Valmet Oyj

Good morning and welcome to Valmet's second quarter 2025 result publication and webcast. Valmet's second quarter highlight was definitely the capital markets day in which we launched our new strategy and 2030 financial targets. We were delighted to see a full room attending in Tampere in our event, and over a thousand people through the live webcast as well, so thank you again for the participation, everybody, and for the good discussions. Operationally, Falmet's second quarter highlight was the strong organic growth in orders received. I'm Pekka Rouhiainen from IR, and with me today are Tomas Hinesku, president and CEO, as well as Katri Hokkanen, CFO. Today, Thomas will first go through the highlights of the quarter and discuss some key topics of the new strategy. After that, Katri will go through the financial development in more detail, also from the perspective of our new segments. And Thomas will then conclude on the guidance and short-term market outlook. It's worth mentioning that this quarter is a bit special in terms of our financial reporting, as both the old and the new reporting segments will be visible in the presentation. We have tried to ensure that the reporting is easy to follow also during this transitional quarter, let's say. But with that, I hand over to the presenters. Tomas, the floor is yours.

Thank you very much, Pekka. Yes, let's go through and look at the second quarter highlights. Clearly, as Pekka mentioned, the launch of our new strategy lead the way and our ambitious 2030 financial targets at our Capital Market Day back in Tampa definitely were a highlight of this quarter. A major milestone was also the implementation of our new operating model that went live here on July 1st. You know, a lot of work gone in during Q2 for actually designing and implementing that. It simplifies our structure, reinforces local accountability, and enables faster decision making. So key point in preparing us for the strategy execution phase that we now enter into. Going forward, we will operate through two segments, each with a distinct strategic mission, aligned financial reporting. The segments are biomaterial solutions and services and process performance solution. Like Pekka said, our Q2 numbers are already reported, aligned with the new operating model, and we will be discussing the development from that standpoint in this presentation, together, of course, with the previous segment structure as well. Operationally, second quarter was strong in terms of orders received. Like Pekka said, comparable EBITDA margin increased 90 basis points. Very happy with that. But net sales decreased and therefore comparable EBITDA stayed flat. Customer activity overall remains stable quarter on quarter, more or less in line with our early expectation. And we'll get back to that a bit later in this presentation as well. Automation segment, the new process performance solution segment delivered across the board, both in orders, net sales, profitability, all KPIs pointing in the right direction. And we were pleased to see another strong quarter, especially after a good Q1. Process technology and service segment, which is now combined into our new operating model into the biomaterial solutions and service segment. This segment will provide integrated expertise and services and technology across the whole lifecycle, like we talked a lot about back in the capital market day. The new biomaterial segment achieved strong growth in orders, including a 10% organic growth in or increase in the service orders. However, on the flip side, the profitability and process technology declined due to lower net sales. Let's take a closer look at the orders received. Orders grew to 1.5 billion in Q2, which translate into 21% organic growth without FX or any impact. Last 12 months, orders intake was 6.3 billion euros, of course, supported by the large pulp mill order that we received and reported back in Q4 last year. Orders grew 11% organically in process performance solution, a very good achievement in the current macroeconomic environment, and I think another sign of our strong position in that market. Biomaterial solutions and services also grew very nicely. In the capital side, we won several mid-sized orders during the quarter, and also the biomaterial services grew 10% organically. Our strategic mission in our new biomaterial solutions and services segment is advancing circularity. Here on the slide, we have two Q2 customer cases, which bring that mission truly to life. We secured two similar bio-based combined heat and power plants, one in Sweden with Kraftring and Energi, and another one in Spain with Saica Group. Both include Valmet's boiler plants, flue glass cleaning system, and our future ready design features. Good to ask sort of, so why did we win these customers? Both customers highlighted the energy certainty as well as a key priority and chose Valmet based on our strong track record in delivering reliable, large-scale energy infrastructure. These orders, I would say, are also a strong endorsement of our pulp energy and circularity business area and basically our strategy in action. So what they make these deliveries especially relevant is their future readiness. And this is also something we discussed when a few weeks ago, visitor Saikan was actually on the site where this biomass boiler is going to be put up. Both systems are carbon capture ready with design features that allow a seamless integration of carbon capture technology later on. This means that the customer aren't just complying with today's standard, they're investing into a flexible long-term solution for a low carbon future. Great example of how we combine immediate environmental performance with a lifecycle adaptability. So I just want to thank both customers for choosing Valmet and looking forward to the future partnership there. Now, let's turn to the bigger picture, our new Lead the Way strategy and our ambitious 2030 financial target. As you know, we introduced our new strategy at the Capital Market Day in June at Tampere, and it clearly builds on Valmet's core strength, but it also raises the bar for the next phase value creation, really putting it up there. Let's briefly recap on the strategic direction. Our new strategy, Lead the Way, is guided by a clear new purpose, to transform industries towards a regenerative tomorrow. This means reusing raw materials smarter and using less raw material, something we enable through two focused mission, the advanced circularity in biomaterial solutions and services, which we just talked about two customer cases on, and then unlocking resource efficiency in the process performance solution. These priorities already are shaping sort of how we work with customers, how we innovate, and also how we allocate resources into the business. Personally, I've had the opportunity to meet several customers both here in Europe and also in North America since the strategy launch and the feedback has been really encouraging, I have to say. Our purpose to transform industries towards a regenerative tomorrow, our lifecycle approach, the co-creation with customers have all resonated very well with our customers. We also updated the 2030 financial targets that we first shared at Capital Market Day. As you recall, we're clearly raising the bar compared to previously. Now we aim to deliver 5% organic growth across the cycle, 15% comparable EBITDA, and 20% return on capital employed, and also adding a balance sheet target with having a gearing below 50%. So why are we confident that we can achieve these targets? As I said at the CMD, it starts with our new lead the way strategy. It is more focused, it is bolder, it is more executable before because we got fewer but bigger initiative. We're building on strong fundamentals. Many of you actually saw that in action in Tampere, and we already have implemented the new operating model that went live July 1st, which is also a key milestone in getting to the execution of the new strategy. So these are solid foundations that gives us confidence in our direction and our ability to deliver on these ambitions. Furthermore, I would say these targets are already being used internally as part of the discussion about future initiatives. So when I talk with the organization, I can always say, so how's that going to bring us closer to five plus 15 equals 20? And really easy to remember also for the organization and therefore easy to implement into the organization as well. So I'm very happy with those. Let's now focus on one of the key investor questions after the capital market day. So how will Valmet accelerate service growth in the biomaterial, basically doubling it compared to what we've seen historically? And so one of the things, of course, as we said also earlier, we're going to increase our market share from the current 21% to 25% by 2030. That will drive growth. This is not just an ambition. We have a clear five-lever plan to deliver on it. First and foremost, lifecycle approach. We're embedding services earlier in capital projects, not just as an afterthought, but clearly built in part of the everyday delivery or every delivery we are making. This ensure that we monetize the installed base more. We're consistently with a strong service relationship that begins already sort of day one and then takes it into the next couple of decades. We're focusing our investment, we're directing investment to high potential categories and regions. We've pinpointed high potential opportunities in selected product categories and also regions during the strategy phase that we just went through. By investing in these areas, we aim to unlock significant growth, but also strengthening our market position and drive sustainable long-term growth within the service business. One example of this investment we've done, for example, in Makal in India, which strengthens our capabilities in cost competitive sourcing, consumables, spare parts, manufacturing, but also adds to our plea assembly capacity for our capital projects and that then support our growth ambition, cost competitiveness and our ability to deliver and manage during these geopolitical risk situation that we are facing right now. more effectively. Cost competitiveness through our new global supply unit, we're driving more efficient sourcing, particularly in spare parts, but also in the consumables. This expand our competitive edge and support profitable growth without sort of compromising on quality. Digital and data leverage. Clearly, we are an engineering company with lots of data. We have a strong install base, one of the largest in the pulp and paper industry. That does give us a unique advantage. And we now put in that install base really all the data to work, predicting maintenance needs, reducing lead time, and it's improved the customer experience, as well as increasing our own commercial effectiveness. Then lastly, the fifth point, empowered frontline. This is a big ticket item not to be underestimated. Our new operating model forced a closer collaboration, faster decision making because we take now complexity and a more direct approach. We're decentralizing the authority to our service teams on the ground where the problems are, where those things need to be solved. And it does enable faster decision making, faster quotation, stronger local accountability and ownership. And clearly this will help us capture more opportunities and deliver also more value to our customers without any bottlenecks. So these are some of the highlights in our new strategy. I hope it clarifies a bit and also how we're going to plan to grow the service. Now I'll hand over to Katri and she'll walk you through the financial performance of the second quarter.

