Valmet Oyj

Good morning, everyone, and welcome to Valmet's Thought Quarter result webcast. My name is Pekka Rouhenen. I'm the Vice President of Investor Relations at Valmet, and with me today are Valmet's President and CEO, Thomas Hinnerskul, and our CFO, Katri Hokkanen. Today we will walk you through Valmet's fourth quarter and also highlighting some of the full year highlights, the most notable one being the full year margin, increasing to a new record of 11.9% as our strategy delivered its first results during the second half. The agenda for today is straightforward. First, Thomas will present the Q4 full year highlights, including the acquisition of Severn. Next, Katri will walk us through the financial development in detail. And then Thomas will return to discuss the dividend proposal, the guidance for 2026 and the short-term market outlook for the next six months. And after the presentations, we'll open the lines for your questions. So thank you for joining us today and your interest in Valmet. And with that, let's get started, Thomas.

Thank you, Pekka. 2025 was my full first year as CEO at Valmet, and it's been a true transformative year. We've been driving many changes and initiatives, and I'll get back to some of those later in the presentation. Therefore, firstly, I want to be thanking the Valmet team for all the hard work and commitment throughout the whole year. I also would like to sort of thank everyone at Velmet personally for being very open and welcoming me to Velmet and being open for the behavioral and cultural aspects we've been working on in order to speed up our execution and being bolder in our thinking. Let me start by setting the overall frame for today. We operate in a softer market in the second half of the year, but even though the market is going through a softer patch in the short term, we do remain confident that our strategic choices are the correct ones and they will take us to the next level of performance by 2030. So with that, let's start with the full year highlights. For the full year, we delivered a resilient performance. Net sales held steady and our comparable EBITDA margin reached, as Pekka said, a record of 11.9%, up 0.6 percentage points from previous years. This was driven by the bold operating model changes we decided already in the first quarter when the market was still largely in a better shape. That timing really mattered and we were ahead of the curve. It gave us the efficiency benefits when the environment turns softer later in the year without us having to react defensively at a challenging moment. Pros of performance solutions performed exceptionally well and biomaterial and service or biome solution and services maintained stable margins despite our customers low operating rates and overall weaker global economy. Cash flow stayed strong at 581 million and orders remain solid against a very demanding comparison period. The board of Valmet proposes a 1.35 euro dividend per share unchanged from last year. Overall, lead the way is now being embedded across the organization and the benefit becomes visible already in the second half of last year. With that, let's have a look at the fourth quarter. The overall fourth quarter picture is quite similar to the full year. The market was subdued in biomaterial services like we anticipated, and unfortunately, we saw more mute demand also in the parts of our process performance solutions. Especially in the pulp and paper automation market was slower than expected. Also, some of the packages in automation actually got postponed in the end of the year. When we exclude the exceptionally large Arauco order and the FX from the comparison point, orders were very close to last year's level, so which is a solid achievement, I think, in this environment. Profitability was clearly a highlight. Our comparable average on margin reached an all-time high of 13.3% for the quarter, driven by the operating model improvements implemented earlier in the year. Those actions decided when the market was still better, gave us an efficiency that we needed in the second half. We secured several important wins, including our largest ever energy order for a biomass power plant in Berlin, So these kind of projects add to our install base and create long-term lifecycle opportunities for us. Process performance solution delivered another excellent quarter with a margin of 21.9%. Very good execution from the team and a strong starting point as we invest back into growth in going into 26, like we've talked about earlier as well. And finally, we announced the acquisition of Severn Group, Just before Christmas, Seven brings leading severe service valve technology and a high-quality install base, truly strengthening our flow control in several key process industries, so a very strong strategic fit for us. One important clarification, our 2026 guidance does not include this acquisition. We will include Severn in our guidance once the transaction is fully finalized, which we expect will happen in Q2. So overall, a strong quarter operationally, supported by disciplined execution and the benefit of the choices we made earlier in the year, even though the market didn't support us with tailwinds. Let's take a closer look at the order development behind the quarter. As expected, orders for the quarter decreased year-on-year in both segments, mainly because of the comparison period including the exceptionally large pulp mill order from Arauco in Q4 2024. Like earlier said, this order impacted also biomaterial services and automation solution orders intake in Q4 last year. That single project alone created a very demanding benchmark for this quarter, obviously. Against that backdrop, our performance was solid. We secured our largest ever energy order for the Berlin biomass power plant, which also came with extensive service agreement, highlighting our lifecycle approach that we have launched early in the year at our strategy. This is an important long-term value driver for us. Overall, our energy business had a good year and was able to close some key wins. In biomaterial services, the market remains subdued, and we saw a decrease in service orders compared to Q4 last year. This is fully aligned with what we communicated earlier. Operating rates, investment activity has been under pressure, and we saw the impact in our Q4 financials. In process performance solution, the environment has softened particularly in the pulp and paper automation. The