Good afternoon, ladies and gentlemen, and welcome to Valmet's Capital Markets Day 2021. My name is Pekka Rouhiainen, and I'm the head of investor relations here at Valmet. I will also be the moderator for today's event. This is a live event recorded in Helsinki, but due to the current COVID situation, we won't have a physical audience here at the premises. Valmet has made consistent progress in the strategy during the recent years, and this is also visible in our financial performance. The aim of today's event is to provide information and an update on Valmet's strategy and the business outlook. This morning, we have also published our climate program, and that will be also discussed in the event. Furthermore, we will also be presenting Valmet's leading market positions and the global mega trends impacting our business.
If we take a look at the agenda a little bit more detail, so in a couple of minutes, we will be kicking off the event with a presentation by our President and CEO, Pasi Laine. That will be followed by presentations by our four business line heads. CFO Kari Saarinen will be presenting, and at 4:00 P.M., there will be concluding remarks by Pasi Laine. We will have a 20-minute break in between starting at 2:25 P.M., and the event will conclude at 4:30 P.M. Finnish time. Some of the practicalities shortly before we start. We will have a Q&A session after each of the presentations, and we, of course, wish to have active participation by you, so please participate by asking questions. You can submit the questions throughout the event using the question form that you can find in the webcast platform.
The questions that you post from there are only visible to the moderator, which will be me, and I will be then addressing them to the presenter. After the last presentation by Pasi Laine, you can ask questions also via a conference call line, but this conference call line will be only opened at 4:00 P.M., so only for the last presentation. The conference call numbers are visible here. They will be also made visible for you later when it's time to dial in for those who wish to use this option. The presentation slides are available at our website, and they are also attached to the webcast platform. After each of the presentations, there will be a poll question that will be popping up, so we appreciate your feedback. Without further ado, let's get started and, Pasi, the floor is yours.
Hello on my behalf as well, and welcome to this virtual event. My presentation title is Technological Leadership and Favorable Megatrends, and I try to present the overview of Valmet, and then of course, my colleagues will go more deep in business lines and numbers. First I will have overview of Valmet, thereafter recent developments, and then investment highlights. This is familiar picture to many of you, Valmet's Way Forward. We introduced this picture in 2013, and since then it has been guiding the development of Valmet. We are saying that, and have been saying that our mission is to convert renewable resources into sustainable results. It's of course understandable that we all see that it will be a very good mission for coming years as well. Our strategy is to develop competitive process technology to our customers, including services and automation.
That's one part. The other part is to move the industry forward, and my colleagues will be giving some examples of that. Be cost competitive and move the industry forward. To develop our company, we have defined must-win topics, Customer Excellence, Leading Technology, Innovation, Excellence Process and Winning Team. We have been now working with these same themes for seven years, and we still see room for improvement. Of course, the topics under the headings have been changing, but still those four topics are guiding us. On top of that, we have two growth accelerators, how to grow faster in field services and how to grow in industrial internet and digital assets.
Our vision is to become the global champion in serving our customers, meaning that we are all the time below somebody serving customers, and even if we were successful, we shouldn't become too arrogant. This has been the Valmet's Way Forward, we believe that it will be the Way Forward in the future as well. How we have been developing, orders received, the 2013 was difficult. Thereafter, we have been growing from EUR 3 billion up to close to EUR 4 billion, which was the order intake level in 2019. Last year was about EUR 3.6, little bit more. Net sales has been growing steadily from EUR 2.5 billion to EUR 3.7 billion.
Comparable EBITA first grew because of the restructuring acquisitions. Thereafter, after 2015 because of the continuous improvement from EUR 200 million to EUR 180 million euro level to EUR 365 million euro level. EBITDA percentage has been growing also from 2% first to 6%, and then because of the continuous improvement up to 9.8%, which was the end of last year. Solid development in all the major numbers in Valmet. Now, some comments about the market trends and market situation. First of all, we have to remember that the mega trends are supporting our growth. Demand for pulp, board, and tissue continues to increase, and it increases because e-commerce is getting more and more popular. Packaging needs are still growing, and of course, hygiene needs are growing as well in the world.
At the same time, our customers want to develop their efficiency and safety, which drives also demand for services and automation. Long-term market drivers are positive development. In geographical areas, market is, of course, changing all the time. Last year, China was very good. Beginning of this year, it looks that China is still good. Of course, other areas like South America and Asia have been active both in pulp and paper. Market activity varies, but globally it has been good. In capital business, last year was good. Paper and board machine market was active. Tissue machine market became active in the end of the year, and Jari will talk about that more in coming presentations.
There were mega mill decisions in earlier years. Actually, the market has continued to be active this year as well, like we just announced very big order in Finland for pulp mills in February. Market activity continues to be good in pulp as well. In energy, we have seen a little bit weakened market. I'll come back to that later in my presentation. Market activity in capital has been good. Stable business has been impacted by COVID, especially services where travel restrictions and capacity utilization, graphical paper mills have reduced the demand for our services. Aki will talk about the future more in details about that. In automation, we saw the same impact in our direct sales to customers. Then because of good package sales together with capital, our automation actually was on par with last year.
How we have been developing Valmet over last year. We made a PMP acquisition in Poland and in China and U.S., that brought us new market segment. Now we can serve with our technology also small to medium-sized paper mills, board mills, and tissue mills, that's very important. We launched a new services concept, we saw very big need to utilize our area organization to serve our customers, that was very big step up to our area organizations last year. In technology, we are developing something new. As an example, here is the collaboration with Metsä Spring, where we develop products and technologies, how to make molded products or 3D fiber products, that's very interesting area. In automation, we launched new user interface.
In last year, we utilized industrial Internet applications and capability a lot to help our customers and also to help ourselves in situations where we can't travel. In processes, we have continued to develop project management. We had a small cost reduction. We used a lot of remote capabilities and continued to install the ERP as well. In people topics, last year the main topic was, of course, to make sure that we keep ourselves safe and customers safe from COVID. As an example, our lost time incident frequency dropped to 1.5, which is the record in all times, and it's at a good level. Still we continue to train our personnel, even if there are some challenges now with traveling. In sustainability, we were selected seventh year in Dow Jones Sustainability Index, and that's of course a good achievement for our organization.
We don't have any secrets here. We have included sustainability in normal management of all the topics what we manage. We are not managing sustainability separately, but it's part of the normal management what my colleagues are doing. That explains the good results in sustainability. To continue that, we have today launched a Valmet climate program where the title is Forward to Carbon-Neutral Future. We all know that we all have to reduce CO2 emissions to atmosphere, and we have set ourselves the target by 2030 to reduce by 80% our own CO2 emissions. We do it by reducing energy consumption and then also increasing the utilization of energy, which is produced in CO2 neutral way and so on.