Thanks, Thomas, and thank you, everyone in Falmet, in my team, for the efforts in the Q2 closing and also the renewal with the renewal of operating model. Good job done there. Let's look at the financials next. As has been said already today, the highlight of the quarter was the strong order intake, and the orders increased to 1.5 billion. Order backlog remained also solid, rising to 4.7 billion, and then net sales declined to 1.2 billion. And this was below expectations, particularly in services, and this was partly due to the foreign exchange impact and timing, and also in paper where the quarterly net sales were the lowest since pre-COVID and a disappointment. Also, it is typical that there are variations between the quarters based on the development on the projects, that's fair to say. Comparable epithet remained flat year over year at 143 million. However, the margin improved to 11.5%, and that was driven by a higher share of automation segment in the sales mix and its improved profitability. Cash flow from operating activities decreased to 79 million, and this was mainly due to a less favorable change in the networking capital compared to the same period last year. Comparable ROSI was 13.1%, which was the same level than what we had in the first quarter this year. Adjusted EPS declined to 23 cents, and this was primarily due to restructuring expenses, which were related to the renewal of our operating model. And it's very important to note that both reported and adjusted EPS include items affecting comparability. Let's then take a closer look at the key financial figures for the second quarter and the first half of this year. Orders received increased by 19% year over year in the Q2, reaching 1.5 billion as said. And for the first half, the increase was actually 22%, totaling close to 2.9 billion. Order backlog grew significantly and stood at 4.7 billion at the end of the quarter, and it was 20% up from last year. And this reflects the growth in orders received in 2025 and also the Arauco order from Q4 last year. Net sales declined by 6% in the second quarter and 4% in the first half, and this was mainly due to the lower volume in services and process technologies. Comparable EBITDA was flat at 143 million in Q2 with a margin of 11.5%, and it was up from the 10.6% last year. And for the first half, EBITDA was 265 million with a margin of 10.9%. Epita and operating profit declined, and this was due to the restructuring costs. Epita was 81 million in Q2, down by 39%, and operating profit was 57 million, down 45%. Items affecting comparability were 62 million, and they were mainly related to the operating model renewal. Cash flow from operating activities was 79 million in Q2, down from 128 million last year. But actually for the first half, it is improved to 297 million compared to 267 million last year. Our order backlog continued to grow and reached 4.7 billion at the end of the second quarter. And this is actually 259 million higher than at the end of last year. And it is reflecting the strong order intake during the first half of this year. Approximately 2.3 billion of the backlog is currently expected to be delivered as net sales during the second half of this year. The revenue recognition from the big Arauko PAL project, which we saw last year, amounted to roughly 100 million in the first half. And this was mostly taking place in the second quarter. And we expect roughly 200 million more to be booked as revenue this year for the project. And I would say that this level of backlog provides very good visibility for the remainder of this year, and it supports our confidence to deliver in line with our full year guidance. And as always, good to remember that the timing of deliveries can vary somewhat between the quarters, but we expect that the full year net sales outcome is going to be consistent with our expectations. Cash flow from operating activities was 79 million in the second quarter. And this was clearly lower than in the comparison period when it was 128 million. And the main reason for the decline was a less favorable change in the networking capital compared to last year. And in the second quarter, the cash conversion ratio was 55%. And for the first half, it was 112%. And as we highlighted at our capital markets day, Valmet has a strong track record of cash conversion. And typically we have been in the range of 90 to 100% over the longer term. When it comes to networking capital, it stood at minus 139 million at the end of the second quarter. That equals minus 2% of the last 12 months orders received. And good to note that the figure include a 123 million dividend liability. The first dividend installment was paid in April, and the second will be paid in October. CapEx in the quarter was 33 million. It was slightly higher than last year. But when we look at the year-to-date CapEx, it was at the same level. And for the full year this year, we expect the CapEx to be in line with last year, meaning close to 110 million levels. Net debt and gearing increased from the previous quarter, and this was mainly due to the dividend payment of 125 million in April. And at the end of the second quarter, net debt to EBITDA ratio was 1.60, and gearing stood at 42%, which remains well within our financial target of below 50%. Average interest rate of our total debt was 3.6% at the end of the quarter, down from 4% at the end of Q1 and 4.5% at the end of Q2 last year. And interest rates have gone down compared to last year. And also our gross debt is lower than what we had a year ago. So as a result, Our Q2 interest expenses decreased year over year to 16 million, and we expect the coming quarters to be close to this level. Capital employed decreased to 3.9 billion at the end of the second