difficult end market of our customers showed also in automations demand during the quarter, and furthermore, some package deals did not materialize and were postponed for later. Going forward, we see the market now stabilizing from the weaker Q4 level. So overall, While the headline year-on-year comparison shows a clear decline, we had a decent quarter in a soft market and continue to capture some strategically important wins that strengthen our install base for the long-term service opportunities. Let me then highlight one example that illustrates the strength and the versatility of our automation technology. We secured the automation delivery for the next-generation Polar research vessel. This is a mission-critical platform for a vessel operating in some of the most extreme environments on Earth. The orders showcase how far beyond the traditional process industries our automation offering today reaches. When a customer like this chooses Valmir to run a vessel like this, it is a strong testament or statement of trust in the reliability, safety and sophistication of our systems. It also builds long-term value. These vessels have multi-decade lifecycle and the automation is essential to their operation. That creates recurring lifecycle revenue and further strength our install base in a segment where we already hold a leading global position in cruise and marine arbitration. So while the quarter was soft and pulp and paper automation, this kind of win demonstrates the underlying competitiveness of our technology and our ability to grow in diverse markets. Let's look at another concrete example of our strategy to further strengthen our process performance business and diversify outside our traditional biomaterial business. We are very excited, I have to say, to be able to announce the acquisition of Severn in the fourth quarter. This is a strategically important step for Valmet in the mission-critical flow control business. Severn brings leading severe service valve technologies, a strong install base, and deep customer relationship in industries that are complementary to ours, to our biomaterial business, and businesses as refining, chemicals, energy, and gases, as well as metal and mining. So the strategic fit is excellent. Servant has a proven track record in demanding applications where reliability is key, and this strengthens our flow control business both technology-wise, but also commercially. It clearly expands our addressable market and increases our presence in segments where we see long-term growth potential beyond our traditional bio-material business. It also takes us to top five globally in the valves business. The combination also bring clear synergy opportunities, broader market reach, complementary offering, and the ability to increase service presentation or penetration in a large high quality install base. Seven generated around 250 million euros of revenue in 2025, with an EBITDA margin of about 16%, reflecting a solid operating foundation. We expect the acquisition to close during the second quarter of this year. And overall, very good strategic fit. In addition, it strengthens flow controls, broadens our portfolio, and improves our growth profile over the long term. Now let's turn to process performance solutions. Process performance solutions delivered a record year in comparable EBITDA. Orders came in at 372 million euros, decreasing as anticipated due to the very strong comparison period, which include the landmark automation order from Arauco last year. Net sales remained at last year's level. Flow control continued to grow organically by automation solutions saw a decline, particularly or partly I would say reflecting the softer demand condition we already discussed on the previous slides. The clear highlight is profitability. Comparable EBITDA reached a new record of 90 million euros, and the margin increased to 21.9%. The margin was supported by solid commercial execution, operating model efficiencies, and overall disciplined cost control. So even with a softer automation market and a tough comparison on orders, PPS continue to show strength and resilience. However, We do want to be mindful of the fact that we don't expect the margins to continue at this record level into 2026, as we will be investing back into long-term growth by hiring key personnel, both in the sales but also in R&D. Now, let's move to the buyer's material solutions and services. Starting with orders. The highlight win in the quarter was the Berlin biomass power plant order, which I mentioned earlier. But compared to last year's exceptionally strong fourth quarter, orders were clearly lower as the comparison period included the very large Arauco pulp mill order. Full year services orders were up 4% organically and represented 52% of the orders received. Looking at the market environment, the biomaterial services market continued to be soft, very much in line with what we saw already in the third quarter. In fact, the year was divided into sort of two parts, a good active first half followed by a clearly softer second half as customer operating rates were visible in the market. On the net sales side, development was as expected. Capital net sales came in at a solid level in the quarter, and we saw the Arauco project progressing well. In total, we booked roughly 400 million euros of Arauco as net sales during 2025, and we estimate that roughly another 400 million euros will be booked as net sales in 2026 as the project continues to advance according to plans. In services, net sales decreased organically by about 7%. This reflects the order mix in the recent quarters, which have been more tilted towards longer lead time mill improvement projects. Also, along with the FX impact, that mix effect was clearly visible in the net sales for the fourth quarter as well. Comparable EBITDA amounted to 123 million euros with a margin of 11.6%. On change from last year, biomaterial services net sales were lower, but the operating model efficiency we implement early in the year supported the segment's margin development, and I'm very pleased that we made those decisions when we did. Without them, the year end would have been significantly tougher for this segment in terms of delivering the margin. This covers the operational and market development for our segment this quarter. To give you a deeper look at our financial development, I'll now hand over to Katsu, our CFO. Katsu, the floor is yours. Thank you.