For supply chain, we have set the target to reduce our supply chain emissions by 20%, and there we target to cooperate with our suppliers to make sure that we reach this target. Of course, one big part is like, for example, steel companies from whom we are buying our steel raw materials. An important topic is that a big part of the emissions are happening in the usage phase of our products. There we have two targets. We try to reduce the energy consumption by 20% compared to today's technology by 2030. Another target is that we want to have solutions to our customers for 100% carbon neutral production in pulp, in tissue, in board, and in paper. Of course, energy helps there as well. Four different targets and pragmatic targets, and we want to achieve this by 2030.
One hot topic last year was that we acquired a 29.5% ownership in Neles. We are saying that we have an active long-term role in developing Neles, and we are saying that in long-term, we see that Valmet and Neles should be combined to make a Nordic-based global leader with very good offering. The combination would create a company which would have very strong margin profile. It would have very big share or volume of high margin growing stable business, including services, automation systems, and valves. It would of course create very nice platform to grow in automation business further. Of course, like I said earlier, we would have tangible revenue technology development cost synergies with Neles. Some highlights, how we see ourselves as a investment. First of all, we have strong position in growing markets of converting renewables.
We have very wide technology services offering. In services, we have the wide offering, we have very strong geographical presence. In automation, we help our customers to maximize efficiency and safety of their operations. In paper, we have world-class technology for packaging and hygiene needs. In Pulp and Energy, we have strong business with good market share and flexible cost structure. Of course, as one topic, we are systematically building the future of Valmet. If I go a little bit more in details with the following slides, here you see the customer segments where we work. Of course, we all know that printing grade paper demand is declining. One has to remember that, for example, last year the capital business which came from that was 3% of our net sales. Important, but not too big. Board consumption is growing.
Jari will talk more about it because it's growing because of e-commerce and packaging needs. Tissue consumption is growing globally. Because board, tissue, and textiles are growing, pulp business is growing as well. Pulp demand is growing. In energy, we have weak situation currently, but in long-term, when this decarbonization is having effect in energy production, I'm sure that our biomass boilers and waste to energy boilers will have a good market. Because of board, tissue, pulp, and energy are growing, of course, our automation market is growing as well. Automation is serving other industries, and as well where we see increasing digitalization demands and automation has very good offering for those markets. In services, because board, tissue, pulp, energy are growing, we are seeing also that our services market is growing.
All in all, the markets we serve have good, not very dramatic growth rates, but they all are growing except paper. Our technology offering. We have the widest technology offering. We make paper machines, board machine, tissue machines. We can supply the whole pulp mill or parts of pulp mill. We have also products for CO2 neutral energy production and emission controls. Because of wide technology offering, our services has the widest offering. We can of course serve all those industries for whom we have the technology as well. There our services starts from spare parts and end up to process optimization. Very good offering there as well. In automation, we have single measurements starting from there and ending up in quality management system and distributed control systems.
All in all, with this total offering, we can serve our customers very well in their challenges. In services, like I said, we have good offering, but we have also very strong geographical presence, meaning that wherever the market is active, we can help our customers. We of course benefit from the growing installed base, which we are creating all the time in our capital businesses. We have a track record of growing the business from EUR 1 billion to over EUR 1.4 billion. Last year it declined because of COVID, but still if we take that into account, our growth has been 4% a year from 2014 to 2019. Aki will tell more how we will continue to grow our services further. In automation is helping our customers to maximize the efficiency and safety of their operation.
That's of course very good market to be in in today's world where everybody wants to improve efficiency and reduce emissions and so on. Our solutions are starting from single measurements, going to plant-wide process automation systems. We have very good R&D organization in automation, which is making all the time new products, and then also making all the time addition and new features to old products so that they are competitive as well. We have a good track record since we acquired automation in 2015. Here you see how the orders received has been growing from EUR 337 million to EUR 416 million. Like I said, it was very good achievement that actually even if there was COVID last year, we stayed at the same level as 2019. Good development. Sami will talk more about the future trends in automation.
In paper, we have world-class technology for package and hygiene needs and of course for paper making as well. We have now offering for the wide machines, but also now for the small to medium-sized machines. Long-term megatrends are supporting our paper machine business, e-commerce and packaging needs are increasing. The demand for the hygiene products is increasing as well. We have high market share in this product. We have technological advantage, and we have excellent results also. Our R&D has been able to bring new products to the markets all the time. What is important is that we have flexible cost structure. Here you see that the capacity cost, which means all the cost we have in the organization, have gone from EUR 270 million to EUR 301 million. That's because of the acquisition, actually.
Actually organically, we have kept the capacity cost at the previous year level. This of course means flexibility in our organization. Net sales has been developing nice as well, and I am sure Jari will say a couple words about it. In Pulp and Energy, we have strong business with high market share and flexible cost structure. We start from the cost structure. Here you see that our capacity cost has actually declined from 2015. It was EUR 218 million, and last year it was EUR 196 million. Net sales has been going up, which means that of course comparing to Net sales, our capacity cost has been declining. We have good offerings so we can sell the whole pulp mill, we can sell all the energy solutions and emission controls and of course parts of pulp mill.
Long-term demand is favorable to our pulp mill business as well because of the earlier mentioned things. Pulp is also used as a raw material for textiles and maybe in the future for other products as well. We are confident that the pulp market will be a good market in the future as well. We have good market share, we have good R&D, and we have flexible organization. Bertel will talk more about the future of Pulp and Energy in his presentation. The seventh point was that we are systematically building the future. You have seen what the track record for Valmet has been, and we continue to have the same topics. Customer, technology, process and people in our management agenda, and we'll continue to develop Valmet in all these topics.
Want to have even better services to our customers, want to have even better industrial internet applications, make sure that our good market position continues in capital business, and we want to increase our market share in stable business. In technology, develop new products, but then also increase the energy efficiency of our offering all the time. In process, continue to make sure that our operations starting from sales to project management to services are effective. Taking care of the climate program as well, and then as a backbone, of course, continue to develop our personnel so that Valmet can continue to be the leader in this industry. Good. That was my presentation. If I understood Pekka correctly, it is time for lively discussion.
Yes, that is correct. We will now take a Q&A session with Pasi, and as mentioned earlier, we will have another little bit longer one at the end of the event. Please participate and post questions. Here are already some. I will try to read these in order as they come. There is first question about recent market trends. There was pointed out that market activity in China is especially high in board, tissue, and paper. Why not in pulp, since some Chinese pulp and paper companies have announced large expansions in pulp?
