Valmet s Half Year Financial Review January 1 June 30, 2018

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2 Valmet s Half Year Financial Review January 1 June 30, 2018 Orders received increased in Paper and Services Comparable EBITA increased Figures in brackets, unless otherwise stated, refer to the comparison period, i.e. the same period of the previous year. The comparison period figures have been restated following the adoption of IFRS 15 as of January 1, April June 2018: Comparable EBITA margin increased to 7.2 percent Orders received increased 9 percent to EUR 865 million (EUR 796 million). - Orders received increased in the Paper and Services business lines and decreased in the Pulp and Energy, and Automation business lines. - Orders received increased in South America and EMEA (Europe, Middle East and Africa), remained at the previous year s level in China, and decreased in Asia-Pacific and North America. Net sales increased 15 percent to EUR 844 million (EUR 732 million). - Net sales increased in all business lines. Comparable earnings before interest, taxes and amortization (Comparable EBITA) were EUR 61 million (EUR 48 million), and the corresponding Comparable EBITA margin was 7.2 percent (6.5%). - Profitability improved due to higher net sales. Earnings per share were EUR 0.23 (EUR 0.18). Items affecting comparability amounted to EUR -4 million (EUR -1 million). Cash flow provided by operating activities was EUR 3 million (EUR 31 million). January June 2018: Net sales increased, but Comparable EBITA margin decreased Orders received remained at the previous year s level at EUR 1,756 million (EUR 1,802 million). - Orders received increased in the Paper business line, remained at the previous year s level in the Services and Automation business lines, and decreased in the Pulp and Energy business line. - Orders received increased in South America and China, remained at the previous year s level in North America, and decreased in Asia-Pacific and EMEA. Net sales increased 14 percent to EUR 1,575 million (EUR 1,376 million). - Net sales increased in the Paper, and Pulp and Energy business lines and remained at the previous year s level in the Services and Automation business lines. Comparable earnings before interest, taxes and amortization (Comparable EBITA) were EUR 82 million (EUR 82 million), and the corresponding Comparable EBITA margin was 5.2 percent (5.9%). - Profitability decreased due to a loss of EUR 15 million recognized in a project in the Pulp and Energy business line in the first quarter of Earnings per share were EUR 0.29 (EUR 0.30). Items affecting comparability amounted to EUR -7 million (EUR 2 million). Cash flow provided by operating activities was EUR 22 million (EUR 125 million). Valmet s Half Year Financial Review, January June

3 Guidance for 2018 On July 17, 2018, Valmet revised upwards its net sales guidance for Revised guidance (on July 17, 2018) Valmet estimates that net sales in 2018 will increase in comparison with 2017 (EUR 3,058 million) and Comparable EBITA in 2018 will increase in comparison with 2017 (EUR 218 million). Previous guidance (on March 21, 2018) Valmet estimates that net sales in 2018 will remain at the same level as in 2017 (EUR 3,058 million) and Comparable EBITA in 2018 will increase in comparison with 2017 (EUR 218 million). Short-term outlook General economic outlook Global growth is projected to reach 3.9 percent in 2018 and in The rate of expansion appears to have peaked in some major economies, and growth has become less synchronized. In the United States, nearterm momentum is strengthening, and the US dollar has appreciated by around 5 percent in recent weeks. Growth projections have been revised down for the euro area, Japan, and the United Kingdom. Among developing economies, growth projections have been revised down for Argentina, Brazil, and India, while the outlook for some oil exporters has strengthened. Tariff increases by the United States and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions. These could derail the recovery and depress medium-term growth prospects. (International Monetary Fund, July 16, 2018) Short-term market outlook Valmet reiterates the good short-term market outlook for services, board and paper, tissue and automation, the satisfactory short-term market outlook for energy, and the weak short-term market outlook for pulp. President and CEO Pasi Laine: Orders received and Comparable EBITA increased in the second quarter Valmet s orders received increased 9 percent and amounted to EUR 865 million in the second quarter of Orders received increased in the Paper and Services business lines, and the customer activity was high especially in the board and paper market. During the first half of the year, orders received remained at the previous year s level. Orders received increased in the Paper business line, remained at the previous year s level in the Services and Automation business lines and decreased in the Pulp and Energy business line, where orders have accumulated mainly from smaller projects. Net sales increased 15 percent during the second quarter. The increase was supported by all business lines, of which Paper had the strongest growth. During the first half of the year, net sales in the Paper business line increased almost 50 percent following the strong customer activity and high orders received in the previous quarters. Comparable EBITA increased in the second quarter, and the margin improved to 7.2 percent. Despite the low first quarter, Comparable EBITA for the first half of 2018 amounts to EUR 82 million. We are now at the same level as a year ago, and need to continue the hard work to reach our Comparable EBITA target. Valmet s Half Year Financial Review, January June

