Valmet Oyj

Good afternoon, ladies and gentlemen, and welcome to Valmet's Third Quarter 2023 Result Publication and Webcast. My name is Pekka Rouhiainen, I'm the Investor Relations here at Valmet.

And the presenters today are Pasi Laine, President and CEO and then Katri Hokkanen, the CFO of Valmet. As usual, we will first go through the highlights of the quarter, Pasi will be presenting the highlights and Katri then the financial part and we will then open the phone lines for Q&A after the presentations.

But without further ado, Pasi please.

Thank you, Pekka. So headline today's orders received amounting to 980 million and comparable EBITDA increased to 150 million in the third quarter.

So like Pekka said, I'll go first through the quarter three in brief, then some words about segments and business lines, then some words about the climate program. Katri will continue with the highlights of financial development and Katri has also highlights.

And then I'll come back to talk about guidance and short-term market outlook. So first, the quarter three, so orders received decreased to 980 million, and I'll go through that in more in details with the business lines and segments as well.

Net sales were about 1.3 billion. Our backlog is still 4.1 billion and comparable EBITDA increased 150 million and margin was 11.6%.

Gearing in the end of the period was 21%. So here are the pie chart, orders received, I have said net sales of a little bit below 1.3 billion and comparable EBITDA 150 million and comparable EBITDA 11.6% and backlog, 4.1 billion, a little bit over that.

And in the end of the period we employed 18,000 people. Segment wise process technologies was contributing about 43% in net sales, services 33% and automation 24%.

By geographic, Europe, 40%; North America, 23%; Asia Pacific, 17%, so big revenue recognition there, China and South America 9% and 10%, so, quite normal distribution here in the net sales as well. This is the long-term development of Valmet since beginning of 2013 and wanted to highlight the long term developments.

So when we started, EBITDA was 54 million and now healthy in the 632 million. We have been continuously developing net sales, continuously developing EBITDA margin and also EBITDA Euros and it will continue.

So, we are of course targeting to reach the 12% to 14% EBITDA as soon as possible. Now, we are at 11.3%, so, still 0.7% missing from the low range of the target, but it will continue and we still believe that just working with continuous improvement, continuous renewal and acquisitions, and good integration of that acquisitions, we are going to reach the target sooner or later.

Then orders received graph. So it has been growing nicely.

There have been bumps on the road early as well like COVID times and then also in 2014, 2015. So of course one cannot think that the order intake graph continues to go up all the time.

This time our order intake was 980 million and then if we look at the cumulative number geographically, you are possibly a little bit less than traditionally, so 35%. North America, on the other side has been more 27% from the total order intake.

Asia Pacific has been active, China has been active, and South America little bit less than in a normal average year. But like we here see 980 is of course a low number, but we have had that kind of quarters before as well, so we should not overdramatize the order intake of 980.

One long-term graph we have been proudly presenting is the stable business. When we started, we have bought about 1 billion in services order intake and now our LTM in stable business including automation and services segment together is a little bit over 3.1 billion, a little bit less than 1.8 coming from services and a little bit more than 1.3 coming from automation.

And of course, the work continues to grow this business in absolute terms with organic growth and with acquisitions. Backlog, like I said, ended at 4.1 billion.

It's also going down, it's going down compared to the peak years, but I think it's normal and in a way healthy as well, like we were saying in 2021 or 2022, that the backlog was so high that our delivery times were getting too long. So now slowly, we are getting back to more normal backlog levels.

Backlog level when it was a 3.3 billion we were very happy. Of course, thereafter we have merged with Neles, so it has an impact on that but 4.1 is still a good level of backlog.

And then also now we have included the number telling that about 30% of backlog is expected to be realized as net sales during 2023. Last year, the same percentage was a 30%.

So before this, we haven't actually announced during the quarter three public announcement, the percentages, so no we are doing it to help you to make good analysis of our expected EBITDA for this year and for coming year. Then some words about segments and business lines, first, services.

So Katri will go through the quarterly numbers later and I'll focus on the year-to-date number. So year-to-date, services is still in growth mode 1%, but with more than 1%.

