Valmet Oyj

Good afternoon, ladies and gentlemen, and welcome to Valmet's Q1 2022 Results Publication Webcast. My name is Pekka Rouhiainen, and I am the Head of Investor Relations here at Valmet.

And the presenters today are Pasi Laine, President and CEO of Valmet and Simo Sääskilahti, Business Line President of Flow Control. [Operator Instructions] So Pasi, please.

Thank you, Pekka. Welcome, so the headline today is that orders received amounted EUR 1.3 billion and comparable EBITA to EUR 79 million in the first quarter.

So I have little bit long words at end of today, normally first Q1 '22 in brief then some words about merger with Neles, then some words about developmental segments and business lines, financial development. Then, Simo will come to talk about Neles Q1 numbers, and then I'll come back to the stage to talk about financial targets, guidance or short-term market outlook.

So I will be presenting many slides today. So first Q1 in brief, so orders received totaled to EUR 1.3 billion, net sales increased to EUR 960 million, backlog is at record level a little bit over EUR 4.4 billion.

Comparable EBITA remained in euros at -- was EUR 79 million and remained at last year's level and margin was 8.3. Gearing after the quarter was zero.

Here the numbers more in detail. So orders received EUR 1.3 billion, net sales EUR 960 million, comparable EBITA is EUR 79 million and that was 8.3%.

And like I said, backlog in the end of the quarter was over EUR 4.4 billion and we employed about 14,400 people. In net sales Process Technology segment, which I'll explain later on was 58% services, 33% in Automation segment, including now only the automated system numbers was 9% of the net sales.

In a geographic participation or geographical areas, Europe was about 39%, North America 18%, so quite much on the traditional level, South America 13%, China 20% and Asia-Pacific 10%. So comparing to let's say one and a half years ago, of course, the Chinese volumes have been going down but still they are that high level.

So orders received has been growing and was nice at EUR 1.3 billion level again, and 12 months cumulative curve is now about EUR 4.7 billion. Good, then stable business orders totaled about EUR 2.040 billion.

And I think this is a nice graph to show. We started at EUR 1 billion level, we have been growing services from EUR 1 billion level to EUR 1.549 billion in order intake in last 12 months and then Automation first full-year was 337 and now the LTM is 409, this all together over EUR 2 billion.

It's very nice that first time ever our order intake in stable business is over EUR 2 billion, good achievement by services and automation. Backlog is at record level EUR 4.459 billion, 75% of the backlog relates to Process Technologies, 20% to services and 5% to automation including all of the systems business of course current and we are saying that about 60% of the backlog is expected to be realized as net sales during '22.

Then some words of reasoning and merger with Neles, so like you all know now Valmet and Neles have merged and I'll describe the company next two slides. So like you remember in 2020, we acquired about 29.5% of the Neles shares and paid EUR 456 million and average share price was tenure as EUR 27 million.

And now, the merger consideration amounted from -- in Valmet shares and the value was about EUR 978 million. So the total cost of Neles shares acquired by Valmet amounted in EUR 1.434 billion.

So that's the total cost of the acquisition. What kind of company of the merger, so what kind of company we created, we created company with unique competition and balance total offering for Process Industries.

In paper of course, we are strongly in paper machines, board machines, tissue machines, in pulp, we'll come back to whole pulp mill. In energy, we have boilers and emission control.

In services we have technology, all the services for all the technologies and now in automation, we have systems but on top of systems we have also the flow control offering meaning valve automation, and valve controls. So the core customers we can serve with the full offering and then of course, especially automation customers, with automation offering we serve all the customers in Process Industries.

But now the triangle is very strong in all the corners in Process Technology corner in services and in automation. One big chase after the merger is that even if I'm very happy with this over EUR 2 billion LTM order intake in stable business now with Neles, it would have been really even higher.

So Neles order intake LTM is EUR 667 million, meaning that if Valmet had been as Valmet is today, last year's order intake stable business would have been EUR 2.7 billion and that's of course, big change compared to EUR 1 billion where from we started. So this acquisition of systems business and merger with Neles an organic growth have changed quite a lot Valmet's performance and offering.

