Q2/2024 results: Hot topics

In Q2/2024, Valmet’s orders received remained at the previous year’s level and amounted to EUR 1,283 million. Net sales decreased to EUR 1,324 million (EUR 1,417 million) and Comparable EBITA decreased to EUR 141 million (EUR 153 million). Comparable EBITA margin was 10.6% (10.8%).

Valmet is heading to the second half of the year from a good position. In the updated guidance issued on June 13, 2024, Valmet estimates that net sales in 2024 will remain at the previous year's level in comparison with 2023 (EUR 5,532 million) and Comparable EBITA in 2024 will increase in comparison with 2023 (EUR 619 million).

In connection with Q2 results, Valmet lifted the short-term market outlook for pulp to ‘satisfactory’ (previously ‘weak’) and the short-term market outlook for board and paper to ‘satisfactory’ (previously ‘weak/satisfactory’, in which ‘weak’ referred to customer activity and ‘satisfactory’ to Valmet's capacity utilization). Furthermore, Valmet downgraded the short-term market outlook for energy to ‘satisfactory’ (previously ‘good’). The ‘good’ short-term market outlook was reiterated for services, flow control and automation systems, and the ‘satisfactory’ short-term market outlook for tissue.

In the following we will highlight the hot topics and questions raised after the result publication.

Capital business

In board and paper, the capacity utilization rate continues to be ‘satisfactory’, and the customer activity has improved to ‘satisfactory’. There is overcapacity in Europe in board production following the high level of orders in 2021 and 2022. However, the market overall has activated, and we e.g., published two orders from a major customer in Asia-Pacific. The short-term market outlook for tissue continues to be ‘satisfactory’.

In energy, the short-term market outlook was downgraded to ‘satisfactory’. Customers continue to be interested in our CO₂ neutral energy offering, but the market is currently not as active as in 2022 and 2023. In pulp, the market has activated especially in mid-sized projects and thus the short-term market outlook was upgraded to ‘satisfactory’. Valmet’s customers are buying single island projects and the order intake picked up in Q2/2024 compared with Q1/2024. Customers are discussing investments and we are now seeing some of these plans starting to move forward to the decision phase. We believe that Valmet has good visibility for the coming quarters.

Furthermore, customers are planning several mega mill projects in South America, but the timing is very difficult to estimate. Valmet is strategically positioned to handle potential pulp mega mill orders in South America, particularly in Brazil, where we have a highly capable team. We currently have a reasonable workload, ensuring we can handle full mill supply if required. We have established excellent references in Brazil, and the efficient performance of previously delivered mills enhances our credibility and attractiveness for future projects.

Valmet’s comparable EBITA margin in Process Technologies was 3.0% in Q2/2024 (4.8% in Q2/2023) and comparable EBITA was EUR 15 million (EUR 30 million). Comparable EBITA decreased due to lower net sales. Furthermore, there were some project settlements during the quarter, which impacted the Comparable EBITA negatively.

Stable business 

In services the market activity is on a good level and capacity utilization rates of our customers, which were very low during Q3/2023, are gradually increasing. All areas and business units in Services have returned to good customer activity level. Our own capacity utilization is also at a good level.

In Flow Control the market is active, and the workload is good. The market activity is good in all industries except in pulp & paper, where the activity has decreased. The same applies to Automation Systems.

Guidance upgrade on June 13, 2024 

According to the updated guidance, Valmet estimates that the full year 2024 guidance for net sales is still flat but comparable EBITA is going to increase. Even though net sales decreased 7% to EUR 2,536 million in H1/2024, Valmet is confident in reaching the guidance for net sales. This is reflected in our short-term market outlooks. Valmet is expecting an additional EUR 70 million from the order backlog compared to the same time a year ago. The delivery times have decreased and returned to pre-Covid levels, supporting higher book-and-bill.

Valmet is also confident about the comparable EBITA guidance even though comparable EBITA decreased 9% to EUR 262 million in H1/2024. Valmet has a stronger order backlog than a year ago and the short-term market outlook in Services is better than at the end of H1/2023.

Delivery times

Overall, Valmet’s delivery times have decreased and returned to pre-Covid levels. This supports higher book-to-bill. In Services, the delivery times are typically measured in weeks. In Flow Control, if the valves are sold together with a project, the delivery time goes together with the Process Technology order delivery time. If customers are buying maintenance and repair operations or valves, the standard delivery time is three to six months. Typically, the customers are ordering the valves well in advance so the delivery time can be one year or even longer. In Automation Systems the related services are delivered quickly. If a customer buys a QCS, the delivery time is around four to five months and in the case of a DCS, it is around six months to one year.

In Process Technologies, the delivery times depend on project size and may extend to several years. Valmet recognizes revenue in its income statement on a cost-to-cost basis.

Insurance compensation

Related to the fire which broke out at Valmet’s Rautpohja factory site in Jyväskylä, Finland, on May 7, 2022, the final settlement with the insurance provider was reached in April–June 2024. The final insurance payment was received in June 2024. Valmet has recorded an insurance compensation of EUR 19 million in January–June 2024 related to the compensation of the costs incurred. At the moment there are no outstanding receivables towards the insurance company.

In total, Valmet has received EUR 74 million as cash payments in 2022, 2023 and 2024. Roughly EUR 60 million of these has been treated as items affecting comparability (IAC) in ‘Other operating income’ during 2022–2024 and the remaining roughly EUR 14 million has been recognized in comparable EBITA. The corresponding costs have also been visible in IAC and in comparable EBITA. A minor part of the costs has been capitalized to the balance sheet.

In Q2/2024 there were still some costs related to the fire and therefore the net impact to comparable EBITA was minor – both in Q2/2024 and for the first half. Overall, Valmet is very happy that the insurance was settled.

Market outlook on longer term

The analysts asked CEO Pasi Laine about his thoughts on the evolvement of the pulp and paper market over the next three to five years. Pasi Laine noted that while the Covid-19 years provided exceptional profitability for pulp and paper players, the current sentiment among leading producers is cautiously optimistic. They are now working hard to achieve good results, with no long-term doubts about their business’ potential. The companies that have invested in modern, efficient machinery have a competitive edge.

Furthermore, Pasi said that equipment sales in the pulp and paper sectors will depend on the timing of individual projects rather than a significant market shift. As for plantations which are essential regarding pulp raw material, the concerns about suitable locations have lessened recently. The companies with active project plans have secured their raw material supplies.

Farewell to President and CEO Pasi Laine

Q2/2024 was also the last full quarter under Pasi Laine’s leadership as the President and CEO of Valmet. Pasi has been Valmet’s CEO since Valmet’s demerger from Metso at the end of 2013. Under Pasi’s management annual net sales have more than doubled from EUR 2.6 billion to EUR 5.5 billion and profitability in terms of comparable EBITA margin has grown from roughly 2% to around 11%. Thanks to the successful acquisitions and organic growth, Valmet’s stable business portfolio has become stronger, representing today roughly 70% of orders received and approximately 85% of comparable EBITA (last twelve months, excluding ‘Other’ segment). In the result webcast, many of the analysts congratulated and thanked Pasi for the excellent performance.

As we look to the future, Valmet is well-positioned to continue its journey forward, driving growth, innovation, sustainability, and excellence in the industries it serves.

Under Pasi Laine’s leadership Valmet has become one of the most successful Finnish companies.