Q1 results: Quite a start for 2023

Valmet had a strong start for the year. First quarter results clearly beat consensus expectations on almost every line: orders received were 7% higher than consensus, net sales 9%, and comparable EBITA 11% above expectations. Comparable EBITA margin reached 10.1%, while consensus anticipated a margin of 9.9%.

What was behind the great set of figures? First, Services orders were all-time high at EUR 577 million, up 28% from Q1/2022. In fact, all Services business units had record orders, and one exceptionally big service order was received in Q1 (roughly EUR 30 million). Of the 28% growth, the big order explained 7%, inflation roughly 6%, while the rest, ~15%, was organic growth. Comparable EBITA for Services was 16.1% thanks to net sales growth and price increases - quite an improvement from 9.6% in Q1/2022. One should keep in mind tough, that Q1 is seasonally the strongest quarter for Services orders, and what comes to margin, wage inflation will impact us more from Q2 onwards.

Flow Control was not yet with Valmet in the comparison period, and this was of course the main driver for Valmet’s growth. Flow Control accounted for 14% of Valmet’s orders and net sales for Q1. However, also Automation Systems had very high growth, 19% in orders and 32% in net sales. Comparable EBITA margin of the Automation segment increased to 16.3% (12.1% in Q1/2022).

We now have financial reporting for 12 months with Flow Control, and orders received for Valmet’s stable business (Services + Automation) amounted to 3.2 billion for this period. This is a remarkable transformation for Valmet, as the stable business volume was only a bit over EUR 1 billion when we started in 2014. Many analysts have pointed out, that the development of the stable business is a key aspect for Valmet’s shareholder value creation.

A disappointment in the figures was Process Technologies’ margin, 4.7% (5.9% in Q1/2022). The reason for the low margin is the same as in previous quarters. Unfortunately, the few Pulp and Energy projects with margins hit by cost inflation take some two to three years to deliver, which is typical for this business. We take the inflation into account when pricing new projects, and work hard to improve the Process Technologies margin.

Some pulp and paper companies have published weaker results recently, and there has been some concern on the market about how this will impact Valmet. The CEO Pasi Laine said in the results webcast that in the big picture Valmet has not seen weaker demand or hesitation among customers. Valmet’s short-term market outlook (for April–September 2023) remained unchanged: it is still good for 5 out of 7 of our businesses. For pulp, the outlook remained good/satisfactory, and for tissue weak. At the end of March, Valmet’s order backlog amounted to EUR 4.59 billion, which is a good level.