So, cumulative order intake was 1.356 billion, so we are still on growth mode. LTM is now a little bit less than 1.8 billion, so 1.774 billion.

Net sales has been growing as well, nicely. So net sales ended up in 1.275 millions and so we still are getting orders more than what we are recognizing in revenue.

What we all are very happy with is that our profitability has improved a lot, almost 3% in one year or in the beginning of this year compared to total last year. So last year, our EBITDA margin was 14.8% and now it's 17.7%.

So, Aki, who is heading the services and areas together have been doing very good work and our EBITDA is now 221 million in first nine months, good development here. To the outlook, I come later back in my last slide.

Automaton segment, so here of course, we're not comparing apples-to-apples because in 2022 Flow Controls joined us in after the first quarter but order intake has been a little bit over 1 billion, LTM 1.3 billion, a little bit more than 1.3 billion, net sales 953 and LTM little bit over 1.3 billion. So quite steady situation now both in order intake and net sales.

We are of course very happy that usually profitability has been improving in last quarter, and now our LTM, so LTM -- quarter three LTM is already about the last year, the whole year, so 18.7%, so good development here as well. And LTM, last nine months EBITDA has been improving nicely as well, so we have generated 169 million EBITDA from our automation segment.

So we are happy with automation segment performance in first nine months. In flow controls, order intake for the first nine months has been growing from last year, so it's now at 613 million, and LTM is now at 802 million, so at good level compared to last year.

Net sales has been increasing as well, so we have been getting more products and valves out from the factories, which is good. So now LTM is at 773 million and first nine months have been 581 million, so good development in flow controls as well.

And the integration and development has been proceeding well, like we have been earlier saying as well. So we are happy with the flow controls development Automation systems grew [Phonetic] as well in the first nine months, so order intake ended up at 408 million and LTM is now a little bit less than 550 million, so good development in order intake.

Net sales has been growing as well. LTM is at par with order intake and the first three quarters have resulted in a 372 million net sales.

So, good and steady development for the first nine months as well in automation systems and, like I said, Katri will comment more about the quarterly numbers later on. In process technologies, it's easier or more granular to explain by the business lines but now our order intake is a little bit less than 2 billion in LTM and we are now at the level where we were 2018, 2019 and 2020 roughly.

So the extremely good years 2021 and 2022 are now behind us and now the LTM is around 2 billion. First nine months order intake has been 1.4 billion, so about 300 million less than a year ago.

Net sales, the other way around, has continued to develop well, so of course we are now recognizing revenue from the peak order intake years 2021 or 2022, so net sales LTM is almost at 2.5 billion Euros and net sales in first nine months has been about 1.8 billion. Comparable EBITDA is now 4.9%.

So like I said, we had very good year 2021, 8.1%, then we had challenges starting and EBITDA dropped to 6% and now it's at 4.9% and we have still the same reasons though. So we have some challenges in selected pulp and energy projects which are impacting our profitability.

Pulp and energy business line order intake in first three quarters 626 million, down by 160 million -- 170 [Phonetic] million compared to last year and now our LTM is at 900 million euro level. So 900 million euro level we have had earlier, like in 2020, 2017 was even below 700 and 2015 and 2016 were at the same pace.

So we have been here as well -- earlier as well, and we have to remember that we have been very, very conscious on managing our cost level, we call it capacity cost, in pulp and energy, and we have been preparing ourselves for this kind of situation that order intake is going down so we can use less outsourcing capacity in manufacturing, in engineering, and then of course, we have other flexibility methods to be used as well. Net sales is now about almost 1.1 billion like it has been last year as well on LTM and the first three quarters almost 800 million.

Then paper business line order intake has been almost 800 million in first three quarters. Last year it was 120 million more but we have to remember that when we looked at the chart that the business line had volume about 700 million in the order intake for three years, then it jumped to 1 billion and we were very happy with that 1 billion euro level.

Then it went up to 1.6 billion and then we continued to say that the market is good because we have only weak, satisfactory and good as describing words. Then order intake dropped 1.3 billion and it was at good level and now LTM is at 1.1 billion euro level.

