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.