Good morning and welcome to Valmet's First Quarter 2025 Result Publication webcast. Valmet's year started strongly in Services and Automation segments while the market conditions remained subdued in the Process Technologies segment. I'm Pekka Rouhiainen from IR, and with me today are Thomas Hinnerskov, President and CEO, as well as Katri Hokkanen, CFO. Today, Thomas will first go through the highlights of the quarter and provide an update on the strategy renewal process. After that, Katri will go through the financial development in more detail, also from the segment perspective, and Thomas will then conclude on the guidance and short-term market outlook. With that, I hand over to the presenters. Thomas, the floor is yours.
Thank you, Pekka. Very happy to be here. Great to start the year in a good way. Let's start looking at Q1. Overall, orders received increased to EUR 1.3 billion. Particularly pleased to see the performance in our stable business, and we'll come back to that several times during the presentation. Overall, also order backlog amounted to EUR 4.6 billion, a bit higher than at the end of Q4, which of course is a positive development that we are happy about. Net sales were flat year- over- year. Stable business grew. Process Technology decreased, which of course is unfortunate, but it is a consequence also of this subdued market that we're currently experiencing. Comparable EBITDA remained on the same level as last year, landing at EUR 121 million, with a slightly better margin of 10.2%.
Cash flow was very strong in 2024, and I'm very happy to say that the good trajectory really continued, and our cash conversion was very strong in Q1, and cash flow landed at EUR 217 million. Comparable ROCE increased a notch from a year-end to now 13%. Maybe the biggest news of the quarter was our plan to renew the operating model. The proposed model will help us serve our customers better throughout the lifecycle of our equipment and the things that we deliver and the solutions we deliver to customers. It will also simplify how we operate, and it will increase our efficiency. I'll come back to that later in my presentation as well. First of all, let's have a look at the Q1. Did you strip a slide or what? No. Sorry about that. Okay, that's now here we are.
First of all, let's look at the stable business then. First of all, Q1, order intake EUR 974 million. That was a record. Even though it was partly supported by an acquisition that we did last year, the organic growth was also strong. The year started strongly in the stable business, where we reported orders increased by 14%. Even on an organic basis with the acquisition or taking the acquisition out, we did also see organic growth of 8% in service. Positively, however, supported by a large mill improvement project, but also consumables and the performance parts grew nicely. We'd also have to say, and we can come back to that, that sort of the organic growth was also supported by price increases in the segment. Geographically, orders increased in Asia Pacific, in South America, and in North America, and were flat in China and EMEA.
Big thanks to all area teams for effort in Q1, and a special thanks to Asia Pacific for making a record quarter in service orders received Q1 2025. Organic growth in automation, 12%, driven by strong performance in both Flow Control and Automation System. In Automation System, we saw good activity in the pulp and paper, but also in Other process industries. In Flow Control , orders grew, particularly in service and in the valve controls and actuators. We might have seen some pre-tarrif buying, might have been visible in particular in the Flow Contro l in North America, but overall, I think it fairly sort of shows a fair level of the actual activity that we saw in the market. Very pleased with the strong performance by our teams and good level of customer activity in this stable business.
I'd say this sort of highlights the resilience of our stable business throughout the years, through cycles. It really has been a strong contributor, also organically 6% roughly. Of course, it's also impacted by acquisitions over the years, but 6% organic growth nicely improving. Good to see. Very pleased overall with strong stable business, orders totaling close to EUR 3.5 billion on a last 12 months basis. That really sort of demonstrates our abilities to serve customers from equipment throughout the lifecycle, sort of true lifecycle approach. Just a small customer highlight of the quarter, we launched Valmet DNAe in 2024. It was one of the highlights of 2024. Very pleased to see that we continue getting traction. We've already received a good amount of orders for our DNAe.
This customer case is from Q1, Finnish power plant, selected Valmet DNAe to modernize its automation of its power plant. Great win by the team in the energy sector. Customer made a thorough evaluation process and ended up concluded that Valmet DNAe adds the most value to them. This customer, ESE Energia, decided to replace old third-party system with this comprehensive DNAe solution. Really sort of full Automation System upgrade of their power plant. Strategically, I mean, this brings Valmet really sort of much closer to the customer and adds value with sort of deep system integration, and we can add value to the customer throughout the lifecycle with upgrades, remote support, future add-ons that will come into the system. Clearly, I'm a strength of our reputation outside pulp and paper and particularly in the Energy segment.