So we have a little bit challenge in describing the market verbally in very good way but this 1 billion euro level in paper business line is a good level. Net sales has been the same as in process technology and in pulp and entity as well that now we are recognizing the revenue from the peak order intake years and that's why the order intake is now at 1.4 billion euro level in LTL.

But I'm happy also with paper business line order index, so nothing dramatic here. Then some words about the climate program.

So we launched a climate program a couple of years back, and we set ourselves target to reduce emission in our supply chain by 20%, in our own operation by 80%, and new space by 20% and to provide customers with 100% possibility for 100% carbon neutral production processes in pulp and paper industry. Now we have been of course, working with customer, with our suppliers, we have now 45 customers who are engaged in our program.

In our own operation, we are more and more buying Co2 free electricity, and we are replacing fossil fuels in locations where it's possible and so on, so we are working on that topic. We of course continuously work on the Cco2 emissions and energy consumption in our product offering and that's well on its way.

And the big thing is that this year, we have launched that we can provide our customers with processes for pulp and paper industry. So, pulp and paper, bio-energy, tissue, so that they're saying Co2 neutral.

Of course, it's depending on the electricity what they are buying, but we have no possibility to deliver to our customers technologies, which are Co2 neutral. That's, of course very big achievement.

So now on top of the order intake discussion, it's good to remind that something else needs to be done as well at the same time. Good.

So now it's Katri’s turn to go to highlights of financial development.

Thank you, Pasi, and good afternoon to everybody. Good to be here today and I will walk through the financial highlights as Pasi said in the next slides.

Order intake was 980 million for the quarter that was 17% lower than the comparison quarter. However, when we look at the full year numbers, order intake was 3.8 billion, which is flat compared to last year.

Order backlog was still on good level 4.1 billion, and the net sales was 1.3 billion for the quarter and that was 1% higher than last year. Year-to-date, net sales is slightly over 4 billion and 14% ahead of last year.

Comparable EBITDA was 150 million for the quarter or 11.6% and actually, this was our record Q3 so far, and we are very pleased with that. Year-to-date, comparable EBITDA is 437 million or 10.8% and when we compared to last year, we are 1.3 percentage points ahead, so we can clearly see development here as well.

Adjusted earnings per share was 52 cents for the quarter, that was 3% higher even if comparable EBITDA increased 11%. And here, the reason is coming from the increased financial expenses.

And I will come back to the balance sheet a little bit later in my presentation. Few words also about the segment numbers starting from the order, so as you can see from the chart, so orders received decreased in all of the segments in Q3.

Services was 349 million, that was 18% lower and if we take FX impact out, the change was minus 13%. Year-to-date, services is close to 1.4 billion and that is 1% ahead of last year.

Automation order intake was 289 million for the quarter, so that was 6% lower than last year. However, if we take the FX impact out, the change was minus 1%.

And the year-to-date automation is slightly over 1 billion in terms of orders. And good to remember that flow control was in our numbers since Q2 last year.

Process technologies was 343 million for the quarter and year-to-date process tech was at the level of 1.4 billion and 17% behind last year. Moving on to the net sales, so when you look at the quarterly numbers, so net sales increased into stable businesses both in services as well as in automation, but it was 9% lower in process technologies.

For the full year, Pasi already went through the numbers, but services was close to 1.3 billion, 16% ahead, automation 953 and process technologies 1.8 billion and 3% ahead. Margin wise, Q3 margins improved in the stable businesses, both in services and automation and services was 18.4% and automation was 18.7%, so very good development there.

Process technologies was 4.5% for the quarter. And for the year-to-date, numbers, services was now at the level of 17.3% and automation was 17.7%, and both stable businesses have been supporting -- the profitability has been supported by of course group development in the volume.

And process Technologies was 4.7% and that was 1.4 percentage points lower than last year. And all-in-all, as I said, good quarter, 11.6%, and year-to-date, we were at 10.8% and our target is to be between 12% to 14%.

Comparable gross profit that was 25.9% for the Q3 and stable business was 57% of the volume. And when we look at the last 12 months numbers, gross profit was 1.4 billion or 26%.

Comparable SG&A was 894 million or 16%, so no big changes here. Cash flow was 57 million for the quarter and when we look at the last 12 months numbers, it was 215 million.