4 Key figures 1 Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change EUR million Orders received % 1,756 1,802-3% Order backlog 2 2,621 2,714-3% 2,621 2,714-3% Net sales % 1,575 1,376 14% Comparable earnings before interest, taxes and amortization (Comparable EBITA) % % % of net sales 7.2% 6.5% 5.2% 5.9% Earnings before interest, taxes and amortization (EBITA) % % % of net sales 6.7% 6.4% 4.8% 6.1% Operating profit (EBIT) % % % of net sales 5.9% 5.3% 3.9% 4.9% Profit before taxes % % Profit for the period % % Earnings per share, EUR % % Earnings per share, diluted, EUR % % Equity per share, EUR % % Cash flow provided by operating activities % % Cash flow after investments Return on equity (ROE) (annualized) 3 10% 10% Return on capital employed (ROCE) before taxes (annualized) 3 11% 11% Equity to assets ratio 2 41% 41% Gearing 2 0% 4% 1 The calculation of key figures is presented on page At the end of period 3 In the calculation of 2017 key figures, data points from 2016 that have not been restated have been used. Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Orders received, EUR million Services % % Automation % % Pulp and Energy % % Paper % % Total % 1,756 1,802-3% As at June 30, As at June 30, Change As at March 31, Order backlog, EUR million Total 2,621 2,714-3% 2,583 Valmet s Half Year Financial Review, January June

5 Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Net sales, EUR million Services % % Automation % % Pulp and Energy % % Paper % % Total % 1,575 1,376 14% News conference and webcast for analysts, investors and media Valmet will arrange a news conference in English for analysts, investors, and media on Wednesday, July 25, 2018 at 4:00 p.m. Finnish time (EET). The news conference will be held at Valmet Head Office in Keilaniemi, Keilasatama 5, Espoo, Finland. The news conference can also be followed through a live webcast at It is also possible to take part in the news conference through a conference call. Conference call participants are requested to dial in at least five minutes prior to the start of the conference, at 3:55 p.m. (EET), at The participants will be asked to provide the following conference ID: During the webcast and the conference call, all questions should be presented in English. After the webcast and the conference call, media has a possibility to interview the management in Finnish. The event can also be followed on Twitter at Valmet s Half Year Financial Review, January June

6 Valmet s Half Year Review January 1 June 30, 2018 Orders received increased 12 percent in January June in the Paper business line Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Orders received, EUR million Services % % Automation % % Pulp and Energy % % Paper % % Total % 1,756 1,802-3% Orders received, comparable foreign exchange rates, EUR million 1 Q2/2018 Q2/2017 Change Q1 Q2/ 2018 Q1 Q2/ 2017 Change Services % % Automation % % Pulp and Energy % % Paper % % Total % 1,831 1,802 2% 1 Indicative only. January to June 2018 orders received in euro calculated by applying January June 2017 average exchange rates to the functional currency orders received values reported by entities. Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Orders received, EUR million North America % % South America % % EMEA % % China % % Asia-Pacific % % Total % 1,756 1,802-3% Orders received by business line, Q1 Q2/2018 Orders received by area, Q1 Q2/2018 Services 39% Automation 9% Pulp and Energy 16% Paper 35% North America 23% South America 6% EMEA 45% China 17% Asia-Pacific 9% April June 2018: Orders received increased 9 percent Orders received increased 9 percent to EUR 865 million in April June (EUR 796 million). The Services and Automation business lines together accounted for 49 percent (52%) of Valmet s orders received. Orders received increased in the Paper and Services business lines and decreased in the Pulp and Energy, and Automation business lines. Orders received increased in South America and EMEA (Europe, Middle East and Valmet s Half Year Financial Review, January June

7 Africa), remained at the previous year s level in China, and decreased in Asia-Pacific and North America. Measured by orders received, the top three countries were China, Germany and the USA, which together accounted for 50 percent of total orders received. The emerging markets accounted for 44 percent (44%) of orders received. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 20 million in April June. During April June, Valmet received among others an order for a containerboard making line to Germany, typically valued at EUR million, an order for a cooking plant to a pulp mill in Belgium, and an order for a containerboard making line to China, typically valued at around EUR million. January June 2018: Continued growth in orders received in the Paper business line Orders received remained at the previous year s level and totaled EUR 1,756 million (EUR 1,802 million) in January June. The Services and Automation business lines together accounted for 49 percent (47%) of Valmet s orders received. Orders received increased in the Paper business line, remained at the previous year s level in the Services and Automation business lines, and decreased in the Pulp and Energy business line. Orders received increased in South America and China, remained at the previous year s level in North America, and decreased in Asia-Pacific and EMEA. Measured by orders received, the top three countries were the USA, China and Finland, which together accounted for 49 percent of total orders received. The emerging markets accounted for 38 percent (41%) of orders received. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 75 million in January June. In addition to the above-mentioned, during the first half of the year Valmet received among others an order for a multifuel boiler and a flue gas treatment plant to Finland, valued at around EUR 70 million, an order for a linerboard production line to the USA, as well as an order for a multifuel boiler and auxiliary process equipment to Turkey. Order backlog remained at the same level as at the end of March 2018 As at June 30, As at June 30, Change As at March 31, Order backlog, EUR million Total 2,621 2,714-3% 2,583 The order backlog amounted to EUR 2,621 million at the end of the reporting period, remaining at the same level as at the end of March Approximately 30 percent of the order backlog relates to stable business (Services and Automation business lines, approximately 25% at the end of June 2017). Approximately 55 percent of the order backlog is currently expected to be recognized as net sales during Valmet s Half Year Financial Review, January June

