Discussion topics after Q3 release

Valmet’s third quarter 2021 was a strong one. Orders received increased in all business lines and amounted to EUR 1.1 billion. Supported by the strong order intake, Valmet’s order backlog reached another record high of 4.2 billion euros. Net sales increased by 12% to 935 million euros, and Comparable EBITA increased as well. Comparable EBITA margin was within our target range at 11.4%.

With result releases, Valmet gives a short-term market outlook for the different businesses for the next six months following the reported quarter. The scale is good–satisfactory–weak. For services the outlook was upgraded to “good”, even though travel restrictions and quarantines continue in some countries, causing variation among areas. Our customers’ capacity utilization rates are at good level, and our workload in Services has improved. Tissue’s six-month outlook was downgraded to “satisfactory” due to decreased market demand. High pulp prices reduce the investment appetite of those tissue makers who rely on market pulp. Short-term market outlook remained “good” for board and paper, pulp, and automation, and “weak” for energy.

Valmet started to feel the global logistics issues towards the end of the third quarter. So far the situation has mainly impacted Automation, where we’ve faced challenges with component availability. In other business lines, we have managed to get the supplies in time for our deliveries up to now.

Another general topic these days is cost inflation. In the sales phase, we closely focus on cost estimation for our projects, as they can last several years. It is a balancing act between reserving enough for cost inflation and staying competitive with the bid. Our procurement works hard to manage the situation by increasing sourcing from cost competitive countries and compensating price increase in one sourcing category in other categories. It is too early to say whether the raw material cost inflation will impact our margins or how much. We work hard to avoid margin erosion. The risk is highest in Pulp and energy, where the projects last longest, up to 3 years.

The comparable EBITA margin improved again despite weaker sales mix than last year (between the higher-margin stable business and the capital business). This indicates that our projects have gone as planned, and that our project execution and project management have improved. We continue to work for margin improvement with the same set of measures as before: trying to push the prices up; developing new, cost-competitive products; growing the stable business; improving project management; improving procurement; and reducing quality cost.

Despite the large order backlog, we can still take new orders. Naturally, the delivery times have become longer, and part of the current backlog will be delivered in 2023. This is the case especially in Paper. In the results webcast, the CFO Kari Saarinen reminded that Valmet only books an order when we have received a down payment or a bank guarantee. This makes it also difficult for the customer to cancel an order, and cancellations are very rare.

Valmet’s balance sheet is strong and will remain so also after the merger with Neles. One question in the webcast was whether Valmet’s M&A strategy will change due to the merger. The CEO Pasi Laine said that Valmet must be active in M&A on all three fronts, strengthening technologies, services, and automation, including flow control. But the highest priority next year will be to ensure effective integration of Neles.

The pipeline of pulp orders comes up in almost every discussion with our analysts and investors, and this time was no exception. Short-term variation in pulp prices does not have a major impact on our business, as Valmet’s equipment is to be used for several decades. Recently we’ve seen several big investment decisions by pulp producers, so it might be that there is a short quiet time ahead with mega orders. However, we now have a good backlog in pulp, so our workload will be good for the next year or two. According to the CEO Laine, pulp investments will continue in the medium term because of the strong megatrends.