All right, ladies and gentlemen. Welcome to Valmet's Q1 2020 result publication and webcast. My name is Pekka Rouhiainen. I'm the head of investor relations here at Valmet, and with me today are Pasi Laine, President and CEO, as well as Kari Saarinen, CFO. After the presentations, you will have the chance to ask questions over the phone lines as we have no physical audience here at Keilasatama today. Without further ado, Pasi, please go ahead.
Thank you, Pekka. Welcome. Our headline is now that orders received increased to EUR 1.2 billion and comparable EBITDA to EUR 52 million. First, I will go through the quarter in brief, then a couple of words about the business line developments. Kari will go through the financial development, and I'll talk about dividend proposal guidance and short-term market outlook. First, the quarter in brief. Our orders received in stable business increased to EUR 514 million. In capital business, orders received increased to EUR 697 million.
Our net sales increased to EUR 821 million. Backlog increased to about EUR 3.6 billion and comparable EBITDA increased to EUR 52 million, and margin was 6.3%. Our gearing in the end of the quarter was -22%. Quarter one in graphs. Orders received totally was EUR 1.1 billion, EUR 187 million. Net sales, like I said, EUR 821 million. Comparable EBITDA, EUR 52 million, and comparable EBITDA margin 6.3%.
We employed in the end of the quarter 13,600 people. This time, if we look the geographical graph first, you see that South America was big. That was of course due to big pulping order we got in South America. South America was 22% of our order intake. China was 21%. China has been active like we were also estimating in last year. China was 21% of our order intake. Europe was 32%, continued to be strong as well. Business line-wise, capital was very strong in this quarter. That's why pulp and energy and paper together accounted to almost 60% of the order intake. Stable business or services and automation were, of course, a little bit less. Here's the graph, how our order intake has been developing.
This quarter order intake was EUR 1.187 billion. 12 months cumulative curve is now at the highest ever, almost EUR 4.3 billion. That's, of course, nice trend to look at. Stable business orders received increased as well. It totaled EUR 1.828 billion during last four quarters. This graph is, of course, also nice to look at and shows that we have been growing organically our stable business as well as, of course, with acquisitions. Backlog ended up at almost EUR 3.6 billion in the end of the quarter. It's the record backlog for Valmet during all these years Valmet has been operating. It's about EUR 223 million higher than it was in end of last year.
We are saying that about 60% of backlog is expected to be realized as net sales during 2020, and last year, the same percentage was about 65%, and the corresponding number was EUR 3 billion then. You can calculate that we have a little bit more backlog now to be recognized this year than last year. We are saying also that about 30% of the backlog relates to stable businesses, the rest to capital businesses. A couple words about the business line development. First, services. Orders received and net sales increased. Orders increased in the orders received in services ended up in EUR 398 million. Out of that, EUR 37 million came from the acquired businesses, which then means that the growth organically was 1%. Are we happy with 1%?
In normal circumstances, not, and then maybe now during these little bit more special times, we are happy that we were able to grow by 1%. Net sales increased as well, ended up in EUR 295 million, there the acquisition impact was EUR 37 million, which means that actually our net sales in comparable operations declined compared to last year. Orders received increase came from many areas also business unit-wise, especially energy and environment was strong performance parts as well. Then we had challenges in order intake, which means that it decreased in mill improvements and in fabrics. COVID-19 had a negative impact to our net sales, especially in field services, mill improvement projects, and energy services.
Those kind of services where we have to visit customers, it has been very difficult to execute the projects to the end or execute the field services which customers would like to have us to deliver. Of course, we expect that challenge will continue or even get worse in second quarter. Still something about order intake and services. We saw stronger demand first two months and beginning of March, and then COVID impact started to show up in order intake numbers and also net sales numbers in latter part of March, mainly. Of course, China impact was already in February. In automation, our orders received increased to EUR 116 million. That's, of course, nice number. Net sales increased to EUR 80 million. Here, COVID has the same kind of limitations.