8 Stable business accounted for 48 percent of net sales in April June Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Net sales, EUR million Services % % Automation % % Pulp and Energy % % Paper % % Total % 1,575 1,376 14% Net sales, comparable foreign exchange rates, EUR million 1 Q2/2018 Q2/2017 Change Q1 Q2/ 2018 Q1 Q2/ 2017 Change Services % % Automation % % Pulp and Energy % % Paper % % Total % 1,637 1,376 19% 1 Indicative only. January to June 2018 net sales in euro calculated by applying January to June 2017 average exchange rates to the functional currency net sales values reported by entities. Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Net sales, EUR million North America % % South America % % EMEA % % China % % Asia-Pacific % % Total % 1,575 1,376 14% Net sales by business line, Q1 Q2/2018 Net sales by area, Q1 Q2/2018 Services 36% Automation 9% Pulp and Energy 26% Paper 29% North America 19% South America 5% EMEA 47% China 19% Asia-Pacific 10% April June 2018: Net sales increased in all business lines Net sales increased 15 percent to EUR 844 million in April June (EUR 732 million). The Services and Automation business lines together accounted for 48 percent (51%) of Valmet s net sales. Net sales increased in all business lines, and in all areas except South America, where net sales decreased. Measured by net sales, the top three countries were China, the USA and Finland, which together accounted for 44 percent of total net sales. Emerging markets accounted for 44 percent (37%) of net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 28 million in April June. Valmet s Half Year Financial Review, January June

9 January June 2018: Net sales increased 49 percent in the Paper business line Net sales increased 14 percent to EUR 1,575 million (EUR 1,376 million) in January June. The Services and Automation business lines together accounted for 45 percent (50%) of Valmet s net sales. Net sales increased in the Paper, and Pulp and Energy business lines and remained at the previous year s level in the Services and Automation business lines. Net sales increased in China, Asia-Pacific and EMEA, remained at the previous year s level in North America, and decreased in South America. Measured by net sales, the top three countries were China, the USA and Finland, which together accounted for 43 percent of total net sales. Emerging markets accounted for 45 percent (38%) of net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 62 million in January June. Comparable EBITA and operating profit In April June, comparable earnings before interest, taxes and amortization (Comparable EBITA) were EUR 61 million, i.e. 7.2 percent of net sales (EUR 48 million and 6.5%). Profitability improved due to higher net sales. In the first half of the year, comparable earnings before interest, taxes and amortization (Comparable EBITA) were EUR 82 million, i.e. 5.2 percent of net sales (EUR 82 million and 5.9%). Profitability decreased due to a loss of EUR 15 million recognized in a project in the Pulp and Energy business line in the first quarter of Operating profit (EBIT) in April June was EUR 49 million, i.e. 5.9 percent of net sales (EUR 39 million and 5.3%). Items affecting comparability amounted to EUR -4 million (EUR -1 million). Operating profit (EBIT) in the first half of the year was EUR 61 million, i.e. 3.9 percent of net sales (EUR 68 million and 4.9%). Items affecting comparability amounted to EUR -7 million (EUR 2 million). Net financial income and expenses Net financial income and expenses in April June were EUR -1 million (EUR -3 million). Net financial income and expenses in the first half of the year were EUR -2 million (EUR -6 million). Profit before taxes and earnings per share Profit before taxes in April June was EUR 48 million (EUR 36 million). The profit attributable to owners of the parent in April June was EUR 35 million (EUR 27 million), corresponding to earnings per share (EPS) of EUR 0.23 (EUR 0.18). Profit before taxes in the first half of the year was EUR 59 million (EUR 62 million). The profit attributable to owners of the parent in the first half of the year was EUR 43 million (EUR 45 million), corresponding to earnings per share (EPS) of EUR 0.29 (EUR 0.30). Return on capital employed (ROCE) In January June, the annualized return on capital employed (ROCE) before taxes was 11 percent (11%) and return on equity (ROE) 10 percent (10%). Valmet s Half Year Financial Review, January June

10 Business lines Services: Orders received and net sales increased in Q2/2018 Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Services business line Orders received (EUR million) % % Net sales (EUR million) % % Personnel (end of period) 5,627 5,569 1% In April June, orders received by the Services business line increased 7 percent to EUR 344 million (EUR 321 million) and accounted for 40 percent of all orders received (40%). Orders received increased in EMEA and China, remained at the previous year s level in North America and decreased in South America and Asia- Pacific. Orders received increased in Performance Parts, Rolls, and Energy and Environmental, and remained at the previous year s level in Mill Improvements, and Fabrics. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 13 million in April June. In the first half of the year, orders received by the Services business line remained at the previous year s level at EUR 690 million (EUR 676 million) and accounted for 39 percent of all orders received (38%). Orders received increased in EMEA, remained at the previous year s level in China, and decreased in South America, Asia-Pacific and North America. Orders received increased in Mill Improvements and Performance Parts, remained at the previous year s level in Fabrics and Rolls, and decreased in Energy and Environmental. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 34 million during the first half of the year. In April June, net sales of the Services business line amounted to EUR 325 million (EUR 302 million), corresponding to 38 percent (41%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 14 million in April June. In the first half of the year, net sales of the Services business line amounted to EUR 572 million (EUR 554 million), corresponding to 36 percent (40%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 30 million during the first half of the year. Automation: Orders received decreased and net sales increased in Q2/2018 Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Automation business line Orders received (EUR million) % % Net sales (EUR million) % % Personnel (end of period) 1,772 1,698 4% In April June, orders received by the Automation business line decreased 8 percent to EUR 84 million (EUR 91 million) and accounted for 10 percent (11%) of Valmet s orders received. Orders received increased in South America, remained at the previous year s level in EMEA and Asia-Pacific, and decreased in China and North America. Orders received increased in Energy and Process and decreased in Pulp and Paper. Changes Valmet s Half Year Financial Review, January June