Big thanks to the team, and also big thanks to our valued customer for your trust on this one. Moving on to strategy. Strategy process started late last year, and I have to say it's progressing and proceeding very well, and really exciting and fruitful discussions that we're having on a broad basis in the company. Let's first look a little bit at sort of recent history and the background for the strategic renewal, but also the operating to a very large extent. Looking at our numbers from the last three to four years, organic growth has clearly plateaued, both in terms of net sales and comparable EBITDA, as well as margin. Of course, that's not something that we are really happy about. On top of that, capital employed had increased, so ROCE clearly decreased as well.
This is something we want to take action on and improve in the coming years. On top of that, you can say market activity in the Process Technology, as we also saw in Q1, remains on a low level. In here, we need to make sure we have an efficient operation that performs also in challenging market situations. That is why at the end of Q1, we, as a consequence of all this, announced the plan to renew Valmet's operating model as a first action in this strategic renewal process. Overall, we are aiming to serve our customers better. This is basically the most important end goal and purpose of the changes that we are making.
It will sort of make us or put us in a better position to sort of achieve delivering and taking that lifecycle approach to what the customer will have a strong business areas who are then responsible and accountable for driving the profitability and the growth of both capital and related aftermarket service. Throughout the customer lifecycle, customers will actually be interfacing with one business area. Secondly, it will simplify the organizational structure. The current five geographical areas will be integrated into the new business areas, keeping that local proximity to customers. Thirdly, we will drive efficiency by establishing a global supply unit to support our cost competitiveness, but also put us in a position where we can have a more flexible supply chain that actually can manage peaks and troughs in the demand and the market.
The process we're going through now will impact up to a maximum of 1,150 roles globally. All these roles are white-collar employees, so no blue collars are included in these 1,150 potential people. In terms of financial, we do estimate, like we said when we came out as well, that an EUR 80 million savings with full run rate achieved by beginning of 2026. In roughly a year's time. The renew strategy will be fully communicated at our upcoming Capital Markets Day on June 5, 2025. The renew strategy really sort of aims at identifying future growth areas, both existing and of our current business, but also simplify the way we're working and increase our operational efficiency.
Yeah, I'm really looking forward to meeting you all in person in Tampere and really have a good discussion on where the future strategic direction of Valmet is going. With this, I'll hand over to Katri for the financial. Here you go.
Thank you, Thomas, and good morning everyone also on my behalf. I will go through the financial development next on the slides. Valmet's orders were nicely tilted towards stable business during the first quarter. It is good to remember that the first quarter is typically a seasonally strong quarter in stable business for us, and year-over-year growth was also strong. In the first quarter, 73% of our orders came from stable business. On the net sales side, they were more evenly distributed, and seasonally, our net sales in the first quarter are typically a bit lower than in other quarters. In terms of comparable EBITDA, almost all of our profits were made in services and Automation segments, and the quarter was weak for Process Technologies profitability. Q1 orders increased to EUR 1.3 billion, and the order backlog was close to EUR 4.6 billion.
The big Arauco pulp mill order is visible in the order backlog. Net sales decreased a bit, and comparable EBITDA was exactly the same as last year at EUR 121 million, and the margin was 10.2%. Both net sales and comparable EBITDA decreased sequentially from the fourth quarter, which is a typical seasonal pattern for us in Valmet. Items affecting comparability were -EUR 8 million for the quarter, and they were mostly related to our Other segment and to a smaller extent to process Tech and Automation segments. The IAC provisions related to the operational model change and the workforce reductions are to be expected to be booked in the second quarter this year. Amortizations were EUR 24 million for the quarter, leading to EUR 89 million operating profit. Going forward, the quarterly amortizations are expected to be roughly on a similar level than in the Q1.
Adjusted EPS remained at last year's level at EUR 0.33. Some words about the order backlog next. The order backlog is EUR 122 million higher than at the end of last year. The order backlog has grown in stable business and is a bit lower in Process Tech. Roughly 60% of the backlog is related to Process Technologies and 40% to stable business. The order backlog for this year is roughly EUR 2.9 billion, adding the same amount we had last year at this point. This is in line with our guidance of flat net sales for this year. Moving next to the segment financials, starting from the Process Technologies , the market activity continues to be low, but the orders received on the last 12 months basis are on a good level, supported by the big order in Q4 last year.
