Good morning everyone, and welcome to Valmet's third quarter 2026 result webcast. My name is Pekka Rouhiainen from Valmet Investor Relations, and with me today is our President and CEO, Thomas Hinnerskov. Valmet had strong orders and the comparable EBITA increased in the third quarter. Next, Thomas will take you through the key highlights and what drove the results this quarter and what it tells us about the strategic development of Valmet in the bigger picture as well. I will then cover the group financials, and Thomas will conclude on the outlook and key takeaways. After the presentations, we will open the line for questions. As usual, you can submit written questions through the webcast platform to us at any time as well. Thomas, floor is yours.
Thank you, Pekka. The central theme today is how customer value translates into Valmet performance. Let me start with the headline messages from the quarter. Four things stands out. First, orders received were EUR 1.4 billion and increased 25% organically. The strength came from multiple sources. Biomaterial services grew broadly, process performance solutions delivered growth, and biomaterial capital landed some major project wins. Secondly, comparable EBITA reached EUR 169 million with a margin of 12.4%. This was a record third quarter result. Thirdly, both our net sales and comparable EBITA are now ahead of last year to date. We reiterate our full year guidance while recognizing that Q4 remains an important quarter for us. Third quarter gives us encouraging evidence of execution, but uncertainty and volatility in the market does remain high.
Finally, the strategic review announced this summer is progressing according to plan. The fundamental questions remain the same, whether the two businesses can create more long-term shareholder value independently than under the current combined structure. While no decision on a potential separation has been made, Valmet will initiate activities in Q4 to strengthen the segment's readiness to operate independently. We will provide an update at the latest in connection with our financial statements review for 2026. Let's then step back from the numbers briefly to see why these results matter beyond the quarter. Everything we do at Valmet starts with one key question, how can we help our customers become more competitive?
For our customers, competitive means running more reliable, producing more efficiently, using fewer resources, and operating with less manual effort. And the stakes are high. These are extremely valuable production assets. If a major plant goes down unexpectedly, the cost can run into the millions. So reliability, productivity, and efficiency really matter to our customers. We help them improve each of these throughout the life cycle of their assets. When we deliver an asset, our relationship with the customer does not end here. In many ways, that's where the life cycle opportunity really begins. Over the years, we can support the asset through services and upgrades.
That's why life cycle growth is a central part of our strategy. It deepens customer relationship, increases recurring business, and reduce our dependency on timing of capital projects. And this is the value creation model behind our 2030 targets of 5% organic growth, 15% comparable EBITA margin, which equals 20% return on capital employed. With the value creation model in mind, let's look at how it translate into orders during this quarter. Orders received increased 25% organically to EUR 1.4 billion. Importantly, this was not only a capital project story. The key highlight of the biomaterial service order grew 12% organically, reversing the decrease during the first two quarters of this year.
Process performance solutions also delivered 3% organic growth despite a low growth market. In addition, major projects wins support the quarter in biomaterials. We saw particular strong order intake in China and Asia -Pacific, demonstrating our competitiveness in these markets. This reflects good execution by our teams across the businesses. I'll now take the two segments in turn, beginning with process performance solutions. Process performance solutions serve customers with automation and flow control that are critical to reliability, safety, and process performance. In a market characterized by low growth due to continued geopolitical uncertainty, orders increased 3% organically. That is a resilient outcome and reflects the mission-critical nature of our offering. I was particularly pleased to see the development in services and MRO.
Reported orders increased 16% to EUR 399 million, including EUR 44 million from Severn, which we now call engineered severe service to reflect the critical nature of the business. Customer decision-making in business was affected by geopolitical tension during the quarter impacted demand, especially in the Middle East region, which is a reminder that visibility remains limited in parts of the market. Net sales increased 13% to EUR 408 million and were stable organically. Comparable EBITA was EUR 82 million, and the margin remained strong at 20.2%. The Severn acquisition was completed at the beginning of the quarter, and integration is progressing according to plan. As we said when we completed the acquisition, this is primarily a growth and strategic positioning opportunity.