Net working capital was 55 million for the quarter and their net working capital has increased compared to last year, the increase has happened in process technologies as well as in the stable business. And good to remember here that our business mix nowadays contains much more stable business which ties up net working capital.

Net debt, no big changes here compared to the second quarter. Net debt was 531 million and gearing was 21%.

Net debt-to-EBITDA ratio was 0.74 and the average interest rate of our total debt was 3.6% at the end of Q3 and that was on the same level then in the second quarter. And maybe good to mention also that the financial expenses were 7 million for the quarter and year-to-date minus 19 million.

Capital employed 3.5 billion for Q3 and comparable return on capital employed was 16%. And adjusted earnings per share increased to EUR2.43.

That was the financials and I will give the floor back to Pasi. Thank you

So now it's time for guidance and short-term market outlook. So, first of all, first the guidance, so Valmet estimates that net sales in 2023 will increase in comparison with 2022 and comparable EBITDA in 2023 will increase in comparison with 2022, so no change in our guidance.

Short-term market outlook, and like you remember, we try to assess here both our capacity utilization and customer activity, 50:50. First if we start from services, so here like said, we are still in growth mode after the third quarter and year-to-date numbers, which means of course that our capacity utilization is good.

Then last quarter water intake was what Katri said and that has been -- we saw that and that's why we have been reducing already in -- of the second quarter the market activity to satisfactory level. Now, like said earlier, there is of course customer activity and we start to see signs of activity improvement in North America and China.

And it's of course, very important if North America which is big, big market and big, big economy, when we start to see more activity there and it's also promising that we start to see more activity in China as well, because that would of course generally mean that there's more activity in world economy. So, some positive signs now in our customer activity.

In flow controls, market continues to be good, like you saw in order intake cumulatively, automation systems, LTM was at 400 -- between 540 and 550 million euro. Third quarter was not strong but there are always quarterly variations.

And automation system management continues to push a lot for order intake and continues to target the crowd also in this year in order intake. In pulp, we have good reasons to keep the outlook as satisfactory.

Like we have been saying earlier, we are not seeing that there will be mega mill [Phonetic] decisions coming soon. We are talking with customers about mega mill projects in different parts of the world, and they will come but not in near future, but we are of course in discussions about them.

And meanwhile, we are of course focusing on small to medium sized prototypes and we work all the time with customers and customers are having investments in more small-to-medium size prototypes, so we continue to be active there. In energy, the market outlook has been good and order intake has been good, so no reason to change that.

Then board and paper is more challenging from communication perspective. So like you saw our order intake is for the whole paper business line is at 800 million and it's at the good level, but with the satisfactory, we wanted to signal to you that this 1.61 billion, 1.3 billion euro level is not continuing but 800 million in order intake for the whole business line in first three months is a good level.

And then in tissue, we continue to have the same outlook so the market outlook has been satisfactory for a while and it continues to be so. So the one where we have difficulties with communication is board and paper because one could of course think that some have been thinking that with this satisfactory we mean that order intake will drop at the 700 million euro level and like you have seen, our order intake in first nine months have been already 800 million.

So a little bit longer explanation this time, but sometimes it's challenging to describe the market with three words only. So thank you and now I assume that Pekka will let some of you to make some questions.

Yes, thank you, Pasi. And Katri, I also ask you to now join Pasi here to the front and we will then move on to the Q&A session.

So operator I hand over to you.

Hi guys, it's Antti from SEB. A couple of questions from me, one by one, and I'll start with the services and the order growth or order decline of 13% on Q3.

So could you provide a bit more color on how did you see activity developing for shutdown services, parts and consumables? And also you mentioned that North America and China, there are some positive science.

How about Europe, is that still weakening or, let's say, stabilizing on a lower level? Thank you

No. Katri can help me later on but I’ll start.

Europe, year-to-date numbers is still crawled [Phonetic]. Europe is typical case that our beginning of the year was good, second quarter was also good and third quarter was weak, and now you all have seen the results of some of our big customers, so production rates in Europe haven't been that high and that has been impacting our order intake in Europe.