Net sales, however, are decreasing, and this has also led to a lower comparable EBITDA margin. Orders received in process tech increased in the first quarter, but it is fair to admit that the market activity continues to be subdued, and book-to-bill ratio is below one. Net sales decreased by 17% or EUR 84 million, which then led to a lower comparable EBITDA, and margin was disappointingly low at 1.5%. Moving on to services next, where the development looks much better. Both orders and net sales have been growing steadily in the last years, and comparable EBITDA margin reached now 18% on the last 12 months basis. The first quarter marked a very strong start for the year in services. Orders received grew 8% organically across the service portfolio. Net sales also increased by 6% organically and supported also the comparable EBITDA.
Comparable EBITDA margin was 17.6%, which is the best ever Q1 margin for services. Looking at Automation segment next, orders received and net sales trends are also very positive here in the recent years. The last 12 months comparable EBITDA was EUR 258 million and margin 17.6%. The margin has plateaued, but partly this is explained by the acquisition of API, where the margin has historically been lower. Orders received increased by 24% in Automation segment, of which half, which is 12%, was organic growth. This also means that the start of the year was very strong in terms of orders in Automation segment. 63% of the orders came from outside of pulp and paper industry in the first quarter. Net sales increased by 10%, and this was due to the acquisition of API, but organically we saw a slight decrease of 2% here.
Comparable EBITDA increased to EUR 55 million and the margin was 16.2%. It is good to remember that automation's net sales and profitability are typically seasonally lower in the first quarter. Looking at the segments big picture, as said, services and automation performed well, while Process Tech has been suffering from the low market activity. The expenses in Other were EUR 16 million for the quarter, and the expenses in Other have been roughly EUR 50 million in the last years, and we expect a similar or slightly higher level this year. Comparable with the gross profit, it was exactly at last year's level on a last 12 months basis, while the margin went up a notch to 28.4%. Comparable SG&A expenses have been increasing faster than our net sales since 2022, which is partly why we are now planning the EUR 80 million cost reductions.
Cash flow continued to be on a strong level, and this was clearly one of the highlights of the quarter. Last 12 months cash flow increased to EUR 633 million, and Q1 was EUR 217 million. CapEx amounted to EUR 24 million, a bit lower than in the comparison quarter. When you look at the net working capital, it decreased clearly from the year- end to - EUR 193 million. This is now - 3% of the last 12 months orders received. It is worth noting that the AGM decided on a dividend of EUR 1.35 per share, and it is paid in two installments in April and October. The working capital therefore included EUR 249 million dividend liability. Moving on to the balance sheet, thanks to the strong cash flow, net debt decreased to EUR 875 million and gearing to 36%, and net debt to EBITDA decreased to 1.3.
The average interest rate was 4% and net financial expenses EUR 15 million in the first quarter. Lastly, a few words about ROCE and earnings per share. Both ROCE and adjusted EPS have been under pressure in the recent years, but they remained roughly at par with the end of last year on last 12 months basis. That concludes my part of the presentation. I will now hand back to you, Thomas.
Thank you, Katri. Good. Let's move to the guidance and the short-term market outlook. Overall, our guidance is unchanged. We continue to estimate that full year net sales and comparable EBITDA will remain on last year's level. Short-term market outlook for process tech continued to be the same as earlier. Customer activity is stable, however, on a low level overall. When we sort of double-click a bit on that, in pulp, some discussions with customers on some larger greenfield projects in South America that are out there in the market. These discussions continue, and it's always very hard to say anything about timing of customers' decisions, in particular in these kind of very large decision processes. Outside of these big greenfields, customer activity for smaller projects and rebuilds continues to be rather low. Same goes with board and paper customer activity, also on a low level.
However, if you then sort of look there a bit on the energy side of things, there is some activity, there is active discussions, but there's also a delay in the decision-making. It's clear a little bit that the current Market sentiment with a lot of clouds on global economy is sort of dragging processes or decision-making processes a bit out or at least a bit extra rounds of discussions. Tissue market continues to be quite active, which is nice to see. When it comes then to services, we had a very strong start of the year, good organic growth in terms of our orders, good customer activity in general. We estimate that that activity continues to be on a stable level going forward, but on what we would say as a good level. Automation, also good activity, will remain stable. Of course, there's some seasonality in Q1.