Our focus is to combine the broader offering with disciplined execution to build the installed base and aftermarket opportunity over time. I'm also pleased to be able to present the latest strategic milestone, which is the MES acquisition we signed yesterday. One way we can help customers become more competitive is by taking them further on the path of autonomous mills. That really is the rationale behind the MES acquisition. A manufacturing execution system connects production planning with real-time process control. In practical terms, it helps customers coordinate production, improve visibility, and move towards more autonomous mills. The acquired business brings an established platform with around 300 installations worldwide and approximately EUR 32 million of annual revenue.
It also creates recurring aftermarket opportunities through software maintenance and support. Strategically, the fit is clear. It strengthens our already leading position in pulp and paper automation, making process performance solutions even stronger. It also brings planning and process control together and gives us another way to create value across the customer asset lifecycle. By building on Valmet's customer base, technology, and global reach, the transaction also creates long-term growth opportunity in process industries. Also very happy that the standalone valuation was attractive for such a high-quality strategic asset. We expect to complete the acquisition during the second quarter of 2027.
From automation, I'll now move to our biomaterial business, where service growth and major project wins were defining the quarter. Biomaterial solutions and services delivered the strongest improvement in the quarter. Orders received reached EUR 1 billion. Within that, biomaterial services orders increased 12% organically, with broad growth across regions, across service categories, and business areas. This is encouraging following early signs of stabilization we discussed in the second quarter, although we still want to see the development continue before drawing broader conclusions. Why does this matter strategically? It matters because in biomaterials, we have the industry's largest installed base. Servicing those customers more broadly throughout the life cycle of their assets represents a significant long-term growth opportunity for Valmet.
This opportunity does not depend on customers continuously building new greenfield capacity. Capital projects orders increased to more than EUR 550 million. Major wins demonstrate our competitiveness in some of the customers' largest and most critical investments, including in China and Asia -Pacific. At the same time, large capital projects are inherently lumpy, and the timing of customers' investment decisions will continue to have a significant impact on market activity from one quarter to another. That is why we are working on rightsizing our production footprint, making our cost base less dependent on when the next large project is awarded. Net sales were EUR 952 million and increased 1% organically. Comparable EBITA increased to EUR 102 million, and the margin improved to 10.7%.
The improvements were supported by higher net sales, benefit from efficiency, and cost reduction actions. We are seeing the first sign of a combination where we are targeting organic growth and services together with improved profitability. With that, I will hand over to Pekka to take a closer look at the financial development.
Thanks, Thomas. Moving on to financials. We combined modest organic sales growth with a meaningful increase in earnings this quarter. Net sales increased to EUR 1.4 billion, which was EUR 66 million higher than in the comparison period. The reported increase included approximately EUR 13 million of positive FX impacts and EUR 46 million from the acquired engineered severe service. Organically, net sales increased 1%, supported by 4% organic growth in biomaterial services. Comparable EBITA increased to EUR 169 million, and the margin was 12.4%. This was a record comparable EBITA for a third quarter for Valmet. The improvement reflected the consolidation of engineered severe service and the positive impact of efficiency and cost reduction actions under the Lead the Way strategy.
The development of SG&A shows the structural side of the Lead the Way strategy. Since 2024, we have reduced our comparable SG&A cost base substantially. On a last 12-month basis, excluding Severn, the reduction is EUR 85 million. Importantly, these results reflect more than just cost reductions. The operating model renewal was designed to simplify the organization, improve accountability, and bring us closer to customers through a stronger life cycle focus. The lower cost base is therefore a result of structural improvements in how we operate the business rather than short-term cost-cutting. At the end of the quarter, the order backlog was close to EUR 4.5 billion. That was EUR 164 million higher than at the end of 2025, including the impact of Severn.
The last 12-month book-to-bill ratio improved to 0.96x from 0.91x in the previous quarter. While it remains below 1x, the direction is encouraging, supported by the stronger order intake in the third quarter. Based on current delivery schedules, we expect roughly EUR 3.7 billion of the backlog to be recognized as net sales in the fourth quarter of 2026 and during next year. Let me also give you an update on our landmark Arauco project in Brazil, as I know this is important when you think about the backlog and its conversion. The project is proceeding according to plan and schedule, and we are now approximately 70% complete. The startup is expected in the second half of 2027. We recognized approximately EUR 400 million of net sales from the project in 2025 and approximately another EUR 400 million during the first nine months this year.