And now like we have been telling now, we have good offering in automation in from Neles, we have and today's flow control business line, we have valves, we have valve automation, valve control, so total offering for valve customers and then the system side, we have distributed control systems, we have quality management systems and we have analyzers and measurement. So, the automation product offering is now twice what it was before the merger with Neles, then some words about development of segments and business lines.

So starting from today, but of course including the first quarter, Valmet has changed the financial reporting structure. So, we have now segments, three segments Services, Automation, Process Technology segment and out of -- from those segments retail orders received net sales comparable EBITA -- comparable EBITA percentage, items affecting comparability, EBITA, EBITA percentage and amortization.

So you will have a lot of better visibility to Valmet's performance. We will continue to report the business lines with orders received and net sales in Services, the numbers are the same, in Automation business, Systems business line, retail orders received the net sales and the same from Flow Controls and these two together, our Automation segment and Pulp and Energy we tell separately, paper business lines separately and then these two business lines together are the Process Technology segment.

So and then on top of that we report in comparable EBITA and other items affecting comparability. So meaning that they are in mainly the head office costs which are not allocated to business lines.

So I hope this change helps you to analyze Valmet's performance and helps also us to explain Valmet's performance. And I hope you see this as a positive move from Valmet side.

I'm not going through this number page because we have the same numbers later on. So in Services business line segment here, the numbers are the same.

Orders received was EUR 451 million and order intake grew by 80% compared to last year. So good growth, last year still was of course affected by COVID.

But we are very happy with the performance in Services order intake. Net sales grew also from EUR 288 million to EUR 317 million.

And that's also important because of course, once the service order intake is growing, then of course, the net sales has to grow as well. To the profitability, last year our EBITA was EUR 36 million and this year EUR 30 million.

So even if we had higher net sales, our profitability went down, and I'll come back to percentage later on. In Automation, order intake was strong as well EUR 147 million against last year's EUR 123 million, net sales grew also to EUR 88 million comparing to last year's EUR 37 million and EBITA improved from EUR 5 million to EUR 11 million.

Last year, we had ERP project ongoing automation, so that affected the numbers a little bit. But in any case, we are now happy that automation had a good start for the year.

In Process Technologies, the segment numbers are such that orders received for Process Technologies was 727 against last year's 807. And I'll explain the difference from business lines in net sales, we grew from EUR 503 million to EUR 555 million.

And EBITA was last year EUR 43 million and this year EUR 41 million. In Pulp and Energy, last year we had very big order booked in orders received in first quarter and the order was [indiscernible] and order intake was very good.

So this year order intake was 327 and of course if you see that as a quarter, even if it was smaller, it was a good quarter for Pulp and Energy. Net sales was developing as planned as well and ended up in EUR 276 million and improvement almost EUR 40 million compared to last year.

In Paper business line we had again strong quarter. So EUR 400 million is of course very strong quarter and order intake grew by EUR 51 million compared to last year, even if last year's quarter one was strong as well.

Net sales hasn't been developing that quickly. So our net sales was EUR 279 million, so EUR 4 million more than a year.

Of course there is quite a lot of discussion about the situation in Russia. So we of course are all very upset about war in Ukraine.

And we have been supporting our employees and partners in crisis area in all the possible ways. About 2% of our net sales came into 2021 from Russia.

We of course make sure that we comply with all the sanctions and export regulations which are impacting either the products of course country, product, customer and financing, so we are very careful that we apply with all the rules. And in practice this means that it's very difficult to do any business anymore in Russia.

We made reversal of about EUR 70 million in our backlog, backlog this didn't affect the order intake in quarter one, so it was taken out from the old backlog and the EUR 70 million is now away from our backlog, so we estimate that it's very difficult for that backlog to materialize as net sales. So little bit simplifying the Russian businesses is not the big issue.

The big issue is that what kind of impact all this will have to the material prices, energy prices and logistics once companies start to source everything from other origin than Russian origin and this will of course may cause big changes in the logistics chains. For us it's not very big issue because our procurement from Russia was very small.