We typically have a strong quarter in terms of what is received for the service and for the Automation business. However, that of course also went for last year, but they would still outperform this year. Maybe also just to say that short-term market outlook, sort of that when we talk about this, is aimed to capture sort of the underlying customer activity, and it should not be sort of read as our guidance in terms of our orders receipt because that is of course reflected on how well we perform, how good we are in the market and the selling process. Lastly, maybe let's just touch when we're here on outlook on the current tariffs briefly at least. First and foremost, we're of course following very closely the U.S. tariffs as they change or any potential response from other countries.
I would say though with thanks to our sort of global footprint and especially strong presence in the U.S., especially also in the service part, we are rather well covered. Of course, we are constantly looking at can we take and make proactive steps to protect our supply chain, our cost structure. The planned global supply chain unit that we're planning in a new operating model will be key in keeping us competitive, especially in such a sort of a lively situation as we currently experience. Second, in many areas, especially in the Process Technology, our geographical footprint is quite similar to our competitors, so we're not at any structural disadvantages there as well. We're sort of an even playing field, I would say. Thirdly, the broader question is how this uncertainty impacts the global economy, then our customers, their customers, and then at that end also Valmet.
I would though say 23rd of April, haven't really seen any sort of major changes in customer activity, so still continuing quite well. We are maybe seeing some hesitations like we've seen for the year- to- date on sort of investment decisions, including in our stable business on bigger repairs or bigger maintenance things. This may continue till there's more clarity on the overall tariff situation. I think the uncertainty is probably the worst thing, but we are clearly managing and doing our best, and I think we've gone in a good position to actually manage the situation quite well. Overall, unchanged guidance. That's all for me, and I'll hand back to Pekka.
Thank you, Thomas. Thank you, Katri. Let's now move on to the Q&A section of this webcast. As a reminder, you can post the questions throughout the online platform, and I will read them out to Thomas and Katri here. Please utilize that option as well. First, let's go to the teleconference line. Operator, handing over to you.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Antti Kansanen from SEB. Please go ahead.
Hi guys, it's Antti from SEB. A couple of questions from me all on the Services business. First is on the Q1 margin, which was obviously strong, as you mentioned, best ever for the quarter and a big increase year- over- year. Maybe a bit color on behind the margin improvement, and should we kind of expect normal seasonality from here onwards, or was there something extraordinary supporting the Q1?
Thanks, Antti. I think overall Q1, as you said, very good quarter for the Service business, also from a margin perspective. I think the team has done a really good job in terms of pricing, being ahead of the curve. That of course impacts and shows in the strong market or margin. I think that's sort of actually basically the main driver behind the whole thing. Efficient, the volumes also coming through also helps the margin, and then good pricing.
Any color on kind of the level of the price increases on a year-over-year basis?
I think it sort of depends a bit on where you are in the world, of course, and what the tariffs have been, how the inflation situation has been. I think broadly quite good overall price increases, and which sort of in line or above what you would expect, hence the improved margin.
Okay. I guess there's nothing kind of extraordinary in terms of mix, I mean, regarding consumables versus parts versus projects type of thing that would be visible on the margin, that it's more of a pricing thing.
Yeah, no, I wouldn't read there's no sort of I can't say these two things impacted it apart from the pricing side. It's basically sort of a relatively, in that sense, an average view of the business that you see, not a mixed change.
Of course, the strong volume, as you said, it really supports the bottom line.
When the volume goes up, the dropdown rate is of course good.
Yes.
Okay. Also on services and the outlook, I guess after Q4 you had a gradually improving market activity, which is now stable. Is this just a function of kind of a comparison period, or are you referring to maybe slower decision-making on some of the improvements and such? Is there any change, or is it just a different comparison?
I mean, for me, Antti, quite clearly it's just sort of good Q1. I don't see it as a change. It's just that we just reached a very good level, right?
Okay.
Good level.
Thank you.
Stable on a good level. That's how I read it, the market currently.
That's fair.
In the service side of things, yeah. I would say don't take it sort of as a downgrade on the service outlook in that sense. When we say stable.
Understood. That's all from me.
Thanks.
Thank you, Antti.
The next question comes from Mikael Doepel from Nordea. Please go ahead.
