Neles’ Half-Year Review January 1 – June 30, 2021
Neles Corporation, Stock exchange release, July 23, 2021, at 09:00 a.m. EEST
This Half-Year Review is not an offer of merger consideration shares in the United States. The merger consideration shares have not been and will not be registered under the U.S. Securities Act of 1933 (the “Securities Act”), and may not be offered, sold or delivered within or into the United States, except pursuant to an applicable exemption of, or in a transaction not subject to, the Securities Act. There will be no public offering of securities in the United States. This Half-Year Review does not constitute an offer of or an invitation by or on behalf of, Neles, Valmet, or any other person, to purchase any securities.
This is a summary of Neles’ half-year review for January 1 - June 30, 2021. The complete review is attached to this release and is also available at www.neles.com/results.
Overall positive market development, differences between regions and businesses
- Second quarter orders received grew 16% year-on-year. Strong performance in Services and in North America
- Second quarter sales growth 4% year-on-year. Challenges in global logistics, availability of electronic components and customers delaying ongoing project execution postponed sales to second half.
- On July 2, Neles and Valmet announced a plan to merge
In this Half-Year Review, a comparable cash flow statement is disclosed in addition to IFRS financial information. Figures in parentheses refer to the corresponding period of the continuing operations in 2020 unless otherwise stated. Neles Group has been reported as one segment since June 30, 2020.
Summary of key figures
| Operative key figures, EUR million |
4–6/21 | 4–6/20 | Change, % | 1–6/21 | 1–6/20 | Change, % | 2020 |
|---|---|---|---|---|---|---|---|
| Orders received1 | 151.3 | 130.9 | 16 | 305.2 | 321.8 | -5 | 590.1 |
| Order backlog at end of period | 303.9 | 305.3 | 0 | 303.9 | 305.3 | 0 | 270.3 |
| Sales2 | 146.2 | 140.6 | 4 | 275.2 | 277.4 | -1 | 576.3 |
| Adjusted EBITA, continuing operations | 19.0 | 22.9 | -17 | 34.9 | 39.5 | -12 | 85.0 |
| % of sales | 13.0 | 16.3 | 12.7 | 14.3 | 14.8 | ||
| Adjustment items3 | 1.0 | 4.3 | 1.0 | 5.6 | 11.3 | ||
| Operating profit | 17.3 | 17.8 | -3 | 32.4 | 32.3 | 0 | 70.3 |
| % of sales | 11.8 | 12.6 | 11.8 | 11.7 | 12.2 | ||
| Earnings per share, continuing operations, EUR | 0.08 | 0.08 | - | 0.15 | 0.14 | 7 | 0.32 |
| Free cash flow | 8.2 | 38.7 | -79 | 27.8 | 14.8 | 88 | 68.7 |
|
Balance sheet key figures, IFRS |
6/21 | 6/20 | 2020 |
|---|---|---|---|
| Balance sheet total, EUR million | 648.1 | 631.7 | 643.8 |
| Net debt, EUR million | 88.1 | 98.8 | 81.4 |
| Net debt / EBITDA, rolling 12 months | 0.9 | 1.0 | 0.9 |
| Gearing, % | 33.9 | 39.1 | 30.9 |
| Personnel at end of period, continuing operations | 2,878 | 2,950 | 2,840 |
1 Of which EUR 106.4 million in 4–6/2021 and EUR 218.8 million in 1–6/2021 (EUR 76.8 million in 4–6/2020 and EUR 184.2 million in 1–6/2020) were for Services and MRO-driven businesses including EUR 41.9 million in 4–6/2021 and EUR 82.4 million in 1–6/2021 (EUR 31.7 million in 4–6/20 and EUR 68.8 million in 1–6/20) for Services orders received. Orders received in comparable currencies increased by 21% in 4–6/2021 and by 0% in 1–6/2021.
2 Of which EUR 98.8 million in 4–6/2021 and EUR 187.2 in 1–6/2021 (88.8 million in 4–6/2020 and 183.4 million in 1–6/2020) were for Services and MRO-driven businesses including EUR 38.4 million in 4–6/2021 and EUR 69.7 million in 1–6/2021 (EUR 31.4 million in 4–6/20 and EUR 60.8 million in 1–6/20) for Services sales. Sales in comparable currencies increased by 9% in 4–6/2021 and by 5% in 1–6/2021.
3 Adjustment items amounted to EUR 1.0 million in 4–6/2021 and in 1–6/2021 (EUR 4.3 million in 4–6/2020 and EUR 5.6 million in 1–6/2020). See Note 5.
President and CEO Olli Isotalo:
Overall market development was positive during the second quarter, but there were differences between markets. The Services business continued its strong momentum that started already in the first quarter in all markets. We also saw good demand for our Valve Controls and Actuators business across market areas. In our project businesses the second quarter was slow, in particular in the Chemicals and Oil & Gas businesses, while Pulp, Paper and Bioproduct activity continued at the same good level as in the first quarter. There is however a healthy pipeline of project opportunities both in Chemicals and Oil & Gas, as well as in Pulp, Paper and Bioproducts projects, many of which we expect to turn into orders in the second half of 2021.
