Low profitability in Q1 raised discussion in the results webcast

The high customer activity seen in 2017 continued in the in the first quarter of 2018. Valmet’s orders received amounted to EUR 890 million, which was the second-best quarterly order intake in more than three years. Orders received increased in the Automation business line and remained at the previous years’ level in the Services business line. The activity in Board and Paper continued at a high level.

Net sales increased 13 percent, mainly supported by the Paper business line. However, Valmet’s comparable EBITA was low, EUR 22 million, corresponding to 3.0 percent of net sales. Profitability was hit by a loss of EUR 15 million from a project in the Pulp and Energy business line. In the project located in the Nordics, engineering, design and a subcontractor’s delivery were late, and Valmet had to take on extra costs to speed up the process.

Despite the slow start to the year in terms of profitability, Valmet’s financial guidance was kept unchanged. We estimate that Valmet’s net sales in 2018 will remain at the same level as in 2017, and Comparable EBITA in 2018 will increase in comparison with 2017.

Valmet’s orders received beat the consensus estimate and net sales were in line, but the bottom line clearly missed the analysts’ expectations. Thus, the questions raised to Valmet’s management in the results webcast focused on profitability. As the guidance for 2018 was kept unchanged, the analysts were looking for reasons for improved profitability during the rest of the year. The CFO reminded that net sales in stable business are seasonally lower in Q1. While the split between stable and capital business is usually roughly 50-50, in Q1/18 the share of stable business was only 42 percent. This, beside the EUR 15 million project loss, was a major reason for lower profitability.

According to the CEO, Valmet has made progress in quality management. Despite increasing raw material prices, cost savings have been achieved also in procurement. These initiatives continue, and they should gradually start having a positive impact on Valmet’s margin. SG&A costs are closely watched at, too. As for project execution, the Paper business line has a very good track, and also in Pulp and Energy, the majority of the projects go well. Valmet works hard to minimize the risks, but in project type of business, setbacks cannot be fully ruled out.