Valmet Capital Markets Day 2023: Demand driven by the large and growing installed base and strong megatrends

Valmet organized a Capital Markets Day in Espoo, Finland, on March 8, 2023. The program contained presentations from all five business line presidents. Valmet’s business line presidents meet investors only in the capital markets days, so the event was much appreciated on both sides. It also provided the opportunity to discuss with management “offline” during the breaks.

Services demand is driven by large and growing installed base

Aki Niemi, Business Line President, Services, kicked off the business line presentations. Measured by net sales, the Services segment is a 1.6-billion-euro business with a 14.8% margin (comparable EBITA, 2022 figures). Services market is big thanks to the large global installed base, which keeps growing driven by megatrends like e-commerce, plastics replacement, and urbanization. Sustainability, digitalization, efficiency, and safety are further demand drivers for services, as well as customers focusing on their core business and having labor shortages. By growing more than twice the market, Valmet has managed to increase its market share in services to 21%.

Valmet’s Services business consists of five business units, which have grown with a CAGR of 3–9% since 2013. Geographically, EMEA and North America are the biggest markets for Valmet’s services. Looking at the customer segments, services orders from board customers grew 20% in 2020–2022, while orders from pulp customers grew 16%. Also orders from tissue and paper customers grew, but service orders from energy customers declined in 2020–2022. The strategic focus areas of the Services business line include growing market share, ensuring high services content in new process technology orders, and developing new offering for cost competitiveness, digitalization and sustainability.

Automation segment: Profitable growth in an attractive market

Valmet’s Automation segment was a 1-billion-euro business in 2022, consisting of Automation Systems business line, and since April 1, 2022, the Flow Control business line. It is the most profitable of Valmet’s three segments with a comparable EBITA margin of 18.3% in 2022. Flow Control business line was presented by Simo Sääskilahti, Business Line President. Flow control market is large, worth USD 30+ billion, and it is estimated to grow with a CAGR of 3% in 2022–2025. In the fragmented market, Valmet is among the top 10 players, who together have a 22% market share. Valve investments are mainly OPEX-driven while still critical for process safety, which makes flow control a lucrative business for the leading players. Valmet is the #1 in valves for the pulp and paper industry and #1–2 in valves for industrial gases. Looking at the business units, MRO & Services brought 66% of Flow Control’s orders in 2022, Valve Controls & Actuators 19%, and the mainly CAPEX-driven Projects brought 15%. The business units have grown with a CAGR of 6–15% in 2016–2022. The biggest customer industries are Pulp & Paper and Refining & Chemicals. The energy transition provides growth opportunities for Flow Control. As the leading supplier of valve applications for industrial gases, Valmet Flow Control has a solid position to grow in emerging Power-to-X, hydrogen production, CCUS and methane capture areas.

The megatrends of automation and digitalization drive growth for the Automation Systems business line. According to Emilia Torttila-Miettinen, Business Line President, the automation systems market is characterized by process critical systems requiring deep domain expertise. Of Automation Systems orders received in 2022, 55% came from Distributed Control Systems (DCS) and industrial applications, 24% from Quality Management Systems (QMS) and 21% from Analyzers and measurements. All three product categories have grown strongly, with a CAGR of 6–8% in 2015–2022. Almost ¾ of the orders received in 2022 came from the pulp and paper industry, where customers are investing in improving their operations and Valmet is #1–3 automation systems player. In the energy and process industries, Valmet is a leading DCS supplier to European waste-to-energy industry and multi-fuel boilers, and #2 DCS supplier for demanding cruise vessels. Valmet aims to grow its DCS business in chemicals, pharma, food and beverage, and alternative energies.

Strong market positions in the Process Technologies segment

Jari Vähäpesola, Business Line President, Paper, explained the good performance of the Paper business line during the past several years, and the growth prospects going forward. The global board consumption is growing fueled by e-commerce, retail practices and plastics replacement. Tissue demand in turn is driven by increase in hygiene awareness and standard of living, particularly in the developing economies. The customers not only build new capacity, but also relocate and repurpose existing machinery. During the last ten years, ca. 1/3 of the capacity addition was driven by replacing closed or obsolete assets.

Valmet is #1 in the market for board, paper and tissue making technology. In board, Valmet’s market share is 60%, in paper 50% and in tissue 35%. The business line had net sales of EUR 1.4 billion in 2022, of which 68% came from board. Valmet’s winning business model is a combination of operational efficiency and competitive advantages. The projects generate cash upfront due to pre- and milestone payments. We have invested in productivity development and delivery capacity. Thanks to the flexible cost structure of the Paper business line, capacity costs as % of net sales have decreased from 47% in 2014 to 26% in 2022. Valmet’s competitive advantages include excellent references and satisfied customers, efficient procurement and supplier network and state-of-the-art pilot facilities.

With new technology, the customers can achieve significant savings in resources. During the last ten years, energy consumption of a board machine has decreased 18% and fiber consumption 10%. A new tissue machine can use 80% less water in the production process compared to an old machine and cut the energy consumption into half. Jari also presented the 3D molded fiber concept Valmet has developed together with Metsä Spring, and there were packaging materials made of 3D fiber available for the participants to look and feel.

Valmet has in recent years lost market share in pulp, and the audience was eager to hear about the strategy going forward. The global pulp demand is expected to grow 1–2% in 2022–2026, due to demand for sustainable packaging, tissue, textiles and plastic replacement, as well as investments in environmental efficiency. The pulp equipment market is driven both by investments in new capacity and refurbishment of existing mills.

The energy business had record net sales in 2022, driven by fossil phaseout. Decarbonization in energy production drives investments in renewables including biomass-based energy production. Biomass is a local fuel, which is a plus considering security of the energy supply. Tightening air emission legislation and stricter directives increase demand for Valmet’s emission control technology.

The Pulp and Energy business line had net sales of EUR 1 billion in 2022, of which 77% came from pulp and 23% from energy. Complete mills brought 45% of net sales, single islands and products 48% and rebuilds 7%. EMEA is the biggest market for Pulp and Energy, 50% of net sales originated from EMEA.

Pulp and Energy has a flexible operating model with outsourced engineering and manufacturing, and capacity costs have remained stable despite growing net sales. Pre- and milestone payments from customers ensure upfront cash generation. Sami Riekkola, Business Line President, presented growth opportunities also outside traditional pulp and energy business: new bioproducts, textile recycling and cellulose-based textile fibers. At the venue, the guests had an opportunity to familiarize themselves with clothes made using Renewcell and Spinnova fibers. The strategic focus areas for the Pulp and Energy business line include successful project execution, improving cost competitiveness and developing engineering and supply chain efficiency.

We thank the participants for the lively discussion! The presentation slides and webcast recording can be found here.

The CMD messages of the CEO Pasi Laine and CFO Katri Hokkanen will be discussed in the next IR blog post!