But of course, they are customers who are buying for example, energy from Russia and it will have an impact to their thing. Then I will talk about financial numbers as well.

And then later on when we had the question-and-answer session Pekka will join me, so that we are sure that we can answer your questions also from this prospect. So, if I first go through the key figures, like said orders received was roughly at last year's level backlog has been growing by 20% compared to last year.

Net sales was growing 12% compared to last year, and comparable EBITA decreased by 1%. Comparable EBITA percentage was last year 9.4% and now 8.3%, so declined by 1.1%.

Operating profit 63 and last year 76. Our earnings per share was $0.30, return on capital 50% and cash flow provided by operating activities EUR 19 million last year was EUR 148 million and I say some words about that later on.

And gearing was 0% compared to last year's 3%. And here the settlement figures in a table.

And like you have maybe noticed, you have received also to the quarterly numbers for last year. So it's easier for you to compare this year's numbers with last year's numbers, but I have gone through all the other numbers I focused on profitability.

So in services last year, we met EUR 36 million and it was 12.6%. This year EUR 30 million and 9.6%.

Last year's total number was EUR 204 million and 15%. So of course, it's clear to see that that our services didn't start as strong as it started last year.

And of course, that's another focus area to make sure that performance and services will be adequate in 2022 as well. Automation last year, EUR 5 million this year EUR 11 million, and last year the total year EUR 79 million.

Now, we started reasonably well to 12.1%. So first quarter is usually an automation a little bit slow.

So, these 12.1% is a good achievement comparing last year to 7.2%. And last year's total profitability was 19.2%.

In Process Technologies, totally last year was 8.1% last year first quarter 8.5% and now 7.3%. So, we had a little bit lower profitability in the first quarter.

And of course, there continues to be a lot of work to be sure that profitability in Process Technologies continues on the favorable trend as well. But all in all, I hope that this segment figures help you in analyzing the correct performance and estimating the future performance of Valmet.

Our SG&A gross profit was 23% and that was of course not at the level where it has been. So LTM is now 25%, 2% down mainly, the decline was caused by increasing cost levels, both in products, but then also in indirect procurement or indirect costs.

So we had negative variations in pulp. SG&A were about EUR 20 million higher than a year ago.

Part is of course we have been growing, so we have bigger amount of SG&A personnel. We have SG&A personnel, salary increases LTI and STI increases and then of course traveling has started as well.

Last year, first quarter was still quite moderate when one thinks about the traveling amounts. But all in all, one can of course not be happy that gross profit was 23% and SG&A 17%.

So the gap there between is not big enough. Then looking at the graph, how we have been developing.

So now the target is officially to make 12 to 14 points, EBITA comparable EBITA and now the LTM is 10.6%. Cash flow was EUR 19 million, and it's of course, a lot of lower than a year ago.

And then if we look at the graph, which is showing the net working capital against the orders received during last 12 months. Now, we are close to 12%, where we have been seen the averages.

So last year, we were also saying all the time that that now the networking capital is more negative than it usually is. And now, we are roughly at the level where it normally is.

And this has cost now that, cash flow has been only EUR 19 million. So at least up to now, I haven't seen any big changes, which would have cause that so, it's just that the networking capital is coming to the levels, where it traditionally has been.

Our net depth is EUR 3 million and then gearing is zero. So balance sheet is still strong and equity to asset ratio has increased compared to last year so it's 40%.

Capital employed has been 24% comparable ROCE has been 24% and earnings per share, if I remember now, correct was $0.30. So LTM is now EUR 1.90.

So, this was a quick overview of business performance and the numbers. And now I let Flow Controls -- head of Flow Control Simo and ex-CEO of Neles to present his results.

Thank you, Pasi. So, Q1 orders EUR 196 million versus EUR 154 million a year ago and sales EUR 166 million versus EUR 129 million a year ago.

So, I would say volume wise a good start for a year. We saw growth throughout the market areas and also looking at that or in Neles we are typically commenting also about how we are progressing in certain business types.