We have quite a lot of experts who are visiting customers every day, doing different kind of field services, expert services, and mill improvement projects. Now when there are some limitations in traveling and also visiting customers, then of course it's more and more challenging to execute that kind of services at the customers. Of course, our teams are looking to use as much modern tools, remote connections, remote work as possible, both in automation and services. Of course, this COVID-19 limitations has an impact to our revenue recognition and will have it as well in the future. Pulp and energy orders received and net sales increased. Orders received were EUR 376 million. In the graph, you see that now the order intake is a little bit over EUR 1.3 billion in 12 months cumulative curve.
South America was strong, Europe was strong, and Asia-Pacific, North America, China are not as strong as last year. Our orders received increased both in pulp and energy. The interesting topic during last years have been marine scrubbers, and now the marine scrubber orders were only EUR 4 million in this quarter. COVID will have an impact in pulp and energy as well. Customers are closing some sites so that we can't execute anything, or we have challenges to send our specialists to work on sites or our subcontracts to do some installation work, and that will, of course, have an impact to our net sales in this year. Otherwise, I will come back later on to outlook. The outlook for pulp and energy is actually still good. In paper, our orders received and net sales increased as well. Paper orders received ended up in EUR 321 million.
That's, of course, nice number. Orders received increased in China and EMEA, decreased in the other areas. Orders received increased both on paper as well as in tissue. Net sales increased compared to last year. COVID has the same impact in paper as in pulp and energy. There, the difference between these two businesses is that actually majority of the work, what we do in paper is done in our offices, in our factories, in our subcontracting. Out of the value what we have in backlog and in orders totally is less depending on site work than in pulp and energy. That's why the impact of COVID and site closures will be a little bit less in paper. Of course, it has an impact.
Then if I say a couple words about the supply network, then of course it's obvious that we will have challenges with our supply network, especially in countries like India, where the whole country has been locked down for several weeks. We have quite big part of Not big part, but we have projects where big part of the subcontracting or our own manufacturing is happening in India. Now it's Kari's turn to go through the financial development.
Thanks, Pasi. Also good day on my behalf. Just looking at our Q1 performance. Orders received were all-time high, EUR 1.2 billion. That's exceeding a year ago by 42%. Both capital businesses increased. Pulp and energy business line increased by 87%, and paper business line by 76%. Automation total orders, they increased by 30%, and services increased by 11%. Services organic growth was 1%, as Pasi mentioned. About the areas, so South America and China were strong. Also good growth in EMEANorth America and Asia Pacific actually reduced with the orders. Interesting point here is that China orders for Q1 were the same as full last year. Order backlog, that was at EUR 3.6 billion. This is a record high quarter end for Valmet. 60% of the order backlog will be recognized during the year. That's around EUR 100 million more than last year at this point of time.
Net sales for the quarter, EUR 821 million. This is 20% higher than a year ago. Pulp and energy increased a lot, 50%. Paper business line 16%, automation total by 10%. Services increase was 7%, services organic growth with net sales actually was negative, it reduced by 7% or EUR 18 million. Services net sales was impacted by this pandemic, as the access to customer sites was limited and China was closed for almost a month. Net sales to South America, Asia, Pacific and EMEA, they increased. North America was flat and China reduced. Overall during the quarter, capital businesses were strong. Capital had 59% share of the quarter's orders and 56% of share of quarter's net sales. Typical split is 50/50 if we look at a bit longer term. EBITDA for the quarter, EUR 52 million, 9% higher than a year ago. EBITDA was 6.3%.
That is 0.6 percentage points below last year's EBITDA percent. Cash flow for the quarter, EUR 173 million. Last year, we started with EUR 30 million cash flow. Gearing reduced to minus 22%. Looking at gross profit and SG&A development. Gross profit for the quarter, that was around EUR 30 million higher than a year ago. Gross profit percent was one percentage point below. That comes from the capital businesses share, which was then this 56%. Last year it was 51% for the quarter. This explains a bit lower gross profit percent. Looking at quarter's SG&As. Quarter's SG&As actually increased. 60% of the increase is coming out of the acquisitions. Far until the end of Q1, we haven't had any major reductions for some of the activity-related costs such as travel costs due to COVID-19. Looking at our comparable EBITDA.