11 in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 2 million in April June. In the first half of the year, orders received by the Automation business line remained at the previous year s level at EUR 166 million (EUR 163 million) and accounted for 9 percent (9%) of Valmet s orders received. Orders received increased in Asia-Pacific and EMEA, remained at the previous year s level in South America, and decreased in North America and China. Orders received increased in Energy and Process and decreased in Pulp and Paper. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 6 million during the first half of the year. In April June, net sales of the Automation business line amounted to EUR 76 million (EUR 73 million), corresponding to 9 percent (10%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 2 million in April June. In the first half of the year, net sales of the Automation business line amounted to EUR 136 million (EUR 132 million), corresponding to 9 percent (10%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 5 million during the first half of the year. Pulp and Energy: Orders received decreased and net sales increased in Q2/2018 Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Pulp and Energy business line Orders received (EUR million) % % Net sales (EUR million) % % Personnel (end of period) 1,768 1,767 0% In April June, orders received by the Pulp and Energy business line decreased 39 percent to EUR 85 million (EUR 141 million) and accounted for 10 percent of all orders received (18%). Orders increased in North America, and decreased in all other regions. Orders received increased in Pulp and decreased in Energy. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 3 million in April June. In the first half of the year, orders received by the Pulp and Energy business line decreased 32 percent to EUR 278 million (EUR 406 million) and accounted for 16 percent of all orders received (23%). Orders received decreased in all regions, and in both Pulp and Energy. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 5 million during the first half of the year. In April June, net sales of the Pulp and Energy business line increased 7 percent to EUR 205 million (EUR 192 million), corresponding to 24 percent (26%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 5 million in April June. In the first half of the year, net sales of the Pulp and Energy business line increased to EUR 408 million (EUR 381 million), corresponding to 26 percent (28%) of Valmet s net sales. Changes in foreign exchange Valmet s Half Year Financial Review, January June

12 rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 9 million during the first half of the year. Paper: Orders received and net sales increased in Q2/2018 Q2/2018 Q2/2017 Change Q1 Q2/ Q1 Q2/ Change Paper business line Orders received (EUR million) % % Net sales (EUR million) % % Personnel (end of period) 2,939 2,829 4% In April June, orders received by the Paper business line increased 45 percent to EUR 353 million (EUR 243 million) and accounted for 41 percent of all orders received (31%). Orders received increased in South America, EMEA and China, remained at the previous year s level in North America, and decreased in Asia- Pacific. Orders received increased in Board and Paper, and decreased in Tissue. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 2 million in April June. In the first half of the year, orders received by the Paper business line increased 12 percent to EUR 623 million (EUR 557 million) and accounted for 35 percent of all orders received (31%). Orders received increased in South America, North America and China, and decreased in Asia-Pacific and EMEA. Orders received increased in Board and Paper, and decreased in Tissue. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased orders received by approximately EUR 30 million during the first half of the year. In April June, net sales of the Paper business line amounted to EUR 237 million (EUR 165 million), corresponding to 28 percent (23%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 7 million in April June. In the first half of the year, net sales of the Paper business line amounted to EUR 460 million (EUR 310 million), corresponding to 29 percent (22%) of Valmet s net sales. Changes in foreign exchange rates compared to the exchange rates for the corresponding period in 2017 decreased net sales by approximately EUR 17 million during the first half of the year. Cash flow and financing Cash flow provided by operating activities amounted to EUR 3 million (EUR 31 million) in April June and EUR 22 million (EUR 125 million) in the first half of the year. Net working capital totaled EUR -362 million (EUR -335 million) at the end of the reporting period. Change in net working capital in the statement of cash flows was EUR -27 million (EUR -37 million) in April June, and EUR -30 million (EUR 47 million) in the first half of the year. In the statement of cash flows, change in net working capital excludes the impact of changes in foreign exchange rates and other non-cash items, amounting to EUR 5 million (EUR -6 million) during the first half of the year. Payment schedules of large capital projects have a significant impact on net working capital development. Cash flow after investments totaled EUR -18 million (EUR 15 million) in April June and EUR -9 million (EUR 95 million) in the first half of the year. At the end of June, gearing was 0 percent (4%) and equity to assets ratio was 41 percent (41%). Interestbearing liabilities amounted to EUR 201 million (EUR 277 million), and net interest-bearing liabilities totaled Valmet s Half Year Financial Review, January June