quarter, and it was down from 4.2 billion at the end of last year, meaning 285 million decrease. And the main drivers for the decrease were dividends and change in the interest bearing liabilities, and the fact that the net profit decreased mainly due to items affecting comparability. Kytsi also mentioned that we have repaid 127 million in loans during the first half, and FX translation differences had a negative impact on the equity. So these were only partially offset by the profit generated in the first half. Comparable ROSI for the last 12 months was 13.1%, and that was slightly below last year's level, 13.6%, but stable when we compare it to the first quarter. Adjusted earnings per share was 1.72 euros on last 12 months' basis, and actually the decline from last year was mainly due to restructuring expenses related to the operating model renewal. Let's then take a closer look at the segment structure we had in place in the second quarter. And actually all three segments, services, automation and process technologies, showed growth in orders received. In comparable FX, the numbers were even a bit higher. In services, we saw continued strength with orders up by 7% and a solid comparable everyday margin of 18.1%. This is reflecting improved execution and commercial effectiveness in this business. Automation also delivered a very strong quarter with orders up by 7% and comparable EBITDA margin rose to 17.8% and that was supported by higher net sales. However, In process technologies, while orders were increasing strongly, profitability declined, and this was due to lower net sales, and it resulted in a comparable epithet of just 1%. In the other, comparable epithet amounted to minus 10 million, and year-to-day to minus 26 million. And the expenses in other have been roughly 50 million in the last year, and we expect similar or slightly higher level this year as well. Let's now turn on to Valmet's second quarter performance through the lens of our new operating reporting structure. And this became effective on July 1st. As a reminder, we now operate through two reporting segments, biomaterial solutions and services and process performance solutions. And in the second quarter, biomaterial solutions and services was the larger of the two in terms of both orders received and net sales. However, when looking at the comparable epi, the contribution was more evenly distributed between the two segments. And this reflects the strong profitability of process performance solutions, despite its smaller top line. And on the next slides, I will walk you through the performance of each segment in more detail. Starting with biomaterial solutions and services, which is our largest segment in terms of orders and net sales. There, orders received increased to 1.1 billion in the second quarter. And this was supported by strong organic growth in services. And this was particularly in meal improvements and field services and several mid-sized capital orders, especially in tissue and energy. However, the net sales declined to 869 million, and this was mainly due to lower volumes in the CapEx-driven business. And as a result, comparable epithet decreased to 87 million euros, and the margin was 10%. And this is clearly below our long-term ambition. And as you may recall, at the Capital Markets Day, we set a 14% comparable epithelium margin target for this segment to be delivered by 2030. And the key enabler for reaching that ambition is growing our market share, especially in services, as Thomas said, with the new strategy and lifecycle approach. And this remains our top priority. And then as services continue to grow, we expect the March improvement to follow over time as well. Turning then into process performance solutions, the segment delivered a very strong performance in the second quarter. Orders received increased to 376 million with 11% organic growth. and growth was broad-based, so 12% in automation solutions and 10% in flow control. We also saw good momentum in analyzer products and integration business, or API as we call it, and that contributed to 37 million in the orders. Net sales grew to 372 million with 9% organic growth, and this was driven especially by strong execution in automation solutions. Profitability was again a highlight. Comparable epithet increased to 66 million and the margin improved clearly to 17.8%. And at our Capital Markets Day, we set an ambition for this segment to accelerate growth to more than double the market rate and to reach a 20% comparable epithet margin by 2030. And actually this quarter's performance shows that we are on the right track, both in terms of growth and profitability. So good job done there as well. Let me now briefly touch on the progress of our new operating model renewal, which is of course a key enabler of our new strategy. And as you know, the new operating model became effective on July 1st. And of course, it's designed to simplify our structure, improve our global cost competitiveness and then reinforce the local accountability. Renewal is progressing well. Change negotiations have been concluded in most countries, covering over 90% of our white-collar employees. And the estimated annual cost savings from the new model are around 80 million, with the full run rate expected by the beginning of 26. And in the second quarter, we booked 61 million in restructuring and strategy renewal costs as items affecting comparability. Some savings will already start to materialize in the second half of this year, mostly in the fourth quarter. So the transformation is well underway and it will support our strategic execution and financial performance going forward. With that, I will now hand back to Tomas to conclude with the guidance and short-term market outlook.

