Hot topics in Q2/2023 results webcast

Valmet’s orders received remained at the previous year’s level in Q2/2023. Net sales and comparable EBITA increased with nice growth rates, net sales were up 10% supported by all three segments, and Comparable EBITA increased 25%. Comparable EBITA margin increased by 1.3 percentage points, from 9.5% to 10.8%.

While the results were good in many respects, there were also signs of some changes in the business environment. Orders received decreased in the Services and Process Technologies segments, and Valmet also downgraded the short-term market outlooks for these segments. After the quarter, Valmet announced two acquisitions, Körber’s Business Area Tissue and Siemens’ Process Gas Chromatography business. No wonder there was a lively Q&A session in the results webcast. We summarized the top themes below.

You downgraded Services outlook to Good/Satisfactory. How is the demand situation in Services?

Following the exceptionally high order intake in the first quarter, in the second quarter Services orders received decreased 6% from last years’ level. The comparison period had record orders, but the market activity did slow down during April–June.

Orders received increased in Pulp and Energy Solutions, remained at the previous year's level in Performance Parts, and decreased in Board, Paper and Tissue Solutions, Fabrics and Rolls. Some board and paper customers are experiencing weak demand, which means that they are running the machinery at lower capacity utilization rates. The need for spare parts (Performance Parts) and wear parts (Fabrics, Rolls) correlates to some extent with production volumes. At the same time, the customers who do not have much cash flow delay mill improvement projects that are not yet 100% necessary (Board, Paper and Tissue Solutions). On top of this, customers probably also were destocking, i.e. lowering their inventory levels following the recovery in component availability.

As the environment has changed, Valmet downgraded the short-term market outlook for services from Good to Good/Satisfactory. The short-term market outlook is given for the next six months following the reporting period, and it is based on customer activity (50%) and Valmet’s capacity utilization (50%). The scale is weak-satisfactory-good. Our capacity utilization is good, while there is not as much activity in the market as earlier. There is also seasonality in services order intake, H1 typically has more orders received than H2. However, we do not see any drastic change in our customers’ behavior. They still need services to run production and take care of their machinery. As an average, our customers are also in a good financial shape, and they believe in the industry on longer term.

You downgraded the outlook for Process Technologies. How is the pipeline?

For board and paper, we downgraded the short-term market outlook from Good to Satisfactory, and for pulp the outlook was downgraded from Good/Satisfactory to Satisfactory. In both of these businesses, there are projects and customers are discussing investments, but we have seen some delays in project decision schedules. As we’ve said before, in pulp, we are not expecting any mega mill decisions this year. There are several big pulp projects being planned, and they will probably start to move on in 2024. On the board side, there has been one project in Europe which the customer has publicly cancelled. Other than that, it is a matter of postponements, the pipeline as number of planned projects has not changed. Customers are pondering the timing of the investments based on how the interest rates and the demand will develop and what their cash position and balance sheet looks like.

Will Automation Systems demand decrease due to lower demand in Process Technologies?

The short-term market outlook for Automation Systems remained Good: the market is active, and workload is good.

Package sales, i.e. cases where Valmet sells an automation system with Valmet Process Technologies order, have been roughly 10–20% of Automation System’s order intake in recent years. This portion could decrease if the activity level in Process Technologies goes down. It is good to remember that around 1/3 of Automation Systems’ sales comes from other customer industries than pulp and paper. We are also developing new Automation Systems products all the time.

What is the benefit from the Körber acquisition?

Projects in converting are smaller than Valmet’s equipment projects: price of a converting line is EUR 3–7 million. Thus, the project risk level is different. What comes to technology, we see that there is improvement potential in the operational efficiency of converting lines. By combining the knowhow and data that Valmet has from the tissue machine with those of the converting line, we can optimize the performance of the whole production process.

Also, getting into converting will increase the frequency of customer contact. The converting provider is all the time developing the final end product with the customers. From the customer point of view, Valmet will be the only western supplier who can supply the whole production package.