Earnings call transcript: Valmet Q2 2025 sees growth in orders, new strategy

Valmet Oyj (NASDAQ:VALM) reported its second-quarter 2025 earnings, showcasing a strong increase in orders received but a decline in net sales. The company unveiled its "Lead the Way" strategy and a new operating model, aiming for significant cost savings. Trading at €27.35, InvestingPro analysis suggests the stock is currently undervalued, with a strong financial health score of GOOD. The company’s robust dividend history, having raised payouts for 11 consecutive years, underscores its commitment to shareholder returns.

Key Takeaways

• Orders received grew by 21% organically, reaching €1.5 billion.
• Net sales decreased by 6% to €1.2 billion.
• Comparable EBITDA margin improved to 11.5% from 10.6%.
• New "Lead the Way" strategy and operating model introduced.
• Estimated annual cost savings of €80 million from restructuring.

Company Performance

Valmet’s performance in Q2 2025 was marked by a substantial increase in orders, reflecting strong demand for its offerings. The company’s strategic focus on biomaterials and process performance solutions appears to be paying off, as evidenced by the growth in its order backlog to €4.7 billion, a 20% increase from the previous year. However, net sales experienced a decline, which the company attributes to market conditions and strategic shifts.

Financial Highlights

• Revenue: €1.2 billion, a 6% decline year-over-year.
• Comparable EBITDA: €143 million, flat compared to last year.
• Comparable EBITDA margin: 11.5%, up from 10.6%.

- Cash flow from operating activities: €79 million, down from €128 million.

According to InvestingPro data, Valmet maintains a healthy financial position with a moderate debt level and strong cash generation, evidenced by a free cash flow yield of 10%. The company’s Altman Z-Score of 6.0 indicates robust financial stability. For deeper insights into Valmet’s financial health and 8 additional exclusive ProTips, consider exploring InvestingPro’s comprehensive analysis tools.

Outlook & Guidance

Valmet’s guidance for the full year 2025 suggests that net sales and comparable EBITDA will remain at the previous year’s levels. The company is targeting a 5% organic growth rate and a 15% EBITDA margin by 2030. With a current P/E ratio of 19.65 and a gross profit margin of 28.92%, InvestingPro analysis reveals strong fundamentals supporting these targets. Discover comprehensive valuation metrics and expert insights through InvestingPro’s detailed research reports, available for over 1,400 stocks including Valmet. Additionally, Valmet aims to increase its market share from 21% to 25% by the end of the decade.

Executive Commentary

CEO Thomas Hinnerskov emphasized the company’s commitment to transforming industries towards a regenerative future. He stated, "Our new strategy is more focused, bolder, and more executable," highlighting confidence in Valmet’s strategic direction and execution capabilities.

Risks and Challenges

• Market uncertainties and geopolitical challenges could impact future performance.
• Supply chain disruptions may affect operational efficiency.
• The cautious environment in biomaterial services could slow growth.
• Achieving cost savings targets depends on successful implementation of restructuring plans.

Q&A

During the earnings call, analysts inquired about potential South American pulp projects and the service business mix. Valmet’s management addressed concerns about cost-saving strategies and potential pricing impacts, providing clarity on their approach to navigating market uncertainties.

Valmet’s strategic initiatives and strong order growth position it well for future success, although challenges remain in achieving its ambitious targets. The company’s return on invested capital of 10% and five-year revenue CAGR of 9% demonstrate its operational efficiency and consistent growth trajectory.

Full transcript - Valmet Oyj (VALMT) Q2 2025:

Pekka Rouhiainen, Investor Relations, Valmet: Good morning and welcome to Valmet’s second quarter 2025 result publication and webcast. Valmet’s second quarter highlight was definitely the capital markets day in which we launched our new strategy and 2030 financial targets. We were delighted to see a full room attending in Tampere in our event and over 1,000 people through the live webcast as well. Thank you again for the participation everybody and for the good discussions. Operationally, Valmet’s second quarter highlight was the strong organic growth in orders received. I’m Pekka Rouhiainen from IR and with me today are Thomas Hinnerskov, President and CEO, as well as Katri Hokkanen, CFO. Today, Thomas will first go through the highlights of the quarter and discuss some key topics of the new strategy.

After that, Katri will go through the financial development in more detail, also from the perspective of our new segments, and Thomas will then conclude on the guidance and short term market outlook. It’s worth mentioning that this quarter is a bit special in terms of our financial reporting as both the kind of the old and the new reporting segments will be visible in the presentation. We have tried to ensure that the reporting is easy to follow also during this transitional quarter, let’s say. With that I hand over to the presenters. Thomas, the floor is yours.

Thomas Hinnerskov, President and CEO, Valmet: Thank you very much, Pekka. Yes, let’s go through and look at the second quarter highlights. Clearly, as Pekka mentioned, the launch of our new strategy Lead the Way and our ambitious 2030 financial targets at our capital markets day back in Tampere definitely were a highlight of this quarter. A major milestone was also the implementation of our new operating model that went live here on July 1. A lot of work gone in during Q2, designing and implementing that. It simplifies our structure, reinforces local accountability, and enables faster decision making. Key point in preparing us for the strategy execution phase that we now enter into. Going forward, we will operate through two segments, each with a distinct strategic mission and aligned financial reporting. The segments are Biomaterial Solutions and Services and Process Performance Solutions.