Last 12 months, EBITDA was now at 8.7%, no increase here. Our EBITDA target remains between 10% and 12% that we actually set end of last year. Looking at cash flow. Cash flow was strong, as said, EUR 173 million. We have now had three strong quarters, each over EUR 100 million cash flow. The good development at cash flow was actually driven by good development at net working capital and this net working capital was minus 14% of rolling 12 months orders received. It was in a kind of very low level. Valmet has a principle that capital orders are only booked once Valmet has received down payments or letter of credit or similar security, and we had actually a strong quarter with the capital order intake now. Also, the accounts receivables developed very favorably, and also the overdues over 60 days reduced. Net debt and gearing.
Gearing was -22% and net debt was EUR -220 million. Without lease liabilities, gearing would have been a -28%. End of the quarter, we had EUR 466 million cash and EUR 186 million loans. On top of that, Valmet has an unused EUR 200 million committed revolving credit facility, which matures year 2024. Return on capital employed and capital employed. Capital employed was EUR 1.3 billion end of the quarter. Out of this, equity was around EUR 1 billion. Rolling 12 months capital, return on capital employed was 23%, and here our target is more than 20%. Okay, back to you, Pasi.
It's dividend proposal guidance and short-term market outlook. The board of directors have decided to keep the same dividend proposal than earlier. Our policy is saying that we pay out at least 50% of net profit as a dividend. The dividend proposal is now EUR 0.80 per share. Here you see how it has been developing over the years. It's starting from EUR 0.15, went to EUR 0.25. Last year it was EUR 0.65, now board of directors proposing for AGM to approve EUR 0.80 a share dividend for 2019. Our guidance and short-term market outlook, like announced April 16th, Valmet announced on 16th April 2020, that the company withdraws its guidance for 2020 due to the increased uncertainty related to the COVID-19 pandemic. That's of course, still the situation.
If we look at the short-term market outlook, where we, like we have been earlier saying, take into account the current workload and then also the activity level on the market. In services, we had good market outlook end of last quarter, and now we are dropping that to satisfactory and weak. Why we are using two different words here has a reason. Like I have been saying, it's very difficult now to execute mill type of projects and field services. That will, of course, have an impact to the demand of those services as well. That's why we are saying that the demand is weak. We also have had started negotiations in Finland to start temporary layoffs for persons who are working on that field services part and in services in EMEA.
I don't know the exact amount person to whom it's affecting, but we are talking about services and EMEA organization. We have had started also some temporary layoffs in our North American organization for the same reason. At the same time, when you are looking our customers coming out with their announcements, they are saying that the production volumes are still reasonably or they are satisfied volumes. That's why, of course, part of our services will continue to have a satisfactory demand. That's the explanation between using two words, satisfactory and weak. In automation, we are dropping from good to good and satisfactory and the same explanation. We still have active sales pipeline in automation, but COVID is impacting part of our services and also demand of those services, and that's why we are saying that the demand is either good or satisfactory.
In pulp, we booked nice orders in quarter one. We still have active sales pipeline for capital cases, that's why we keep our outlook for pulp as good. In energy, our outlook has been satisfactory. We'll still keep to satisfactory also for energy. In board and paper, outlook was good. We keep it at good level. We still have active negotiations ongoing with customers for pulp and paper machines. Tissue, we had satisfactory and will continue to keep the satisfactory level also for coming quarter. Changes in services and other automation and the rest are seen to be at the same level where they were in the end of last year. Good. Pekka, it's your turn to say that we'll go to the other side of the room.
Yes, exactly. Thank you, Pasi. We will now take the questions, and according to my information, we already have some questions over the phone lines, and we will now go directly to the phone line questions. Operator, I now hand over to you.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. To cancel that request, you can press the hash key. Star and one for questions. Your first question today is from the line of Manu Rimpelä from Nordea. Please go ahead.
Good afternoon. Thank you for taking my question. My first question would be on the service operations. I think you reported some 6% decline organically in the sales in Q1, and I was hoping that you would be able to help us to understand a bit better the profile between the different months in January and February was still up, and what kind of a run rate did you see in March and maybe the first comments on April after this kind of lockdown impacts are becoming more visible? That would very much help us to understand what kind of run rate we are at the moment in.