North American business was strong during the second quarter, while APAC orders received were negatively impacted by customers’ cost saving activities and delayed project investment decisions in China. The recovery of business in EMEIA was slower than estimated; the pick-up in MRO-driven business and projects was slow, while demand for Services continued to be strong.
The global logistics situation continues to be challenging and impacted our deliveries in the second quarter and is causing some shipments to be delayed until the third and fourth quarter of 2021.
We continuously develop our offering to meet the tightening requirements from customers and to improve the sustainability handprint of our products. We launched our next generation butterfly valve platform in the second quarter. The new platform offers both increased performance and sustainability benefits for our customers such as reduced fugitive emissions, longer periods between services, less complexity, as well as new configurations that were previously unavailable.
One of our strategic aims is to improve our delivery times and delivery accuracy in our project business. To achieve this, we are expanding our technology center in Finland to increase the capacity and reorganize the production flows. This development project was started during the second quarter and is expected to be completed in early 2022.
Market outlook
Market activity in Pulp and Paper projects is expected to continue at a good level.
Market activity in Chemicals and Oil & Gas projects was weak in the first half of 2021. The market activity is expected to return to a satisfactory level in the second half of 2021. Postponements of projects and global uncertainties continue to reduce visibility in the Chemicals and Oil & Gas project businesses.
Market activity was satisfactory for the Services and the customer Maintenance, Repair and Operations-driven (MRO) businesses during the first half of 2021. These markets are expected to continue to improve, reaching a good level towards the end of 2021.
The ongoing Covid-19 pandemic continues to create uncertainty and risks of abrupt changes in all markets important to Neles.
The market outlook reflects the management’s expectation for the next six months unless otherwise stated.
Valmet and Neles to merge creating a leading company with a unique offering for process industries globally
On July 2, Neles and Valmet announced that they had entered into a combination agreement and a merger plan to combine the two companies through an absorption merger whereby Neles would be merged into Valmet. The shareholders in Neles would receive 0.3277 new shares in Valmet for each share they hold in Neles as merger consideration.
The combination is subject to, among other conditions, approval by a majority of two-thirds of the votes cast and shares represented at the respective Extraordinary General Meetings (“EGM”) of Valmet and Neles, the obtaining of merger control and other regulatory approvals, and an extra distribution of funds in the amount of EUR 2.00 per share to the shareholders in Neles prior to the completion of the merger. The completion is expected to occur on or about January 1, 2022, subject to all conditions for completion being fulfilled.
Covid-19 pandemic update
In 2020, the Services and other MRO-driven businesses were negatively impacted by pandemic-related mobility restrictions and our customers’ tight cash management. Especially large maintenance shutdowns were postponed. The global situation in the Services and MRO-driven businesses has been clearly improving in the first half of 2021, but uncertainties and risks in certain regions are expected to continue into the second half of 2021, while the overall business activity in these segments is expected to continue to improve.
In the first quarter of 2021, Neles’ Brazilian supply center was temporarily closed due to Covid-19 cases, which caused delays in deliveries and a reduction in sales in the first quarter. The supply center reopened more quickly than initially expected due to attentive management of the situation. Currently, the facility is operating. We had similar challenges in our Indian factories at the beginning of the second quarter, leading to temporary closures. Currently the situation is being carefully managed by local management and the factories are back in operation, prioritizing the health and safety of our employees and partners.
The deferred sales due to the facilities’ closure is expected to be recognized during 2021. Neles has operations in several regions where the Covid-19 pandemic continues to cause disruptions. There continue to be risks of similar temporary closures of local Neles operations as those experienced in Brazil and India.
The global logistics situation continues to be challenging. The availability of transportation and difficulties in arranging logistics by Neles or its customers has caused delays in our deliveries. In addition, we have experienced shortages of electronic components causing delays in deliveries. We expect to catch up with these delays during the second half of 2021, but risks related to the logistics situation continue.
Since the second quarter of 2020, Neles has taken proactive measures to ensure the safety of employees, control costs and preserve cash flow to protect the company’s financial position. The measures have included a variety of enforced safety procedures at manufacturing sites, remote working, travel restrictions, cuts to external spending across the organization, as well as cost-saving and optimization activities.
Increased attention has also been paid to managing net working capital. There have been no material credit losses or order cancellations.
Audiocast and conference call details
Neles’ President and CEO Olli Isotalo and CFO Simo Sääskilahti will present the financial results in an audiocast and a conference call for analysts and investors today at 2:00 p.m. EEST. The audiocast can be followed at www.neles.com/results. A recording and a transcript will be available at the same webpage after the event has finished.
Conference call participants are requested to dial in five minutes before the event on:
Finland Toll: +358981710310
Sweden Toll: +46 856642651
United Kingdom Toll: +44 3333000804
United States Toll: +1 6319131422
PIN: 13025232#
Neles Corporation
Simo Sääskilahti, CFO
Rita Uotila, VP, Investor Relations
For more information, please contact:
Rita Uotila, Vice President, Investor Relations, Tel. +358 400 954141, E-mail: rita.uotila@neles.com
Neles is one of the leading providers of mission-critical flow control solutions and services for process industries. With our global team of experts and innovative solutions, we help our customers to improve their process performance and ensure the safe flow of materials. Neles is listed on the Nasdaq Helsinki in Finland and had sales of about EUR 576 million in 2020. Neles employs about 2,850 people in approximately 40 countries.