Like Pekka said, our Q2 numbers are already reported aligned with the new operating model, and we will be discussing the development from that standpoint in this presentation, together of course with the previous segment structure as well. Operationally, second quarter was strong in terms of orders received. Like Pekka said, comparable EBITDA margin increased 90 basis points. Very happy with that. Net sales decreased and therefore comparable EBITDA stayed flat. Customer activity overall remains stable quarter on quarter, more or less in line with our early expectation, and we’ll get back to that a bit later in this presentation as well. Automation segment, the new Process Performance Solutions segment, delivered across the board both in orders, net sales, profitability, all KPIs pointing in the right direction, and we were pleased to see another strong quarter, especially after a good Q1.

Process Technology and Service segment, which is now combined into our new operating model into the Biomaterial Solutions and Services segment. This segment will provide integrated expertise and services and technology across the whole lifecycle. Like we talked a lot about back in the capital markets day, the new biomaterial segment achieved strong growth in orders, including a 10% organic growth in or increase in the service order. However, on the flip side, the profitability in Process Technology declined due to lower net sales. Let’s take a closer look at the orders received. Orders grew to €1.5 billion in Q2, which translated into 21% organic growth without FX or M&A impact. Last 12 months orders intake was €6.3 billion.

Of course, supported by the large pulp mill order that we received and reported back in Q4 last year, orders grew 11% organically in process performance solutions, a very good achievement in the current macroeconomic environment and I think another sign of our strong position in that market. Biomaterial solutions and services also grew very nicely in the capital side. We won several mid-sized orders during the quarter and also the biomaterial services grew 10% organically. Our strategic mission in our new biomaterial solutions and services segment is advancing circularity. Here on the slide we have two Q2 customer cases which bring that mission truly to life. We secured two similar bio-based combined heat and power plants, one in Sweden with Kraftringen and another one in Spain with Saica Group. Both include Valmet’s boiler islands, flue gas cleaning system, and our future-ready design features.

Good to ask, so why did we win these customers? Both customers highlighted the energy certainty as well as a key priority and chose Valmet based on our strong track record in delivering reliable large-scale energy infrastructure. These orders I would say are also a strong endorsement of our pulp, energy, and circularity business area and basically our strategy in action. What makes these deliveries especially relevant is their future readiness. This is also something we discussed when a few weeks ago we visited Saica and was actually on the site where this biomass boiler is going to be put up. Both systems are carbon capture ready with design features that allow a seamless integration of carbon capture technology later on. This means that the customers aren’t just complying with today’s standard. They’re investing into a flexible long-term solution for a low-carbon future.

Great example of how we combine immediate environmental performance with a lifecycle adaptability. I just want to thank both customers for choosing Valmet and looking forward to the future partnership there. Now let’s turn to the bigger picture. Our new Lead the Way strategy and our ambitious 2030 financial target. As you know, we introduced our renewed strategy at the Capital Markets Day in June at Tampere and it clearly builds on Valmet’s core strength, but it also raises the bar for the next phase value creation. Really putting it up there. Let’s briefly recap on the strategic direction. Our new strategy Lead the Way is guided by a clear new purpose to transform industries towards a regenerative tomorrow.

This means reusing raw materials smarter and using less raw material, something we enable through two focused missions: the advanced circularity in biomaterial solutions and services, which we just talked about, two customer cases on, and then unlocking resource efficiency in the process performance solution. These priorities already are shaping how we work with customers, how we innovate, and also how we allocate resources into the business. Personally, I’ve had the opportunity to meet several customers both here in Europe and also in North America since the strategy launch, and the feedback has been really encouraging, I have to say. Our purpose to transform industries towards a regenerative tomorrow, lifecycle approach, the co-creation with customers have all resonated very well with our customers. We also updated the 2030 financial targets that we first shared at Capital Markets Day. As you recall, we’re clearly raising the bar compared to previously.

Now we aim to deliver 5% organic growth across the cycle, 15% comparable EBITDA, and 20% return on capital employed, and also adding a balance sheet target with having a gearing below 50%. Why are we confident that we can achieve these targets? As I said at the Capital Markets Day, it starts with our new Lead the Way strategy. It is more focused, it is bolder, it is more executable than before because we got fewer but bigger initiatives. We are building on strong fundamentals. Many of you actually saw that in action in Tampere, and we already have implemented the new operating model that went live July 1, which is also a key milestone in getting to the execution of the new strategy. These are solid foundations that give us confidence in our direction and our ability to deliver on these ambitions.

Furthermore, I would say these targets are already being used internally as part of the discussion about future initiatives. When I talk with the organization, I can always say, how’s that going to bring us closer to 5 plus 15 equals 20, and really easy to remember also for the organization and therefore easy to implement into the organization as well. I’m very happy with those. Let’s now focus on one of the key investor questions after the Capital Markets Day. How will Valmet accelerate service growth in the biomaterial? Basically doubling it compared to what we’ve seen historically. One of the things is of course as we said also earlier, we’re going to increase our market share from the current 21% to 25% by 2030. That will drive growth. This is not just an ambition. We have a clear five lever plan to deliver on it.

First and foremost, lifecycle approach. We’re embedding services earlier in capital projects, not just as an afterthought, but clearly built-in part of the everyday delivery or every delivery. We are making this ensure that we monetize the installed base more. We’re consistently with a strong service relationship that begins already sort of day one and then takes it into the next couple of decades. We’re focusing our investment, we’re directing investment to high potential categories and regions. We’ve pinpointed high potential opportunities in selected product categories and also regions during the strategy phase that we just went through. By investing in these areas, we aim to unlock significant growth but also strengthening our market position and drive sustainable long-term growth within the service business. One example of this investment we’ve done, for example, in Macal in India.