As we have said previously, we expect approximately EUR 500 million of net sales for the project for 2026 as a whole. The backlog provides visibility for upcoming deliveries. Our focus for the remainder of the year remains on disciplined execution, profitability, and cash generation. With that, let's now turn on to the cash flow. Cash flow improved clearly in the third quarter. Cash flow from operating activities increased to EUR 210 million, and free cash flow increased to EUR 183 million. As we expected in the second quarter, cash conversion improved from 62% to 79% on an LTM basis. At the same time, underlying net working capital remains elevated. Excluding the EUR 123 million dividend liability, net working capital was EUR 138 million higher than at the year-end. Part of this relates to Severn, but we continue to see opportunities to improve working capital efficiency.
Our balance sheet remains healthy also after the Severn acquisition. Net debt increased by EUR 239 million from the end of the second quarter to EUR 1.2 billion, mainly because the acquisition was completed during the quarter. Gearing increased to 47% and remained below our financial target of 50%. Net debt to EBITDA was 1.78x. Following the Severn acquisition, our focus is on strong cash flow generation. At the same time, our balance sheet continues to give us flexibility to pursue attractive bolt-on acquisitions when we see opportunities that fit the strategy. The MES acquisition we completed after the end of the quarter is a good example of this. The average interest rate on total debt was 3.6%, unchanged from a year ago.
This leads us directly to returns on capital. Capital employed increased following the Severn acquisition, while comparable ROCE remained broadly stable at 12.9% on an LTM basis. Adjusted earnings per share was EUR 1.86, slightly up from the full year 2025. Our 20% ROCE target is important because growth alone is not enough. When we invest capital, whether organically or through acquisitions, we need to generate attractive returns on that capital. With Severn, we have deployed additional capital. Our task now is to integrate the business successfully, capture the top-line synergies, and make that capital work for our shareholders through higher earnings and, over time, higher returns. This is why our 5%, 15%, 20% targets belong together. We need organic growth of 5% and a comparable EBITA margin of 15%, while remaining disciplined in how we use capital to reach our 20% ROCE target.
Before I hand it back to Thomas, let me bring the quarter and the first nine months together in one set of key figures here. The third quarter was stronger than the year-to-date development in several aspects. Orders received increased 30% in the third quarter, net sales 5%, and comparable EBITA 6%. For the first nine months, net sales is now up 5% and comparable EBITA up 3%, while orders received were 2% below the comparison period. Let me also highlight a few items below comparable EBITA. The items affecting comparability were EUR -25 million in the quarter and EUR -59 million in the first nine months. These were mainly related to efficiency and cost reduction actions under Lead the Way.
Going forward, we expect to incur approximately EUR 10 million of costs related to activities in Q4 2026 to strengthen the segment's readiness to operate independently. Moving further down the income statement, the effective tax rate was 29.3% in the first nine months, which is above our long-term average level. Our tax rate can fluctuate between quarters due to profit mix and timing effects, so individual quarterly tax rates should not be considered indicative of the level going forward. Our longer-term average effective tax rate has been approximately 25%. Together with higher financing expenses, these items explain the difference between the development in comparable EBITA and the reported earnings and EPS. With that, I hand it back to Thomas.
Thank you, Pekka Rouhiainen. I'll now turn to our guidance and the short-term market outlook. We reiterate our guidance issued in February this year. Valmet continues to estimate that net sales in 2026 will remain at previous year's level, and that comparable EBITA will remain at previous year's level or increase compared to 2025. Turning to the market outlook. For process performance solutions, we continue to expect the market to remain low year-on-year on growth. The segment has demonstrated good resilience throughout the nine months of the year. At the same time, uncertainty related to the geopolitical situation, the global economic outlook remains elevated and continues to reduce short-term visibility. For biomaterial solutions and services, we expect the market to remain broadly unchanged. This should not be interpreted as an expectation that the strong Q3 capital orders intake will repeat.