Like I said, order intake was developing better in the first two months and still beginning of March. Last two weeks in March, we had more generally the drop in the order intake. In China, it was in the beginning of the year, it bounced back. Actually China totally was okay in orders received in first quarter. Now, of course, the COVID-19 is spreading around the world, of course, we estimate that the order intake, especially for mill, maybe even roll, will continue to be weak for the second quarter. Then it's very difficult to say that how the market will develop later on because our customers now have to postpone their annual shutdowns. Then of course, there is a need for the annual shutdown.
I'm sure that when the travel restrictions are lifted and when customers are more sure that they can continue the operations, even if they have some COVID cases in the operation, then there will be, again, not a boom, but activity on these mill services, which they can't now perform because those are, of course, partly even legally required works what they will be performing. All in all, we estimate that now the activity in second quarter will be weak to satisfactory, and then it will be bouncing back. At what time it will bounce back, we are not sure yet.
Okay. Thank you.
To have some-
In terms of the equipment and these large projects, I'm slightly surprised that you still see a very active and a positive pipeline of new orders, given that we're seeing a lot of your customers starting to cut CapEx. Could you just help us to understand a bit better where exactly do you see customers being active? Also what do you see is the risk that these kind of orders will be pulled in the coming months as the customers also realize the situation?
The ones where we are now actively negotiating are such that customers have been planning the projects for long time. Of course, the investments are for long term demand forecasts. I think all of us are still seeing that the mega trends, which are valid in our industry, will continue to be valid also after COVID-19. It's difficult to see the future without the pulp demand growing. It's difficult to see the future without tissue demand growing or renewable packaging demand growing. Part of our customers are now saying that even if there is a short-term turbulence on the market, they want to continue to invest to the industry where they see that in long term, the market drivers are right.
Also one thing to remember here, that many of our customers are very good quality customers with the strong balance sheets and like long-term outlook. Maybe some of them are also thinking that specifically on the manual labor side, they can actually now have very good purchasing power.
Okay, thank you. Final question on the cash and somehow should we think about the cash flow for the kind of reminder of the year, given that it was exceptionally strong now, probably due to the timing of some projects?
That's exactly what you said, that we have a bit too much cash now. Because once we book orders, we have strong capital orders, we have down payments from the customers, and now we had a bit of an exceptional good situation now end of March. I think that we would be very surprised that the net working capital level stays with that minus 14% on rolling 12 months orders.
That's not the historical average.
Yeah. It's not. The average is a couple of percent points less.
Perfect. That was all for me. Thanks.
Yeah. Thank you.
Thank you. The next question is on the line of Antti Petelin from Danske Bank. Please go ahead.
Yes. Hi. Just one quick that I understand. Your services orders organically increased by 1%, but sales fell organically by 7%. Why don't they go more in hand in hand? How can your orders increase, but then the sales fall so much? What's the reason for the gap?
Well, thanks, Antti. Like in normal circumstances, so this is what happens so that the first half of the year we have much higher services orders than the second half of the year. With the net sales, it goes the other way around. That's the normal pattern or seasonality during the year. Also now specifically what Pasi was explaining that certain part of the sales that requires customer acceptances and requires our presence at customer site. This kind of work we couldn't perform even though we had the orders in hand.
Yeah. They ordered even if they didn't actually want the service yet?
No, they might have If you talk about shutdowns, then the order might come six months earlier before the shutdown itself happens, and then it's in our backlog. Once we execute the shutdown service, then it's recognized as revenue. Now we haven't been able to execute the jobs.
Okay. All right. Thank you.
Thanks.
Thank you. The next question is on the line of Johan Eliason from Kepler. Please go ahead.
Yeah. Hi, it's Johan here. Just a question. You obviously still propose a dividend for the year. You obviously have generated good cash now and last year. Aren't you worried that those orders in the pipeline might not come through and your project business will basically consume all of your cash that you have on the balance sheet now in the remainder of the year? Potentially, the hit on the service businesses could be harder and longer than anticipated at the time being. How have you thought about the balance sheet from the risk perspective?
Well, of course, Johan, if we look at the balance sheet, we have EUR 280 million more cash than debt if we exclude the lease liabilities. Of course we are cautious, but our fourth financial target is that we pay more than 50% of net profits as dividends, now this what we are proposing, EUR 0.80 per share, that's 59% of net profits. We haven't seen any calculation of the projects. That's of course possible, but we need to remember that there's quite substantial amount of the down payments that customers have remitted to Valmet, that typically means that it's painful for the customer to withdraw.
