Let’s have a look at the questions raised by analysts in Valmet’s Q2 results webcast, and the answers given by Valmet’s CEO Pasi Laine and CFO Kari Saarinen.
Is the Services business slowing down?
Growth in orders received in Services was 8 percent in the second quarter. The growth came from the acquired businesses (GL&V and J&L Fiber Services), while organic order growth was negative in Q2 ( -5%) and flat in January–June.
During the first half, activity in China was weak, and also Europe and North America slowed down a bit. The Mill Improvements business unit had less activity than in the first half of 2018.
Overall, the month of June was weak. However, we cannot make any projections about the coming months based on such a short period of time.
Outlook for the Paper business line
Paper business line had record-high orders received in Q2, and the analysts were wondering how the full year will look like.
Board has been the main driver for the high orders received in Paper, and the majority of orders will likely be board also during the next 12 months. There are less but bigger projects being negotiated than last year, which makes winning a single order more critical. Valmet’s CEO Pasi Laine said that Valmet has won market share in big board projects during the first half of 2019. The market outlook for the board business is ‘good’ for July–December. However, we don’t have visibility for much longer.
Are there new pulp mill orders to come?
Valmet got a big pulp and paper technology order from Brazil in Q2. On the day of the results release, UPM announced the decision to build a big pulp mill in Uruguay. Valmet’s understanding is that there are still a couple of pulp mill projects, on which customers might decide during 2019. Valmet will fight for its fair share of these projects.
Why was the margin not better in Q2? What can you still do to improve Valmet’s margin?
Stable business did not develop as expected in Q2, which had a negative impact on Valmet’s margin. Smaller Services projects, where revenue is recognized after customer acceptance on the full project, did not received acceptances during the second quarter. The management was happy with the profitability of the acquired businesses, as well as the capital business.
Valmet will continue to aim for profitability improvement with the same measures as for the past few years. Key tools include maximizing prices, reducing cost of goods sold through R&D, good project execution, quality cost reduction and overall cost discipline. The acquired businesses are supportive to Valmet’s margin, and ERP will improve efficiency once fully implemented
Scrubber order intake in Q2 and going forward
Order intake in Q2 was low, but we see that the activity continues in the second half. Scrubber market will be active in 2019, but not as active as in 2018. Valmet can take scrubber orders for deliveries in the end of 2019 and beginning of 2020.
Have you considered lifting your long-term targets?
We haven’t yet reached the profitability target for a calendar year. The management is focusing on execution of strategy and keeping the margin in the target range for longer than two quarters.