In biomaterial, capital order intake can vary significantly between quarters due to timing of large customer investment decisions. For biomaterial services, we continue to expect the market to stabilize in the coming quarters. The strong growth we saw in Q3 was encouraging, but we will not extrapolate one quarter's growth rate into the next. As we re-enter the final quarter, year-to-date comparable EBITA is slightly ahead of last year. However, Q4 remains an important quarter for the full year outcome. Profitability will depend particularly on service activity and execution, while market visibility remains limited. Let me finish where I started with our customers. Our ambition is to help them become more competitive throughout the life cycle of their assets.
This quarter gives us encouraging evidence of progress in the direction we have set. Service grew broadly. We won major capital projects, including in Asia and China. Our process performance solutions business continued to grow organically, and our comparable EBITA reached a record level for the third quarter. Our focus remains clear: creating more value to our customers across the life cycle, driving cost competitiveness, strengthening our business, and with these, improve our financial performance. With that, I will hand back to Pekka.
Thank you, Thomas. Now we will move to the Q&A session, and you may submit the written questions through the webcast platform. Participants on the conference call may ask a question by following the operator's instructions as well. Let's begin from the webcast platform. As I see, we have a question in the platform. I will read it out loud. It's by Markku Moilanen from Nordea. Regarding the planned separation of the businesses, is the plan to do balance sheet refinancing as part of the process, or is the plan to split the outstanding debt to the separate companies? Can you please discuss about this?
Thank you, Markku. It's a bit too early to talk about the whole capital structure should we potentially end up splitting Valmet up into two separate companies. It is, of course, important to be very clear about that should we demerge the company into two, we need to make sure that each of the companies have a capital structure that actually supports the strategic direction. That means that in process performance solutions, we should have room for bolt-on M&A. In biomaterial solutions and services, we will need to be able to finance the working capital development, especially with the move towards a more aftermarket and service business that we are moving towards that does tie up more net working capital. However, it also means that with the fluctuation in net working capital will be lower between the quarters, so less need for having big buffers there.
All right. Thank you, Thomas, for the clear answer. There are no more questions at this stage in the written platform, but please use that opportunity as well if you have questions. With that, let's move to the conference call lines. Please.
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. Thank you for taking my questions. I have two. It was nice to see the good growth on the biomaterial services side. Maybe a bit of color on that front. Were you able to kind of defend the good level of mill improvements of last year, or was it growth predominantly driven by recovery on the parts and consumables side? Thomas, maybe a little bit color on that front.
Yeah. Great. Thanks, Antti, for listening in. I think we were also very happy with the 12% organic growth in services. What I think which also gives me good confidence is that it was actually broadly based, both geographically but also across the different services that we are providing. Both we saw good consumables and parts, we saw improvement projects, but we also saw field service coming up. That was across the different geographies. So very broad-based overall.
Is there any kind of a, because you remain a bit cautious on the sustainability of this level. Do you suspect that there was some type of a pent-up demand or recovery on some parts for your clients, or was it more in line with their actual utilization rates and business needs?
Yeah, it's a good question, Antti. It's always difficult to take one data point and then extrapolate that across quarters.
Yeah.
We do see still this sort of and we've seen that throughout this whole year. I think we've been pretty good at predicting it still, but there is lower visibility what we've seen historically. I would say though, we had last year, in 2025, there was a lot of closures across, especially North America. Was it roughly 19 million tons or something that closed? I think we had roughly 7.5 million tons of that. This year, another 7 million tons closed. We had less than 2 million tons of that, so that's a positive. So, that has meant that we've seen operating rates come up, and also overall, production volumes are slightly above last year, which I think is also a positive to see that the underlying demand for our customers and products is improving.
Okay, fair enough.
Yep.
The second question, which is actually second and third question now that I think of it, is on the demerger side and actions that you are now starting in Q4. Is this something that you are kind of redistributing some of the functions from group items to the segments, or is this something that will actually increase your run rate operating costs after the actions? I'm not referring to the EUR 10 million one-off, but starting from next year.
Now, yeah. What we're going to do now starting here in Q4, is really to take some actions that would help us operate these two segments independently. It really is about simplicity in the processes and also in the systems.
But is this something that is adding to your cost run rates, or are you just shifting people around?
It is not so much about the people, it's more about the systems and processes. What we do now in Q4 is not going to impact negatively, I would say, run rate cost into the new year.