Thanks Katri. So let's wrap up the whole thing with our guidance for 2025 and then also the short-term market outlook as we see it right now. We are reiterating our full year 2025 guidance, which was first issued back in February. We continue to expect, like Katri also said, that our net sales and also comparable EBITDA for the full year of 2025 will remain on the previous year's level. Let's now look at the short-term market outlook, and we start with the biomaterial solutions and services. where we are seeing a slightly more cautious environment emerging. So for biomaterial services, we estimate that the customer activity will decrease slightly. The main reason is the economic or increased economic uncertainty, particularly related to the US chair situations, which clearly is weighing in on our customers sentiment. We've also seen cautious or some cautious comments from some of our customers. While it's important to remember that we serve hundreds of customers globally, but still these signals do add to the overall slightly more cautious tone. Specific area of concern is consumables and performance parts. After a very strong Q1, orders flattened in Q2 with sort of potential sign of reduced activities, especially in this part of the business. On a positive note, though, we did see good development in mill improvements and field service, including larger individual order. But overall, the slowing momentum in the transactional part of the service is something we're watching carefully. In the CapEx driven business, the picture is more stable overall. In tissue, the customer activity is relatively high and we see good momentum continuing in this market. As you know, the market can be quite sort of binary depending on when the big ticket items materialize. So overall, mixed picture in biomaterials with servicing softening, CapEx stable and some areas of strength. That said, it is important to emphasize that the long-term growth prospect for biomaterial solutions and services do remain strong. We expect to see continued global growth in pulp demand, packaging board, and tissue consumption over the coming years. All of which will sort of support our strategic direction and service growth ambition towards the 2030 goal. In process performance solutions, the outlook remains more stable. Q2 was, again, a strong quarter. We saw 12% organic growth in automation. Like Katja said, 10% in flow control, both contributing to the segment's solid performance. That said, we are staying alert to early signs and flow control. We've observed some signs of pre-buying in North America, a bit ahead of the U.S. sheriff decisions, which may impact order volumes in the coming quarters. And while the segment benefit from sort of a broader industrial customer base, the global uncertainty and the still sort of softness in the pulp and paper market, as discussed in the context of biomaterial services, are also relevant here. But with that, I'll be handing over to Pekka for a Q&A.

