Valmet Oyj

Good morning everyone and welcome to Valmet's second quarter 2026 results webcast. I'm Pekka Rouhiainen from Investor Relations and with me today are Valmet's president and CEO Thomas Hinnerskov and our CFO Katri Hokkanen. Before we begin, I would like to briefly mention the separate stock exchange release we published this morning. Obama's board of directors has initiated a strategic review regarding a potential separation of the company's two business segments, biomaterial solutions and services, and process performance solutions into two standalone publicly listed companies. We are pleased to be able to share this important strategic step with you today. Next, Thomas will start by discussing the continued strategic development of Valmet, including the recently completed Severn acquisition and the strengthening of our process performance solutions business. He'll explain how these developments have led to the strategic review we announced today. He will then move on to review the key highlights and operational performance for the second quarter and Katri will cover the financial development in more detail, after which Thomas will return to discuss our guidance and market outlook. As usual, you may submit written questions through the webcast platform at any time and we will then also open up the lines for Q&A. But with that, Thomas, the floor is yours.

Thank you, Pekka. As mentioned, I'll start by discussing the recent Severn acquisition and how we are continuously strategically developing Valmet's portfolio. Before turning to those topics, however, let me just make one comment shortly on our Q2 performance. For me, the second quarter, which was relatively strong in terms of net sales and comparable EBITDA, and also order intake, showed that Valma continues to move in the right direction. Our strategic actions are delivering results, our competitiveness remains strong, and we continue to strengthen the company for the long term. While I'll come back to our Q2 performance in more detail shortly, the strength of those results provides an important context for the strategic step that we announced earlier this morning. Now, with that, let me begin with Severn. As you well know, on July 1st, we successfully completed the acquisition of Severn and welcomed approximately 950 new colleagues to Velvet. It was really great to be in Houston on the day, meeting colleagues there, having the opportunity to talk to many of them in person and also walking the shop floor there. Seven is a well-established industrial valve company specializing in severe service flow control solution. Seven generated approximately 205 million of net sales in 2025 with an EBITDA margin of around 16%. The business has an excellent strategic fit. and also cultural fit with Valmet and brings valuable technology expertise and customer relationships to Valmet. So we're extremely happy to be able to start working with our new colleagues and customers. It's important to highlight how server and acquisition strength now process performance solution segment and accelerates Valmet's growth beyond the traditional biomaterial markets. Expand our addressable market, increase our install base, create new opportunities in lifecycle services and aftermarket business. With the acquired business included, our process performance solution segment annual net sales will now be approximately 1.7 billion on an annual basis. At this scale, we can respond faster to customers wherever they operate and invest with more conviction in the technology and service capabilities they need. In fact, during the first week since the closing, we've already seen significant interest from new kinds of customers towards the process performance portfolio. And not just towards flow control, but also towards our broader portfolio, including automation solutions. That leaves us today and today's strategic announcement with Pekka mentioned earlier. As highlighted by the survey and acquisition, pros of performance solution has indeed developed into a large, highly profitable business. Together with the strong biomaterial solutions and services, this has led us to ask ourselves the important strategic question. Could these two businesses create even more value for shareholders as independent companies than they can together? To really look into this question, we've decided to initiate a strategic review to evaluate a potential separation of biomaterial solutions and services and process performance solutions into two standalone publicly listed companies. Let me emphasize one point immediately. Today's announcement is about initiating a review. No decision has been made to implement a separation. There is no certainty that the review will lead or result in a transaction or a structural change. The purpose of the review is solely to assess whether a separation could create additional long-term shareholder value compared to with the current combined structure. We expect to provide an update no later than in connection with the publication of our full year 2026 results. Now let me explain further why we believe this is the right time to start this review. The automation business we acquired in 2015 was highly complementary to Valmis core biomaterial business at the time. Back then, around 80% of the business came from Valmet's traditional customer industries, making the industrial logic and customer synergies very strong. Over the past decades, through successful execution, organic growth, and strategic acquisitions, we've transformed that business substantially. Today, Process Performance Solutions is no longer primarily an automation business servicing pulp and paper customers, but instead includes equally strong automation and flow control businesses servicing a versatile group of customers. In