That was in the recent development. We started, first of all, paper, board, and tissue have been active last year. Like you saw in our order intake, that our order intake total in China was EUR 885 million last year, which grew over EUR 600 million comparing to very low level in 2019. Like we announced Last year we had also EUR 100 million order, roughly, if I remember correctly, coming from pulp side as well. The pulp market started to become active in the end of the year, now we know as well that customers have announced future further investments in pulp production in China as well.
Yes. A question about automation. Do you have any plans to become active in warehouse automation, or do you keep your focus on production?
We don't have No. Yes and no. Sami can then later on maybe open this one a little bit up more. Not directly in warehouse automation, but we have developed products where we can help our customers to distribute, for example, LNG or biogas. Not automating only the plant itself, but also helping in the distribution of the products. That's not warehousing, but we are expanding our automation capability more to the whole value chain of customer. That has been one of the topics, how to grow automation further. Sami, did it go correctly? Well, yes.
Good. Then question relating to climate program, a little bit longer one. I'll read it from here.
Pardon?
A question relating to the climate program.
Climate.
Announced today. Yes. In climate program, you wrote about reducing emissions with increased usage of biomass.
Yeah.
In the future, there will be competition on limited resources. For example, biomass and burning it is not the best way to use it, says the questioner here.
Yeah.
Why is your strategy relying so much on burning biomass and not using carbon neutral electricity or other technologies?
Carbon neutral electricity. Of course, if we are using electricity, we want to use carbon neutral electricity. By the way, the electricity which is produced by biomass is carbon neutral as well. We of course increase that one. That's part of the program. In biomass, there will be that part kind of biomass available and continue to be, which can't be used for any other purposes. That part of the biomass in the future will be burned as well. Let's take examples that you have some construction wood which is not anymore, we can't use it anywhere else, or it's somehow other way polluted and can't be utilized in any other construction, then that kind of biomass will be also burned in the future. The other example is the forest residuals.
There is a certain size out of which you can still try to make products with higher value than just burning, but there will be biomass available in small amounts also for heat production in the future.
Sure. All right.
That's a good question.
Yeah.
It's good. It's a very relevant question that.
Yeah. All right. There is a question regarding the Neles situation. Why do you think Valmet will be a better company combined with Neles comparing to Valmet being on a standalone company? From the Valmet shareholders' point of view, from Valmet customer point of view, and also from Neles's point of view.
What do you see are the benefits?
Yeah. Valmet shareholder.
Customers.
Customers.
Neles.
Customers and Neles. If we start from customer. Of course from Neles's net sales about 30% is coming from pulp and paper, where we are strong as well. For those customers, we could deliver the whole mill, whole automation, and important part of the valve offering as well. Combine that with the digitalization so that we could give them remote support from wherever, making sure that the production plants, including process automation and valves, is working as effectively as possible. Of course, in that business, we could generate synergy as well that we could help Neles to improve its market share in tissue and board, where we see that currently Neles is not as strong as it could be, so there would be synergy benefit out of that.
For Valmet and Neles, we could develop our services offering better to make sure that the common installed base is working even better than it's today. If we take Neles view on this, we can help Neles with pulp and paper. We can help them with the digitalization through our automation colleagues. I've been actually running that company so that we develop the future digitalization tools together. We can help in there. The combined company would be very strong. Very strong in pulp and paper, in energy, very strong in services, and then it would have very strong automation offering, including valves and including automation systems as well. Profitability would be good. It would be stable income company having big share of volume coming from services and coming from automation together.
That would of course make it possible to develop the company further and also develop the automation offering with acquisition so that our future automation would be a lot of more than just Neles and our current systems offering together. We see that this combination would be beneficial for Neles shareholders, and it would be good also for Valmet shareholders.
Good. There's a question on services activity. Do you see any improvement on the services front?
Aki will comment more on services later on, but now, of course, we have to be careful. We gave our market outlook in February, but I think since then, we have seen some improvement in some markets in services. There is some positive momentum. Then, of course, in many countries, there are some still lockdowns and different kind of restrictions. We see improving demand in services comparing to quarter three when the market was at the lowest point.
Good. We still have a little bit of time left. There's a question regarding the climate program again. Are you able to quantify the carbon emissions that are saved or avoided because of your products? Even if you can just quantify carbon savings from one product, that would be great. How many tons of CO2 emissions are avoided due to Valmet's activities?
We have actually done quite a lot of research work before we launched this campaign. Of course, in the emissions what we are causing, they are not easy, but we can calculate them. For the products which we supply, then of course we can, for example, measure what is the energy consumption currently for board machine, and then calculate how much actually with best available technology we could reduce, and then the delta is the CO2 savings. We have that kind of calculations, and we continue to monitor that we really can say that we have made technology which is saving 20% in CO2 emissions with our technology compared to today's situation. That must be one part of the program, otherwise it would be not very credible in eyes of investors, but not in eyes of our customers either.
Sure. I guess we have still room for one question, so let's take it now. The question here is assuming that we have not done any changes to the market growth expectations for the different segments, the question is that, do you see any potential to change any growth outlook after the pandemic given expected changes to the way we live our lives?
In regards to Valmet's business or. I think we all have learned now to use even more e-shopping. I think it's very difficult to see that we would somehow return there. Understanding of hygienic things, that will not go back. Of course, we have learned also to live without printing or writing papers more and more. That will continue. Not depending maybe on the pandemic, but climate issue, CO2 free energy will be more important. Different kind of remote helps, like Valmet industrial internet applications will play more important role. I would actually say that almost all the things which are now changing are playing not a lot, but a little bit in our favor, except the printing and writing.
All in all, I think the future life after COVID, or it will continue actually with many vaccinations, but I think it will be good for Valmet.
Okay. Thank you, Pasi, at this stage. As mentioned, there will be another Q&A session a bit longer towards the end of the event, starting at 4:00 P.M. Now we continue, and next up is services. Aki, stage is yours.
Good afternoon. In services, we will continue to focus on profitable growth. First, I start with our way to serve. We have right combination of services for every stage of the customer process life cycle. Our offering covers spare and process parts, workshop and roll services, fabrics, maintenance, development and outsourcing, field services, process upgrades, and industrial internet solutions. We deliver service products, service agreements, and service projects. Our life cycle approach means that we are seeking collaboration with the customer throughout the life cycle of their line, starting from the planning phase over the startup and operation phase. Our core commitments are. Safety comes first, close to you, people you can trust, and solutions to your needs. We have five business units. Performance parts with spare parts and consumables, rolls and workshop services for rolls, roll covers, roll maintenance, and also workshop services.
