Valmet Oyj

Good morning and welcome to Valmet's first quarter 2025 result publication webcast. Valmet's year started strongly in services and automation segments while the market conditions remained subdued in the process technology segment. I'm Pekka Rouhenen from IR, and with me today are Tomas Hindesku, president and CEO, as well as Katri Hokkanen, CFO. Today, Tomas will first go through the highlights of the quarter and provide an update on the strategy renewal process. After that, Katri will go through the financial development in more detail, also from the segment perspective, and Tomas will then conclude on the guidance and short-term market outlook. With that, I hand over to the presenters. Thomas, the floor is yours.

Thank you, Pekka. I'm very happy to be here. Great to start the year in a good way. Let's start looking at Q1. Overall, orders received increased to 1.3 billion. Particularly pleased to see the performance in our stable business, and we'll come back to that several times during the presentation. Overall, also, order backlog amount to 4.6 billion, a bit higher than at the end of Q4, which, of course, is a positive development that we are happy about. Net sales were flat year over year, stable business grew, process technology decreased, which of course is unfortunate, but it is a consequence also of this subdued market that we're currently experiencing. Comparable EBITDA remained on the same level as last year, landing at 121 million, with a slightly better margin of 10.2%. Cash flow was very strong in 2024 and I'm very happy to say that the good trajectory really continued and our cash conversion was very strong in Q1 and cash flow landed at 217 million. Comparable row C increased a notch from a year end to now 13%. But maybe the biggest news of the quarter was our plan to renew the operating model. The proposed model will help us serve our customers better throughout the lifecycle of our equipment and the things that we deliver and the solutions we deliver to customers. It will also simplify how we operate and it will increase our efficiency. And I'll come back to that later in my presentation as well. First of all, Let's have a look at the Q1. Let's look at the stable business then. First of all, Q1 order intake 974 million. That was a record. Even though it was partly supported by an acquisition that we did last year, the organic growth was also strong. The year started strong in the stable business. where we reported orders increased by 14%. So even on an organic basis with the acquisition or taking the acquisition out, we did also see organic growth of 8% in service. Positively, however, supported by a large mill improvement project, but also consumables and the performance parts grew nicely. I would also have to say, and we can come back to that, the organic growth was also supported by price increases in the segment. Geographically, orders increased in Asia Pacific, in South America, and in North America, and were flat in China and EMEA. So big thanks to all area teams for effort in Q1, and a special thanks to Asia Pacific for making a record quarter in service orders received at Q1 2025. Then organic growth and automation, 12%, driven by strong performance in both flow control and automation system. In automation system, we saw good activity in the pulp and paper, but also in other process industries. In flow control orders grew, particularly in service and in the valve controls and actuators. We might have seen some pre-tariff buying, might have been visible in particular in the flow control in North America, but overall, I think it's fairly, sort of shows a fairly level of the actual activity that we saw on the market. So very pleased with the strong performance by our teams and good level of customer activity in this stable business. So I'd say this sort of highlights the resilience of our stable business throughout the years, through cycles, really has been a strong contributor, also organically 6% roughly. So of course it's also impacted by acquisitions over the years, but 6% of granted growth, nicely improving So good to see. So yeah, very pleased overall with strong, stable business orders totaling close to 3.5 billion on a last 12 months basis. So that really sort of demonstrates our abilities to serve customers from equipment throughout the lifecycle, sort of true lifecycle approach. Just a small customer highlight of the quarter, we launched Valmet DNAe in 2024. It was one of the highlights of 2024. Very pleased to see that we continue getting traction. We've already received a good amount of orders for our DNAe. This customer case is from Q1, finished power plant, selected Valmet DNAe to modernize its automation of its power plant. Great win by the team in the energy sector. The customer made a thorough evaluation process and ended up concluding that Valmet DNAE adds the most value to them. So this customer, ESE Energia, decided to replace old third-party system with this comprehensive DNAE solution. So really sort of full automation system upgrade of their power plant. Strategically, I mean, this brings Valmet really sort of much closer to the customer and adds value with sort of deep system integration. And we can add value to the customer throughout the life cycle with upgrades, remote support, future add-ons that will come into the system. So clearly, we strengthen our reputation outside pulp and paper and particularly in the energy segment. So big thanks to the team and also big thanks to our valued customer for your trust on this one. So moving on to strategy. Strategy process started late last year, and I have to say it's progressing and proceeding very well, and really exciting and fruitful discussions that we're having on a broad basis in the company. But let's first look a little bit at sort of recent history and the background for the strategic renewal, but also the operating to a very large extent. Looking at our numbers from the last three to four years, organic growth has clearly plateaued, both in terms of net sales and comparable EBITDA, as well as margin. So of course, that's not something that we are really happy about. On top of that, capital employed have increased, so row C clearly decreased as well. So this is something we want to take action on and improve in the coming years. On top of that, you can say market activity in the process technology, as we also saw in Q1, remains on a low level. And in here, we need to make sure we have an efficient operation that performs also in challenging market situations. So that's why at the end of Q1, we, as a consequence of all this, announced the plan to renew Valmet's operating model as a first action in this strategic renewal process. Overall, we're aiming to serve our customers better. This is basically the most important end goal and purpose of the changes that we are making. it will sort of make us or put us in a better position to sort of achieve delivering and taking that lifecycle approach to what the customer will have a strong business areas who are then responsible and accountable for driving the profitability and the growth of both capital and related aftermarket service. So throughout the customer lifecycle and customers will actually be interfacing with one business area. Secondly, it will simplify the organizational structure. The current five geographical areas will be integrated into the new business areas, so keeping that local proximity to customers. Thirdly, we will drive efficiency by establishing a global supply unit to support our cost competitiveness, but also put us in a position where we can have a more flexible supply chain that actually can manage peaks and troughs in the demand and the market. So the process we're going through now will impact up to a maximum of 1,150 roles globally. All these roles are white collar employees, so no blue collars are included in these 1,150 potential people. In terms of financial, we do estimate, like we said when we came out as well, that an 80 million euro savings with full run rate achieved by the end of 2026, or beginning of 2026, sorry. So in roughly a year's time. The Renew strategy will be fully communicated at our upcoming Capital Market Day on June 5th. The Renew strategy really sort of aim of identifying future growth areas, both existing and of our current business, but also simplify the way we're working and increase our operational efficiency. So, yeah, we're really looking forward to meeting you all in person in Tampere and really have a good discussion on where the future strategic direction of Valmet is going. So with this, I'll hand over to Katri for the financial. Here you go.