13 EUR -4 million (EUR 31 million) at the end of the reporting period. The average maturity of Valmet s noncurrent debt was 3.7 years, and average interest rate was 1.3 percent at the end of June. Valmet s liquidity was strong at the end of the reporting period, with cash and cash equivalents amounting to EUR 183 million (EUR 206 million) and interest-bearing current financial assets totaling EUR 5 million (EUR 23 million). Valmet s liquidity was additionally secured by a committed revolving credit facility worth of EUR 200 million, which matures in 2023 with a 1-year extension option, and an uncommitted commercial paper program worth of EUR 200 million. In March 2018, Valmet signed a 5-year EUR 45 million loan agreement with the European Investment Bank. All of the above facilities were undrawn at the end of the reporting period. On April 5, 2018, Valmet paid out dividends of EUR 82 million. Capital expenditure Gross capital expenditure in April June totaled EUR 20 million (EUR 15 million), of which maintenance investments were EUR 12 million (EUR 11 million). Gross capital expenditure in the first half of the year totaled EUR 36 million (EUR 30 million), of which maintenance investments were EUR 23 million (EUR 20 million). Acquisitions and disposals Acquisitions Valmet made no acquisitions during January June Disposals Valmet made no disposals during January June Number of personnel As at June 30, As at June 30, Change As at March 31, Personnel by business line Services 5,627 5,569 1% 5,497 Automation 1,772 1,698 4% 1,714 Pulp and Energy 1,768 1,767 0% 1,713 Paper 2,939 2,829 4% 2,839 Other % 547 Total 12,668 12,458 2% 12,310 As at June 30, As at June 30, Change As at March 31, Personnel by area North America 1,203 1,262-5% 1,200 South America % 526 EMEA 8,478 8,246 3% 8,144 China 1,714 1,685 2% 1,707 Asia-Pacific % 733 Total 12,668 12,458 2% 12,310 Valmet s Half Year Financial Review, January June

14 Personnel by business line as at June 30, 2018 Personnel by area as at June 30, 2018 Services 44% Automation 14% Pulp and Energy 14% Paper 23% Others 4% North America 9% South America 4% EMEA 67% China 14% Asia-Pacific 6% During the first half of the year, Valmet employed an average of 12,393 people (12,139). The number of personnel at the end of June was 12,668 (12,458). Personnel expenses totaled EUR 417 million (EUR 418 million) in January June, of which wages, salaries and remuneration amounted to EUR 326 million (EUR 324 million). Strategic goals and their implementation Valmet is the leading global developer and supplier of technologies, automation and services for the pulp, paper and energy industries. Valmet focuses on delivering technology and services globally to industries that use bio-based raw materials. Valmet's main customer industries are pulp, paper and energy. These are all major global industries that offer growth potential for the future. Valmet is committed to moving its customers' performance forward. Valmet s vision is to become the global champion in serving its customers, and its mission is to convert renewable resources into sustainable results. Valmet seeks to achieve its strategic targets by pursuing the following Must-Win initiatives: customer excellence, leader in technology and innovation, excellence in processes and winning team. Valmet s product and service portfolio consists of productivity-enhancing services, automation solutions, plant upgrades and rebuilds, new cost-efficient equipment and solutions for optimizing energy and raw material usage, and technologies increasing the value of our customers' end products. In order to improve its operational excellence, Valmet is in the process of renewing its ERP system. The aim is to renew and improve Valmet s operational capability through process harmonization and standardization, and through renewal and modernization of the ERP platform. Valmet has an annual strategy process, where, among others, Valmet s strategy, Must-Wins and financial targets are reviewed. In June 2018, the Board of Directors reconfirmed Valmet s strategy and financial targets. Valmet has the following financial targets: Financial targets Net sales for stable business to grow over two times the market growth Net sales for capital business to exceed market growth Comparable EBITA: 8 10% Comparable return on capital employed (pre-tax), ROCE: 15 20% Dividend payout at least 50% of net profit Stable business means Services and Automation business lines. Capital business means Paper, and Pulp and Energy business lines. Valmet s Half Year Financial Review, January June

