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.