We strengthen our capabilities in cost competitive sourcing, consumables, spare parts manufacturing, but also adds to our pre-assembly capacity for our capital projects and that then support our growth ambition, cost competitiveness, and our ability to deliver and manage during these geopolitical risk situations that we are facing right now more effectively. Cost competitiveness through our new global supply unit, we’re driving more efficient sourcing, particularly in spare parts, but also in the consumables, our competitive edge and support profitable growth without sort of compromising on quality. Digital and data leverage. Clearly, we are an engineering company with lots of data. We have a strong installed base, one of the largest in the pulp and paper industry. That does give us a unique advantage.

We’re now putting that installed base, really well the data, to work, predicting maintenance needs, reducing lead time, and it’s improved the customer experience as well as increasing our own commercial effectiveness. Lastly, the fifth point, empowered frontline. This is a big ticket item, not to be underestimated. Our new operating model fosters closer collaboration, faster decision making because we take now complexity and a more direct approach. We’re decentralizing the authority to our service teams on the ground where the problems are, where the things need to be solved. It does enable faster decision making, faster quotation, stronger local accountability, and ownership. Clearly, this will help us capture more opportunities and deliver also more value to our customers without any bottlenecks. These are some of the highlights in our new strategy. I hope it clarifies a bit and also how we’re going to plan to grow the service.

Now I’ll hand over to Katri, and she’ll walk you through the financial performance of the second quarter.

Katri Hokkanen, CFO, Valmet: Thanks Thomas and thank you everyone in Valmet in my team for the efforts in the Q2 closing and also the renewal with the renewal of operating model. Good job done there. Let’s look at the financials next. As has been said already today, the highlight of the quarter was the strong order intake and the orders increased to $1.5 billion. Order backlog remained also solid, rising to $4.7 billion, and then net sales declined to $1.2 billion and this was below expectations, particularly in services, and this was partly due to the foreign exchange impact and timing and also in paper where the quarterly net sales were the lowest since pre-Covid and a disappointment. Also, it is typical that there are variations between the quarters based on the development on the projects. That’s fair to say. Comparable EBITDA remained flat year over year at $143 million.

However, the margin improved to 11.5% and that was driven by a higher share of automation segment in the sales mix and its improved profitability. Cash flow from operating activities decreased to $79 million and this was mainly due to a less favorable change in the net working capital compared to the same period last year. Comparable ROCE was 13.1% which was the same level than what we had in the first quarter this year. Adjusted EPS declined to $0.23 and this was primarily due to restructuring expenses which were related to the renewal of our operating model. It is very important to note that both reported and adjusted EPS include items affecting comparability. Let’s then take a closer look at the key financial figures for the second quarter and the first half of this year. Orders received increased by 19% year over year in the Q2 reaching $1.5 billion.

As said, and for the first half the increase was actually 22% totaling to close to $2.9 billion. Order backlog grew significantly and stood at $4.7 billion at the end of the quarter and it was 20% up from last year and this reflects the growth in orders received in 2025 and also the Arauco order from Q4 last year. Net sales declined by 6% in the second quarter and 4% in the first half and this was mainly due to the lower volume in services and process technologies. Comparable EBITDA was flat at $143 million in Q2 with a margin of 11.5% and it was up from the 10.6% last year and for the first half EBITDA was $265 million with a margin of 10.9%. EBITDA and operating profit declined and this was due to the restructuring costs.

EBITDA was €81 million in Q2, down by 39%, and operating profit was €57 million, down 45%. Items affecting comparability were €62 million, and they were mainly related to the operating model renewal. Cash flow from operating activities was €79 million in Q2, down from €128 million last year, but actually for the first half it is improved to €297 million compared to €267 million last year.

Thomas Hinnerskov, President and CEO, Valmet: Year.

Katri Hokkanen, CFO, Valmet: Our order backlog continued to grow and reached €4.7 billion at the end of the second quarter, and this is actually €259 million higher than at the end of last year. It is reflecting the strong order intake during the first half of this year. Approximately €2.3 billion of the backlog is currently expected to be delivered as net sales during the second half of this year. The revenue recognition from the big Arauco pulp project, which we sold last year, amounted to roughly €100 million in the first half, and this was mostly taking place in the second quarter. We expect roughly €200 million more to be booked as revenue this year for the project. I would say that this level of backlog provides very good visibility for the remainder of this year, and it supports our confidence to deliver in line with our full year guidance.

It is always good to remember that the timing of deliveries can vary somewhat between the quarters, but we expect that the full year net sales outcome is going to be consistent with our expectations. Cash flow from operating activities was €79 million in the second quarter, and this was clearly lower than in the comparison period when it was €128 million. The main reason for the decline was a less favorable change in the net working capital compared to last year. In the second quarter, the cash conversion ratio was 55%, and for the first half it was 112%. As we highlighted at our Capital Markets Day, Valmet has a strong track record of cash conversion, and typically we have been in the range of 90 to 100% over the longer term.

When it comes to net working capital, it stood at minus €139 million at the end of the second quarter. That equals minus 2% of the last 12 months’ orders received, and good to note that the figure includes a €123 million dividend liability. The first dividend installment was paid in April, and the second will be paid in October. CapEx in the quarter was €33 million. It was slightly higher than last year, but when we look at the year-to-date CapEx, it was at the same level. For the full year, this year we expect the CapEx to be in line with last year, meaning close to €110 million level. Net debt and gearing increased from the previous quarter, and this was mainly due to the dividend payment of €125 million in April.

At the end of the second quarter, net debt to EBITDA ratio was 1.60, and gearing stood at 42%, which remains well within our financial target of below 50%. Average interest rate of our total debt was 3.6% at the end of the quarter, down from 4% at the end of Q1 and 4.5% at the end of Q2 last year, and interest rates have gone down compared to last year. Also, our gross debt is lower than what we had a year ago. As a result, our Q2 interest expenses decreased year over year to €16 million, and we expect the coming quarters to be close to this level.

