COVID-19 on top of the discussions agenda after a strong Q1

The first quarter of 2020 was relatively good for Valmet in terms of many financial key figures. Orders received increased to a new record of almost EUR 1.2 billion and the order backlog increased to a new record of EUR 3.6 billion. The development was strong in the capital business, where orders received totaled EUR 697 million and almost doubled from the comparison period. Orders received in the stable business (including internal orders received for the Automation business line) increased 12% (4% without the acquired businesses). Also the cash flow from operating activities was strong.

The results were somewhat better than the markets expected, especially in terms of orders received, which were 13% higher than the consensus estimate. Also net sales and Comparable EBITA topped analysts’ estimates. The Comparable EBITA margin was, however, lower than in the comparison period and below analysts’ expectations.

Valmet’s share price increased 4.0% on the results day. The closing price was EUR 19.71 on April 27^th, which is equivalent to a decline of 8% in the share price during the year. The COVID-19 related turbulence in the stock market has impacted Valmet’s share as well: During 2020, the highest price so far was EUR 25.20, and the lowest EUR 13.33.

Not surprisingly, most of the questions from the analysts and investors after the results publication have been related to the impacts of COVID-19 on Valmet’s operations. Here are some of the most common ones.

Q: How did COVID-19 impact your business and financial figures in Q1/20?

A: The pandemic impacted our operations and led to delays in certain capital projects and delays in execution in services and automation. It impacted our service revenues negatively, and through that profitability as well. Without the impact of COVID-19, our comparable EBITA margin would have been slightly above Q1/19 level.

Q: How did your service business develop during the different months of 2020 so far?

A:  Order intake was developing better in the first two months and still in the beginning of March. During the last two weeks of March, the order intake declined as the coronavirus related restrictions started to impact our customers. We estimate that the order intake especially for mill improvement projects will continue to be weak for the second quarter. We anticipate the activity levels in the second quarter to be weak to satisfactory. However, after the COVID-19 related restrictions are lifted, the market will likely bounce back. The visibility on when this will happen is of course weak.

Q: Is the financial target of 10–12% comparable EBITA still valid despite COVID-19?

A: Yes. Valmet has a solid foundation to cope with the virus and our long-term growth drivers have not changed. Our order backlog is record-high, and we have a strong balance sheet and liquidity coupled with a flexible organization.

Q: What are the key drivers for Valmet’s net sales in 2020?

A: Our order backlog is 19% or EUR 556 million higher than at the end of Q1/19. We estimate that around 60% of the current backlog will be recognized as net sales in 2020. However, COVID-19 creates uncertainty to revenue recognition. We downgraded our short-term market outlook for services and automation.

Q: When will the AGM be held and what is your dividend?

A: The AGM will be held on June 16. Because of the current restrictions, we advise the shareholders to primarily follow the meeting online via webcast and to vote in advance or to participate in the meeting by way of proxy representation arranged by the company. Shareholders also have a possibility to submit questions concerning matters on the agenda of the Annual General Meeting in advance. The Board of Directors proposes for the Annual General Meeting that a dividend of EUR 0.80 per share be paid for the financial year 2019.

Q: How would you deal with a customer request to postpone or cancel a project?

A: It is typical in our business that there are delays in some projects. The delays can be related e.g. to the construction work. We are used to doing changes to project schedules. What comes to possible cancellations, it is good to note that we get relatively sizeable advance payments from our customers. Project cancellations are not common in our industry.