Business unit wise, spare parts, performance parts has been at last year's level, there has been crawled in pulp and energy, pulp and energy solutions, and then Katri, you have to help me

The rest of the businesses have decreased.

Have been decreed.

Exactly.

Yes. Did I answer to your question?

Yeah, almost. I was thinking that kind of sequentially compared to Q2, I mean Q2 was a bit down as well.

This was more down, so I don't know. Is there are any positive signs on Europe, if we go into Q4 that it's not declining further, it's stabilizing, anything you want to comment on that part?

I don't want to comment on that one. It's too early to say and then I wanted to comment specifically that we have started to see some positive signs in China and North America.

The rest, I wouldn't like to comment.

How do you feel about kind of offering of that, let's say, counter cyclical things like shut down services and things like that, that could hold up better or even improve when clients are taking downtime? Has it been weaker than expected?

It was weaker than expected in the beginning of the year in paper and tissue -- board and tissue side, and the pulp and energy was actually more active than normally. And now I think the situation has been balancing, so board and tissue solution business has been coming back and then pulp and energy solution business hasn't been as active as it has been in the beginning of the year.

And then our sales force has been quite successful with performance parts, so I'm happy that that has been holding reasonably well.

Okay, then, maybe on the process tech side and the profitability, and it's still slightly trending downwards, but it has been around that 4% or 5% level now for, I guess, six quarters. How has to work with the legacy low margin pulp and energy project progress during, let's say, first three quarters, during Q3?

Where are we now with those ones?

It has been progressing and, of course, the project which we took before the COVID, they are getting now older and older, which means that there's less and less to be recognized. So it's proceeding according to times schedules of the project.

Do you want to, Katri, add something on that?

No, as I said that, of course, we’ll try to improve the profitability as soon as possible. That's what we have also said in the past.

What I mean -- I guess you have commented that usually projects have most kind of a revenue recognition in the middle and now it seems that just based on what the margin was that you're still kind of in the middle of those revenue recognitions that the impact out of those is not going down, if we look at the performance. So is that a fair contribution that there's still quite a lot of work related to those ongoing?

I think it's probably just fair to say that the profitability in the process technology can also vary between the quarter, so it's always the mix what is the revenue recognition. So I think in general, that's it.

And then the more detail answer would call to the interesting discussion about book revenue and margin recognition.

Yeah, I guess also when you do expect those projects to be behind you, but I'm not expecting a firm answer on that one.

Your assumption was good.

Right. Okay.

Last one for me would be on cash flow and working capital and I understand kind of the business mix impact with more stable business now, but what has been kind of happening with working capital within stable business and within process tech and when and if should we kind of expect improving cash conversion?

Okay. So first of all, of course, the development has been in such a favor that net working capital has increased, so it’s now plus 55 and the change was minus 85 in Q3, and inventories have continued to increase, that's the Reason.

And we have a high focus on the topic, so we are working on it. Of course, it takes some time.

We have to go through everything that where we can reduce kind of the safety stock levels, but at the same time the portion of stable business has increased. And as you know, the prepayments on the capital side, they can have a significant impact on the net working capital but I would say that at the moment, the focus is on the inventories.

Receivable collection is on record level as well as payable, so not nothing special there.

And you are very much focused on this topic, so like we were saying earlier, it was a little bit difficult to challenge the organization with the inventory levels when there were a lot of difficulties just to get the goods and products from sub-suppliers. And now when the delivery times are getting more normal, then of course, we have to work hard on getting -- to get back to the levels where we were earlier and Katri is very actively working on that topic.

But I guess also within PT, the impact is less advances and higher inventories that are kind of the key issues that you're dealing with?

Actually on the process technology side, the inventory, they are not increasing that much because the work in progress, we are doing the cost-to-cost revenue recognition. So I would say that the inventory is more on the stable side.

But as you said, the advanced payments, they make a difference there.

All right, I will get back to queue. Thank you.

Thank you.

Good afternoon, and thanks for taking my questions. Probably the first one I had was just -- when you said the signs of activity improvement in the US and China, was that just referring to services or do you also see that in parts of the capital equipment side?

That comment was in services and then generally the -- for example, Chinese market has been quite good, so we just announced nice order even today for container port, and some of the tissue machine lines, actually. But the comment was for services, but China has been good also from capital perspective.