Capital employed decreased to €3.9 billion at the end of the second quarter, and it was down from €4.2 billion at the end of last year, meaning €285 million decrease, and the main drivers for the decrease were dividends and change in the interest-bearing liabilities and the fact that the net profit decreased mainly due to items affecting comparability. Katri also mentioned that we have repaid €127 million in loans during the first half, and FX translation differences had a negative impact on the equity, so these were only partially offset by the profit generated in the first half. Comparable ROCE for the last 12 months was 13.1%, and that was slightly below last year’s level, 13.6%, but stable when we compare it to the first quarter.

Adjusted earnings per share was €1.72 on last 12 months basis, and actually the decline from last year was mainly due to restructuring expenses related to the operating model renewal. Let’s then take a closer look at the segment structure we had in place in the second quarter, and actually all 3 segments, services, automation, and Process Technologies, showed growth in orders received. In comparable FX, the numbers were even a bit higher. In services, we saw continued strength with orders up by 7% and a solid comparable EBITDA margin of 18.1%. This is reflecting improved execution and commercial effectiveness in this business. Automation also delivered a very strong quarter with orders up by 7%, and comparable EBITDA margin rose to 17.8%, and that was supported by higher net sales.

However, in Process Technologies, while orders were increasing strongly, profitability declined, and this was due to lower net sales, and it resulted in a comparable EBITDA of just 1%. In the other, comparable EBITDA amounted to minus €10 million and year to date to minus €26 million, and the expenses in other have been roughly €50 million in the last year, and we expect similar or slightly higher level this year as well. Let’s now turn on to Valmet’s second quarter performance through the lens of our new operating reporting structure, and this became effective on July 1. As a reminder, we now operate through two reporting segments, Biomaterial Solutions and Services and Process Performance Solutions. In the second quarter, Biomaterial Solutions and Services was the larger of the two in terms of both orders received and net sales.

However, when looking at the comparable EBITDA there, the contribution was more evenly distributed between the two segments. This reflects the strong profitability of Process Performance Solutions despite its smaller top line. On the next slides, I will walk you through the performance of each segment in more detail. Starting with Biomaterial Solutions and Services, which is our largest segment in terms of orders and net sales, their orders received increased to €1.1 billion in the second quarter. This was supported by strong organic growth in services, particularly in mill improvements and field services, and several mid-sized capital orders, especially in tissue and energy. However, the net sales declined to €869 million, mainly due to lower volumes in the CapEx-driven business. As a result, comparable EBITDA decreased to €87 million and the margin was 10%. This is clearly below our long-term ambition.

As you may recall, at the Capital Markets Day we set a 14% comparable EBITDA margin target for this segment to be delivered by 2030. The key enabler for reaching that ambition is growing our market share, especially in services. As Thomas said, with the new strategy and lifecycle approach, this remains our top priority. As services continue to grow, we expect the margin improvement to follow over time as well. Turning then to Process Performance Solutions, the segment delivered a very strong performance in the second quarter. Orders received increased to €376 million with 11% organic growth. Growth was product-based, so 12% in automation solutions and 10% in flow control.

We also saw good momentum in analyzer products and integration business, or API as we call it, and that contributed to €37 million in the orders. Net sales grew to €372 million with 9% organic growth, driven especially by strong execution in automation solutions. Profitability was again a highlight. Comparable EBITDA increased to €66 million and the margin improved clearly to 17.8%. At our capital markets day we set an ambition for this segment to accelerate growth to more than double the market rate and to reach a 20% comparable EBITDA margin by 2030. Actually, this quarter’s performance shows that we are on the right track both in terms of growth and profitability. Good job done there as well. Let me now briefly touch on the progress of our new operating model renewal, which is of course a key enabler of our new strategy.

As you know, the new operating model became effective on July 1 and it is designed to simplify our structure, improve our global cost competitiveness, and reinforce local accountability. Renewal is progressing well. Change negotiations have been concluded in most countries covering over 90% of our white collar employees. The estimated annual cost savings from the new model are around €80 million with the full run rate expected by the beginning of 2026. In the second quarter we booked €61 million in restructuring and strategy renewal costs as items affecting comparability. Some savings will already start to materialize in the second half of this year, mostly in the fourth quarter. The transformation is well underway and it will support our strategic execution and financial performance going forward. With that I will now hand back to Thomas to conclude with the guidance and short term market outlook.

Thomas Hinnerskov, President and CEO, Valmet: Thanks Katri. Let’s wrap up the whole thing with our guidance for 2025 and then also the short-term market outlook as we see it right now. We are reiterating our full-year 2025 guidance, which was first issued back in February. We continue to expect, like Katri also said, that our net sales and also comparable EBITDA for the full year of 2025 will remain on the previous year’s level. Let’s now look at the short-term market outlook. If we start with the biomaterial solutions and services, we are seeing a slightly more cautious environment emerging. For biomaterial services, we estimate that the customer activity will decrease slightly. The main reason is the increased economic uncertainty, particularly related to the U.S. tariff situation, which clearly is weighing in on our customers’ sentiment. We’ve also seen some cautious comments from some of our customers.

While it’s important to remember that we serve hundreds of customers globally, these signals do add to the overall slightly more cautious tone. A specific area of concern is consumables and performance parts. After a very strong Q1, orders flattened in Q2, which saw the potential sign of reduced activities, especially in this part of the business. On a positive note, we did see a good development in mill improvement and field service, including a larger individual order. Overall, the slowing momentum in the transactional part of the service is something we’re watching carefully. In the CapEx-driven business, the picture is more stable overall. In tissue, the customer activity is relatively high, and we see good momentum continuing in this market. As you know, the market can be quite binary depending on when the big ticket items materialize.