Thank you, Tomas and Katri, for the presentations. And we'll now be moving on to the Q&A. So we will be taking questions over the phone lines and then also the digital platform. So utilize either one of those. But with that, I hand now over to the operator, please.

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

Good morning and thanks for taking my questions and doing the call. I got two please. This first one is just on the top line guidance where you still guide flat. I was just wondering mechanically, you were like 4% behind in the first half, your backlog for delivery. It's kind of flat against last year. So is that you expect to catch up from from in for out orders in the second half or what's driving that one? And I'll come then afterwards with the second question. Thank you.

All right. Thanks, Sven. Thanks for also joining the call. Yeah, good observation, of course. We were slightly low in Q1 and also in Q2. We do still expect that if you look at our order backlog, but also the service business across the board and the faster rotation of that, that we will be keeping our, and that's why we're sort of confident of keeping our guidance of flat net sales and EBITDA. compared to last year. Of course, there's some seasonality in it as well. You know, in orders and generally Q3 is a little bit soft and then we've got a strong Q4 when it comes to the biomaterial piece, whereas the process performance is sort of no seasonality. But we still stay confident on the guidance.

Does it bake in also or what kind of currency impact are you baking in? Because obviously that has changed quite a bit since you first guided in February.

Yeah, I mean, of course, this assumes that we don't see big impact from a currency or FX perspective. We have managed it very well during this first half year, as you can see in the results as well. So we are generally hedging the operational piece, but of course, also the translation of profit from different countries there, we don't see. But of course, it can impact top line if we have big changes in the FX.

The other question I had was just on how you accounted for this big pulp order you had from China, because I was surprised to see when I look at pulp orders and paper orders individually in the quarter, you had an even stronger uptick in paper. So did you book part of the order also in paper or what was driving the paper strength? And then also were parts of the order maybe also booked in services and in the automation line? Thank you. Yeah, maybe Katja.

I can start and you can compliment. So we have publicized some of the projects that we have booked, and China had a very strong quarter in the second quarter. So of course, there are other cases that we have booked as well. But overall, China performance in the second quarter was very solid.

Yes. And maybe a bit more... Sorry, Fred, go ahead.

I was just wondering, so this Chinese project specifically was only booked in the pulp and energy business line nowhere else this was in pulp and energy business lines but but we did have other orders as well okay yeah okay that makes sense yes

But it's a good observation in terms of, you know, see the China activity on the order side. I think, you know, what we ended last year, what was it, 418 million or something around that. We are now last 12 months slightly above the 600 million mark. So clearly China has picked up in this. So we've done a good job in China in this last half year. And as such, thank you both.

Thank you.

Thanks.

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

Hi guys, it's Antti from SEB. A couple of questions for me as well. The first one is for Q2 orders and the demand guidance for let's say paper packaging and tissue I mean and there's a there's a quite nice optic on both packaging and tissue orders on the second quarter compared to a year ago and first quarter this year and I mean it's a rather surprising given what we see in the marketplace generally that it appears quite quite weak right now so could you maybe open up a little bit more was this combination of a lot of mid-sized orders? Was there something very big that maybe we haven't seen the announcement yet? And in general, are these projects that you have been kind of working for a long time and now kind of coming from the pipeline? I just wanted to understand maybe how the pipeline going into second half and next year looks versus what you have now converted to orders very recently.