Thank you. Good morning, Thomas, Katri, and Pekka. A couple of questions. First, coming back to your commentary, Thomas, around the tariffs, and I think you said that you have not seen any change to the customer activity overall, but you also said there is some hesitation on bigger investment decisions. Just to be clear on that, you have a stable outlook for Process Technologies , right? Does that mean that you do not see any hesitation currently due to the uncertainties around the potential tariffs, or how should we read that?
In the service side or across the board, Mikhail?
Or in Process Technologies in particular?
In Process Technologies . I think in Process Technologies , we sort of market is overall subdued. That maybe creates sort of also then the tariffs on top of that creates a bit of a longer decision-making process. It is getting harder to predict which quarter the orders come in. I think when we look at the pipeline, it is sort of unchanged on the Process Technology part.
Okay. That's very clear. Also on the tariffs, how do you really deal with those when you agree on a project order currently? How do you kind of deal with those?
Yeah, so that's.
Let's call it the potential tariffs too.
Yeah, exactly. That is why, of course, contractually, you need to have an opportunity to pass on any tariffs impacts onto the customers. I mean, it can, I mean, it might be you're actually finalizing delivery in 18 months' time or two years, right? That can, of course, have a lot of things can change by then, and both we but also the customers wanted to make sure that that is being dealt with in a fair way so that if tariffs increases, we can pass it on. If it decreases, of course, the customer gets the benefit of that.
Yeah. Okay. No, that's clear. And then just finally.
Process Technology, of course. Right.
Yes, of course. Of course. Yeah. Just finally on the cost savings, the EUR 80 million that you are targeting, I'm just wondering, do you have any views on what the costs will be for implementing these and how and when you will book those? Also, in terms of 2025, any idea of what kind of benefits you would expect to gain from these savings to support your numbers as well as the guidance for the year?
Yeah. I mean, like Katri said, it's going to be booked in Q2.
Yes.
We're in the middle of the negotiations. It's progressing actually quite well in the negotiations. I think it's in very good spirit overall. We all see the purpose of these changes. Of course, a bit early to say what's the exact or sort of rough number on that, but it is something that we will have a clear view on in Q2 and book in Q2. Katri, any further?
Yeah, I think just to mention for the provision that it's going to be sizable, I think that's fair to say. As Thomas said, the impact for this year too early to comment, so we will definitely come back to that when we publish the second quarter results.
Yeah. I think it's also important to state, Mikae l, that just because there's cost associated with a thing, it should not keep us from making the difficult decisions, right? We need to do the right thing for the company, even if it has short-term cost consequences.
No, no, absolutely. That's absolutely clear. I was also thinking a bit about given the fact that you expect the full run rate from the beginning of the year, EUR 80 million, just wondering how much out of that you expect to achieve in 2025. Perhaps it's too early to comment on that.
Yeah.
All right. Thanks. Thank you very much.
Thank you, Mikael.
Thanks, Mikael.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Hi. I have a question on the Process Technologies margin, which has been coming down sequentially for about three years now. How do you see this developing going forward given the order book that you have? Will it go negative before it starts to improve? Are you kind of planning to do additional cost savings in the Process Technologies to kind of protect the margin?
Yeah. Maybe if I just give a quick comment, Katri.
Yeah. Sure, of course.
I mean, good question. Overall, of course, 1.5%, EUR 6 million, not something we're particularly happy or proud about. Clearly something that needs to improve. It is important, though, to sort of see this in an overall context. Sales down EUR 124 million, if I remember correctly, from Q4 last year, right? Where we had 2.8% margin, there is a lot of sort of this sales volumes impact the overall margin quite a bit, and actually also more than I would like. That is also one of the reasons why we're taking the operating model change with the global supply unit. We need to create a much more agile global supply chain that can actually deal with peaks and troughs in a better way.
Yeah, and if I build on top of that, of course, the current market activity, our existing portfolio. For this year, I'm not expecting that the margin would improve from the current 3% last 12 months level for the full year.
Okay, thanks. A bit related, still on Process Technologie s. You had good pulp and energy orders, but then quite low in the paper side. You mentioned that the kind of pipeline is unchanged, but timing is more difficult to predict. How do you see the paper or kind of board order intake going forward? Was this exceptionally low due to timing, or is this more like a run rate to expect, or what are your thoughts on that?