We saw good development throughout the business type. So, our bulk paper orders, project orders stayed on a good level.

We also saw good development in oil and gas project orders. It is still not at the levels that it used to be in for example, in '19, but clearly moving ahead from the slow '21 or year '21.

And then our kind of more stable recurring business or services and MRO driven business developing positivity. In addition to the good organic development, we will also now reporting first time a full quarter of Flowrox business that we acquired in November of last year.

And there the integration of that business is moving very well. And also the orders and orders were contributing to the growth and also the kind of funnel that that our teams have been able to develop is developing well.

So I'm quite pleased with that that development also. That gives us a very good growth position in the growing metals and mining industry as a new area to grow in.

Order backlog at the level of EUR 331 million clearly up from the year a situation year ago and also compared to the end of the year situation. And as said, good sales volumes and also stable kind of the margins -- sales margins and as you can see improved gross profit those were contributing that our adjusted EBITA was on a good level of 16.1%.

There were no adjustment items actually in the first quarter this year or the previous year. So this is also corresponding to the kind of full EBITA.

Cash flow was not -- was the weak point it was not satisfactory. Main reason is that our networking capital grew and in particular inventories, as we have been discussing earlier, there are continued to be issues in the global logistics and electronics components.

So obviously, that is impacting both margins, but in particular networking capital as we want to be prepared. So that was Neles still in Q1 in a nutshell and now we are the Flow Control business line.

In addition to the good results, I would say that also during the QE -- first quarter, the team did a lot of work to plan for the integration. And I can say that there's a good level of excitement about the merger and the opportunities that it will create for us now as part of Valmet.

So, back to you Pasi. Thank you.

Thank you, Simo. That's good to see more left these numbers here.

I'm very happy that Neles's performance has been so good in quarter one. So, we believed in Neles and Neles is already now showing that the future flow controls will be a good business.

No pressure to you, Simo. So here are the next topics.

So financial targets, guidance, and short-term market outlook. So, the financial targets like we've saying that after the merger, we change the targets on two topics.

Now, the profitability targets is that comparable EBITA should be between 12% to 14%. And then because of the goodwill, which we will be created in the merger comparable return on capital employed, target will be reduced from 20% to 15%.

Otherwise, the targets will continue like they are. So these are now the new targets.

Then guidance and short-term market outlook. So we keep the guidance what we published on April the 1st.

That Valmet estimates that including the merger with Neles net sales in '22 will increase in comparison with '21 and comparable EBITA in '22 will increase in comparison with '21. So no change there.

Then if we talk a little bit about short-term market outlook. So the services order intake has been good in first quarter.

And we still see a lot of activities, so we keep that outlook good. Automation has now two business lines flow controls, we keep at good level like you saw flow controls first quarter was -- had very good order intake.

And then, of course, we have to remember that there is some seasonality into order intakes, usually the first quarter is the highest quarter for flow controls. Simo is noting, yes.

And then automation system had a good order intake and will the sales activity continues to add good level as well. Pulp continues to be good.

There aren't any major developments in big pulp new project, but there are still a good amount of small to medium sized projects where our sales teams are active. In energy, we still keep the outlook at satisfactory.

But one has to say that of course this situation in Europe might lead to a situation that the demand for biomass boilers will increase and waste-to-energy boilers will increase. Board and Paper order index has been good and business activity continues at a good level and tissue order intake has been reasonable in first quarter, but still we keep outlook as satisfactory.

And the issue from our customers perspective is that increasing gas prices are affecting especially European tissue producers and then limit in the investment willingness in that segment. So that's the summary of guidance and short-term market outlook.

And now, I assume that it's time for question-and-answers. Pekka and Simo please join me here.

Yes, hi. Hi Pasi, Pekka, and Simo.

Thanks for taking my questions. Firstly on the profitability and cost inflation.

I guess both for services and the capital businesses? Could you possibly talk a little bit about how locked in -- are you in your pricing regarding kind of '22 deliveries and sales versus kind of unseen cost increases, you have quite long backlog.