Thanks, Antje, and also thanks for joining. Good question. Overall, of course, these things do come a bit binary from core to core, so there can be timing there, but it is generally several mid-sized orders that actually shows up to be a significant good order uptake in the business. Pipeline-wise, I mean, I think we're generally also, yeah, I think that is reflected in our guidance as well, how we see the pipeline.

Yeah, I guess on the outlook, really, I mean, you mentioned that there's a bit of a slowing momentum on the transactional services, but if I understood correctly, the CapEx side looks more stable. So is that slightly declining? demand outlook on the biomaterial side more on comment on the aftermarket or more comment on expected timing of capital orders?

Sorry, just say that once again. Sorry, I missed the first part.

So, I mean, if I understood correctly, As you guide for a slightly slowing demand on the biomaterial side, and you are flagging a bit weaker momentum on the transactional services, but the capex looks quite stable. So I wanted to understand if the guidance is a reflection on weaker aftermarket or, let's say, timing of deals in second half on the capital side.

Yeah, so if you think about the service side, that's a bit of a reflection about operational rates, profitability with our current customer base is sort of weak in certain parts of the business as well. Whereas on the capital side, we do see a relatively, as we're saying, quite stable. Of course, it can vary a bit from quarter to quarter, but it is a more stable outlook.

Okay. And then the last question for me is on the profitability of the pulp and paper capital business. And I guess this is the last time that we see this number. So, I mean, your book to bill is now above one, I guess, for the first half of this year. So kind of, you should at some point get a little bit more stabilization on the sales decline. And one should maybe expect Arauco deal also start to contribute positively on earnings going into next year. So should we be confident that we're starting to kind of find a floor in a sense that the capital business is not anymore a tailwind for your margins, that it actually starts to contribute positively, even excluding any kind of a bigger savings programs that we are now expecting for next year?

Yeah, I think, I mean, as Katri said as well, we're not happy with the capital market. The capital net sales, it is low. I think it probably is the lowest we've seen since Q1 2020 or something like that. So that volume clearly impacts the profitability a lot with the leverage that we have in our global supply. We are, of course, taking sort of short-term action in terms of temporary layoffs. It is also clear that with the global supply and how we're going to structure that going forward, we'll have a better... or would have impact on us managing volume ups and downs in a better way. So with that, there is also, I have to say in the Q2, a little bit of timing effect on some of the sales as well. Anything to add, Katri?

And I think maybe one thing to highlight this operating model. So now we have brought the equipment business and the services together. So looking at the total lifecycle approach, of course, that's also then going to support this. the strategy execution and our target with this new segment is to be at 14% profitability. So there is some work to be done and room for improvement, clearly.

And now we're at 10, so.

Yes.

For sure, and I understand the savings and the operation model stuff, but if we just look at purely from the volume impact, I mean, orders on first half are now better than the sales. So when should we, if you look at the timing of your backlog, when should we start to see the negative top line impact stabilizing?

It will come through the venue recognition. So we need orders and then of course the rest will follow. So giving exact timing for the Arauco, we will recognize 200 million more still. And we have been saying that it's roughly split equally between the years. So that of course then is going to contribute as well.

of course positive that if you see some of the orders we got a lot of the orders we got in q2 where the mid-sized one yes they will tend to turn a bit faster than the very large ones right that's a good point all right fair enough thanks thank you for the answers thanks auntie the next question comes from mikhail doppel from nordia please go ahead

Thank you. Good morning everybody and thanks for taking my questions. So firstly on the services outlook, which you see is slightly weak now. I think you mentioned in your comment earlier that you see a slow mention in the transactional parts of the business. Maybe you could talk a bit more about that. I mean, is that the only place where you see some weakness? Are other segments within services doing still well? Are there any big regional differences? Maybe just a bit more color on what you're seeing in that business heading into the second half. Let's start there.

Thanks, Michael. I think it's really nice to see that despite dynamic world situation, economic outlook and so on, customers are investing into mill improvement projects. They want to have a more efficient mill. That's really good to see. That's clearly good to see that they're starting to invest in the install base for the future with a bigger... effect than before. Then, as we said, we did have a good Q1. We had sort of a flattish Q2 when it comes to the more consumable part, the performance part, the fabrics, the rolls in Q2, which is, of course, a bit sort of maybe indicating slight softerness in terms of the actual operational rates that we see currently. And that's, I wouldn't say compared to previously, geographically, it's a little bit like... unchanged sort of you know soft in Europe which we also saw previously you know generally okay in the US in the high 80s early 90s different on where you are China being a bit the same Asia the same as previously so not big no bigger changes there but just a sort of a slight softening in it as well just being a bit cautious about and very being sort of very focused on making sure that we support our customers to the best extent possible during the next coming quarters.

