Hot topics: cost inflation and the fire in Jyväskylä

The geopolitical situation caused by the crisis in Ukraine and the COVID-19 restrictions in China have been discussed also in Valmet’s investor meetings. Investors have been pondering how badly the cost inflation is hitting Valmet’s business. Another concern has been the business impact of the fire which took place in one of our key sites.

Cost inflation

Cost inflation has climbed to new heights. Like other companies, Valmet has seen it in logistics, in raw materials and purchased goods, and in salaries. We try to compensate cost inflation through procurement savings, by improving productivity and by increasing prices. In the day-to-day-type businesses within Services and Automation, we can in many cases react fast to input cost increases and have adjusted prices. In Process Technologies, the time spans are longer, which makes it more complicated. We strive to anticipate price trends during project negotiation phase and try to include price escalators or price indexes in contracts, whenever possible.

Unlike one might think, Valmet does not buy so much steel, and the steel we buy for projects is hedged. Instead, we source machine components. After receiving a board, paper or tissue machine order, it typically takes some weeks for our sourcing to finalize ordering of the parts. Thus, in the Paper business, we are exposed to the risk of component price increases for a relatively short period of time.

A Pulp & Energy project, in turn, typically starts with a longer engineering phase. The raw material and component orders are placed first six to nine months after signing the order, which means that we are exposed to price risk until then.

Fire in Rautpohja plant

As if the current operating environment was not challenging enough with the impacts of the war in Ukraine and COVID-19, Valmet faced also a company-specific setback in the beginning of May. A fire broke out at Valmet’s Rautpohja factory site in Jyväskylä, Finland, on May 7. The factory is Valmet’s main site for paper and board machine production, and it also produces pulp drying machine wet ends and special components.

The fire started at a workshop during a roll test, and it caused minor injuries to one employee. It has taken time to investigate the origin of the fire and to assess its impact on Valmet’s operations. First it had to be ensured that entering the facilities is safe. The site had to be cleaned, and access was restricted to authorities and insurance inspectors. Luckily, the majority of machine workshops at the site turned out to be unimpacted. The fire did not impact the operations in Engineering, Foundry, Service Center and Pilot machine and the operations in these parts have continued without disruptions.

Operations in the unimpacted areas started returning back to normal from the beginning of last week (week 21). It is believed that returning the operations back to normal in these areas will take approximately 1-2 weeks. Valmet is also evaluating the potential need to transfer certain operations to alternative locations mostly in Finland.

The official investigations by authorities are continuing in a limited factory area and are expected to be finalized within the coming weeks. The closure of fire-impacted workshop areas for the duration of the investigations is temporarily impacting the work of approximately 120 employees, which is around 5 percent of the total number of employees at the site. The employee impact of the fire has been mitigated with work re-arrangements, paid absence and holidays.

The impact assessment of the fire to the business continuity and customer deliveries is proceeding, and the final outcome will be known once the official investigations have been concluded and the full scale of the incident is clear. “We have been able to already deliver first products to our customers from the Rautpohja factory after the incident and our supplier network is operating normally again,” says Jari Vähäpesola, President, Paper business line.