So do we just need to kind of wait until you get through that, and the pricing action is on new orders, or can you do something regarding your existing backlog as it is?

So, if I start little bit from long-term, so if we talk about Process Technology, or Paper and Pulp and Energy first, so in Paper, we can, when we make the contract, then we know quite much in detail, when what kind of machine we are delivering because the engineering is well advanced when we make the deal. And then big part of manufacturing happens in our factories.

So meaning that actually we are not depending on the raw material change and so that's, the risk is limited. But then of course, once we have the contract, we are open for cost increases.

Of course, the cost increases will affect paper business as well. But at the same time, we have actions ongoing improving our efficiency and improving procurement savings in other topics.

So how would I say, I'm worried but I know that our organization is doing quite good work on this topic. In Pulp and Energy, we have a situation that in Pulp and Energy project, the engineering is finalized maybe six to nine months after the deal is done.

And then we are open for the cost changes during that time. And there of course, we are also trying to now have contracts where we have different kinds of clauses to try to save us from the material savings.

In both businesses, of course we include when possible, some kind of indexes in our own cost calculation to take into account the raw material changes, raw material costs changes. In Services, of course the backlog is rotating quicker.

And there we have a little bit longer, we have longer contracts, for example for paper machine closings, where we have to make contract for two years with customers. And then that has that kind of contracts are of course delaying the possibility to push the prices up to the customers.

But of course, we work now quite much in making sure that when the costs are increasing to us we have to put cost pressure to our customers, not to pay it ourselves.

Yes, I mean I know that you don't guide for the module for this year. But I guess it's probably overly optimistic to assume that kind of gross margin level you can reach the levels that you were last year, given kind of the cost inflation that is now very visible on Q1?

We are not guiding for that accuracy. But I hope the segment figures can a little bit help you in analyzing and estimating our future profitability.

Yes, the second question was actually on those one. And I mean thanks for the granularity for last year.

But if you look at more longer-term, is there something extraordinary on the last year's figures, I mean I know that you've been improving profitability on group level throughout the years, but is there something extraordinary good or maybe extraordinary weak on the last year's profitability? And then kind of reflecting on the margin target 12 to 14, any comments on what that would look on divisional levels?

No, I think it's bit. Of course, we have been improving all the time.

So of course, these profitability numbers were good from historical perspective, but nothing extra ordinary on the profitability of any of the segments. And the same answer will be now valid as well as earlier that for Valmet to improve 1% and if only one part has to improve, then it's half a percent and then if everybody is improving, then 1% is enough.

So of course we continue to push the profitability up in all the segments, but nothing extraordinary in last year's numbers, except that of course they were record numbers all in all in Valmet.

Okay, and last one for me is on demand. I mean your outlook is mostly good and others were strong on Q1.

But have you seen any, let's say softness or hesitancy in for example, Europe, among your clients after the war and also the situation in China with the lockdowns? Has that kind of impacted any longer-term discussions on your pipeline?

Not yet, not yet. So customer discussions have continued normally.

And then in China, I'm more worried about actually then the consequence, the locked consequences of the lockdowns in delivery capability and delivery accuracy. So, I haven't seen that it would be a challenge to our customers to invest.

But more that, can we keep the delivery time promises we have made. So that's our big worry, worry currently.

Then of course one good thing that there might be some slowdown and hesitation in some decision making in Europe, because of the increasing cost level and increasing delivery times. But we haven't seen that happening yet.

All right, all right, thanks guys.

Thank you.

Hi, here, Johan at Kepler Cheuvreux. Thank you for taking my question.

Coming back to these sort of restated historical margin numbers, which I obviously appreciate finally getting to see, one thing stood out in my eyes. And that was sort of the 19% margin in automation.

I remember when you acquired it was around 11%. if I remember correctly, so there has been a dramatic margin improvement in the Automation divisions.

What's behind that? Is there any specific changes that has happened during this year since you made this acquisition or and once again, is it sustainable?

I mean, obviously this implies that actually Flow Control is sort of dilutive to the divisional margins going forward.