Okay. Clear.

And what I was also wondering on the Q3 development, also when we look at it sequentially, I mean, it strikes me also with a few other companies that now after four years, we have seasonality coming back and the Q3 was also maybe seasonally more impacted than in the last couple of years. Would you confirm that also from your side that this might have not only been the weak market, but have some seasonality element this year?

I haven't had time to read what the other companies have been saying but I think there has been some reaction from our customers’ side. If you remember what the customers were saying after first quarter, they were telling that challenge is the destocking that's happening and then quarter three will be normal quarter again.

And now when listening our customers’ quarterly calls, they are now saying that they start to see the market to improve and because there has been delay on that improvement, they have been a little bit tougher with the maintenance pending and the machines have been not running at the speed with they were running early, which has impacted our services.

I think you also mentioned that obviously the decisions on the capital equipment side and pulp has been -- they are projects but they are delayed. Do you think we’re talking here about delays until further notice or really a bit further out or how should we think about those principles [Phonetic]?

I think while I haven't said that there have been delays in pulps, I think I've been saying that postponements has been more on board side and tissue side. In pump, customers who have plans to invest in new meal studies, customers continue and the customers who have the plans, they have actually also publicly said when they would go ahead but our tradition is not to tell the amount, so you can check it from their IR pages, but the big pulp project development continues like planned currently.

There's no big --

Sorry. But in those positions on the board and on the tissue side that are being postponed, do we have to expect longer postponement or who should we think about that?

No, our order intake in the first three quarters has been 800 million roughly, so quite good market activity. We have a lot of discussions ongoing, but then when they will materializes orders, they can pay quarterly variation, but still it's so that our customers believe in long run to the benefit of bio-based packaging and bio-based materials compared to plastic, so that hasn't gone anywhere.

It hasn't gone anywhere that people are moving more and more to the cities, and they need more packaging materials. Standard of living globally is going up.

So the mega trends are still favoring the investments of our customers to renewable packaging materials.

The final question I had was just on pricing. I mean, obviously, we're the markets weak like us [Phonetic], do you see any more price aggression from your competitors or is pricing still behaving out there?

Well, we had tough competition all the times, also during the booming year. So that continues like normally, and we have to work hard on making sure that our cost base is competitive, both in process technology and services, flow controls and automation systems.

So, no big changes in that normal competitive environment.

Thank you, Pasi.

Thank you, Sven.

Thank you. Thanks for taking the questions and good afternoon, everybody.

Just a couple of questions here. Firstly, in terms of the market outlook, just wondering how we should read that statements.

If you take the service segment as an example, you had orders of around 350, down by about 18% year-over-year, and the market is seen as good to satisfactory. So is this absolute level a good approximation going forward as well or how should we read that?

First of all, it's the combination of our workload and then market activity. And there we are saying good and satisfactory, so we have order intake year-to-date, still at last year's level.

So our people are very busy with deliveries currently. Then, like I said, our year-to-date order intake is still at 1% improvement, so, from that perspective, we could keep good outlook.

But we -- of course, the fact is that third quarter was not as good as last year, and there was a drop compared to last year and that's why we haven't changed the outlook on market activity satisfaction.

Okay. And just to continue on the service business, as you mentioned in your presentation, quite a good improvement in the margins for the service business.

What would you say are the key building blocks to continue to improve from here?

The same as up to now. So, of course, the improvement in one year is more than we have ever had, so then we have to go back to the history and 1% improvement is good improvement.

Then we were delayed with our price increases, so last year profitability was dropping even if the market was good. So that was not good performance and now we have been catching it up and that's why the improvement is now bigger, so bigger than it should have been in a year.

So we should have had better profitability already a year ago and now the profitability of what we have. So Valmet is targeting 12 to 14 in EBITDA and, of course, to achieve that we need to improve in all the businesses and it includes services as well.

So the normal thing is trying to push the service prices up, of course, customers are working to the other direction. And then we have to invent new products, which are much more cost competitive and new services with which are more cost competitive.

And then we have to be very careful with our costs, both in costs, which are included in the deliveries, and then with other indirect costs and SG&A. So our target is, of course, to continue to improve the services profitability even further.