15 Continued focus on improving profitability Valmet continues to focus on improving profitability through various actions in e.g. sales process management, project management and project execution, in procurement and quality, as well as in technology and R&D. To improve sales process management, Valmet is focusing on key account management and analyzing the customers share of wallet. Valmet is targeting market share improvement at key customers and adding focus on sales training. Valmet has also launched Valmet Way to Serve a shift towards more unified and customer oriented services. Valmet is continuously improving its project management and project execution by training personnel and implementing a Valmet-wide project execution model. By focusing on improving project management and execution, Valmet is targeting continuous improvement of gross profit. Valmet has set a long-term savings target for procurement. In order to decrease procurement costs, Valmet is focusing on design-to-cost and adding supplier involvement through supplier relationship management. Valmet has also set a target for quality cost savings and is adding focus on root cause analysis of quality deviations. Furthermore, Valmet is continuing to adopt the Lean principles and methodology. Valmet is constantly focusing on new technologies and R&D to improve product cost competitiveness and performance. The renewal of Valmet s ERP system will increase efficiency once implemented. Progress in sustainability During the first half of 2018, Valmet progressed with the actions defined in its Sustainability360 agenda. Valmet continued to further strengthen its sustainable supply chain by conducting 25 supplier sustainability audits globally by the end of June. Valmet has the target to conduct at least 50 supplier sustainability audits every year. In June, Valmet published its updated Sustainable Supply Chain Policy. The updated policy includes a more comprehensive approach to human and labor rights, reflecting the global developments as well as sustainability expectations and requirements of Valmet s customers and other stakeholders. The policy is available in 14 languages. Compliance with the policy s requirements is the starting point for entering and maintaining all business relationships with Valmet. Valmet s Forward Strategy and Fast Forward strategy programs were recognized for impactful leadership development by the European Foundation for Management Development (EFMD) in its annual Excellence in Practice Awards (EiP) in May. Valmet was awarded together with the program provider IMD. By the end of June, 32 percent of Valmet s white-collar employees had completed the new company-wide e-learning about sustainability. The course was launched in February 2018 and is mandatory for all of Valmet s white-collar employees. Valmet s lost time incident frequency rate (LTIF) for own employees reached its lowest level ever at 2.1 at the end of June (2.5 at the end of June 2017). Valmet s total recordable incident frequency rate (TRIF) for own employees was 4.8 at the end of June (5.5 at the end of June 2017), reaching the target level of <5 set for During the first half of the year, Valmet updated its minimum safety standards and added two new standards covering work with radiation and electrical safety. Valmet s Half Year Financial Review, January June

16 Lost time incident frequency rate (LTIF) and total recordable incident frequency rate (TRIF) for own employees Jan-2013 Jan-2014 Jan-2015 Jan-2016 Jan-2017 Jan-2018 LTIF, rolling 12 months TRIF, rolling 12 months Lawsuits and claims Several lawsuits, claims and disputes based on various grounds are pending against Valmet in various countries, including product liability lawsuits and claims as well as legal disputes related to Valmet s deliveries. Valmet is also a plaintiff in several lawsuits. Valmet announced by stock exchange release on September 16, 2016 that Suzano Papel e Celulose S.A. has filed a request for arbitration against Valmet Celulose, Papel e Energia Ltda, Valmet AB and Valmet Technologies Oy, subsidiaries of Valmet Oyj, claiming approximately EUR 80 million. The arbitration relates to separate Equipment Sales Agreements for the Suzano Imperatriz pulp mill project in Brazil. Valmet disputes the claims brought by Suzano and has also actively pursued claims of its own against Suzano for breach by Suzano of its obligations under the Agreements. Valmet announced by stock exchange release on December 22, 2016 that it has received a reassessment decision from the Finnish tax authority for Valmet Technologies Inc. The reassessment decision is a result of a tax audit carried out in the company, concerning tax years During the first quarter 2017 Valmet paid additional taxes, late payment interests and penalties in total of EUR 19 million related to the reassessment decision. Valmet considers the Finnish tax authority's decision unfounded and has appealed of the decision. Valmet s management does not expect to the best of its present understanding that the outcome of these lawsuits, claims and disputes will have a material adverse effect on Valmet in view of the grounds currently presented for them, provisions made, insurance coverage in force and the extent of Valmet s total business activities. Corporate Governance and Remuneration Statements Valmet has prepared a separate Corporate Governance Statement and a Remuneration Statement for 2017, which comply with the recommendations of the Finnish Corporate Governance Code for listed companies. The statements also cover other central areas of corporate governance. The statements have Valmet s Half Year Financial Review, January June

17 been published on Valmet s website, separately from the Report of the Board of Directors, at Shares and shareholders Share capital, number of shares and shareholders As at June 30, 2018 As at June 30, 2017 Share capital, EUR 100,000, ,000,000 Number of shares 149,864, ,864,619 Treasury shares 246, Shares outstanding 149,617, ,864,220 Market capitalization, EUR million 2,476 2,549 Number of shareholders 45,828 44,952 Shareholder structure as at June 30, 2018 Nominee registered and non-finnish holders 49.5% Solidium Oy 11.1% Finnish private investors 13.4% Finnish institutions, companies and foundations 25.9% Trading of shares January 1 June 30, January 1 June 30, Trading of Valmet shares on Nasdaq Helsinki Number of shares traded 46,590,834 46,353,950 Total value, EUR 777,290, ,219,906 High, EUR Low, EUR Volume-weighted average price, EUR Closing price on the final day of trading, EUR The closing price of Valmet s share on the final day of trading for the reporting period, June 29, 2018, was EUR 16.52, and at the same level as the closing price on the last day of trading in 2017 (EUR on December 29, 2017). In addition to Nasdaq Helsinki Ltd, Valmet s shares are also traded on other marketplaces, such as Cboe CXE, Cboe BXE and Turquoise. A total of approximately 28 million of Valmet s shares were traded on alternative marketplaces in January June 2018, which equals to approximately 37 percent of the share s total trade volume. (Source: Fidessa) Valmet s Half Year Financial Review, January June