That's exactly what we have been saying, saying to Simo as well. So thanks for increasing the press, Johan.

So thanks for making my job easier. But to this automation, I think Sarkari who was running it early and Sami now and the management team there has been doing good work over the years, nothing special, just improving the sales capabilities.

Of course, growing the business in Automation, it means a lot. So if you can grow the business, then improving the product competitiveness, introducing new products and making sure that the project execution, service execution is good.

So nothing is spectacular but improvement year-after-year. And I think we have been all the time saying that we are very happy with the performance of our systems business.

Then is it sustainable, that's let's see how it goes. But good work by Automation team, now we have to learn today Automation Systems.

System, yes, correct. Now I was wondering a little bit about your equipment customers, you mentioned that obviously the price of energy might impact them as well going forward.

But isn't there also sourcing of Wood material from Russia, for example, into the finished paper industry that might impact your customers negatively locally? Or how does that look like?

They will lose, I don't remember now by heart, the amount of wood which is coming from Russia to Finland. And of course, it's not any more coming and I'm sure that our customers are finding ways how to source a little bit more from Finland.

So there is some potential in Finland and then of course, importing some and I'm quite confident that our customers will manage that.

Okay, thank you very much.

Yes, good afternoon, and thanks for taking my questions. The first one is coming back on the cost impact on margins in Q1.

I was just wondering what you think that Q1 was the worst in terms of year-on-year impact on the margins, and it starts to improve because also your backlog starts to improve higher prices, should we think along these lines?

Of course, we are not giving quarterly estimates. But if you looked at total numbers of if we are now saying that EBITA will increase, then with 8.3% volume should be very high for us to say that.

Not giving any quarterly guidance. But of course our target is to improve from this 8.3% level.

And I'm not promising that we reach that. But of course, the target has been to improve EBITA percentage every year.

But let's see what happens this year.

Understood. And then when I think about the new divisional structure and the additional disclosure, which I also find quite helpful.

So we appreciate that. Just wondering, insights, process technologies.

I mean, should we still assume there is a big difference between pulp on one hand, pulp and energy on the one hand and paper on the other hand, or are they not so far apart?

That's now the total profitability, we are saying and we are not commenting on which of the business units is how much profitable because of pulp and energy, there are still four business units, and then also underpaid personnel. So they are variations between those business units.

Yes, and as I said, I mean in paper, you have much more value asset internally. So I guess that's something to keep in mind.

There is more value add in paper, but I'm not coming to the profitability.

Yes, that's fine. And then just technically, in terms of Flow Control and the former Neles business.

So is the former Neles entirely in Flow Control and in automation, or as the services in the services business.

It will pay entirely in Flow Controls, there might be one little thing which is changing, but all the services are in Flow Control, and all the products are in Flow Control.

And the change would be also only within automation.

Yes, and very minor.

Okay, makes sense. And the final question I had was just on the CFO announcement from Katri.

I mean, you said it's an interim solution. I was just wondering why it's not a permanent solution.

Well, that's good, because I forgot to mention this very important news. So thanks for making the question.

So like you know, Kari has resigned and that's why Kari is not here today either. And then of course, we have to look find solutions, how to go forward.

We have good internal candidates many, Katri is one of them. Katri has been now nominated for the intermediate position.

And then of course, big company like Valmet has to look the total market. So of course, we are looking also what kind of capabilities and persons there would be available from external markets.

And because we want to make this process thoroughly then we needed an intermediate solution. We asked Katri and Katri has long background in Valmet started in 2006.

Has Master of Economics Degree from Jyväskylä University. Has been working in our Rautpohja unit.

Has been working in our services. Has been working in our Asia-Pacific as Head of Asia-Pacific Controlling and then currently he's working as Head of Finance and Controlling in Pulp and Energy business line.

So she has very good, versatile background of many businesses in Valmet. And that's why we ask Katri to take this challenge as intermediate CFO and she accepted it.

So I'm very happy that Katri accepted our wish for her to be the intermediate CFO. And she is not today here because she's -- she is now in Brazil.