Thank you, Thomas, and good morning, everyone, also on my behalf. And I will go through the financial development next on the slides. Valmet's orders were nicely tilted towards stable business during the first quarter, and good to remember that the first quarter is typically a seasonally strong quarter in stable business for us, and year-over-year growth was also strong. In the first quarter, 73% of our orders came from stable business. On the net sales side, they were more evenly distributed, and seasonally, our net sales in the first quarter are typically a bit lower than in other quarters. Then in terms of comparable epithet, almost all of our profits were made in services and automation segments, and the quarter was weak for process technologies profitability. Q1 orders increased to 1.3 billion, and the order backlog was close to 4.6 billion, and the big Arauko pulp mill order is visible in the order backlog. Net sales decreased a bit, and comparable epithet was exactly the same as last year at 121 million, and the margin was 10.2%. Both net sales and comparable epithet decreased sequentially from the fourth quarter, which is a typical seasonal pattern for us in Valmet. Items affecting comparability were minus 8 million for the quarter and they were mostly related to our other segment and to smaller extent to process tech and automation segments. The IAC provisions related to the operational model change and the workforce reductions are to be expected to be booked in the second quarter this year. Amortizations were 24 million for the quarter, leading to 89 million operating profit. And going forward, the quarterly amortizations are expected to be roughly on a similar level than in the Q1. Adjusted EPS remained at last year's level at 33 cents. Some words about the order backlog next. So order backlog is 122 million higher than at the end of last year. And order backlog has grown in stable business and a bit lower in process tech. And roughly 60% of the backlog is related to process technologies and then 40% to stable business. And the order backlog for this year is roughly 2.9 billion, adding is the same amount we had last year at this point. And this is in line with our guidance of flat net sales for this year. Moving next to the segment financials, starting from the process technologies, the market activity continues to be low, but the orders received on the last 12 months basis are on a good level, supported by the big order in Q4 last year. Net sales, however, are decreasing, and this has also led to lower comparable EBITDA margins. Orders received in process tech increased in the first quarter, but it is fair to admit that the market activity continues to be subdued, and book-to-bill ratio is below 1. Net sales decreased by 17%, or 84 million, which then led to a lower comparable EBITDA, and margin was disappointingly low at 1.5%. Moving on to services next, where the development looks much better. Both orders and net sales have been growing steadily in the last years, and comparable epithelium margin reached now 18% on the last 12 months basis. The first quarter marked a very strong start for the year in services. Orders received grew 8% organically across the service portfolio. Net sales also increased by 6% organically and supported also the comparable EBIT day. And comparable EBIT day margin was 17.6%, which is the best ever Q1 margin for services. Looking at automation segment next, orders received and net sales trends are also very positive here in the recent years. And the last 12 months comparable epithet was 258 million and margin 17.6%. And the margin has plateaued, but partly this is explained by the acquisition of API, where the margin has historically been lower. Orders received increased by 24% in automation segment, of which half, which is 12%, was organic growth. And this also means that the start of the year was very strong in terms of orders in automation segment. And 63% of the orders came from outside of pulp and paper industry in the first quarter. Net sales increased by 10%, and this was due to the acquisition of API. But organically, we saw a slight decrease of 2% here. Comparable epithet increased to 55 million, and the margin was 16.2%. And good to remember that automation's net sales and profitability are typically seasonally lower in the first quarter. Looking then at the segments big picture, so as said, services and automation performed well, while process tech has been suffering from the low market activity. The expenses in other were 16 million for the quarter, and the expenses in other have been roughly 50 million in the last years, and we expect similar or slightly higher level this year. Then comparable with the gross profit, it was exactly at last year's level on a last 12 months basis, while the margin went up a notch to 28.4%. Comparable SG&A expenses have been increasing faster than our net sales since 22, which is partly why we are now planning the 80 million cost reductions. Cash flow continued to be on a strong level and this was clearly one of the highlights of the quarter. Last 12 months cash flow increased to 633 million and Q1 was 217 million. CapEx amounted to 24 million, a bit lower than in the comparison quarter. And then when you look at the networking capital, it decreased clearly from the year end to minus 193 million. And this is now minus 3% of the last 12 months rolling orders received. And it's worth noting that the AGM decided on a dividend of 1.35 euros per share, and it's paid into installments in April and October. And the networking capital therefore included 249 million dividend liabilities. Moving then on to a balance sheet, thanks to the strong cash flow, net debt decreased to 875 million and gearing to 36%, and net debt to EBITDA decreased to 1.3. And the average interest rate was 4%, and net financial expenses 15 million in the first quarter. Lastly, for your words about ROSI and earnings per share, both ROSI and adjusted EPS have been under pressure in the recent years, but they remained roughly at par with the end of last year on last 12 months basis. That concludes my part of the presentation. I will now hand back to you, Thomas.