Okay. The second part of the question is that obviously, no decisions have been made yet, but thinking about the investments that you are now doing on Q4, it kind of indicates that what would happen. So what would actually need to happen for you to walk away from this demerger plan, given that you are now investing into that strategy already with EUR 10 million?
Yeah. Of course, we saw that there was sort of merit for these two segments to operate more independently all the way back when we revised the strategy and operating model back in June 2025. Now we are taking that a step further. Of course, we are still sort of really doing diligent work on, will we create more value for shareholders if these were independent? How does this synergy potential look like? Will we face some tax issues that we need to evaluate up against the potential benefits? So that really is about, I would say, confirming the upside, sort of from a shareholder value creation perspective of running these strategically independently. Are there bigger roadblocks in terms of dis-synergies and tax that we need to put into that evaluation?
All right. Thank you very much.
Thanks, Antti.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
We can't hear you, Panu.
Panu Laitinmäki, your line is now unmuted. Please go ahead.
Yes, sorry. Can you hear me now?
Yes.
Yeah, apologies. I have a few questions. Starting from process performance solutions, how much roughly did the acquired Severn contribute on the earnings side? Assuming the contribution was positive, the organic earnings seem to be down year-on-year. What are your expectations in that business, like in organic terms going forward? Basically two questions for PPS.
Yeah. We had the EUR 44 million of sales for our Severn in this past quarter, first quarter, where they have been included into Valmet. Profitability level of those, that sales was in line with what they have delivered historically as well, so that you can take into the model. Then it is also clear that this is lower compared to, say, if you average out the overall, both their order intake and their net sales run rate. They have been impacted by that there has been less or no large project this year, particularly impacted by the Middle East situation in Glocon, but also ValvTechnologies have been impacted by that, not seeing these large project this year.
I would also say this is something we knew when we acquired them, that they do have a more lumpy business model, where large projects come and go and play more into that there is difference between the years. We are still very positive about them. They have joined the Valmet team, and we are really exploring, and we started to see some of the first top-line synergies in terms of the orders received as the team comes together and the offering then expands. I would say, good traction on the integration so far.
Okay, thank you. Then on the biomaterials, the earnings improved sequentially quite a bit from Q2. Was this primarily from higher service sales, or was the equipment profitability better, or did you get more cost savings than in Q2?
Yeah. I think it is a mix of the above, I would say. We did have higher service sales for the quarter. We have continued to drive structural efficiency. We have also done actions this quarter. That is also why you see some of that IAC, the EUR 25 million below the EBITA. That is actually because of having driven further efficiency improvement in the business, which, of course, will give us further tailwind going into the new year. Then, there is mix, there is capital, but then there is also structural cost savings, including the initiative that we have taken on Global Supply, which really got up to speed, I would say, early this year, and where I am quite happy that we can already say that we are ahead of our own plan on that strategic initiative.
All right. Thank you. My final question is on cost inflation. How should we think about that going into Q4 and maybe onwards? Do you see more incremental pressure from that, or are you able to price that in, or what are your thoughts going forward?
Yeah, it's clear. The inflationary pressure has been something that we've felt this year. That's also why it's been really good that we had that Global Supply initiative, because that's sort of been driving savings, and of course then also the whole commercial excellence initiative that we also presented during our Capital Markets Day last year, where pricing, of course, comes into play in all our businesses in order to mitigate and keep margins from contracting. You can also see that in PPS with continued good margins, right?
All right. Thanks. That's all from me.
Thanks, Panu.
The next question comes from Christoph Blieffert from BNP Paribas. Please go ahead.
Good morning. Thank you for taking my questions. I have two, please. You have recently announced some larger capital project coupled with a service package. Can you give us some indication about the size of the service package as a percentage of total capital sales? This is number one. Number two is on the election of Mr. Lula in Brazil. Do you expect any positive or negative implication on capital projects in the country? If you could just remind us on the revenue contribution in Brazil, excluding the Arauco project, this would be helpful as well. Thank you.
Thanks, Christoph. In terms of the service package that comes with the capital projects, you cannot fully generalize that. That varies from project to project, from technology to technology, also a little bit from maybe not so much geographically, but it's more about what we actually going to deliver. It's clear that with our life cycle approach, we do try to tie up a service package as we sell the capital. Even more importantly, it is about making sure that we help the customers after start-up, really to optimize the total cost of ownership and the operational cost and the efficiency after that. That's really where the life cycle comes into play. On Brazil election, I think it's still early days.