Overall, it’s a mixed picture in biomaterials, with services softening, CapEx stable, and some areas of strength. That said, it is important to emphasize that the long-term growth prospect for biomaterial solutions and services does remain strong. We expect to see continued global growth in pulp demand, packaging board, and tissue consumption over the coming years, all of which will support our strategic direction and service growth ambition towards the 2030 goal. In process performance solutions, the outlook remains more stable. Q2 was again a strong quarter. We saw 12% organic growth in automation, like Katri said, and 10% in flow control, both contributing to the segment’s solid performance. We are staying alert to early signs in flow control. We’ve observed some signs of pre-buying in North America a bit ahead of the U.S. tariff decisions, which may impact order volumes in the coming quarters.

While the segment benefits from a broader industrial customer base, the global uncertainty and the still softness in the pulp and paper market, as discussed in the context of biomaterial services, are also relevant here. With that, I’ll be handing over to Pekka for Q and A.

Pekka Rouhiainen, Investor Relations, Valmet: Thank you, Thomas and Katri, for the presentations. We’ll now be moving on to Q and A. We will be taking questions over the phone lines and also the digital platform. Utilize either one of those. With that, I hand now over to the operator, please.

Speaker 5: If you wish to ask a question, please dial on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Sven Weier from UBS. Please go ahead.

Sven Weier, Analyst, UBS: Yeah, good morning and thanks for taking my questions and doing the call. I got two please. The first one is just on the top line guidance where you still guide flat. Was just wondering mechanically, you were like 4% behind in the first half. Your backlog for delivery is kind of flat against last year. Is that you expect to catch up from in for out orders in the second half or what’s driving that one? I’ll come then afterwards with the second question. Thank you.

Thomas Hinnerskov, President and CEO, Valmet: All right, thanks, Vin. Thanks for also joining the call. Good observation. Of course, we were slightly low in Q1 and also in Q2. We do still expect that if you look at our order backlog, but also the service business across the board and the faster rotation of that, that we will be keeping our guidance. That’s why we are sort of confident of keeping our guidance of flat net sales and EBIT compared to last year. Of course, there’s some seasonality in it as well, you know, in orders, and generally Q3 is a little bit soft and then we’ve got a strong Q4 when it comes to the biomaterial piece, whereas the process performance is sort of no seasonality. We still stay confident on the guidance.

Sven Weier, Analyst, UBS: Does it bake in also, or what kind of currency impact are you baking in? Because obviously that has changed quite a bit since you first guided in February.

Thomas Hinnerskov, President and CEO, Valmet: Yeah, I mean of course this assumes that we don’t see big impact from a currency or FX perspective. We have managed it very well during this first half year, as you can see in the results as well. We are generally hedging the operational piece, but of course also the translation of profit from different countries there we don’t see. It can impact top line if we have big changes in the FX.

Sven Weier, Analyst, UBS: The other question I had was just on how you accounted for this big pulp order you had from China because I was surprised to see when I look at pulp orders and paper orders individually in the quarter, you had an even stronger uptick in paper. Did you book part of the order also in paper, or what was driving the paper strength? Also, were part of the order maybe also booked in services and in the automation line?

Tom Skogman, Analyst, Carnegie: Thank you.

Thomas Hinnerskov, President and CEO, Valmet: Yeah, maybe get to your question.

Katri Hokkanen, CFO, Valmet: I can start if you can complement. We have publicized some of the projects that we have booked, and China had a very strong quarter in the second quarter. There are other cases that we have booked as well. Overall, China performance in the second quarter was very solid.

Thomas Hinnerskov, President and CEO, Valmet: Yes, maybe a bit on. Sorry, go ahead.

Sven Weier, Analyst, UBS: I was just wondering for this Chinese pulp project specifically, was it only booked in the Pulp and Energy business line, nowhere else.

Katri Hokkanen, CFO, Valmet: This was in pulp and energy business lines. We did have other orders as well.

Mikael Doepel, Analyst, Nordea: Okay.

Sven Weier, Analyst, UBS: Yeah, okay, that makes sense.

Thomas Hinnerskov, President and CEO, Valmet: Yes, it’s a good observation in terms of seeing the China activity on the order side. I think what we ended last year, what was it, €418 million or something around that. We are now, last 12 months, slightly above the €600 million mark. Clearly, China has picked up in this or we’ve done a good job in China in this last half year.

Sven Weier, Analyst, UBS: Thank you both.

Katri Hokkanen, CFO, Valmet: Thank you.

Thomas Hinnerskov, President and CEO, Valmet: Thanks.

Speaker 5: The next question comes from Antti Kansanen from SEB, please go ahead.

Antti Kansanen, Analyst, SEB: Yeah, hi guys, it’s Antti from SEB. A couple of questions from me as well. The first one is for Q2 orders and the demand guidance for, let’s say, paper, packaging, and tissue. I mean there’s a quite nice uptick on both packaging and tissue orders in the second quarter compared to a year ago and the first quarter this year. I mean it’s rather surprising given what we see in the market generally, that it appears quite weak right now. Could you maybe open up a little bit more? Was this a combination of a flood of mid-sized orders, or was there something very big that maybe we haven’t seen the announcement yet? In general, are these projects that you have been kind of working for a long time and now kind of coming from the pipeline?

I just wanted to understand maybe how the pipeline going into the second half and next year looks versus what you have now converted to orders very recently.