fact, currently up to 70% of the segment's order intake come from industries outside pulp and paper. Many of them link to long-term trends such as energy transition, industrial efficiency, and digitalization. This is a significant shift and as discussed, the acquisition of Severn further strengthened these characteristics. At the same time, the process performance solution segment has developed into a major earnings engine in its own right. Today, this segment generates more than 300 million of comparable EBITDA on an annualized basis and contributes nearly half of Valmet's total comparable EBITDA. In other words, what started as a highly complementary business supporting Valma's core biomaterial offering has evolved into a scaled, high-margin growth platform with its own attractive end markets, growth drivers, and value creation opportunities. As a result, Valma today consists of two large, profitable businesses with strong market position and the scale to succeed independently. On the left, process performance solution. As discussed earlier, this business has grown significantly in scale, profitability, and strategic importance. It serves a diversified base of industries with mission-critical automation and flow control solutions. And close to 70% of order intake already comes from outside the pulp and paper industry. Then on the right, biomaterial solutions and services. This traditional part of Valmet's business has also created substantial value over time. Since Valmet was formed in 2014, its net sales have grown from 2.5 billion to nearly 4 billion euros. And the share of services has increased to 55%. This marks a clear shift towards a more resilient, service-led business with a high level of recurring revenue. At the same time our margins have improved from around 2% to close to 10%. Importantly, we're not standing still in today's softer market environment. In fact, periods like this are often the best time to drive meaningful change. Through the operating model renewal and the global supply transformation, we are strengthening customer flexibility, increasing our focus on aftermarket opportunities, improving in procurement and optimizing our manufacturing footprint. These actions are already visible in the steps we've taken, including the facility closures announced earlier this year in both Europe and China. They position us to emerge stronger, gain market share and service, and continue improving profitability as market conditions recover. Today, Biomaterial Solutions and Services is a global technology leader, lifecycle service leader, servicing customers across pulp, board, paper, tissue, as well as energy. We're at the core of our customer's operation. From the initial technology investments to decades of lifecycle services, we help keep their production running safely, efficiently, and competitively every day. That gives us the confidence in the future is that we are building on an already strong foundation. We've strengthened the business significantly over the last decade, and we're taking further actions today to increase customer proximity, grow service, and improve profitability. We believe the next chapter is still ahead of us. In conclusion, this review reflects the fact that both businesses have developed into strong and successful operations with distinct business model, growth opportunities, and capital allocation profiles. This naturally leads to the question of where additional value creation might come from. At this stage, We see three potential areas where a separation could add and create additional shareholder value. First, more focused strategies. Each business operates in different competitive environment, serves different customer needs, and pursues somewhat different growth opportunities. Greater independence may allow each businesses to make their own decision entirely based on its own priorities and market dynamics. Second, more tailored capital allocation. The business has different investment requirements and different opportunities for both organic and inorganic growth. Also, as we highlighted in our Capital Market Day last year, the M&A potential is clearly higher in PPS, with focus on opportunities outside of the pulp and paper industry, as separation may allow each company to allocate capital in a more targeted way, aligned with its own economics and strategic priorities. Third, clear accountability and investment propositions. Separate management teams, boards, and capital allocation frameworks could improve transparency and allow investors to assess each company against the performance drivers most relevant to that business. At the same time, we do recognize that a potential separation would also involve costs and other impacts. That is exactly why we are conducting a comprehensive review rather than making a decision today. We will only proceed if the review demonstrates that the long-term benefits clearly outweigh the cost, complexity and execution risk associated with such a separation. Finally, one more important note around today's announcement. Nothing changes for our customers, our employees or our day-to-day operation. Business continues as normal. The review does not change our strategy. Customer commitments, deliveries, projects and services remain unchanged and our teams remain fully focused on executing and servicing our customers. In a separation where If a separation were eventually pursued, one of the key objectives would be to preserve that customer value. This will remain an important consideration throughout the review process. The strategic, financial and operational implications of a potential separation will now be assessed carefully. The Board will only move forward if there is clear evidence of enhanced shareholder value creation. With that