You have, of course, seen some impact on interest rates, but I think hard to say at this stage if that will impact, or have any impact on the investment decisions in Brazil. I probably short term doubt that right now that that will impact. Early days, I would say.
With the Brazil contribution on the total net sales, obviously the Arauco project being now EUR 400 million into this year is a big part of the—
Yes.
—of those net sales. We are not reporting Brazil separately. But even from the LATAM net sales, it obviously is a big part of that. But we have a big business in the services side every year in the LATAM side on top of the now ongoing Arauco project.
Thanks a lot.
The next question comes from Sven Weier from UBS. Please go ahead.
Yeah. Good morning. It's Sven from UBS. Thanks for taking my questions. I ask them one at a time. The first one is a question regarding China. I think you received one pulp project in the country, and I was wondering what you think is the remaining runway for such pulp integration projects in China. This has been going on for some time now. What's your confidence in this actually continuing for the quarters to come? That's the first one. Thank you.
Yeah, we've been quite selective on some of these projects, and that's also part of this whole right-sizing of our supply chain and footprint in our Global Supply, so that we actually can afford to be selective on which projects that we really go for and which one we're less keen on. There's been lots of talk about China and especially the pulp market and/or the pulp investment into integrated mills there. I think it's difficult to predict a little bit about the future on that. There's still good, strong interest from a lot of customers to continue doing this. They obviously get some benefit from the energy side of things as well into an efficiency of having integrated mills, but hard to predict sort of real short term or the next 12 or six months outlook on that, Sven, I would have to say.
Of course, it's the same customers.
But you sound like in the short term it is—
Sorry? Once again, sorry.
No, sorry. I was just going to say, you sound like that in the short term, there's still a good pipeline for such projects.
Yeah. As you know, the Chinese players have talked a lot about this and also sort of warming up on this, and there's still projects to be considered and looked at, and we, of course, are part of that review together with our customers. But when it comes—
Okay.
—it's definitely sort of hard to predict in terms of quarters.
Understood, Thomas. The second question is just on the strategic review, and I was just wondering if you could share with us that since you announced the decision to do the review, whether you received any potential interest from strategic buyers for any of the divisions?
Yeah. So, of course, as you know, we announced the strategic review. We also was relatively clear, I think, about that this is a review about a potential demerger spinning into two separately listed companies. So that's also the hypothesis that we're continuing going around on this. It's, I think, clear that we have some attractive assets, and there could be interest into looking into this from other parties, but right now we're pursuing the demerger and two separate listed company opportunity, and reviewing that as a potential value creation for our shareholders.
That's not a no, that you did not receive any interests?
Like you know, Sven, we would not comment on if we had or if we had not, right? So it's answering the question as good as I can.
Yeah. Appreciate it. Thank you, Thomas.
The next question comes from Mikael Doepel from Nordea. Please go ahead.
Thank you. Good morning, everybody. A couple of questions. Firstly, on the pulp and paper aftermarket business. As you mentioned, the growth was quite strong in the quarter. I'm just wondering, do you have any kind of market intelligence on market shares? Does this strength also affect you gaining some market shares in the quarter and perhaps also since the strategic update a couple of years ago, 1.5 years ago, I think you have outlined your intention to grow this business twice the historical pace. Just wondering, since then, have you seen any changes to your market shares overall as well?
Yeah. It's always difficult to and we don't really look at market share, especially on quarter-by-quarter basis. You sort of have to take a little bit longer view on that. I think it's, of course, safe to say that I don't think the market grew 12% in Q3, but you need to have a little bit longer views on that in order to really calculate the market share. As you said, at the Capital Markets Day in 2025, we said we want to grow services 8%, which was really down to market growth, volume growth, pricing, and then taking share, right? That's still our ambition level, and we continue driving for that.
This is also where the commercial excellence, if we can call it that, I would say strategic initiative, is very important so that we become much better at understanding how we can help our customers, because we have this large installed base. So how can we help our customers improving that and actually therefore being more competitive in their market? Take the North America installed base, we have two-thirds of the board and paper mills in North America. They are in our installed base.