Thomas Hinnerskov, President and CEO, Valmet: Thanks, Santi, and also thanks for joining. Good question. Overall, these things do come a bit binary from quarter to quarter, so there can be timing there, but it is generally several mid-sized orders that actually show up to be a significant good order uptick in the business pipeline-wise. I think we’re generally also, yeah, I think that is reflected in our guidance as well, how we see the pipeline.

Antti Kansanen, Analyst, SEB: Yeah, I guess on the outlook really. I mean, you mentioned that there’s a bit of a slowing momentum on the transaction or services, but if I understood correctly, the CapEx side looks more stable. Is that slightly declining demand outlook on the biomaterial side more a comment on the aftermarket or more a comment on expected timing of capital orders?

Thomas Hinnerskov, President and CEO, Valmet: Sorry, just say that once again. I missed the first part.

Antti Kansanen, Analyst, SEB: I mean if I understood correctly, as you guys flag a slightly slowing demand on the biomaterial side and you are flagging a bit weaker momentum on the transactional services. The CapEx looks quite stable. I wanted to understand if the guidance is reflected on weaker aftermarket or let’s say timing of deals in the second half on the capital side.

Thomas Hinnerskov, President and CEO, Valmet: Yeah. If you think about the service side, that’s a bit of reflection about operational rates. Profitability with our current or customer base is sort of weak in certain parts of the business as well. Whereas on the capital side we do see relatively, as we’re saying, quite stable. Of course, it can vary a bit from quarter to quarter, but it is a more stable outlook.

Antti Kansanen, Analyst, SEB: Okay. The last question from me is on the profitability of the pulp and paper capital business, and I guess this is the last time that we see this number. Your book to bill is now above one, I guess for the first half of this year. At some point, you should get a little bit more stabilization on the sales decline, and one should maybe expect the Arauco deal also to start to contribute positively on earnings going into next year. Should we be confident that we’re starting to kind of find a floor in a sense that the capital business is not anymore a tailwind for your margins, that it actually starts to contribute positively, even excluding any kind of a bigger savings programs that we are now expecting for next year?

Thomas Hinnerskov, President and CEO, Valmet: Yeah, I think, I mean as Katri said as well, we’re not happy with the capital per capita net sales. It is low. I think it probably is the lowest we’ve seen since Q1 2020 or something like that. That volume clearly impacts the profitability a lot. With the leverage that we have in our global supply, we are of course taking sort of short term action in terms of temporary layoffs. It is also clear that with the global supply and how we’re going to structure that going forward would have impact on us managing volume ups and downs in a better way. Right. There is also, I have to say, in the Q2 a little bit of timing effect on some of the sales as well. Anything to add, Katri?

Katri Hokkanen, CFO, Valmet: Yeah, I think maybe one thing to highlight is this operating model. Now we have brought the equipment business and the services together. Looking at the total lifecycle approach, of course that’s also going to support this strategy execution. Our target with this new segment is to be at 14% profitability. There is some work to be done and room for improvement clearly.

Thomas Hinnerskov, President and CEO, Valmet: Now we’re at 10.

Katri Hokkanen, CFO, Valmet: So yes.

Antti Kansanen, Analyst, SEB: For sure. I understand the savings and the operation model stuff. If we just look at purely from the volume impact, I mean orders on first half are now better than the sales. When should we, if you look at the timing of your backlog, when should we start to see the negative top line impact stabilizing?

Katri Hokkanen, CFO, Valmet: It will come through the revenue recognition. We need orders, and then of course the rest will follow. Giving exact timing for the Arauco, we will recognize $200 million more still. We have been saying that it’s roughly split equally between the years. That of course then is going to contribute as well.

Thomas Hinnerskov, President and CEO, Valmet: Of course, positive that if you see some of the orders we got, a lot of the orders we got in Q2 were the mid-sized ones.

Katri Hokkanen, CFO, Valmet: Yes.

Thomas Hinnerskov, President and CEO, Valmet: They will tend to churn a bit faster than the very large ones.

Katri Hokkanen, CFO, Valmet: Right, that’s a good point.

Antti Kansanen, Analyst, SEB: All right, fair enough. Thanks. Thank you for the answers.

Thomas Hinnerskov, President and CEO, Valmet: Thanks, Anthony.

Speaker 5: The next question comes from Mikael Doepel from Nordea. Please go ahead.

Tom Skogman, Analyst, Carnegie: Thank you.

Mikael Doepel, Analyst, Nordea: Good morning everybody and thanks for taking my questions. Firstly, on the services outlook, which you see slightly weak now, I think you mentioned in your commentary earlier that you see a slowdown in the transactional parts of the business. Maybe you could talk a bit more about that. I mean, is that the only place where you see some weakness? Are other segments within services doing still well? Are there any big regional differences? Maybe just a bit more color on what you’re seeing in that business heading into the second half. Thanks. Let’s start there.

Thomas Hinnerskov, President and CEO, Valmet: Thanks, Mikael. I think really nice to see that despite sort of dynamic world situation, economic outlook and so on, customers are investing into, you know, mill improvement projects. We want to make it have a more efficient mill. That’s really good to see. It’s clearly good to see that they’re starting to invest in the install base for the future with a bigger effect than before. As we said, we did have a good Q1, we had sort of a flattish Q2 when it comes to the more consumable part, the performance part, the fabrics, the rolls in Q2, which is of course a bit sort of maybe indicating slight softness in terms of the actual operational rates that we see currently. I wouldn’t say compared to previously geographically it’s a little bit like unchanged, sort of soft in Europe, which we also saw previously, generally okay.

In the U.S. in the high 80s, early 90s, different on where you are. China being a bit the same, Asia the same as previously. No bigger changes there, just a sort of a slight softening in it as well. We’re just being a bit cautious about and being sort of very focused on making sure that we support our customers to the best extent possible during the next coming quarters.

