service business, but less so on the modernization, holding a little bit back. maybe sweating the acid a little bit, if you can say so. Then that actually proactive sales came through in Q4, which was good to see. Automation system, without... acquisitions without the Arauco order, still the 7% organic growth for the year, really good to see as well. And it finished on a strong building up, Q4 was very strong on that one. So overall, I think that back to what I said before, testimony to our strong value proposition that we do have in the automation system.

Yeah, maybe one color to add to the automation systems, which was really positive, was actually on the pulp and paper side. So they actually had a very strong order intake on the fourth quarter. There also have been some delays. Customers have been postponing some of the decisions and the direct sales there was good. Of course, one timer and everybody understands what the situation on the pulp and paper market is. But nevertheless, also very happy that there was such a strong close for the bookings in Q4.

Thank you. And then two more here at the moment. So looking wider into the kind of a geopolitical situation, also outside of the tariffs, I guess the person here wants to know what's your view on the geopolitical situation overall and impact to Valmet.

I mean, it's probably hard to disagree with that the overall geopolitical situation is a bit sort of dynamic, to say the least, Pekka. I think the benefit for us is that we are a global business. We do have business in Australia and China and Indonesia, across the globe, North America, South America, and that's also why we're benefiting from it. that in certain segments, North America, South America have been going well. Europe, China have been soft. That could change depending on how the situation goes. So you're getting a bit of that sort of global is clearly being a positive thing for us despite that it's a dynamic situation and you can sort of wake up in the morning and then something happened in the world. But yeah, we managed it. I think it's about, and it's also about this thing about what we talk about from the strategic view is how can we create an organization that is simpler and therefore also faster in both decision making and managing complex situations that are locally in the different countries. And that's where the work we're doing will improve on that, but also this whole leadership philosophy of empowering the organization to a larger degree than what has happened historically. That will also speed the decision up because then we do have, you know, great employees who close to where the problem is, close to where the customer is, can make the decisions, you know, on-site, deal with it, let's move on, right? So, yeah. So, agile, sort of simplifying the business, take complexity out, empower the people, you know, then you're in the best position to actually manage dynamic situation, you can talk about scenarios and so on, but at the end of the day, having great people that are empowered will do the job, right? And faster.

Thank you, Tomas. And then, Johan Eliasson here still asking some housekeeping issues, going probably more towards Katri's So about tax rates. Tax rates in 2020-2024 and then tax rates going forward. Effective tax rates.

Starting with the effective tax rate. Thank you, Johan. Good question. The ETR was actually a bit higher for Valmet. It was 26.9, if I remember correctly. And there was a one time impact coming from Brazil. So actually, if we take that out, it would have been on this 25% level, which is more normal for us. And going forward, that is also the level that we're expecting.

And then another part of this question is, what about the CAPEX plans going into 2025, some changes to the CAPEX that you are foreseeing?

Thank you. Good question again. It was 107 million for the year. Actually, it was lower than what we had a year ago. At this moment, I think that we will probably land somewhere on the same level. So, of course, we can give more precise estimates as the year goes forward, but I don't expect any major increase there.

All right. Thank you, Tomas and Katri, and thank you for the good discussions from the phone lines and also the activities in the online platform. So thanks for that. Next events for Valmets are going to be the annual general meeting, of course, happens every year and also of course now, so March 26th. Then the interim review, next one, Q1, will be April 23. And then, like Thomas already a little bit indicated, the Capital Markets Day for Valmet will take place on June 5th. So please save the date for the CMD. And like said by Thomas, we will follow up with more details and formal invitations later. but with this i will now close this event thanks again everybody and have a nice i guess it's a busy day for for many who are following listed companies so have a good active day have a good one and see you out there thanks thank you