Right. Okay. Secondly, if you look at the project pipeline overall, I know you mentioned in your open remarks that projects and these bigger kind of deals can fluctuate from quarter to quarter. But maybe you could talk a bit about the pipeline currently. You mentioned already on Sven's question about the China situation, but what about elsewhere, Latin America? How would you describe the overall pipeline that you have and kind of the level of activity there?
Yeah, good question. I think overall, we have good activities with our customers on helping them articulate projects, looking into and analyzing it. It is also fair to say that decision-making process have prolonged over the last probably 18 months, I would say, just with the geopolitical situation that we've had that makes it a bit more difficult for our customers to predict the future, and therefore also that they become a bit more It just drags out the decision-making process as well. It is harder to predict when the decision-making are going to happen. But overall, I think there's good activity in the market, but it's just difficult to predict when things comes to signing, so to say.
Right. Would you say that the activity levels have improved in the past couple of quarters?
No. We've actually seen this sort of the same level, I would say, across this year. But it has good levels, lots of good conversations or discussions, activity, but it just comes very lumpy as we've also seen that Q1 very little, then good in Q2 and Q3.
Right. Okay. Makes sense. Thank you very much.
Thanks.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Yeah. Hi, guys. Thanks for taking my follow-ups. First is on the automation solutions order side this year. Could you perhaps open up a little bit more on the industries where you have taken orders this year? What is kind of the current run rate on paper exposures and which industries have contributed the most excluding that one?
Yeah, a good question, Antti. I think generally, actually have a very resilient year overall in automation solutions. The business part that has been, I want to say, struggling this year, has been our API, so our gas chromatography business primarily, a lot of impact from the Middle East crisis on that one, and that's the one we've seen is down for the year, where we would actually have expected growth when we started the year, and that has been coming down primarily due to Middle East. The others, quite resilient, positive to see.
Any comments on share of pulp and paper, which I guess was 50% in 2025, as that share dramatically shifted?
No. We have very large service base in that part as well. So that's relatively stable across for the year.
Okay. The second one was on the Chinese pulp mill deal that you booked for the quarter. It's a big mill, EUR 100 million for you guys. Any comments on, I'd assume that there is a smaller scope in terms of the project responsibilities and things like that. So any kind of indication on the margin potential on that if you compare it to a big mill project in Latin America and also kind of the aftermarket potential for you guys over the long term?
Yeah. As you know, we do not really comment on individual projects generally, and definitely not the profitability level there, but clear, pure technology provider into China. Nothing sort of additional in terms of installation, responsibility, et cetera.
Okay. But structurally, if you look at your business in China, like for like, as if you are a technology provider, is the pricing power, competition or competitiveness, is that similar as overall, or is there any kind of a more intense competition versus local competitors?
I think it is important to think about, Antti, that depending on where you play in the world, there are different parameters that how you win that game, right? In order to be competitive in China, you do need to have a fair amount of Chinese manufactured components, both from a cost competitive point of view, but also logistical cost and so on. That is where we have worked quite a bit with our Global Supply the last nine months in particular, and that has improved our competitive situation in China as well.
Okay. Then, the aftermarket potential in Chinese pulp market versus rest of the world. Any views on that?
Yeah. You would have to think about what is it that we do service-wise in the different geographies. Certain markets, we have more field service than we have in others. Certain markets, we do fabrics, which we do not really do much of in China. So fabrics business is not a big thing for us in China because we simply do not have that local manufacturing capability. So that becomes a smaller part than it does in other parts of the world. Still good service business, particularly with our own designed items that sort of becomes very proprietary technology that then also goes into the spare parts and consumables there.
The opportunity, Antti, is obviously to win also aftermarket services in the China capital deals, even if the opportunity might be a little bit smaller in size comparing to some others. It is a good service market for Valmet.
All right. That is very clear. Thank you very much.
Thanks.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Hi, thanks for taking my follow-up. I just wanted to ask about the order backlog margins. You provided this information about order book that you will deliver a bit more next year than what you expected a year ago. But what about the margins in the order book? Are they similar to what you had earlier? Are they better or lower? Just directionally, is the mix impact beneficial? Arauco is representing as part of the backlog than it used to be and so on. Any comments there?
