Oct 29, 2020
Valmet’s orders received declined in the third quarter of 2020 and amounted to EUR 700 million. This was slightly below the analysts’ consensus estimate. Orders received increased in Paper, but decreased in the Pulp and Energy, Automation and Services business lines. The quarter was strong in China, where Valmet’s order intake was more than threefold compared to a year ago. Our order backlog remained strong at EUR 3.3 billion.
Also net sales missed the consensus slightly, though they remained at last year’s level.
However, the market was positively surprised by Valmet’s Comparable EBITA (EUR 91 million vs. consensus EUR 75 million) and the corresponding 10.9% margin (consensus 8.9%). In terms of Comparable EBITA, this was one of the best quarters in Valmet’s history.
We have gathered some of the most common questions we’ve received following the results.
Q: What explains the profitability improvement?
A: Comparable SG&A expenses were EUR 11 million lower than in Q3/19 mainly due to lower travel costs following the travel restrictions, as well as cost saving actions. Capital business represented larger share of net sales than in the comparison period. The performance was strong in both stable and capital business. All in all, the organization has performed well.
Q: Why were Services orders 14% and net sales 9% below Q3/2019?
A: Travel restrictions and access restrictions to customer sites continued in the quarter, making it difficult for us to execute orders at the customers’ mills. Lower capacity utilization in graphical paper mills also had a negative impact on Services order intake and net sales. Changes in foreign exchange rates decreased Services orders by EUR ~16 million and net sales by EUR ~13 million in Q3.
Graphical paper demand has declined due to COVID-19, and graphical paper production is not likely to return to the earlier levels.
Q: Why has your cash flow been so strong in recent quarters?
A: Net working capital has decreased mainly due to lower trade receivables. Quarterly fluctuations in cash flow are typical for Valmet, and they can go also to negative direction.
Q: How is your outlook for Q4 and into 2021?
A: We gave the short-term market outlook until the end of March 2021. For pulp, and board and paper the outlook remained ‘good’, for energy and tissue ‘satisfactory’.
In pulp, the workload is good. We expect the order from Metsä Fibre for the Kemi bioproduct mill (EUR ~350–400 million). There are also other discussions ongoing with pulp customers, but the timing of the projects is uncertain.
In board and paper, there is still good sales activity and the workload is high. Activity in tissue is slightly improving.
For services, the short-term market outlook remained ‘satisfactory/weak’. Workload varies within services globally. Demand is lower especially in North America, and lower capacity utilization in graphical paper mills is negative for services. The market is impacted negatively by Covid-19 in all service businesses and especially in field services and mill improvement projects.
For automation, the short-term market outlook remained ‘good/satisfactory’. Good is for automation services and satisfactory for automation capital business. Access restrictions to customer sites have a negative impact.
Q: Any news on your plans concerning Neles?
A: Everything we’ve said earlier is still valid. We have a 29.5 % share in Neles and want to be a long-term shareholder. We see that the combination of Valmet and Neles would create excellent long-term value to the shareholders of both companies, and thus hope that Neles’ shareholders do not accept Alfa Laval’s offer.
Q: What is your message to the Neles shareholders?
A: We are not selling our shares to Alfa Laval. We hope that Neles’ shareholders favor our alternative, which is to merge the two companies to form a Nordic leader and through this create long-term shareholder value.