Thank you, Thomas. And actually, before I begin, I want to sincerely thank the Valmet Finance team and our investor relations team for a very strong year-end reporting effort. This was the first annual closing under our new renewed operating model and reporting structure. we introduced several improvements to our quarterly and annual reporting during the year. So delivering these changes while maintaining excellent accuracy and clarity required significant teamwork. And I want to thank everyone involved for their dedication in this. I'll now take you through Valmet's financial development, focusing in the fourth quarter. I will cover our profitability, cash flow, balance sheet and other key financials. And as always, my aim is to provide a clear and transparent view of our financial position and the drivers behind our performance. Let's start with an overview of our net sales and comparable EPI day for the fourth quarter. Net sales amounted to 1.5 billion euros in Q4. And this was 51 million lower than in the comparison period. And this was mainly due to a negative currency impact of approximately 42 million euros as the euro strengthened against US dollar and some other key currencies. Organically, net sales were only 1% lower than Q4 last year, showing steady development in both segments. Comparable EBITDA reached 196 million euros and the margin rose to 13.3%, which is the highest quarterly margin in Valmet's history. The increase was driven by the cost savings from our own operating model renewal, which continued to support profitability in the second half. And by the end of the year, we realized approximately 35 million euros in cost savings related to the operating model renewal. And this includes approximately 20 million in the fourth quarter and the targeted 80 million annual cost savings run rate has been reached now. Like I said earlier, we will be investing part of those savings back into growth. So the incremental net savings impact will be roughly 30 million in the first half this year. I'm pleased to note that even with the weaker market and currency headwinds, our operating model and disciplined execution allowed us to deliver another quarter of strong financial performance. Let's move next to our order backlog. At the end of 2025, Valnet's order backlog amounted to 4.3 billion euros, which is 146 million euros lower than at the end of 2024. Based on the current delivery schedules, we expect approximately 3.1 billion euros of the backlog to convert into net sales during this year. And this is in line with the level we guided last year. when a similar amount of backlog was expected to be recognized as net sales during 2025. And our book-to-bill ratio for the full year was one, reflecting the softer market in the second half of the year. Even so, the absolute backlog continues to provide a very solid visibility for this year. Overall, the backlog remains at the healthy level, supporting stable deliveries for the year ahead. And as always, our teams are working hard to create a solid amount of book and bill during the year on top of the order backlog. Moving on to our cash flow and working capital. Next. Cash flow from operating activities amounted to 189 million euros for the fourth quarter, bringing the full year operating cash flow to 581 million euros. Our comparable cash conversion ratio for 2025 was 94%, which is in line with our long-term average and demonstrate the strength of our cash generation capability. Networking capital decreased to 29 million euros at year end, compared with 134 million a year ago. And I'm very pleased to see over 100 million released during the year. CapEx for the year totaled 103 million euros, representing about 2% of net saves, and this is broadly in line with previous years. And we expect this to increase a bit this year. Efficient cash generation, together with disciplined capital allocation, remain the key priorities for us. And they both support and enable both operational flexibility and also our long-term growth ambitions. Let's move on to our balance sheet and leverage position. At the end of 2025, Valmet's net debt amounted to 904 million euros, and our gearing decreased to 35%, down from 38% in the third quarter. Net debt. decreased by 41 million from Q3, even though we paid the second dividend installment of 67 cents per share, which totaled 123 million in Q4. Our net debt to EBITDA ratio improved sequentially to 1.40, compared with 1.50 at the end of the third quarter. We are well within our target of under 50% gearing, which means we are in a good position for the upcoming seven acquisition as well. It is estimated to increase Valmet's gearing by approximately 15 percentage points once completed. The average interest rate of our total debt was 3.4% at year end, decreasing from 4% a year earlier. During Q4, we also completed our first Schulzstein loan transaction, which amounted to $375 million. And this transaction strengthens our long-term debt structure, diversifies funding sources, and broadens our debt investor base. So big congratulations once more to the team who made this transaction happen. Net financial expenses decreased slightly to 62 million euros for the year. And overall, the balance sheet remains strong, which gives us flexibility as we continue to execute our strategy, even in a softer market. Moving on to our capital efficiency and EPS. Our comparable ROSI for the full year was 13%, and this is a solid level and slightly higher than a year ago. However, our long-term financial target is to reach a 20% comparable ROSI by 2030, so we still have work ahead of us. Main driver behind the lower ROSI compared to 2022 is the series of acquisitions we have made in recent years. These have increased our capital employed. We remain confident that these investments will support stronger returns over time and they fit well with our strategy and long-term financial ambition and increase shareholder value. Adjusted earnings per share for the year was 1.82 euros. The year-on-year decrease is mainly related to changes in the expensing of fair value adjustments from acquisitions. And just as a reminder, adjusted EPS excludes acquisition-related impacts, but it does include items affecting comparability, which is sometimes misunderstood. Looking at the key financial figures for the fourth quarter, I'm pleased to note that almost all the numbers are in the BlackRock Q4. with the exceptions of orders for reasons we have already discussed, and net sales, which decreased mainly due to currency impacts. Comparable epithet increased to 196 million euros, up 2% from the previous year, and the margin improved to 13.3%. Epithet and operating profit also increased from last year's levels. Cash flow from operating activities was €189 million, up 7% year-on-year in Q4 and 5% in 2025. For the full year, items affecting comparability amounted to €-85 million compared to €-53 million in 2024. The increase in these costs was mainly driven by restructuring expenses related to the operating model renewal. On a full year basis, our tax rate was 25.7%, which is in line with Valmet's historical ETR level, which has been around 25%. You will also notice that our effective tax rate in Q4 was higher than usual, as there were some one-off impacts in the taxes. That concludes my review of the key financials. Thomas, over to you, please.