Well, the backlog generally is a healthy, good backlog, and it's very difficult to give more exact comments, Panu, on the margins on that side. We will come with the 2027 guidance on the connection with the Q4 results.
All right. I'll wait until then. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers.
All right. Thank you. We have still a few more questions here on the platform, so we will take it starting from a question from Sindre. How is the current situation in the Middle East affecting flow control, particularly in terms of customer demand, order intake, and project activity?
Yeah, it is clear that we have some direct impact from the Middle East situation in terms of both projects that are on hold or not being done, but also the whole service side of things. That is, of course, when the assets are not running and you do not have access to them. So that does have a negative impact overall for flow control, as I just said that it also had for our API business in automation. There is clearly a direct impact on the Middle East situation. Then there is also, I would say, an indirect impact in terms of the increased geopolitical tension that makes a lot of the project and capital decisions sort of prolong in terms of process.
Thank you, Thomas. Moving on to questions from [Lacie] from Bloomberg. So first one on the order backlog conversion. You mentioned roughly EUR 3.7 billion of backlog converting through the fourth quarter and 2027 as net sales. As the Arauco contribution rolls down, how much confidence does that give for you that in the 2027 revenue base, and where does the remaining gap need to be filled from new orders? So 2027 net sales drivers.
Yeah. Of course, [Lacie], a bit early to give a guidance for 2027 overall, but it is also clear that, of course, Arauco will come to an end during second half of 2027, so that revenue will fall away. Then we do need to drive growth. We will, as we normally try to, and this is where I think it is important to remember that we really are If you think about two parts, right? There is the PPS part with a great margin, really it is just about how can we drive growth. If the geopolitical situation eases up, in particular in the Middle East, and there will be access and the assets start to come up and running again, that will provide us with some opportunities.
Then in the biomaterial solutions, we talk a lot about the project, but it really is about how do we guide the business to be a much more and stronger aftermarket business that really helps our customers with the install base. There is 1,000 installations just in Europe, so one or two more somewhere else in the world, that's not going to make the big, big difference. It really is about how do we drive the aftermarket demand and help our customers back to being more productive, more efficient, be more competitive in their market.
Thank you, Thomas, for the clear answer. Then another one from Lacie. At this stage, the last question in here. So on the biomaterial solutions and services margins, which improved, can you help us separate the benefit from the sales volumes and then from the structural savings from Lead the Way and Global Supply? Then also, which of these are recurring going into 2027?
Yeah. I mean, the improved BSS margin is a combination of all the things. It is about improved margins, but it's also about improved mix. We have benefited from the volume, and that's also once you get the service volume up to a certain level, then the drop-down rate just go fully down, right? It doesn't drive additional structural costs. So that's also why it's so important that we drive that service volume, but it also becomes a swing factor overall in terms of the bottom line, right? Then we have the structural improvements we really started strongly with last year, and we've benefited from that this year. We've driven further structural improvement now in Q3, going into October as well, which will give us some further efficiency improvements into 2027.
Global Supply overall, I'm happy to say that we are ahead of the plan there, and that makes us competitive. So we, among other things, can win these Chinese projects, as an example, but also that we overall can mitigate cost inflation and expand margins.
Great. Thank you, Thomas. Thank you for the good questions from the audience. I guess that's it from the Q&A side. No further questions here. Valmet's financial statements review 2026 is scheduled for February 4 next year. We will also provide an update as discussed on the strategic review latest in connection with the publication of those results. If you have follow-up questions, please contact us at Investor Relations. Now I'll hand it back to Thomas for any final remarks.
Thanks, Pekka, and thanks to all of you for joining us today and for your continued interest in Valmet. I would also like to thank our customers for their trust and for all our Valmet employees for their commitment and hard work throughout the quarter. We're clearly making progress, but still a lot of things to do, but it's very comforting for me to know that the focus remain the same and remains clear. It's creating more value for our customers across the life cycle, driving cost competitiveness, strengthening our business, and with these improving our financial performance. Thank you for all your attention. Have a great day and hope to see many of you soon again.