Mikael Doepel, Analyst, Nordea: Okay, that’s helpful, thank you. Just a question on the bulk project pipeline which you see in Latin America. I think you have previously talked about this and mentioning active discussions. Just wondering where we are now on this topic.

Thomas Hinnerskov, President and CEO, Valmet: Maybe I should just add to the previous question. It is good to see when you talk about services that in the process performance solutions there we are actually seeing quite good service business and very stable and good outlook on that as well. I’m very pleased on that side of the business as well. In terms of these big projects in South America, like we said last time, there are of course certain players who are looking into investing further into South America because it is an attractive market to invest in when it comes to the pulp business. Very difficult to say anything about the timing, but of course our customers are looking into it. They’re of course also not taking a few year horizon on this.

What the world looks like right now maybe impacts that a little bit less because it’s a longer term investment into a very competitive pulp production.

Mikael Doepel, Analyst, Nordea: Okay, no, that’s clear. Finally, on the cost related to the operating model renewal, we aim at the $80 million cost savings. You booked, I think, one-off cost of $61 million for this project or this program in Q2. Was this all, or will you see more cost being booked in the quarters ahead? Also, in terms of the phasing of the savings, how much should we expect for 2025?

Katri Hokkanen, CFO, Valmet: If I’d say yes, this is our best estimate of the total program. That’s answer to your first question, and then the impact for this year. We will see some savings materializing already this year. I would maybe go with the double digit statement here because we are still in the process of change negotiations in five countries, so we cannot give exact comments yet, but within that ballpark.

Mikael Doepel, Analyst, Nordea: Okay, that’s very clear. Thank you very much both.

Katri Hokkanen, CFO, Valmet: Thanks.

Thomas Hinnerskov, President and CEO, Valmet: Thanks Michael.

Speaker 5: As a reminder, if you wish to ask a question, please dial key 5 on your telephone keypad. The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.

Panu Laitinmäki, Analyst, Danske Bank: Thanks. I had two questions. First one is on the service outlook and order intake development. If I understood correctly, you had like a slowdown or flattening of the spare parts and consumables, and then good orders were more about the mill improvements and so on. Does this mean that it’s like the service sales mix is a burden for the margin going forward? Because I assume the ones, the spares and consumables, are more profitable.

Thomas Hinnerskov, President and CEO, Valmet: I think that is very sort of. Now we’re into the finessing in terms of the modeling or the comment on that or I mean I think overall it is about driving the overall service business. That is a better margin business for us. That’s what we’re focusing on. Of course, also like we discussed a lot at the capital markets day, it is really about how do we help drive our customers’ outcome in the best possible way because that will deliver value for them. They will actually do business with us as well. I wouldn’t be too focused on the mix between those things from a profitability perspective.

Panu Laitinmäki, Analyst, Danske Bank: Okay, that’s clear then. Secondly, on the outlook for board specifically. You give the outlook for the whole business, but previously you used to be more specific on the end market. I mean, how does the board machine market look for you going forward?

Thomas Hinnerskov, President and CEO, Valmet: Yeah, I mean I guess if you think about it, there is, of course, you can go to a very granular level in terms of how you look at the market, and of course we do that when we’re looking at our pipeline and in the sales forecast discussions or order forecast. Yeah, sales from an order perspective forecast discussion. It is, of course, a bit of, I want to say, difficult in this forum to really go to that level of detail because it also depends on where are you actually in the world. You’ve seen capacity coming online in Europe. Therefore, utilization rates probably come a bit down in the European business, impacting the service business there compared to what you would. The sort of, the number of mills would indicate there’s also a closure in the board. We’ve seen one here in Finland being announced.

Overall, you have to sort of look at it quite granular also from a geographical perspective. We have seen orders also on the capital side there.

Katri Hokkanen, CFO, Valmet: Maybe in picture, no changes in the overall view.

Panu Laitinmäki, Analyst, Danske Bank: Okay, thanks. I actually have a third one if I may. On the guidance, you are a bit ahead of last year in the first half in terms of comparable EBITDA, and you said that you will get double-digit million of cost savings for the second half. Is the guidance conservative given the cost savings, or what are the kind of headwinds that we will still see?

Thomas Hinnerskov, President and CEO, Valmet: It’s clear that the savings program underlines and supports our guidance. That’s also why we reiterated with confidence. Right?

Katri Hokkanen, CFO, Valmet: Maybe for it to say that we need book and bill in every business we have. There is work to be done still. Of course, now backlog for this year is €2.3 billion, same level as last year. It’s all about getting the orders in, managing the cost, and then delivering the volume. No updates on the bottom line either.

Panu Laitinmäki, Analyst, Danske Bank: Okay, thank you.

Speaker 5: The next question comes from Tom Skogman from Carnegie. Please go ahead.

Tom Skogman, Analyst, Carnegie: Yes, hello, this is Tom Skogman from Carnegie. I can see that the order backlog beyond the current year is after almost 60%, but can you reveal how much it is up for kind of the next year, in this case for 2026.

Katri Hokkanen, CFO, Valmet: Backlog is up, and of course one big ticket item there is the Arauco project. That is visible. If you look at the overall backlog, that’s the main driver there.

Tom Skogman, Analyst, Carnegie: Of course. The problem is you don’t know how the order backlog looks for 2026. You know, is it up double digit? If it is, total beyond the current year is up now close to 60%.

Katri Hokkanen, CFO, Valmet: I think we go into quite, I would say, level of details here, so really cannot comment 26. What I can say is that Arauco, of course, is mainly delivered in three years, so that is visible in that backlog. Otherwise, order intake has been solid.