Okay. Well, that's helpful. Thank you. And then just a question on the bulk project pipeline, which you see in Latin America. I think you have previously talked about this and mentioning active discussions. Just wondering where we are now on this topic.

Yeah, maybe I should just add to the previous question. It is good to see when you talk about services that in the performance solutions, there we are actually seeing quite good service business and very stable and good outlook on that as well. So I'm very pleased on that side of the business as well. Then in terms of these big projects in South America, Like we said last time, there of course are certain players who are looking into investing further into South America because it is an attractive market to invest in when it comes to the pulp business. very difficult to say anything about the timing. But of course, you know, our customers are looking into it. They are, of course, also not taking a few year horizon on this. So what the world looks like right now maybe impacts that a little bit less because it's a longer term investment into a very competitive pulp production.

Okay, now that's clear. And then just finally, on the the costs related to the operating model renewal where you aim at the 80 million cost savings uh you booked i think one of costs of 61 million for this project in or this program in q2 was this all or will we will you see more costs being booked in the quarters ahead and also in terms of the phasing of the savings uh how much should we expect for 2025

If I say yes, this is our best estimate of the total program. So that's answer to your first question and then the impact for this year. So we will see some savings materializing already this year. I would maybe go with the double digit statement here because we are still kind of in the process of the change negotiations in five countries. So we cannot give exact comments yet, but within that ballpark.

Okay, that's very clear. Thank you very much both.

Thanks.

Thanks, Michael.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Ponu Leighton Markey from Danske Bank. Please go ahead.

thanks i had two questions first one is is on this service outlook and and order intake development so if i understood correctly you had like a slowdown or flattening of the of the spare parts and consumables and and then good orders were more about the wheel improvements and and so on so does this mean that it's like The service-sales mix is a burden for the margin going forward because I assume the spares and consumables are more profitable.

I think that is very sort of now we're into the finessing in terms of the modeling or the comment on that or I mean I think overall it is about driving the overall service business that is a better margin business for us so that's what we're focusing on but of course also like we discussed a lot the capital market is really about how do we help drive our customers outcome in the best possible way because that will deliver value for them then they will actually do business with us as well right so so i wouldn't be too um focused on on the mix between uh those things from a profitability perspective okay that's clear uh then secondly um

on the outlook for boards specifically. So now you give the outlook for the whole business, but previously you used to be more specific on the end market. So, I mean, how does the board machine market look for you going forward?

Yeah, I mean, I guess If you think about it, there is, of course, you can go to a very granular level in terms of how you look at the market. And, of course, we do that when we're looking at our pipeline and in the sales forecast discussions or order forecast, yeah, sales from an order perspective forecast discussion. It is, of course, a bit of, I want to say, difficult in this forum to really go to that level of detail because it also depends on where are you actually in the world. You've seen capacity being coming online in Europe, therefore utilization rates probably come a bit down in the European business, impacting the service business there compared to what you would, the sort of the number of mills would indicate. There's also a closure in the board. We've seen one here in Finland being announced. So, but so overall you have to sort of look at it quite granular, but also from a geographical perspective. But we have seen orders also on the capital side there.

Yeah, maybe in big picture, no changes in the overall view.

Okay, thanks. I actually have a third one, if I may. On the guidance, so you are a bit ahead of last year, like in the first half in terms of comparable EBITDA, and you said that you will get double digit million of cost savings for the second half. So is the guidance conservative given the cost savings or what are the kind of headwinds that we will still see?

I mean, it's clear that the savings program underlines and supports our guidance. And that's also why we are reiterating with confidence.

Yeah, and maybe fair to say that we need book and bill in every business what we have. So there is work to be done still. And of course, now backlog for this year is 2.3 billion, same level than last year. But it's all about getting the orders in, managing the costs and then delivering the volume. So no updates on the bottom line either.

Okay, thank you.

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

Yes, hello, this is Tom Skogman from DNV Carnegie. I can see that the order backlog beyond the current year is up almost 60%, but can you reveal how much it is up for kind of the next year, in this case for 26?

Backlog is up, and of course, one big ticket item there is the Arauco project. So that is visible. So if you look at the overall backlog, so that's the main driver there.

Yeah, of course. But the problem is you don't know how the backlog looks for 26. You know, is it up double digits? You know, if it's in total beyond the current year, it's up now close to 60%.

I think we go into the quite, I would say, level of details here. So really cannot comment 26. But what I can say is that Arauco, of course, is mainly delivered in three years. So that is visible in that backlog. Otherwise, order intake has been solid.

And we expect that Arauco would have, you know, 300 million will come to sales this year, right? Yep. So that will give you an indication, Tom.