Fabrics for paper machine clothing and filter fabrics, board, paper, and tissue solutions and Pulp and Energy Solutions for improvement projects, field services, life cycle agreements, and outsourcing for those customer segments. Our key figures. Like Pasi told, we have been having quite steady development with the orders received growth with the exception of last year. Our key market, by size, is Europe, Middle East, Africa, with 44% last year, North America being 29%, the other three market areas, Asia Pacific, China, and South America, being quite equal, somewhere 8%-11%. Our biggest business unit is Performance Parts with 36%, the other business units, Board, Paper and Tissue Solutions and Pulp and Energy Solutions, Fabrics and Rolls, being also very close to each other.
We estimate our market position to be number one to number two in all key markets and our market share roughly being 17%-18% currently. We estimate the market size to be about EUR 8 billion with the growth of 1%-2%. Market drivers. As Pasi told and how we foresee, there is still growth in pulp, tissue, board, and energy production, which increases the installed base. Also, we see that the customers are having higher demand for resource efficiency, productivity, end-product quality, industrial Internet services, and reduced environmental impact. Also, we see that our customers quite commonly focus more on their core, decreasing own resources, optimizing their own cost base, and increasing demand for expert services and also outsourcing their non-core operations. The average size of the lines is growing.
The lines are aging, so the installed base is offering more service opportunities. We still see capacity increases in China, South America, and Asia Pacific. As heard also, there are closures and conversions of non-competitive production lines. Underlying outlook we see that support services growth and profitability improvement. Of course, last year the COVID-induced economic slowdown and restrictions had a negative impact on the pulp and paper production and also service demand. Especially graphical papers declined sharply, and we don't expect recovery on that side. However, board had a temporary decline, but the outlook is positive, driven by this e-commerce, home delivery, and for instance replacing plastics. Tissue continued growth with the positive outlook also in the future, driven by increased hygiene standards. Going to our must-wins, first starting with the customer excellence.
We have been working to improve our customer experience through our Valmet Way to Serve. We have launched the new concept with the globally unified services approach. We have developed our agreement-based business model. We have worked to improve our customer satisfaction and quality, and we have increased our offering with acquisitions of GL&V, J&L, and PMP Group recently. We continue to focus on market share growth, especially on Board, Tissue, Pulp and Energy. Also, we focus growing our service sales and agreements together with our project business. We also focus on developing our on-site and remote services through Field Services, industrial internet, and Valmet Customer Portal. Here we have a case example from our customer mill Opal Botany Mill, Australia, where we have been working with the customer collaborative way since the startup of the line 2012. The delivery includes automation and services also.
We have had maintenance outsourcing agreement, performance agreements, and industrial internet services as a part of service agreement. We have helped customer to achieve significant savings in costs for maintenance, water consumption, and energy. Also we have helped customer to increase efficiency and productivity. Our must-win for technology. Recent developments. We have a very wide product and technology portfolio, so our focus is on continuous offering renewal to keep the competitiveness. Recent development, we have had several product launches also last year. We have developed especially our remote services and industrial internet services. We have improved our cost competitiveness with investments, product development, and productivity improvements. We continue to focus on developing new offering for growing tissue, board, and pulp customer segments. Our R&D focus is on offering renewable cost competitiveness, digitalization, and sustainability.
Also we will continue investments and development for productivity and cost competitiveness. A recent example for this COVID time customer case is from our shutdown work at CMPC Guaíba, Brazil from last summer, where we provided remote services with augmented reality glasses and expert support from Nordics for our local team at customer site. We were able to help the customer to execute successful shutdown and safe operation. Right after the shutdown, the mill reached its historic record at pulp production. Must Win Process. Here again, we seek a continuous improvement in cost competitiveness. We have recently developed our footprint with improved cost competitiveness. We have had capacity cost reductions. We have increased savings in procurement, and we have improved our safety and quality. We continue to focus on developing project operations.
We continue our ERP rollouts and internal digitalization projects. We continue to improve our profitability, safety, and quality. A case example here is our relocation of dryer fabric and wide filter fabric manufacturing from Finland to Portugal, which will take place this year. The target is to ensure the competitiveness and profitability of the business, of course, going forward. The last Must Win, People. Here our focus as a service organization is of course develop our expertise and capability to serve customers. We have had a high focus on talent development programs. Recently we have been working on with the management talent development programs. We have had a Global Field Services Certificate Program. We started the Program for Excellence in Project Management in staple business. We will continue attracting, developing, and retaining talent.
We are working to develop our strategic competencies, especially at our customer areas. We continue to develop our leadership and management capabilities. Here the case example is now from Excellence in Project Management training program, which we launched last year for Services business. The target, of course, is to improve predictability, transparency, efficiency, and in the delivery projects, we should result improved profitability. This unified way to operate enhances the customer satisfaction. Growth Accelerator Field Services. We earlier announced that our target was to grow from roughly EUR 200 million to EUR 300 million level, and we have updated the target for EUR 350 million level. We estimate the market size to be roughly EUR 1 billion. Field services in our business means maintenance and process supporting services, annual shutdowns, maintenance shutdowns, daily maintenance, and remote services.
The drivers why customer buy or outsource field services is, of course, improved operational efficiency and safety, improved operator support, improved predictability for services, improved maintenance planning, and of course, improved shutdown services. We have been recently working on to develop our capabilities and offerings. We have renewed our field service offerings both on-site and other remote services. We have been implementing and developing digital tools as our @Field platform, which will improve maintenance predictability, efficiency, and customer value. We have had this Field Service Certificate Program, and so far we have 101 graduates from the program. We are also developing this digitalization in the sales front. We have this Field Service Contact Center ready to be launched. We have been working in our subcontractor network, so we have made 67 new key supplier agreements. That's Shorting Services. Thank you.
Okay. Thank you, Aki. We will move on to the Q&A part. As a reminder, please be active in posting your questions. Let's get going. The market share for services has increased, so we are now at 17%-18% market share estimated. From who have we won market share in the recent years?
I think that we have probably also gained market share from the customer own operations. I think that in many areas, we are still competing against the customer own operations, whether they insource or whether they buy certain services outside. Of course, we have been acquiring some businesses, like we mentioned, GL&V, J&L Fiber Services. We have been growing also through acquisitions, but we have also grown organically. I think that we have improved our market share in different sectors, but because the range is very wide, it's very difficult to pinpoint one area. I think that it's a steady development of organic growth, acquisitions, and also, I think having customer in-sourced operations outsourced.
Good. Question on which such technological reasons are there pushing the services market to become more consolidated, favoring Valmet, such as more advanced way to serve remotely, et cetera? Are there some technological reasons which could be in favor for a company like Valmet, especially in services?
For remote services.
Well, for example.
Yeah.
In case of remote services.
