Pulp outlook and margin were the hot topics following Q1 results release

Pulp outlook

Valmet raised the short-term market outlook for pulp from ‘satisfactory’ to ‘good’. The outlook is given for the next six months (so in practice, for Q2 and Q3), and it is based equally on customer activity and Valmet’s capacity utilization. In the results webcast, analysts asked about the reasons for the outlook change, and wanted to get some color on the market situation. What kind of discussions is Valmet having with the pulp customers? Are there many projects being planned? Was it workload or the market that caused the outlook change?

President and CEO Pasi Laine commented that many pulp customers are currently preparing for big investment decisions, and the probability of mega mill decisions has increased. Valmet also has a reasonably good workload in pulp, and like last year, the market for small and medium-sized projects continues to be good.

Paper cycle

The Paper business line has enjoyed exceptionally high demand since 2017. The analysts are wondering, how long can this last. When will the cycle turn?

The CEO repeated what he has stated also earlier: the years 2017 and 2018 were extraordinary for Paper, and Valmet does not expect the Paper orders to stay as high in 2019. However, the market activity in board and paper is still on a good level. Valmet recently announced an extensive containerboard machine order, which will be booked in the 2^nd quarter’s orders received. There are fewer orders discussed now than a year ago, but the projects are big. This makes the outlook more vulnerable – much depends on Valmet’s ability to win a single deal, and the timing of the customers’ decisions. The healthy backlog situation allows pricing discipline.

Margin

On a rolling 12-month basis, Valmet’s comparable EBITA margin was 8.6% in Q1, for the first time reaching the target range of 8–10%. This raised questions on the margin outlook and possible plans to update Valmet’s margin target.

Seasonally, Valmet’s margin tends to be lowest in the first quarter. This time the margin was supported by a favorable sales mix - stable business accounted for 49 percent of net sales, versus 42 percent in Q1/2018 - and good execution. The order backlog has good quality.

The management noted that the targets are still valid, and this was the first and only quarter so far, when Valmet reached the target range on a rolling 12-month basis. Valmet’s normal yearly strategy round is ongoing, and it includes analyzing the market and competitive situation, as well as Valmet’s ability to improve margin. At this point it is too early to say, whether the targets will change this year.

Acquisitions

On April 1, Valmet completed the acquisition of GL&V, a global provider of technologies and services to the pulp and paper industry. The analysts wanted to know, whether there are more acquisitions coming up.

Last September in the CMD, Valmet said it has analyzed almost 50 cases. Some of these are still on the table, and the M&A team keeps working on possible candidates. It remains to be seen whether we find something which is for sale and we want to buy, with acceptable price and conditions.

After the publication of Q1 results, on May 2, 2019 Valmet announced that it has completed the acquisition of J&L Fiber Services Inc. J&L Fiber is a manufacturer and provider of refiner segments to the pulp, paper and fiberboard industry.

Marine scrubbers

In the second half of 2018, Valmet’s orders received from marine scrubbers totaled EUR 190 million. In the Q4 call, Valmet’s management said that there is Chinese competition entering the market. What is the outlook for marine scrubber business now?

In Q1, Valmet’s order intake from marine scrubbers was single digit. The backlog is such that we can take orders for deliveries late this year and next year. Pipeline exists, but it is hard to give a forecast for the whole year. We see that the market will continue to be active for 2 to 3 years, and Valmet will try to get its fair share.