Okay. And then I wonder about the balance in the order backlog. You have a very special environment for your company. Do you have challenges with low utilization level outlook in some segments, or is it okay across the board now? I guess in paper in Europe it should not be that good, but perhaps it's good in paper in China, as an example. Could you give a bit more granularity just about the outlook for utilization levels for factories?

Yeah, I mean, good question, Tom. I think it really boils down to when you think about or how to sort of really think about is that, you know, you saw net sales and where we were not really happy was the lowest in the board and paper business since 2020 Q1. But I mean, if you think about overall, you also need to sort of and think from a profitability perspective, you know, you need to think about there's both the biomaterial business. Let's not only think about that, but is actually more or less close to half the business is actually on the bottom line is also coming from the performance solution business. So there, that utilization rate is of course also important, but the leverage is on the other side and that kind of gives a lot of, a little bit of swing, but overall very strong business in both parts, but then also very strong foundational part, no matter what happens in terms of the performance solutions.

okay and then then about pricing i have not heard any comments about pricing you know when you have these great orders have you used the price weapon to secure a good backlog in challenging times or is the sales margin more or less what it has used to be and of course this discussion is difficult when you have these cost cutting so basically what i'm trying to figure out is will this cost cutting of 80 million euros really hit the bottom line if you would have flat sales

I couldn't really... Sorry, Tom, I couldn't hear. You hadn't heard anything about what?

About pricing in orders booked. So, I mean, are you kind of... I think it's just important for the market to understand, will these 80 million euros of savings in the P&L, will they hit the bottom line, or are you kind of using part of these savings to cut prices, you know, to gain market share, basically, in a tough market?

Yeah, good question, Tom. Like we talked a lot about at the Capital Market Day back in Tampere on June 5th, you have the 80 million, which relates to the whole operating model change. Some of that is also being... fueled into funding the strategic journey, the investment into, you know, growing the business, growing the service business, growing the flow control business. So actually capturing that commercial excellence there. So that's one part. Then the 100 million from the global supply. What we said there was also some of that will be used to actually be more competitive in the market and therefore capture growth and install basically going forward. Then the question that I haven't heard about global supply so far, but I think it's an important question, is that sort of, because you also talked about timing, and it basically comes from two levers, right? There's the procurement savings, and then there's a footprint. footprint going about you know both the manufacturing footprint you know facilities footprint how do we actually optimize that also with the current geographical or geopolitical situation so it's a good time to look into how to really how you want to structure that supply chain going forward Of course, the procurement savings can come or will come faster than the actual footprint. That is a bit of a longer thing, but with something we need to attack and we need to address. Then also to drive that, we are clearly opting the game. We are investing into new capabilities. So four new team members in the global supply chain has been recruited and will be joining in the second half of this year. all with international backgrounds, so a very international team where we've upped the capabilities significantly in order to make sure we drive the 100 million savings target, which will both expand the margin, but it will also drive cost competitiveness and therefore more sales.

So just to understand this a bit better, should we think so that this kind of supply chain savings of 100 million euros on a part of that can be used to cut prices to win orders, but this 80 million euros in a white collar cut saving, that is a real saving that you will not use in pricing discussions with customers?

Like I said, the 80 million euros has nothing to do with pricing or cost competitiveness, but it's about having an efficient organizational structure that, of course, will impact the SDNA. But it is also to fund some of the expensive investments that actually is in the strategy plan so that we can deliver the 515 equals 20.

And maybe just to add to the 80 million, Tom, if I may, so it's not only SG&A, so of course there is a Cox part and it's somewhat a bit more on the SG&A side, but maybe just to give a flavor that how this 80 million is impacting.

Good point. Yes, exactly.

Okay. Thank you. A final question for me, when you have these tariffs and so on, could it open opportunity for you to go into the fabric business in the US if a lot of fabrics are imported? there's a big competitor there with local production but i guess otherwise there is some importance hello how is it yeah of course the fabrics market in the u.s is a mix of imported fabrics but also locally produced fabrics yeah but could you end only have production in europe in this business could this be like a an opportunity to go into the u.s fabric business if some other one will face challenges it's a big tariffs

I think that's a bit too detailed, Tom, to go into at a Q2 meeting right now, but we'll let you know if we do. Okay. Thanks. Thanks, Tom. Have a good summer.

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

All right, thank you so much for the Q&A. There are no questions here on the platform either, so it's now time to start to conclude this event.

Thank you very much, everyone, for having joined the webcast. I was sort of really happy that you spent your warm summer day on this. So have a great summer. And then, of course, I want to thank all the Valmaterers who've delivered a good Q2 result that we can all be proud of. So thank you very much, everyone, and have a great summer.