I think that, of course, one benefit that was mentioned by Pasi is that our geographical presence gives us leverage so we can serve our customers in all key markets, and we have a strong area organization which gives us more leverage close to the customer. Of course, the scale of economics helps that if you have a, for instance, certain product, you can more easily distribute it to the whole market. Of course, in developing together with the automation, for instance, this digitalization is something that we can share very much with the services and automation. I see that there are this economic scale helping in many fronts, Valmet's presence, technology coming from capital that supports service, and then the automation that supports service. I think this Valmet triangle is really the strong point.
A question on demand going forward now after COVID. Do you see that there is some pent-up demand in services?
Yeah. That's the, of course, challenge to estimate. We have seen that there has been some shutdowns and works that have been postponed because of current restrictions. We know that there are customers considering improvements, for instance. It's very difficult to estimate the customer's decision-making, whether they will release or go forward and when they will go forward. Very difficult to estimate how much there is this kind of pent-up demand.
Okay. A question relating to the dynamics of the customers in terms of outsourcing versus in-house. Where do you think the percentage of outsourcing will stabilize in the long term, and where we are currently? Is there a lot of room to grow through outsourcing of customers' operations to Valmet?
I guess there is, of course, room for improvement still, but I would say that if you look at customers by market area and individually so you can see that different customers may have different strategies, what they see core and non-core operations. Therefore, there is no one number that one could say. I think that, of course, the more advanced technology you have, maybe the more challenging is to upkeep the know-how needed for the good maintenance. I think that when the lines are developing, more likelihood that some expertise needs to be outsourced. The question is that what happens to the basic maintenance and how this maintenance will continue to develop, for instance, with the more sensoring, more digitalization, if there comes more predictability in the maintenance. Those can influence, of course, on the future demand.
I would say that definitely there is still room for growing. That's why we have been focusing on field services, and also we are developing our customer closeness and agreement business, which we see potential for growth.
Question, both Valmet and Andritz had a good margin performance in 2020 despite significant services declines, which historically always has been key group margin driver. Apparently, service earnings held up better than feared. Is this due to a positive mix change within services, for example, more spare parts and less people-intensive sales? Or is this mainly due to aggressive temporary cost savings?
I think that we have had many years of systematic target to improve all businesses and services. All the businesses have a target to improve. I think that, of course, temporary cost savings may be helped with traveling, so certain part of traveling cost reduced, but also our volumes reduced. I would say that the result of our strong performance is a target of improving all the businesses. We were successful in improving our operations last year.
Okay. A little bit looking at the potential Neles merger. How would services benefit from a combination of Valmet and Neles? What kind of synergies would there be between these two companies in terms of services?
We have been thinking that, for instance, we could more cooperate with our service network. If considering possible maintenance of valves, we could possibly do some cooperation with our service network. Of course, there is probably some service agreements that we could do combined in our common customer segments and so forth. I think that those are at least the obvious ones where we see immediate closeness with services.
Could you remind us how you bundle your aftermarket offering with new equipment sales? How are you involved in the quoting process? How much new annual sales, a large pulp mill project or an average board machine provide to you?
Well, I would say that this has been one of the focus areas for us to improve. Of course, we are not yet happy the level we are. We have, of course, room for improvement there. I think that this is one of the development areas we are still having. I think that the service demand per line little bit varies based on what kind of customer strategy is, so whether customer do a lot of in-house or whether customer outsource more, and then what kind of grade they are producing, and also in which market area they are. That depends a little bit on the service consumption. I think that we have very, in a way, if you look at our product portfolio, then depends on how wide portfolio we are able to serve and sell to the customer.
I think the opportunity, as we saw from market share, is still quite sizable. I wouldn't go to one number to define because it can vary quite a lot based on the size of the line and let's say the grade they are producing.
Yes. Could you repeat the field services growth target and the timetable, and what is the main reason why Valmet would differ so much from its competitors in terms of field services?
Yes. Our target is to grow from EUR 200 million-EUR 350 million level. I think that we are working towards that target. When exactly we will meet that, time will tell. I think that we are systematically building our capabilities, our products, our tools, and our area organizations. I think that the value really comes from the fact that we have the technology, we have the services, and we have automation, we can help customer to reduce their own cost by having the expertise for their shutdowns, helping them to plan the shutdowns, which will reduce their own fixed cost in their operations.
Good. Maybe still time for one more question, let's take this one. The service market growth in the presentation, the long-term growth, I guess this is referring to, was 1%-2%. The production growth you presented on slide number six of your presentation goes to 3.5%. Why would Valmet grow below the production growth? Am I missing something here?
Yeah. Well, I think that maybe the time span is a little bit different. We see that this 1%-2% is like a long-term growth over the cycles. The percentages we were showing for different segments were referring to maybe the period after COVID, and that is, of course, an estimation. That is to be seen, that what will be the reality. I think that, of course, we have clearly stated our target is to grow twice the market growth. If there is a strong market growth, of course, we expect ourselves to deliver also accordingly. Time will show then that what is the development. One has to remember, of course, that there is also a decline in graphical papers, so that will also impact on the total result.
Yes. All right. Now we will move on. Thank you, Aki.
Thank you.
Thank you for the questions from the audience. Next up, we have automation and Sami Riekkola. Sami, please.
Good afternoon. I'm to explain a little bit on automation. Our target is to continue on the way towards profitable growth and continue on the development path at that. The ingredients related to the growth and doing it profitably rely on our future-proof automation solutions. Sustainable automation solutions covering from distributed control systems to the industrial applications, quality management solutions, industrial internet offering, analyzers, and services. These we are delivering to our customers through individual products or technology as automation projects or through life cycle services. In the same way as Aki presented the services throughout the life cycles, start from commonly planning the investments, providing the right solutions to the customer needs, and then being great in executing the project and delivering reliably. Then, of course, importantly, optimizing and ensuring the performance during the life cycle of the assets.
We are sharing the core commitments, being close to the customer, ensuring the safety in all our operations, and having the right solutions delivered by the people that the customer prefers to work with. A little bit deeper into the automation business line offering, our Distributed Control System offering covers from single unit operations to the large plant-wide automation solutions integrated with condition monitoring. We have quality management solutions from individual measurements to the full-scale quality management solutions from measurement to the control and optimization. We have analysis and measurements, which are ensuring reliable measurements for good process control. Our industrial internet solutions cover advanced process controls and data-driven applications, either giving the operator the advice or optimizing the full even plant-wide operations. We are delivering the remote automation industrial internet offering through Valmet Performance Centers, and engaging with customers through Valmet Customer Portal.