No, I think it's, I mean, first and foremost, I don't think that in any quarter you can take it as run rate, sort of really in the Process Technology. In particular, in the current environment, there's very sort of digital binary in terms of decision-making and the size of the projects. I would say compared to where we were looking into, let's say, three months ago, basically same pipeline. When it comes out, a little bit harder to predict, particularly with the global economy sort of clouds or at least fog in terms of the clarity that is there. Some customers take bolder bets. Some just want to see a little bit how it's going. Yeah, I think viewed roughly unchanged in terms of the pipeline. Timing can be hard to predict.
Okay. Thank you. I still have two quick ones on Automation, if I may continue. On Automation, you mentioned the pre-buy in Flow Control . Was this significant in the U.S. in Q1?
I would not say that it was significant. We just saw that there was some visibility of potential pre-buying in the Flow Control in North America. I would not say it is a big ticket item. We just want to be very transparent.
Thanks. The final one on automation, you mentioned that the API profit contribution was now positive, and I think it was negative for most of last year. Can you comment on where is the margin now? How do you expect that to develop going forward?
I think the only comment for that is that it contributed positively, so we cannot give on that level comments. Actually, everything is proceeding very well with the carve-out was challenging, and we're happy with the work that the team has been doing there.
I just visited them actually in their Houston head office or sort of their North American headquarters in Houston, where there's also some manufacturing production there a few a month ago roughly. Really positive visit, I would say. I'm very happy that we made that acquisition last year, and it is trajectorying in the right way. That's definitely how we see it currently.
If you think about 2025 full year, the API contribution should be clearly positive compared to what it was last year.
Yes, that's the expectations.
Okay. Thank you. That's all from me.
The next question comes from Johan Eliasson from Kepler Cheuvreux. Please go ahead.
Yeah, hi. It's Johan at Kepler Cheuvreux. Just coming back to your competitive picture a little bit. I mean, you highlighted from a tariff situation, your competitors primarily in Process Tech is basically having the same geographic setup as you. I was more wondering about the currency developments. We have seen very strong appreciation of the Swedish krona. And I think you have quite significant capacities in Sweden in tissue, pulp, and energy. Would you have any comments on how do you see this impacting your competitive situation going forward?
I think overall, back to it depends on if you see the North American market, the dollar swings that we've seen lately, of course, a bit hard to predict, but it is sort of what it is, and you just need to manage it. When we get orders, when we have currency exposure, we do tend to hedge them in order to make sure that we don't really sort of we're not here to take currency risk. That goes for the Swedish krona versus if we send things to South America or North America, or Asia in the pulp and tissue business.
Is it fair to say that you have a bigger cost exposure to the Swedish krona than your peers in tissue and pulp, for example?
Yeah, that's pretty, I mean, you would say that's a relatively logical, what was I saying, conclusion as I guess we are the only one who has sort of major manufacturing in Sweden. So that's clear.
Of course, it's good to remember that it's a global business. Also, when we talk about project business, the subcontracting plays a role there. It's a combination of many things.
Yeah.
Okay. Thank you very much.
The next question comes from Tom Skogman from Carnegie. Please go ahead.
Yes, hello. This is Tom from Carnegie. I have a couple of questions surrounding the new strategy. I guess we will hear more about this in the Capital Market Day. Is it correct to read between the lines, first of all, that there will be some larger cost cutting also when it comes to blue colors? Is that what you're trying to signal to us?
Hey, Tom. Of course, we will discuss it more when it comes to the Capital Market Day in Tampere. It is clear that we need to have a more effective, efficient, we want to drive a more efficient, more effective, cost-competitive global supply chain that can impact blue colors, of course, depending on how the market is. We will also need to sort of make the, what was I saying, the make or buy decision is also up in the air, sort of how much do you actually need to control yourself, how much can you subcontract? I think it's important to just say that the first step on this new operating model, it is impacting white colors and not blue colors, right?
You have a new chairman. I wonder, is he just kind of signing what you're proposing, or is he very active in building the new model?
We got three new members of the board, very engaging, good input from different perspectives. Of course, that's exciting. That's their full support on the operating model change. It's been intense in terms of getting them up to speed on the different actions, the reasons why and why we're doing as we're doing. Of course, also getting them up to speed on the current thinking strategically so that there's full backup from the new board when we're going to present to you guys on June 5th. Great to have a chairman who also has sort of a little bit of understanding the whole background of where we're coming from, also from a cultural perspective, right?