Okay. Just a brief follow up on that.

If you look at the order in-take for service and the year-over-year development in Q3, how much of that -- what kind of a pricing impact did you have in that numbers? Is that something that you can quantify?

Last year we gave -- and that's very good question. So Katri has an answer.

When you look at last year, of course, the comparison year is the development was really good. So actually, our orders for the fall last year increased 13% and we have said that roughly half of that number was coming from the inflation and half from the increase.

So when you're comparing against last year's quarters, and especially Q3, the price increases were already in the bookings.

Okay. So basically not much of a year-over-year impact there?

I assume. Okay, good.

Thank you.

Thank you.

Thank you.

Hi, Pekka. Hi, Katri and hi, Pasi.

It's Johan from Kepler Cheuvreux here. I was wondering a little bit about the comments you made on pulp that it seems like the pipeline is developing according to plan.

I remember you sort of indicated in the Q2 call this summer that potentially there could be the borders returning already in 2024? Is that sort of still -- as you say, this is still according to plan of what one could potentially expect?

So now I have to -- you might remember better what I said that customers are planning especially in Latin America, sample pulp projects, and you can check the time schedule from their web pages, and there haven't been any changes on those ones. But sorry, if I haven't been clear enough.

No, that's fine. And in terms of their planning and your participation, I mean, you have indicated that you have been losing a bit share in the pulp side over the past decade.

Are you are you aiming at regaining some share here in any decisive way? Anything you could shed on how you think your market share look [Phonetic] going forward there?

Yes. And then we just started up one new pulp mill here in Finland, one month ago together with Metsa fiber.

So from there, we work very good reference and then when we have -- it will be the biggest softwood pulp mill in the world, so that of course tell us that we are tough in the competition. Currently, we are making very big rebuild of the pulp mill in South America for hardwood, and earlier, that was our mill as well and that continues to be our mill as well.

So our reference base is in good shape and our organization in South America is in good shape to deliver total pulp mill. So when the next competition comes, we are eager to participate.

Okay, good. Then I have a question a little bit on the process tech margin overall sort of.

We've seen this margin declining and it's been explained by these mismatch between pricing and then the actual cost inflation you certainly experienced in the orders you took in pulp and energy. Now, I assume that that negative mix will go away as you deliver on the existing orders.

But at the same time, obviously, as you pointed out, your rolling order intake has dropped to around 2 billion level from the peak of 2.8 billion whereas your sales have been growing now to 2.5 billion, so that sort of points to that there will be a lower volume rollout going forward as well. How should we think about these diverging forces?

Can you still improve your margin when volumes are falling because of these bad projects falling away or should we at best assume that it can stay at this 5% level that you're right now? Or is the volume decline significantly more important for your margin than these bad projects that you will eventually get rid of, so to say?

Any directional views here?

So it's very difficult to answer precisely without giving direct guidance for profitability of segments. So, in our Capital Markets Days presentation, we have described what's our capacity cost against the net sales and how it has been developing over the years.

And roughly 20% of pulp and energy is -- 20% of net sales of pulp and energy is our capital cost, which then means that of course that when the volume goes down, then we have to be very careful that we are not using external resources to anything we vote for, we can use the internal resources and that work is of course ongoing. And then we have to be very precise also with our SG&A cost in the same segment.

And with those actions, and then with the tradition that usually the small to medium sized projects are less risky and little bit more profitable than the big ones, then our target is, of course, to improve the profitability. And again, getting back to the same answer that when Valmet wants to raise 12 to 14, it cannot raise it if not all the businesses are improving a little bit.

But a little bit low volumes, of course, it's a challenge but that's our goal that we have to work towards the 12 to 14 points, not depending on the cycle.

Okay, excellent. Thank you very much.

Thank you, Johan.

Hi, Pasi, Katri and Pekka. It is Tomi from DNB.

A couple of questions, just out of interest, if you could provide some sort of early look into 2024. If you look at your main indicators, going into next year, is the order back declined sequentially sort of soft market conditions, creating worries on the next year's performance.

Are you preparing any adjustments on the cost side? What should we be thinking about going into next year?