Services throughout the life cycle to ensure the high availability, efficiency, reliability, and safety of the operations by planning and executing services effectively. Key figures shortly. As already explained, COVID pandemic did have an impact on the automation order intake, but it was then offset by the good success in packaging automation offering into the Valmet packages. Our net sales grew to over EUR 400 million. Geographical split, still very EMEA-focused. Some differences and impacts were coming from the COVID impact, particularly from North America. Still two-thirds of the business is coming from the pulp and paper and 1/3, 29%, from energy and process industries. Capital versus services split is basically 50/50 for the automation.
Our market position in our core industry segments is rather strong or very strong, and we are continuously also expanding and winning over the installed base and market share from our competitors from the existing installed base. The existing installed base and aging machines is an important market driver for the automation. They continuously will be and presently also are new investment into the pulp and paper production lines. Industrial decarbonization is a big driver in the energy segment, also requiring for good precise control, reporting, and management. Demand for efficiency in raw material usage in processes and sustainability is naturally also driving the automation demand. Overall, digitalization amongst the industry, digitalized companies are more efficient, and this is, of course, an important driver for the automation business for us as well. Then the outlook. Outlook for the automation products, systems, and services is good.
Our services demand has remained and will remain good. It has been driven by our strong presence close to the customers. We have over 700 automation professionals serving our customers globally. There is a good demand also on new projects and new digitalized systems that are helping the customers to be more efficient. Remote services continue still to develop. There is new demand also driven by the new technology we are introducing to the markets. Starting off with our strategic priorities that we call Must Wins. Starting with customers and what we have been doing and achieving together with our customers. We've had good initial success during the last year in selling the new Valmet DNA user interface, first ever web-based user interface for industrial scale process control. That is new technology providing better usability and totally new way to control large and complex plant operations.
We have developed a new web-based user interface that integrates then our industrial internet applications and tools for the customer's benefit. As an example here, we have a hydropower plant or a network of hydropower plants, which are being remotely controlled from a centralized operation center. This is the kind of the projects and deliveries which are now emerging more and more, that we have been also recently announcing. In terms of the technology, as Pasi already said, we have an excellent development organization, and continuously renewing our product offering. We are continuously renewing and aiming to bring something new into the existing offering, and at the same time developing new value-adding offering to our customers.
This new offering, for example, this DNA user interface, is presently already providing us both new customer potential, new industries to be served at, but also the new upgrade potential, which then will boost our services business. The new web-based user interface deliveries are at full speed, and we have also been gaining some efficiency into the delivery process with the new technology. Working on the processes, our third must-win example, integrating new offering to the deliveries has worked out fine, and at the same time, we have been increasing our internal efficiency. We have, at the same time, been also expanding our supply center capabilities, a major investment here in Finland, ensuring the production capacity to supply, for example, quality control systems to our customer demand. We have, at the same time, been continuously and strongly investing in ensuring our solutions are cybersecure.
As a proof of that, we have recently been awarded with the ISO 27001 cybersecurity certificate. Then with people, needless to say, our operations were changed quite dramatically during the last year. However, we have been using remote connections also already in the past, so the change was not that big. Naturally, the remote operations grew by over 10-fold compared to the previous time. At the same time, we have been able to maintain engagement and also the motivation of our troops, which naturally is the key behind the success. We have also, at the same time, been focused on developing the capabilities of our local teams serving the customers close by, and then providing the support from the Finland or the European or Asian hubs. This is the development we intend to be doing and continuing also in the future.
As an example in here of a board machine startup that was completely managed, an automation system startup that was managed by the local competent team in China. The second growth accelerator with involvement, the industrial internet, is already a substantial business for us. We have been launching new customer value-adding solutions to all customer industries and segments. We have been developing a unique Mill-Wide Optimization algorithm that is able to act and helps the operation to optimize also the complex, for example, pulp mill operations. We have been working to develop new asset performance management applications to help our service business to better manage the installed base. We are going to continue on this path of further providing data-driven applications to our customers' benefit in the future as well, moving into towards to the more autonomous production processes.
As an example of our industrial internet progress we have been making, a Valmet Performance Center is already delivering significant customer support throughout our global network. For example, serving and solving more than 1,500 customer ticket issues through our data connections, as we are having more than 80 of them to, for example, paper machine product, paper production lines, or board production lines. We have over 800 remote connections through which our specialists are in contact and supporting our customers 24/7. Advanced control applications are, of course, already pretty much a standard of our offering, and we have hundreds of them optimizing the customer's process every day. That was all for automation, and we can go to the Q&A. Thank you.
Thank you, Sami. We start Q&A straight away. Which business unit and geography has best growth opportunities for automation?
Very good question. Of course, last year we saw already good development over in China. However, of course, where overall the economies are developing then tend to be more in the Asia-Pacific side. We definitely can be growing and will be growing globally. That's a very good question and of course, something we are contemplating every day as well.
Sure. Historically, you have sold to segments such as marine automation. What is the scope for growth outside of pulp and paper and process industry? Well, I guess especially outside of the pulp and paper industries.
Outside of the pulp and paper, definitely, yeah. Outside of pulp and paper, the scope has previously been a multitude of different process industries, from energy to LNG to biogas. Of course, marine has been an important and significant segment already as such. Additional ones, naturally, we are looking, and now particularly through the new user interface, we are able to master and control and provide these intelligent control opportunities for other process industries very credibly already.
Okay. A question relating to the market share. Your market share is slightly lower comparing to the capital market share.
Yeah.
As was shown in the previous slide. Why is that?
Of course, if we look only the capital, then of course, our market share is a lot higher than 25%, for example, in the key segment of pulp and paper. If we look the entire installed base of the pulp and paper, for example, DCS, then of course, although we have been successful in replacing competitors' installed base and growing our own, there still is lot room to grow in the global overall automation market, still even on pulp and paper. Our estimate reflects over the full installed base of pulp and paper and not just the new deliveries or new extended capacity.
Good. A question relating to the long-term growth potential, which is estimated to be a little bit lower than what the growth rate for Valmet's automation has been. Valmet has been growing 5% and the estimated long-term market growth for automation business is slightly lower. Why is that?
Yeah. I expect that the market's growth rate that we estimated to be within 1%-2% with the pulp and paper.
Yes.
As already mentioned, we have been successful in winning the market share from the competitors, and this competitor replacement continue to be one source through which we can grow then faster than the market itself is growing, and that continues to be the case.
Okay, a question on the monetization and growth rates for the industrial internet. What is the situation there? Are you able to monetize on your Valmet industrial internet offering?
Yes. As already mentioned, it is a business already for us, and we have been successful in integrating industrial internet offering into our standard offering. We have been also selling industrial internet, for example, through data discoveries, and even agreements, even outcome-based agreements, to our customers, even through profit-sharing mechanisms. Monetization is proceeding, yes.