18 31-Dec Jan Feb Mar Apr May Jun-18 EUR Development of Valmet s share price, December 31, 2017 June 30, Valmet OMX Helsinki (rebased) Flagging notifications During the review period, Valmet received the following flagging notifications referred to in the Securities Market Act: Transaction date Shareholder Threshold Direct holding, % Indirect holding, % Total holding, % March 20, 2018 BlackRock, Inc Below 5% n.a. n.a. Below 5% March 26, 2018 BlackRock, Inc Above 5% 4.15% 0.85% 5.00% May 2, 2018 BlackRock, Inc Below 5% n.a. n.a. Below 5% May 3, 2018 BlackRock, Inc Above 5% 4.33% 0.69% 5.03% May 7, 2018 BlackRock, Inc Below 5% n.a. n.a. Below 5% May 9, 2018 BlackRock, Inc Above 5% 4.33% % May 10, 2018 BlackRock, Inc Below 5% n.a. n.a. Below 5% May 14, 2018 BlackRock, Inc Above 5% 4.32% 0.67% 5.00% May 15, 2018 BlackRock, Inc Below 5% n.a. n.a. Below 5% More information on flagging notifications can be found at Board authorizations regarding share repurchase and share issue Valmet Oyj s Annual General Meeting on March 21, 2018 authorized Valmet s Board of Directors to decide on the repurchase of the Company's own shares in one or several tranches. The maximum number of shares to be repurchased shall be 10,000,000 shares, which corresponds to approximately 6.7 percent of all the shares in the Company. The Company's own shares may be repurchased otherwise than in proportion to the shareholdings of the shareholders (directed repurchase). The Company's own shares may be repurchased using the unrestricted equity of the Company at a price formed on a regulated market on the stock exchange main list upheld by Nasdaq Helsinki Ltd on the date of the repurchase. Company's own shares may be repurchased for reasons of developing the Company's capital structure, financing or carrying out acquisitions, investments or other business transactions, or for the shares to be used in an incentive scheme. The Board of Directors resolves on all other terms related to the repurchasing of the Company's own shares. Valmet Oyj s Annual General Meeting authorized Valmet s Board of Directors to decide on the issuance of shares as well as the issuance of special rights entitling to shares pursuant to Chapter 10(1) of the Finnish Limited Liability Companies Act in one or several tranches. The issuance of shares may be carried out by Valmet s Half Year Financial Review, January June

19 offering new shares or by transferring treasury shares held by Valmet Oyj. Based on this authorization, the Board of Directors may decide on a directed share issue in deviation from the shareholders pre-emptive rights, and on the granting of special rights subject to the conditions mentioned in the Finnish Limited Liability Companies Act. The maximum number of new shares which may be issued by the Board of Directors based on this authorization shall be 15,000,000 shares, which corresponds to approximately 10.0 percent of all the shares in Valmet Oyj. The maximum number of treasury shares which may be issued shall be 10,000,000 shares, which corresponds to approximately 6.7 percent of all the shares in the Company. The Board of Directors is furthermore authorized to issue special rights pursuant to Chapter 10(1) of the Finnish Limited Liability Companies Act entitling their holder to receive new shares or treasury shares for consideration. The maximum number of shares which may be issued based on the special rights shall be 15,000,000 shares, which corresponds to approximately 10 percent of all the shares in Company. This number of shares shall be included in the aggregate numbers of shares mentioned in the previous paragraph. The new shares and treasury shares may be issued for consideration or without consideration. The Board of Directors of Valmet Oyj was also authorized to resolve on issuing treasury shares to the Company without consideration. The maximum number of shares which may be issued to Valmet Oyj shall be 10,000,000 shares when combined with the number of shares repurchased based on an authorization. Such number corresponds to approximately 6.7 percent of all shares in the Company. The treasury shares issued to the Company shall not be taken into account in the limits set out in the preceding paragraphs. The Board of Directors may resolve on all other terms of the issuance of shares and special rights entitling to shares pursuant to Chapter 10(1) of the Finnish Limited Liability Companies Act. The Company may use this authorization, for example, for reasons of developing the Company s capital structure, in financing or carrying out acquisitions, investments or other business transactions, or for the shares to be used in incentive schemes. The authorizations shall remain in force until the next Annual General Meeting, and they cancel the authorizations granted in the Annual General Meeting of March 23, As at June 30, 2018, Valmet s Board of Directors had not used any of the authorizations. Share-based incentive plans Valmet s share-based incentive plans are part of the remuneration program for Valmet s key personnel. The purpose of the plans is to align the goals of shareholders and management to increase the value of the Company, to ensure commitment of management, and to offer them a competitive, ownership-based reward scheme. Any shares to be potentially awarded are, or have been, acquired through public trading, and therefore the incentive plans have no diluting effect on the share value. In the end of the reporting period, the Company held 246,799 treasury shares related to the share-based incentive programs. Long-term incentive plan The Board of Directors of Valmet Oyj approved in December 2014 a share-based incentive plan for Valmet s key employees. The Plan included three performance periods, which were the calendar years 2015, 2016 Valmet s Half Year Financial Review, January June