Yeah. Obviously delays could happen, I suppose. Isn't it so that there are possible milestone payments during the project as well?
Of course, there are milestone payments during the projects, and there could be some delays, but what we were talking here that with the paper business line projects, so typically we do that 95% ready before we ship it to the customer. We recognize revenue also 95%, and that means that the milestone payments are even then a bit more than that. With the pulp orders, yes, there's more site work, but that's typically done with the local resources. These resources typically are available unless the sites are closed. We have had couple of these cases, but that is not the majority at all.
Thank you. The next question is from the line of Tom Skogman from Carnegie. Please go ahead.
Yes. Thank you. It's Tom here from Carnegie. I was wondering about also this, how would you handle possible kind of requests for cancellations or large postponements that will impact your delivery schedules and manpower? You're dependent to do business with these customers in the future as well.
Of course, in our business, we all the time have delays in some projects. Part of the projects go exactly like planned in the beginning, and in part there are different kind of delays, where customer has delays, for example, with the construction work. We all the time are used to change the time schedules in our projects, and that will continue to be so. In possible cancellations, our business principle is that we have more cash all the time, or advance payments are bigger than our costs. We are not financing customers' projects. In case that somebody would cancel a project, then we would stop the work and then start negotiations at what happens with the goods we have produced already.
Like Kari said, they have paid already quite big amounts, so it will be very expensive exercise for customer to stop the project. It has happened in 2008 for one big project, but that's not very common that kind of things happens.
Thank you. I wonder about the summer breaks. You have postponement in service. Is there a chance that you get a peak up during the summer holidays? Have you heard that the pulp and paper companies will plan some extra holidays or so that could open up a possibility for you?
Sorry, if summer vacations would open up.
Summer breaks.
summer breaks. I think in the cases where we have restriction to work, the customers have implemented rules that nobody outsider can enter their manufacturing facilities, that's not depending whether they produce or whether they are not producing. Before that kind of customers will lift their limitations, then it's difficult for us to execute certain mill projects. Of course, then from the other side, part of the customers are all the time learning also how to live with this COVID situation and are learning new ways, like in automation. They have even built other control rooms where our people can work so that they are not in contact with customers' personnel. People are innovative when there's need to be innovative.
Finally about your acquisition pipeline. With the risk of demand slowing down, it would be a perfect time to do some acquisitions this year with your strong balance sheet. Have higher or lower hopes than normally given the current situation?
We continue to work on acquisition topics as well exactly for the reasons you mentioned. That might be that it would be a good time, and then, of course, we have balance sheet now as well, a strong balance sheet. Of course, might be that not so many are eager to sell at this point of time.
I guess it depends on how much you are prepared to pay. It could even make sense to pay up a bit more to get the right company.
We have to report the price.
To bring another week from...
Tom, we have to report the price to you, so we have to be careful to satisfy you.
It's true.
Hey, it's always the case that how much we are prepared to pay, so that's always like that.
Yes. You basically have a good pipeline and then people are prepared to sell companies to you. That's your feeling?
Yes.
All right. Thank you.
Thank you.
Thank you. The next question is from the line of Tomi Railo from DNB. Please go ahead.
Yes, good afternoon. It's Tomi here. Can you give any comment on the financial performance of the acquisitions you made last year? We heard the contribution on the sales and orders, how have those companies developed from profitability point of view?
They have been performing according our expectations.
Sustaining the levels you mentioned in connection to the acquisitions?
Yes. Now they are more integrated into our operations. Once you integrate it, thereafter it's more and more difficult to follow them as independent units. They are performing like we have been expecting.
Thank you.
Thank you. As a reminder, if there are any further questions, please press star and one on your keypad, and it's the hash key to cancel. Star and one for any further questions. There are no other questions coming through, so we'll hand back to the speakers.
All right. Thank you, operator. Thank you, Pasi and Kari. Thank you for the questions. This now concludes our event for today. As a reminder today, we also announced the Annual General Meeting will be held on June 16th and you can participate via a webcast. The link will be available with the registration form on our website. The Q2 half year financial report will be out on July 23. See you all then. Up until that, have a nice day.