Good. Are there more questions for Sami? We still have a couple of minutes' time. Please post questions here. Potential Neles acquisition, how could you drive sales of automation solutions to non-pulp and paper industries through Neles' strong customer relations, oil, gas, chemicals? What scope of automation offering you could offer to these industries, would you have required application knowledge?
As already previously mentioned, we have both common and then we have non-common existing installed base and customer base to which we are serving. There, of course, one third of Neles is coming from pulp and paper, and 2/3 from our side is coming from pulp and paper, and there, of course, lie the main, I think, offering synergies. Of course, the question on how can we leverage the non-pulp and paper is then, of course, little bit more challenging in terms of direct synergies. We have industrial internet offering, which then also helps Neles to serve the customers better. We also have the asset performance applications, which are helping to manage the installed base of existing fleets, and then naturally built on the services and optimization. Of course, having complementary customer segments is never a bad thing for the future opportunities.
Okay, maybe on that front, a little bit related question on M&A potential more generally. Do you see potential for M&A to add new end markets or to speed the growth in general?
Maybe a short answer, yes. We, of course, are open to the synergetic opportunities, also inorganic opportunities, which then would be fitting either to the existing scope or providing new industry segments through M&As. We have been also doing those also in the not so distant past previously already.
Okay, there are now more questions regarding to Neles. As you have surely done cooperation with Neles already in different projects, how would you describe the compatibility of your and Neles' offering? Trying to figure out how much you would have to do software integration, et cetera, if Valmet and Neles were combined.
Software integration, I now assume that we are talking about systems that are working at the customer interface, not speculating about the internal ones. We have been doing a lot of common development in the past, so I think this kind of a compatibility is there related to the valves and the systems, and then even the maintenance database solutions. Of course, how much of the further integration would be needed is then, of course, depends on the end-user applications. I think compatibility in terms of integrating valve or a valve controller to an automation system, and then smart controls is relatively ready.
Okay. A question on what other key technology differences do you have for DCS and QCS products versus larger industrial players like ABB? Why would a customer choose Valmet's automation in terms of DCS and QCS?
In controller point of view, how, for example, field devices are being controlled, definitely not that big differences then. Where the really big difference presently is and what we have introduced through our new user interface, being a completely web-based, native HTML5-based user interface, delivers cybersecurity and delivers capabilities to an operator. Being dependent on the location, being independent of the device, managing the process is rather unique with our solution presently.
Good. All right. Analyst is asking, why do you not mention Andritz as a major competitor in your slides, usually despite the fact that they are active in automation?
What are they missing in your view? What kind of offering Valmet has versus Andritz, I guess, in terms of automation, is the question.
Well, we have our own proprietary DCS from single unit controllers to the optimization algorithms, even optimizing the entire mill-level plant operations. We have own DCS. Competition is not having own, but integrating somebody else's. I think that is the main difference, and we have our own Quality Control System as well, which is another differentiator in this case. Really valid one.
All right. If there are more questions, please present them via the platform. We will wait just a short time and seems to be no more questions popping up at this stage, so thank you, Sami. We will now move on to a break, and we will continue at 2:45 P.M. Finnish time, so a little bit more than 20 minutes break.
Okay.
Good afternoon to all of you. It's my pleasure to go through the paper business line and world-class technology for packaging and hygiene needs. We start with the paper business line offering, which has experienced some changes during the last few years, thanks to the acquisitions we have made. GL&V acquisition has complemented our recycled fiber lines and stock preparation systems by adding cleaners, disk filters, and disk refiners to our product portfolio. It means that now we are able to serve our customers with even wider scope of the recycled fiber lines and stock preparation lines, which we are selling together with our machinery, but also as a separate own islands. On top of that, we are also selling the rebuilds and as standalone products for those lines, especially for the refiners, which is one of our key product for these systems because of the energy efficiency.
The PMP Group acquisition has increased also our product portfolio in the board and paper and tissue lines by adding the small and medium-sized machinery to our product portfolio. This is the market segment we have not been focusing on earlier, so it's real add-on to our business. We are in the board and paper, we are able to serve our customers now with all size of the machinery for all paper and board grades. On top of that, the rebuilds are important part of our business, especially because of the great conversions we are doing from paper to board. We are also selling here standalone products like headboxes, sizers, and winders. On tissue side, also thanks to the PMP Group acquisition, we are able to sell all size of the machinery to our customers to all tissue grades and products.
We are the only supplier who has all the technologies available for conventional textured and structured tissue production. We also do some rebuilds and sell standalone products for our tissue customers. It has been already mentioned that in the paper business line, we have experienced quite good market activity, and at the same time, we have been able to increase our market share that we have been over EUR 1 billion in order intake last few years. Also, last year was the first year we broke EUR 1 billion in net sales. The projects are taking a few years, so the net sales is following the order intake in couple of years period.
Our net sales are the biggest marketplace for us has been the EMEA. It is EMEA today. The last few years, China has been really good, and especially last year, and hence the China portion in our net sales has increased. I'm really happy that also the Asia-Pacific and South America have increased their share. It's not a surprise to anybody that from the paper grade point of view, the board is the biggest segment to us. Tissue has been on that 22%-25% level in earlier years as well. Paper, even it is only 9%, but still it's EUR 200 million business to us, so it is important. As Pasi said, we have been able to maintain our capacity because even the revenue has increased.
That's thanks to our flexibility in our organization and all our subcontracting networks and supply networks we have built during the years. Today, we can say that we are clearly number one in each of the paper grade segment. Our market share in board and paper is around 50%, and if you go to the bigger machines, so it is even higher. On the tissue side, where are more players in the market, our market share is around 35%. We have good market drivers which are supporting our business. It has been mentioned already, e-commerce, which is increasing the board demand. The same is the shift from the plastic packaging to renewable materials.
There are also a demand for lightweight board, which means that the lighter board with the better strength properties, and that is increasing the demand for high-quality, high-technology products, what we have in our product scope. On the tissue side, urbanization and improved hygiene and living standards are increasing the demand for tissue. Also the demand for higher quality is increasing demand for high technology, what we are offering to our customers. On paper side, there is still some need for specialty papers, which we are serving. It's known that the paper, especially the printing and newsprint, is going down, and it has some impact to the big business, but not really a big impact. To take a look at the outlook, so we are in the growing business.
World demand for paper board and tissue is forecasted to grow around 1.3% per annum in long term. Meaning that from 2019, 414 million tons, it is expected to grow up to 486 million tons in 2030. If take a look on the different paper grades, the container board growth is the biggest one, 2.5% per annum, which means that every year there is more than 10 new machines needed for container board production. On the carton board side, 2.3% annual increase means also around five new machines. The biggest demand is on tissue side, where 3% growth means that around 40 new middle-size machines are needed per annum in the market. There is a clear demand for our products also in the future. Going to these different must-wins and actions we have taken on them.