background, we can now turn to our second quarter performance. We will get back to the strategic review in due time. Now, the first part of the presentation focused on strategic development of Valmyth. The quarter in itself clearly demonstrate the benefits of the strategic actions we have already taken over the past year. First of all, the decisive action we took last year to strengthen Valmis Competitiveness have continued to deliver during the quarter. Net sales increased 6% organically and comparable EBITDA increased to 152 million. Comparable EBITDA margin remains stable at 11.5% supported by higher net sales and cost savings. On a year-to-date basis, comparable EBITDA is now slightly ahead of last year, demonstrating the resilience of our full-year trajectory despite the softer start to 2026. Orders received totaled close to 1.4 billion. While orders did decrease 9% from the comparison period, which was mainly driven by our capital project order intake in the biomaterial solutions and services segment, orders increased sequentially from Q1 and were at a solid level. While uncertainty remains in the market, we saw some early signs of stabilization in Nibiru Biomaterial Solutions and Services during the quarter. Capital project activity improved sequentially from an unusual low level seen in Q1, while the service market remained soft but did show signs of stabilization. While this is a positive development, it's important to note that the timing of large customer investment decisions continues to have a significant impact on quarterly activity. and we would not yet characterize this as a sort of definitive market turning point. Process performance solutions continue to perform well, continue to deliver resilient growth and strong profitability. And as I just briefly explained, the successful completion of the seven acquisition marked another important step forward in strengthening our process performance solutions business and long-term earnings profile. Based on our first half performance and current visibility, we reiterate our guidance for 2026. Looking then at the orders received, orders amounted to 1.4 billion, decreased 9% organically compared to a strong comparison period last year. Despite the year-on-year decline, 1.4 billion do represent a solid level of order intake in the current market environment. While orders included one single triple digit order, overall order intake was quite broad-based. Orders include several mid-sized capital orders across geographies, across customer industries, demonstrating the breadth of our offering and customer base. With that, let's take a closer look at the segment performance. Turning to process performance solutions, we delivered another solid quarter. orders increased organically by 1% with similar development in both automation solution and flow control. This reflects the resilience of the business and the benefits of our broad industry exposure. With flow control, demand remained healthy across several customer segments and automation solution continued to see especially good activity in the marine segment with notable new wins. Net sales remained the previous year's level Flow control continues to grow while automation solution was lower than the comparison period. Comparable EBITDA increased to 69 million and the margin improved to 18.7%. Profitability remained at a high level and was supported by strong operational execution. While we're very pleased with the current performance, our focus is not on maximizing short-term margins, We continue to invest selectively in growth opportunities within process performance solution. The recent acquisition of Severn is a good example of this approach. The transaction is primarily a growth and strategic position opportunity and not a cost synergy case. Our focus is on expanding our market reach, install base and long-term growth opportunities while maintaining attractive profitability in the business. Turning then to biomaterial solutions and services. Orders decreased 13% compared to with a strong comparison period last year, but there were some positive sequential signs that capital projects. Large projects orders increased to 501 million from the first quarter, supporting our view that Q1 represented an unusual low level of capital project activity. However, while Q2 was, A clear improvement. As I noted earlier, the timing of customer investment decisions continues to have a significant impact on individual quarters going forward. As biomaterial services orders declined 8%, the overall market remained soft, but consumables and performance parts held up relatively well in our largest markets, North America and EMEA. Mill improvements and field service decreased from the comparison period, which was strong in those categories last year. Overall, I would say that we do see some encouraging signs in customer activity, also in services. One element was the stabilization of consumable orders after several week or quarters. There are indications that some customers are now gradually shifting focus from cost containment back towards operational performance and maintenance needs. However, it is still too early to characterize this as a broader market recovery. Net sales increased 8% organically, supported by a higher share of large projects and smaller mill improvement projects. Comparable EBITDA improved to 98 million, and the margin increased to 10.4% supported by the higher net sales. We continue to see benefits from the action taken during the past year. The operating renewal, ongoing footprint optimization and broader cost discipline measures are improving competitiveness and supporting profitability even as market conditions remains mixed. With that, let me hand over to Katri to take a closer look at the financial developments.