I guess the story has been about stability in service and automation the last five years that Valmet has presented to the investors. When I read what you're doing here, it sounds like the service business will be integrated. I assume you will not report service profitability in the future. Is that right or wrong? I also wonder, why should we then not be afraid that you just start to subsidize the equipment business with service? You accept losses in the equipment business if you don't report it because to report something externally puts some kind of pressure on organization, at least to avoid losses in a weak market.
Yeah. No, good question. I think if you look at our current operating model, it is quite clear that it is quite complex, both from our customer perspective but also from an employee perspective, right? You have sort of basically a three-dimensional matrix when it comes to service. If the country is involved, the service business lines are involved, the capitals, the Process Technology business lines are involved because they design actually the equipment, which needs also to be designed to be able to service it better. Met a lot of customers.
Actually had a few ones lately that were sort of, even though we discuss about very big, large capital equipment decision and order decision-making, they are already, before that is sort of done, they're already talking about and discussing sort of how we're going to make sure that you can service us in an effective and efficient way. Because of course, they buy the equipment to maybe perform and give them an outcome over 25 years. It is not for them just about the equipment. It is actually about making sure that we deliver that outcome that we're discussing with them that the solution can deliver also throughout the life cycle. This closeness of integrating this for the seeing it from a customer perspective rather than an internal and then maybe a market communication perspective.
At the end of the day, what drives value is that we serve our customers better than competition.
Yeah, and maybe just for the reporting structure, what we will report. Stay tuned. We will, of course, tell more in the CMD. It's the right timing for that.
Finally, about sourcing from China. I mean, can you fully avoid sourcing from China in things that you sell to the U.S. market, for instance, board machines?
I think, I mean, when we look at the current economy that we have globally outside our industry as well, it is quite clear that the whole world is very, very integrated. If you start to put tariffs up in one place and take sort of building blocks away of the current whole system flow of goods, it does impact somewhere, somewhere. That is, of course, it's such an integrated global economy that it's hard to say that you can just do something without impacting another thing. I think that goes for everybody in this. How, if it's actually possible to create a board machine without sourcing anything from China, you can probably do that. The question is, can you do it in an effective way or not, right?
Okay, thanks.
Thanks, Tom.
Thanks, Tom. I hope to see you in Tampere.
The next question comes from Sven Weier from UBS. Please go ahead.
Yep, good morning. Thanks for taking my question. It's just to follow up, Tom, on your earlier statements regarding market activity in South America, sorry, on pulp greenfields. I mean, look, when I look at the pipeline, it's a bit of a long-dated one, right, with most projects probably ramping towards the end of the decade, maybe the earliest one making a decision on investment by the end of this year. I mean, is this also generally the impression you have from the discussions that these are really early, early days and pre-engineering discussions where a decision-making on those greenfields would, if anything, be really on a 12 months-24 months type of view? Thank you.
Thanks, Sven. Obviously, as you've done your homework, you know that there are certain projects in the pipeline, certain customers looking for making big moves, big decisions, or big investments in the area. These tend also to be, of course, longer projects. You need to have the forest, you need to plant the trees, etc., etc. There are certain discussions that are quite detailed as well so that the actual sort of developing the solutions is in the discussion phase, not just sort of what do we think overall, but in a quite detailed level.
Do you sense, I mean, regarding the tariff uncertainties, do you sense differences between your different customer groups? Let's say, do the pulp clients, are they a little bit less sensitive to tariffs? And other client groups are more worried about this? Or what do you find among your clients?
It's a good question. I think the ones I've sort of visited this year, I think it sort of impacts everyone because it's just because the world has sort of been put in a limbo situation, and there's very sort of little clearness of direction of travel. That just makes people and our customers, and I think everybody's customers more or less, sort of stop up and pause and just sort of rethink, what are we seeing? How can this impact? I think it actually is less about the direct tariff. It's more about the global economy, how that's going to be impacted by it. That's why it's sort of, it's a bit across the board. Even when I meet oil and gas customers in North America, for example, who would you think that they are sort of very positive?
It's still that sort of, yeah, what's the direction of travel of the global economy?
Yeah, it makes sense. Thank you very much, Thomas.
Thanks, Sven. I see you as well.
There are no more questions at this time. I hand the conference back to the speakers.
All right, thank you. Thank you for all the good questions through the teleconference line. We have a couple more here in the online platform. Let's take this by the order how they came here. The first one's from James Winchester, who's asking, "You kept your revenue and earnings guidance unchanged. What is your level of confidence on this, given the downgrade of service activity and the high uncertainty with tariffs?" The guidance in relation to the service shelter market outlook and tariffs.