Thomas Hinnerskov, President and CEO, Valmet: We expect that Arauco would have $300 million will come to sales this year. Right. That will give you an indication, Tom.

Tom Skogman, Analyst, Carnegie: Okay, then I wonder about the balance in the order backlog. We have a very kind of special environment for your company. Do you have, like, you know, challenges with low utilization level outlook in some segments, or is it okay across the board now? I guess in paper in Europe it should not be that good, but perhaps it’s good in paper in China, as an example. Could you give a bit more granular, like, just about the outlook for utilization levels for factories?

Thomas Hinnerskov, President and CEO, Valmet: Yeah, I mean, good question, Tom. I think it really boils down to when you think about or how to sort of really think about is that you know, you saw net sales and where we were not really happy was the lowest in the board and paper business since 2020 Q1. I mean if you think about overall, you also need to sort of think from a profitability perspective. You need to think about there’s both the biomaterial business, let’s not only think about that, but is actually more or less close to half the business is actually on the bottom line is also coming from the process performance solutions business. That utilization rate is of course also important, but the leverage is on the other side and that gives a little bit of swing.

Overall, very strong business in both parts, but then also very strong foundational part, no matter what happens in terms of the process performance solutions.

Tom Skogman, Analyst, Carnegie: Okay, and then about pricing, I have not heard any comments about pricing. You know, when you have booked these great orders, have you used the price weapon to secure good backlog in challenging times, or is the safe margin more or less what it has used to be? This discussion is difficult and you have this cost cutting. Basically, what I’m trying to figure out is will this cost cutting of €80 million really hit the bottom line if you would have flat sales?

Thomas Hinnerskov, President and CEO, Valmet: I couldn’t really. Sorry, Tom, I couldn’t hear. You hadn’t heard anything about what?

Tom Skogman, Analyst, Carnegie: About pricing in orders booked. I think it’s just important for the market to understand, will this €80 million of savings in the P&L, will they hit the bottom line, or are you kind of using part of these savings to cut prices to gain market share, basically in a tough market?

Thomas Hinnerskov, President and CEO, Valmet: Yeah, good question, Tom. Like we talked a lot about at the Capital Markets Day back in Tampere, June 5th. You have the $80 million which relates to the whole operating model change. Some of that is also being fueled into funding the strategic journey, the investment into growing the business, growing the service business, growing the flow control business. Actually capturing that commercial excellence there, that’s one part. The $100 million from the global supply, what we said there was also some of that will be used to actually be more competitive in the market and therefore capture growth and install basically going forward. The question that I haven’t heard about global supply so far, but I think it’s an important question, is that sort of, because you also talked about timing and it basically comes from two levers, right?

There’s the procurement savings and then there’s a footprint going about both the manufacturing footprint, facilities footprint, how do we actually optimize that also with the current geographical or geopolitical situation. It’s a good time to look into how to really want to structure that supply chain going forward. Of course, the procurement savings can come or will come faster than the actual footprint. That is a bit of a longer thing. With something we need to attack and we need to address then also to drive that we are clearly opting the game. We are investing into new capabilities. Four new team members in the global supply chain have been recruited and will be joining in the second half of this year, all with international background.

A very international team where we’ve upped the capability significantly in order to make sure we drive the $100 million savings target, which will both expand the margin, but it will also drive cost competitiveness and therefore more sales.

Tom Skogman, Analyst, Carnegie: Just to understand this a bit better, should we think so that this kind of supply chain savings of €100 million, part of that can be used to cut prices to win orders. This €80 million in a white collar cost saving, that is a real saving that you will not use in pricing discussions with customers.

Thomas Hinnerskov, President and CEO, Valmet: Like I said, the €80 million has nothing to do with pricing or cost competitiveness, but it’s about having an efficient organizational structure that of course will impact the SG&A, but it is also to fund some of the expensive investments that actually is in the strategy plan so that we can deliver the 5.15 equals to 20.

Katri Hokkanen, CFO, Valmet: Maybe just to add to the $80 million, Tom, if I may. It’s not only SG&A. Of course, there is a cost part and it’s somewhat a bit more on the SG&A side, but maybe just to give a flavor of how this $80 million is.

Thomas Hinnerskov, President and CEO, Valmet: Good point. Yes, exactly.

Tom Skogman, Analyst, Carnegie: Okay, thank you. A final question for me. When you have these tariffs and so on, could it open opportunity for you to go into the fabric business in the U.S.? If a lot of fabrics are imported to the U.S. market, there is a big competitor there with local production. I guess otherwise there is some importance. How is it?

Thomas Hinnerskov, President and CEO, Valmet: Yeah, of course the fabrics market in the U.S. is a mix of imported fabrics, but also locally produced fabrics.

Tom Skogman, Analyst, Carnegie: Yeah, could you only have production in Europe in this business? Could this be like an opportunity to go into the U.S. fabrics business if someone else will face challenges with tariffs?

Thomas Hinnerskov, President and CEO, Valmet: I think that’s a bit too detailed, Tom, to go into at a Q2 meeting right now, but we’ll let you know if we do. Okay, thanks. Thanks, Tom. Have a good summer.

Speaker 5: There are no more questions at this time, so I hand the conference back to the speaker.

Pekka Rouhiainen, Investor Relations, Valmet: All right, thank you so much for the Q and A. There are no questions here on the platform either. It is now time to start to conclude this event.

Thomas Hinnerskov, President and CEO, Valmet: Thank you very much everyone for having joined the webcast. I’m really happy that you spent your warm summer day on this. Have a great summer. I want to thank all the Valmeteers who are going to deliver a good Q2 result that we can all be proud of. Thank you very much to everyone and have a great summer.

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