Now, if I start from the flexibility continue from what we discussed with you as well that, of course, we have flexibility items in our operational model. So we can use less sub-contracting in manufacturing, engineering and everything, so that gives us of course flexibility.

Then there are of course other ways to reduce the cost as well and, if needed, we are of course ready to do some other actions as well, if needed, but there the one has to be careful that a lot of better to keep the organization in very good shape, and continue to work on the resources and developing the business instead of reducing resources but, of course, that's one tool as well. Then for next year, it's a little bit too early to give any guidance.

We traditionally have been coming out with the guidance in January or in February for coming year, so it's a little bit too early to say. Of course, I'm sure that you have modeled in already the acquisitions what we have been announcing, so the closing of Körber is planned to happen in November and then closing of Siemens Gas Chromatography businesses is planned to happen in beginning of April, so that's of course something additional that's taking place in Valmet in coming four or five months.

That was another question. Thanks for that comment on the M&A.

Do you think -- have you seen any delay or any faster developments of all those timelines impacting?

The [Indiscernible] planning goes well with both, so we haven't seen any delays or speed ups in either of them. So the cooperation with Körber goes very well in regards to the Körber tissue and I've been myself visiting local many times and also some other local -- one other location, Tomi, and we are very eagerly waiting for the time when we can start to work together, getting very good quality from there and good operations.

And then in Siemens, it's a complex carve out first from Siemens and then integration back to us and that's why it takes a little bit time, but the atmosphere with the teams is good as well. And we are very eagerly waiting also to get more colleagues from Siemens [Indiscernible].

Great, thank you.

Thank you, Tomi.

Hi, I wanted to ask about automation business, so basically both automated systems and flow control. In automated systems, the orders turned to a year-on-year decline and slowed somewhat in flow control but the market outlook is unchanged as good.

So could you talk about what are you seeing? What are your expectations for demand going forward, if you think about your sales pipeline and your end market, in both of these businesses?

Quarter three was a little bit weaker in both of the businesses, but we have good capacity utilization and we still have many projects and many services to be won. And we have confident business line heads on both of the businesses, so that's why we kept outlook as good.

Can I continue on to automated systems, I mean, how much of that business goes to the larger part of paper projects and how much is something that’s replacement or?

It has been varying, so, at the lowest it has been 10% of the order intake when even maybe nearly about 10% when we required systems business and now it has been growing up and if I remember correctly, it has been even up to 8 million in last year roughly, don’t take this as an exact number. And now of course, when the capital business is not as active as it has been then of course it reduces the package sales.

And it means then that [Indiscernible] organization has to get more orders directly from end customers, so more pressure on that side and it's good. They have very good products and good sales network, so they are targeting to grow even if package sales would decline.

Okay, thank you.

Yeah, hi again. I thought it was interesting when you commented the acquisition here and I especially think Körber is -- Körber tissue is interesting because it's sort of the next steps after your tissue machines etc.

Are there significant more M&A to do sort of further downstream from your core technologies, whether it's in board or tissue or fine paper?

No, in tissue we have now – after the acquisition is closed, we have full offering. So then it's difficult to see any big moves anymore in this year.

And of course, I'm very happy that in this year we are getting the market leader and we are market leader, so as combined, we are of course of course good supplier to our customers and we have good news network together and a lot of connections to cash customer together to help them. Then in packaging side it's -- we have analyzed but up to now we haven't ended up in any serious discussion.

So we have to analyze it further. We have been focusing quite much on this corporate issue and we finally got it.

So now of course, next step is that we integrate it will and it will take some time and day after we start to think about next actions.

But there are more that you could add from a technology point of view on the packaging side is that basically what you are saying?

It's a little bit different story. So, I wouldn't comment or wouldn't give any good comment on that yet.

It was clear that this tissue business more made sense and with the others, one has to analyze it more carefully.

Okay, thank you very much.

Thank you for the Q&A session then and the financial statements. Review release will be the next result publication of Valmet and that's going to take place on February 7, next year.

So thank you, Pasi and Katri, and thank you everybody for good questions and goodbye for now.

Thank you, Pekka.

Thank you.