And she physically it's difficult to be in Brazil and Finland at the same time.

So when I summarize what you just said, it does rule out that she also becomes the permanent CFO?

We have internal and external candidates.

Okay, good to hear. That's it from my side.

Thank you.

Hi, thanks for taking the questions. I have a couple of go one at a time, please.

Just on the service margin, and I was trying to understand how the component factor works through the intake and the forward margin, I mean just conceptually. If you look at the speed of turnover, you have some contracts, which are longer pen and paper business, but most of the business including also some significant short-term business that comes in as well.

Can you just give us some understanding as to how quickly the repricing of the service backlog can or should happen in aggregate?

So, roughly, we are saying now the 20% of the backlog is coming from services. Then roughly 20% is in rough terms EUR 900 million.

And then if the services revenue is somewhere 1.4, 1.6, then you can start to calculate how quickly that turns. Then in business units, if you take spare parts there, of course, rotation is the quickest, then then comes for all services.

Then comes bricks, okay, that's difficult, because there you have long-term contracts, and then short-term purchases. And then little bit more prototype of business, pulp and energy solutions and paper and tissues, all important issue solutions have a little bit longer backlog.

So it varies little bit business to business. But if you calculate 900 out of 1.4, then you'll get somewhere to six months, seven months.

And then part of backlog is turning quicker part is turning slow.

And you've been talking about the inflation environment for some time. So when you look at intake and services, Q4, maybe even before, were you already moving pricing on service intake at that stage to be able to take a view of what you've been saying generally that there will be inflation?

We started some actions in quarter three already in some of the units, but then one has to accept that not good enough actions and not in all the unit. So some of the -- some of our area started react to inflation already in quarter three, but unluckily not all.

Okay. And your longer-term contracts and service?

Do they tend to reprice on our sort of rolling basis? Or do they really stay similar price for the whole period?

We have some fixed prices for paper, mostly in the closing. And then of course, we try to talk with our customers, if there would be some flexibility on the pricing.

So wait -- we do all the possible actions to increase the prices where necessary.

Okay. And just on the process tech part, if you have some of the larger capital projects and some smaller ones.

I was wondering on the larger capital projects, whether you were just taking a general view on the cost to deliver these projects. And therefore, this is kind of a through the delivery margin adjustment starting in Q1 or is it something more nuanced than that?

So, we are not guiding the profitability of process technology. But let's answer that way that that that last year to totally remember now correctly was 8.1.

And this year, first quarter was 7.3. So once you start to see more quarters you will be used to the situation that that there are quarterly variations in our process technology profitability.

Yes, okay. But I just didn't know whether you just retaking a view that the cost inflation the way you can book through the life of the project is based upon total project profitability.

And I didn't know whether there's a kind of over the project adjustment or whether it's depends on phasing and timing of how much is booked in some quarters are up and down. You'll see that on the cost base the different booking ups?

So of course, if we see that there is a cost increase in approach, then we reduce margin. And then we are booking that with the slower -- with the lower margin and then it has also impact to the past.

So then we have to re-correct that project, but all our projects are booked according to current customer on cost level understanding.

Yes. Okay.

And then the last question is just on the intake margin, if you look at the intake margin on the process technology business. To what extent you given your comments earlier about some of these, you have still some engineering phases to do before you finalize.

To what extent is the intake margin we're seeing reflecting current situation or is there still some adjustment to make and as you finalize some of the pulp and energy audits for examples.

Of course the current order intake of the order has started has been quite small. So even if the orders have been booked in quarter ones in some way and booked in January, some in February and then in March, we have seen the cost increase.

So the project we have practically negotiated and booked all pre-war orders.

Yes. Okay.

Thank you very much for the answers.

Thank you.

Thank you. So thank you for listening and Pekka and Simo thank you for supporting me.

Thank you.

Thank you. Now you can close it.

Yes, so this closes the event. Then we will have the second quarter report out on the 27th of July.

So see you everybody then again.

Great. Thank you.

Thank you.