Yeah. As we said, we keep our guidance. I don't see the service that we're saying stable, that that's a change in the guidance, really. It's just like we're on a good level. It is stable. That's basically in line with what we said a quarter ago where we sort of, we saw sort of activity level increase. Now they have increased, right?
It's still sort of now saying that it's on a stable level. I don't see that part really. What was the next one? There were two questions in it. Yeah. Given also the tariffs. I think as we talked a lot about the tariffs, we're trying to manage the situation to the best possible, really keeping our finger on the pulse, close to the customers, being with them in this time. It is about sort of the fog that the global economy is sort of creating. That makes it a bit harder to predict the direction that we're traveling in. However, we stand by our guidance, right?
Maybe just to add that the order backlog to be recognized this year is EUR 2.9 billion, which is the same as what we had last year. Of course, we do need orders. We have book- to- bill, but that's a good starting point for the flat guidance.
Yeah. Also seeing that Automation, 14% growth in orders, 12% organically, right, for the quarter, even though that sales were - 2%. That actually also creates a good backlog for the coming quarters, right? Thank you. Follow-up from James regarding the cash flow that was strong in Q1. What is the expectation on cash flow for the full year?
Yeah, it was really, really good outcome. We are happy with the development and, of course, supported by the positive development in the net working capital . Of course, it is our target to keep the cash conversion rate very steady. Very happy about the beginning and also for last year's results. There has been very good development.
I think it's also a good testament to, I mean, the relationship, the service, the delivery that we bring to the customers, that they're actually willing to pay. We've seen working capital coming down. I think it is a good strong testament to the value we bring to our customers that even in tough times, they're paying for it, right?
Yes.
Good, good. Maybe to add to that, of course, on the other side, the dividend will be paid out during Q2. Thank you for EUR 250 million about in dividend. To Katri, a question from James, still on the same subject. Can you provide any color on other current liabilities, which were up a little bit sequentially?
Yeah, if I remember correctly, the dividend liabilities actually booked in there. So that's the change there, which was mentioned that it was EUR 249 million related to the dividends, what Pekka mentioned.
Exactly. Yeah. Thanks, Katri. Sander Intelmann is asking, what share of the business touches the U.S. and is therefore potentially exposed to tariffs?
I think it's good to remember that in the U.S., we more or less have 2,500 people and a strong service business. A lot of our service business is actually made in the U.S. or made in America, as it's called over there. I think that sort of creates a strong foundation that we're actually standing on in our service business. I visit API. We have manufacturing there. Of course, it comes in sort of there are parts coming from different other parts of the world where there can be or there will be potentially tariffs coming on. That's also about having a strong position from a value proposition perspective so that you can pass on the tariffs to the customers, right?
Thank you. A question, this is actually the last one for now. About the organic growth in the stable business in Q1, which was 8% in services and 12% in Automation. How would you characterize it? What share of organic growth was pricing- related?
Yeah. I mean, I think I said it to Antti from SEB as well. I mean, pricing clearly helped the organic growth. It clearly helped the margin. We do not sort of disclose the split of how much is driven by pricing, how much was volume, but.
Of course, it's a very normal tool for the stable business. Because of the inflation, there are always some price increases. That's kind of a normal course of business anyway. And then the--
It is a flow business as well, right? It is a transactional business as well. It just sort of.
Yes.
All right, fantastic. That is all from the Q&A for today. Since there are no further questions, it is time for us to start to wrap up the event of today. Thanks again for joining and for the interest towards Valmet. Before we close, a quick reminder of the upcoming investor events, which were already marketed by Thomas. Most importantly, of course, we will be hosting the Capital Markets Day on June 5, 2025.
It will be live at our Tampere site. A great opportunity to hear about the renewed strategy, meet our leadership team, and see the DNAe showroom demo in action. We warmly encourage you to join us there in person. Tampere is easy to reach from Helsinki. We will be organizing also transportation from Helsinki and from the airport. Please welcome there. It is going to be an engaging day.
You can find more information and register through the investor website to the event. Of course, we will also be streaming it as a live webcast. It will be available for everybody also online. We will be back with our Q2 results on the 23rd of July. With that, we will conclude today's webcast. Thank you again. We hope to see many of you in Tampere in June. See you soon. Thanks.
Thank you.