Thank you, Thomas, and good morning, everyone. Also from my behalf, happy to be here today. I will start with the group level development of net sales and profitability. Net sales increased 6% year on year to 1.3 billion. Currencies or M&A did not have impact in the figures materially, and organic growth was also 6%. The increase was driven by biomaterial solutions and services, where net sales grew due to higher activity in large projects, including a good development in the landmark Arauko project. Process performance solutions net sales remained at the previous year's level. Comparable epithet increased by 9 million to 152 million from the 143 million in the comparison period. The comparable epithet margin remained at 11.5%. Higher net sales together with continued cost savings from the operating model renewal supported the earnings development during the quarter. And like with people in the graphs, Q2 followed a rather typical seasonal pattern and sequentially both net sales and comparable epithet increased from the first quarter. Overall, the quarter demonstrates that the actions taken over the past year continue to support the profitability even in a market environment where customer decision-making remains cautious. Let's then take a look at how our cost base has developed in recent years. The benefits from the operating model renewal continue to be clearly visible in our cost base. On a last 12 months basis, comparable SG&A expenses have decreased to 905 million. Compared with the 2024 baseline year, SG&A expenses are now 79 million lower. As a share of net sales, SG&A has improved from 18.4% to 17%. Importantly, these results reflect more than just cost reductions. The operating model renewal was designed to simplify the organization, improve accountability, and bring us closer to customers through a stronger lifecycle focus. The lower cost base is therefore a result of structural improvements in how we operate the business rather than just short-term cost-cutting. Order backlog amounted to 4.3 billion at the end of the second quarter. Compared with year-end 2025, the backlog was 47 million lower, but remained at the healthy level. Approximately 2.2 billion of the current backlog is expected to be recognized as net sales during 2026, based on our current delivery schedules. The backlog continues to provide good visibility for deliveries and supports our execution plans for the remainder of the year. As always, our focus remains on disciplined project execution, profitability and cash generation. With that, let's now turn to cash flow development. Cash flow from operating activities was 65 million in the second quarter compared with 79 million in the comparison period. The decrease was mainly related to higher net working capital. Reported net working capital included a 123 million dividend liability that has no cash flow impact. Excluding this liability, Networking capital was 154 million higher than at the end of 2025. The development was mainly driven by project timing and phasing effects, which are typical in our business. Comparable cash conversion on a last 12 months basis was 62%. While below our historical average, it is important to remember that quarterly fluctuations in working capital and cash flow are normal in Valmet due to the project-driven nature of the business. We continue to expect cash conversion to improve during the year, supported by normal project-facing and disciplined working capital management, while quarterly fluctuation can remain significant. The balance sheet remains strong. At the end of the quarter, net debt was 965 million and gearing stood at 39% compared with the 42% a year earlier. Net debt to EBITDA improved further to 1.42 from 1.60 in the comparison period. The average interest rate of our debt remained stable at 3.6% and liquidity was strong with 584 million in cash and cash equivalents at quarter end. In addition, our 450 million revolving credit facility was fully undrawn. This balance sheet strength provided the financial flexibility needed to complete the Severn acquisition immediately after the reporting period. and this will have approximately 15 percentage point impact to the gearing. We are comfortable with that level given the strong cash conversion ratio our business inherently has. Comparable ROSI improved to 13.5% from 13.1% in the comparison period and 12.7% in 2024. As shown in the graph, capital employed decreased by around 79 million compared with 2024. While we remain below our long-term ROCE target, the direction of development continues to be positive. Adjusted earnings per share increased to 0.47 euros from 0.23 euros in the comparison period. The increase in both reported and adjusted earnings per share mainly reflects the restructuring expenses related to the operating model renewal that impacted the comparison period. This slide summarizes the main financial figures for the quarter, and most of these items have already been covered, but I would like to highlight two additional observations. First, items affecting comparability. amounted to minus 1 million during the quarter, compared with minus 62 million in the comparison period. And last year's figure was mainly related to restructuring expenses of the operating model renewal. Secondly, the effective tax rate was 34.7% in the second quarter, which is above our long-term average level. Valmet's tax rate typically fluctuates between quarters due to profit mix and timing effects. And as a result, the second quarter level should not be considered indicative of a normal quarterly tax rate going forward. Our long-term average effective tax rate is approximately 25%, which we expect also going forward. In summary, the second quarter demonstrated continued benefits from our operating model renewal supported by higher net sales and solid operational execution. With that, I hand it back to Thomas to go through the guidance and short-term market outlook. Thanks.