Valmet’s Q2 2020 was a decent quarter despite the pandemic

The second quarter of 2020 was a decent quarter for Valmet despite the Covid-19 pandemic. Most of our key financial figures improved in comparison with Q2 2019. Our orders received amounted to 826 million euros and they decreased from last year. While the orders remained at last year’s level in Pulp and energy and in Automation, they decreased in Services and in Paper. In services, the decline was related to the coronavirus pandemic. Many of our customers restricted access to their sites, which led to disturbances especially in Valmet’s field services and mill improvement projects. In Paper it is good to remember that the comparison quarter was strong and included two major orders, one from Brazil and one from Germany. This year we have seen good levels of activity especially in China.

On the positive side, our net sales remained at last year’s level, even though they were negatively impacted by Covid-19 specifically in services.  Our profitability improved and the Comparable EBITA increased from last year to 76 million in the second quarter. Our balance sheet was strong with a gearing of -23 percent.

Valmet’s results were slightly better than expected by the consensus in terms of orders received. In terms of Comparable EBITA the result was 64% higher than expected by analysts and the Comparable EBITA margin was 2.7 percentage points higher.

Many of the questions from the analysts concerned the development of Valmet’s profitability and the short-term market outlook. Not surprisingly, we also received questions related to the acquisition of Neles shares. Here are some of the most common ones.

Why did the orders received drop by 24% compared to Q2/2019?

Biggest reason was the decline in Paper business line – but here it is good to remember that the comparison quarter included two major orders, one from Brazil (EUR 260-290 million including also pulp technology) and one from Germany (150-200m). Paper’s orders received amounted to EUR 201 million in Q2/20, which we see as a relatively good amount. Furthermore, COVID-19 had a negative impact on Service orders in Q2/20.

Why did the comparable EBITA increase?

Comparable EBITA increased due to lower SG&A expenses. Comparable SG&A expenses were EUR 11 million lower than in Q2/19 mainly due to lower travel costs. We had a strong performance in the capital business.

How did the Covid-19 impact your business in the second quarter?

The COVID-19 pandemic impacted our operations in the second quarter. Many of our customers restricted access to their sites, which led to disturbances especially in Valmet’s field services and mill improvement projects. The pandemic had a negative impact on Services’ order intake and net sales. In the capital business, COVID-19 caused progress delays in projects and led to some delays in the supply chain network. On the other hand, the pandemic resulted in lower travel expenses.

Why don’t you publish a guidance for the year 2020?

We do not know how the Covid-19 situation evolves during the rest of the year. For example, what if there would be a second wave in certain areas, or something else that is difficult to foresee at the moment. The impacts on Valmet’s operations and business environment depend on the duration and severity of the crisis, which at the moment are unknown.

Demand for traditional graphical papers (such as newsprint, magazine and office paper) has declined during the pandemic. How does this impact Valmet’s business?

Declining demand in graphic paper grades is nothing new for us. However, Covid-19 has accelerated the development that has been ongoing for many years and this was visible in our orders in Q2 2020 as well. The demand is growing in board, tissue and pulp and we continue to search for new ways to serve our customers better and add value.

H1/20 was relatively strong for Valmet. What does H2/20 look like?

Our short-term market outlook is unchanged. We continue to be impacted by access restrictions to customer sites. The duration and geographical progress of the pandemic continues to be unknown. There are variations between market areas – China has been active in both Capital and Stable business, whereas North America is weaker. Our order backlog is high and that is a good starting point.

Is there something new to tell about your plans regarding Neles?

No - we are repeating the same messages which we have been saying earlier. Valmet has not made any new decisions regarding the situation.