20 and The Board of Directors decided on the performance criteria and targets in the beginning of each discretionary period. The Plan was directed to approximately 80 key employees (including Executive Team members). The rewards of the plan were paid partly as Company shares and partly in cash. Performance period Incentive based on EBITA % and Services orders received growth % Comparable EBITA % and orders received growth % of the stable business (Services and Automation business lines) Comparable EBITA % and orders received growth % of the stable business (Services and Automation business lines) Reward payment Was paid in spring 2016 Was paid in spring 2017 Was paid in spring 2018 Total gross number of shares earned (including the matching share rewards) 540, , ,820 As part of the share-based incentive program, members of Valmet Executive Team had the possibility to receive a matching share reward for each performance period, provided that the Executive Team member owned or acquired Valmet shares up to a number determined by the Board of Directors by the end of each performance period. Long-term incentive plan In December 2017, the Board of Directors of Valmet Oyj approved a new long-term share-based incentive plan for Valmet's key employees. The plan includes three performance periods, which are the calendar years 2018, 2019 and Valmet's Board of Directors shall decide on the performance criteria and targets in the beginning of each discretionary period. The plan is directed to a total of approximately 120 participants, of which 80 are key employees in management positions (including Executive Team members), and 40 are management talents, which is a new target group in Valmet's share based incentive plan. Performance period 2018 Incentive based on Comparable EBITA % and orders received growth % of the stable business (Services and Automation business lines) Potential reward payment Will be paid partly in Valmet shares and partly in cash in 2019 Total number of shares Approximate maximum of 504,626 The Board of Directors of Valmet Oyj approved in December 2017 a share ownership recommendation for Valmet's Executive Team members. All members of the Executive Team are recommended to own and hold an amount of Company shares equaling to their gross annual base salary (100 percent ownership recommendation). More information about share-based incentive plans can be found in Valmet s Remuneration Statement, which is available at Resolutions of Valmet s Annual General Meeting The Annual General Meeting of Valmet Oyj was held in Helsinki on March 21, The Annual General Meeting adopted the Financial Statements for 2017 and discharged the members of the Board of Directors and the President and CEO from liability for the 2017 financial year. The Annual General Meeting approved the Board of Directors' proposals concerning authorizing the Board to decide on repurchasing company shares and to resolve on the issuance of shares and the issuance of special rights entitling to shares. Valmet s Half Year Financial Review, January June

21 The Annual General Meeting confirmed the number of Board members as seven and appointed Bo Risberg as Chairman of Valmet Oyj's Board and Aaro Cantell as Vice Chairman. Monika Maurer and Pekka Kemppainen were appointed as new members of the Board. Rogério Ziviani, Tarja Tyni and Eriikka Söderström will continue as members of the Board. The term of office of the members of the Board of Directors expires at the close of the Annual General Meeting PricewaterhouseCoopers Oy, authorized public accountants, was appointed as the company's auditor for a term expiring at the end of the next Annual General Meeting. Valmet published a stock exchange release on March 21, 2018 concerning the resolutions of the Annual General Meeting and the organizing meeting of the Board of Directors. The stock exchange release and an introduction of the new Board members can be viewed on Valmet s website at In compliance with the resolution of the Annual General Meeting, on April 5, 2018 Valmet paid out dividends of EUR 82 million for 2017, corresponding to EUR 0.55 per share. Risks and business uncertainties Valmet s operations are affected by various strategic, financial, operational and hazard risks. Valmet takes measures to exploit emerging opportunities and to limit the adverse effects of potential threats. The assessment of risks related to sustainable development holds an important role in risk management. If such threats materialized, they could have material adverse effects on Valmet s business, financial situation and operating result, or on the value of shares and other securities. The objective of Valmet s risk management is to ensure the implementation of an effective and successful strategy for achieving both long- and short-term goals. The task of Valmet s management is to regulate risk appetite. In assessing risks, Valmet takes into consideration the probability of the risks and their estimated impact on net sales and financial results. Valmet s management estimates that the company s overall risk level is currently manageable in proportion to the scope of its operations and the practical measures available for managing these risks. Financial uncertainty in the global economy, coupled with fluctuations in exchange rates and tightening financial market regulations, may have an adverse effect on the availability of financing from banks and capital markets and could reduce the investment appetite of Valmet s customers. Valmet estimates that the high proportion of business derived from stable business (Services and Automation) and the geographical diversification will reduce the possible negative effects that market uncertainties may have. If global economic growth weakens, it might have adverse effects on new projects under negotiation or on projects in the order backlog. Some projects may be postponed, suspended, or canceled. In the case of long-term delivery projects, initial customer advance payments are typically percent of the value of the project, and customers make progress payments as a project is implemented. This significantly decreases the risks and financing requirements related to Valmet s projects. Valmet continually assesses its customers creditworthiness and their ability to meet their obligations. As a rule, Valmet does not finance customer projects. If economic growth slows down significantly, the markets for Valmet s products may shrink, which may lead to, for example, tougher price competition. Valmet s Half Year Financial Review, January June