Valmet's Interim Review January 1 - September 30, 2022: Orders received increased to EUR 1.2 billion and Comparable EBITA to EUR 136 million in the third quarter

Short-term market outlook

Valmet reiterates the good short-term market outlook for services, flow control, automation systems, energy, and board and paper, the good/satisfactory short-term market outlook for pulp, and the satisfactory short-term market outlook for tissue.

The short-term market outlook is given for the next six months from the end of the reported period. It is based on customer activity (50%) and Valmet's capacity utilization (50%), and the scale is 'weak–satisfactory–good'.

President and CEO Pasi Laine: Orders received and Comparable EBITA increased in the third quarter

"Valmet's orders received increased to EUR 1.2 billion in the third quarter of 2022. Orders received increased in the Automation and Services segments, and decreased in the Process Technologies segment. Our order backlog amounted to EUR 4,672 million, which is EUR 576 million higher than at the end of 2021. Net sales increased in all three segments and amounted to EUR 1,288 million. Comparable EBITA increased as well, but Comparable EBITA margin decreased. Comparable EBITA increased in Automation and Services, and decreased in Process Technologies. Cost inflation continued to impact Valmet's margins during the quarter. Valmet's goal is to offset the cost inflation through increased productivity, procurement savings and price increases. The integration of Flow Control is proceeding well. Even though the merger was completed only six months ago, Flow Control is already a strong part of Valmet. Orders received of Flow Control have developed well. Valmet has today a stronger stable business and a unique, competitive and balanced offering for process industries. With this wide offering we can serve our customers even better than before."

Merger with Neles

On July 2, 2021, Valmet announced that the Boards of Directors of Valmet Oyj and Neles Corporation had signed a combination agreement and a merger plan to combine the two companies through a merger. Both companies held an Extraordinary General Meeting on September 22, 2021, and both EGMs approved the merger. Valmet and Neles had received all competition approvals for the merger of Neles into Valmet on March 21, 2022. Valmet's Annual General Meeting on March 22, 2022, resolved to pay a dividend of EUR 1.20 per share and the Neles Annual General Meeting on March 22, 2022, resolved to pay a dividend of EUR 0.266 per share in accordance with the combination agreement. In addition, Neles' Board of Directors decided on March 22, 2022, on an extra distribution of funds in total of EUR 2.00 per share in accordance with the combination agreement. The dividends and Neles' extra distribution of funds of EUR 2.00 per share were executed on March 31, 2022. The merger of Valmet and Neles was registered with the Finnish Trade Register on April 1, 2022.

On July 2, 2021, Valmet entered into EUR 350 million term loan facilities agreement with Danske Bank A/S and Nordea Bank Abp. The syndication of the term loan facilities was closed on October 20, 2021. The loan was used for refinancing existing indebtedness of Valmet and Neles in connection with the merger. EUR 215 million (originally 301 million) bridge facility agreement originally entered into by Neles was transferred to Valmet in connection with the completion of the merger. The bridge loan facility was used for financing of the extra distribution to shareholders of Neles.

On March 22, 2022, the Boards of Directors of Valmet and Neles approved a loan agreement between the companies concerning the part of the extra distribution of funds of EUR 2.00 per share payable to Valmet. According to the loan agreement, the part of the extra distribution payable to Valmet as a shareholder of Neles was not paid in cash to Valmet in connection with payment of the extra distribution to other shareholders of Neles, but the amount payable to Valmet was recorded as debt owed by Neles to Valmet.

Valmet and Neles were separate listed companies prior to the merger. On April 1, 2022, Valmet announced that the statutory merger of Neles Corporation into Valmet had been registered and the combination of Valmet's and Neles' business operations had been completed. Neles is consolidated into Valmet as of April 1, 2022, and forms Valmet's fifth business line called Flow Control. After the merger, Valmet's business lines are Services, Flow Control, Automation Systems, Paper, and Pulp and Energy. Automation Systems business line was previously called Automation.

The final Shareholders' Meeting of Neles was held on June 22, 2022, in Vantaa. The Shareholders' Meeting adopted the final accounts of Neles in accordance with Chapter 16, Section 17 of the Finnish Companies Act, consisting of the financial statements and annual report for the financial period January 1, 2022–March 31, 2022. The Shareholders' Meeting also resolved on discharging the members of the Board of Directors and the President and CEO of Neles from liability.

Update on the integration of Flow Control into Valmet

The integration of Flow Control (former Neles) into Valmet is proceeding according to the plan. Active sales and marketing of Valmet's whole offering was commenced in the second quarter, and implementation of several cost synergy actions regarding function costs, common locations and supply chain continued during the third quarter. Valmet expects to generate annual run rate synergies of approximately EUR 25 million, of which approximately 60 percent are expected to be achieved by the end of 2023 and approximately 90 percent by the end of 2024. 

Russia's invasion of Ukraine and sanctions on Russia

Due to Russia's invasion of Ukraine, Valmet reviewed key contractual obligations, project schedules, and identified risks for projects that are delivered to Russia. Based on the review, Valmet identified projects that it estimates no longer to meet the criteria of a customer contract for revenue recognition purposes, and consequently made a reversal of approximately EUR 80 million to its order backlog during 2022.

On June 3, 2022, Valmet announced that it has initiated employee reductions, which will result in a 50 percent reduction in the number of employees in Russia in the first implementation phase. Consequently, Valmet recorded an expense of approximately EUR 20 million during 2022 for estimated restructuring costs, asset impairments and other exceptional items triggered by Valmet's decision to withdraw from Russia. These costs have been reported in cost of sales, in selling, general and administrative expenses and in other operating expenses, and have been reported as items affecting comparability. Therefore they do not impact Comparable EBITA. At the end of September 2022, Valmet had a total of approximately 60 employees in Russia, working primarily in sales, engineering, maintenance and financial administration. Valmet does not have production in Russia. Approximately 2 percent of Valmet's total net sales came from its Russian operations in 2021.

Valmet will withdraw from Russia completely and will continue to implement the withdrawal in stages as the review of implementation options is fully completed. Valmet complies with all sanctions and export regulations impacting business with Russia and Belarus and monitors the development actively.

Key figures¹

EUR million	Q3/2022	Q3/2021	Change	Q1–Q3/    2022	Q1–Q3/   2021	Change
Orders received	1,178	1,107	6 %	3,809	3,647	4 %
Order backlog2	4,672	4,199	11 %	4,672	4,199	11 %
Net sales	1,288	935	38 %	3,534	2,736	29 %
Comparable earnings before interest, taxes and amortization (Comparable EBITA)	136	107	27 %	337	282	20 %
% of net sales	10.5 %	11.4 %		9.5 %	10.3 %
Earnings before interest, taxes and amortization (EBITA)	132	107	23 %	360	293	23 %
% of net sales	10.2 %	11.4 %		10.2 %	10.7 %
Operating profit (EBIT)	97	95	3 %	280	255	10 %
% of net sales	7.6 %	10.1 %		7.9 %	9.3 %
Profit before taxes	98	95	3 %	279	253	10 %
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