I would say that from the customer side, the PMP Group acquisition has the big impact. It has increased our technology offering, and now we are able to serve all customers everywhere in the world with all the size of the machines, from the small and slow machines up to high-technology, high-speed, wide machinery in tissue, board, and paper. At the same time, it has increased our expertise in our strategic market areas in Asia and Europe. Also, at the same time, we have some new engineering and production capabilities available. At the moment, we are integrating the operations to our organization, and we are going through the product portfolio, how to maximize the utilization and the benefit of those.
The biggest benefit, I think, is coming from the fact that we have really good net sales globally to sell these products, what we have now in our product portfolio. On the technology side, we can say that we are the technology leader in the world. This is one reason why we have been successful in this business, together with our references what we have. We have already years focused on the resource-efficient production. We have solutions to produce high-value end products with variety of raw materials. It means the different raw materials, but also the lower quality materials, what is the need for nowadays because of the recycled fiber quality going down. We have also long-term development actions ongoing for enhance the raw material reduction, water reduction, energy efficiency, and reduction in CO2 emissions in all the paperboard and tissue production.
The latest, which has been already mentioned here, is this collaboration project with Metsä Spring to produce fossil-free 3D fiber products. On the right-hand side, you see the picture of the typical product, which will be made in the future from the fiber. It is the different kind of the food packages and this type of the serving products like plates and so on. We also are focusing in the future for energy and material efficiency and solutions to reduce the carbon footprint. We are also focusing on the barrier development for packaging grades, because that's what is essential to replace the plastic in the food with the fiber-based products. Last but not least, we are also focusing on the microfibrillated cellulose applications, where there are interest from most of our customers in that area, and to improve especially the strength properties of the end product.
On the process side, the last year has been quite a different year and full of surprises, it has been a quick turnaround to remote mode. We have not been able to travel, we have had to change our processes significantly. We have been successful because of our tools we have available already now. We have commissioned and start up a new machinery in tissue and board machine site remotely with the limited number of the Valmet personnel on site. On the right-hand side, you see one case where we remotely started up the tissue machine without a single Valmet person on site during the startup. We have also done pilot trials remotely in our paper technology centers in Finland and Sweden. Also the remote factory assembly test and customer inspections has been done remotely.
There is a number of new ways how to work together with customers today remotely. We continue to evaluate and develop our way of working and way to operate, and how to support our customers remotely. We continue to develop our industrial internet solutions, what Sami mentioned, to increase the efficiency and reliability and automated operations in the future. On the people side, we started last year a new training program to ensure the future competencies for Valmet. This is the pilot which is going on now, where we have hired graduated students from the university to go through the training with Valmet, and which provides a broad understanding of the business and operations and our delivery process to these young talents.
We have theoretical and practical training for them, they go through the different position and job rotation inside Valmet in order to help us in the future to our needs, what we have. At the moment, we have a recruitment process going on for the second Graduate Program, which will start later this year. That will be more international focus. As I said, this Valmet Graduate Program is now the pilot, and the plan is to utilize that globally in Valmet. That's what I had about the Paper Business Line. Thank you very much, and I think it's time for the questions.
Yes. It's time for questions. Thank you, Jari. First question here on the line already, and the question is on PMP Group. How big is the addressable market for this product segment?
That's a few hundred millions. It's hard to really say how is the future to be in the area, because now the trend has been to the bigger machines. We see that especially in Asia, it is the main market for these small machines. We are talking about hundreds of millions.
Okay, could you talk also more broadly on your views on the PMP before the acquisition was done? Was PMP performing well, or did they struggle due to the lack of small size? Do you think that they have invested enough in R&D? What kind of company PMP was before?
PMP was a really good company in the small machine size segments. They are cost competitive, and they have a quite good market share in the field they are working. As I said, it is something where we have not been focusing on. It's a real add-on to us. They have not Focus that much on the R&D, and that's why now there is a great opportunity for us to develop the machinery, improve their cost competitiveness, but at the same time, improve our cost competitiveness as well. I think that it's a combined benefit for both of us now when we are combining our forces.
Okay. On your loyal Chinese customers, for example, Nine Dragons. Nine Dragons has a sizable expansion plan with a lot of board paper capacity expected to start up late 2022 and 2023. When would these deals be awarded to the suppliers? What do you expect?
Okay. It's always hard to tell on behalf of our customers because the planning might sometimes take a long time. I know that there is plans in place. They have announced those, and there is discussions going on. I expect that maybe this year, latest next year, we hear something.
Okay. What about activity outside of China? Now there have been discussions on this and one good order from China received lately, but how is the activity outside of China? How would you describe it?
No, I would say that the activity in China is still good, but I am happy to see, and we are happy to see that the activity outside of China is also increasing. Most likely, we will see a bit more activity also outside China already this year.
Good. There is question on the market share. According to the materials, the market share for paper has increased. Why do you think Valmet has been able to gain market share?
I think that there is a number of the reason, as I said, we are technology leader and we are the supplier who is bringing a new technology to market. Some of the customers always want to get the latest technology. That's one reason. I think that maybe even the bigger reason is our references. In most of the cases we have supplied, we have excellent references, we have a good startup curves because we are working together with our automation, we have a full package in place. Together with the service, we are able to continue the cooperation with our customers in the long run. I think that this kind of the customer care cooperation and a good references is another big reason for that.
Okay. For how long do you think the paper to board conversion, I guess, market can continue to exist?
Actually, that's a quite interesting and good question. I personally already couple years back was expecting that it's going to go down, but that has not taken place. As long as we have good paper machines in the market which can be transferred easily to the board machine, so I think that long it's going to take place, but really hard to say. It depends on also how the paper market is developing.
Analyst is asking, "Voith has introduced board machines where you can recycle water. Do you have similar products in your offering?
No. I don't know if it's similar, but we have cases where we are utilizing the water which coming out from the machine, we are utilizing those to generate the energy. Already long time, we have had our systems in place which are cleaning the water, and we can recycle the same water in the machine. For instance, in our pilot machine in Jyväskylä, it has been already in use number of the years. We have customers who are utilizing our system to recycle the water from machine back to the machine. It's not a new technology for us.
Okay. Interesting question regarding Coca-Cola, who is said to be testing paper bottles, but still with the plastic layer, and the technology, I guess, is Paboco. Regarding your board machine R&D, are you cooperating with your clients to develop machines that could help industrialize such package types?
We are working continuously with our customers for different kind of the project, and of course, quite many of them are confidential. When I mentioned this barrier development, it's exactly the area where we are developing the technologies where we can build up the barriers to replace the plastic for the different kind of the food packages. Of course, the liquid is one of the kind of the food package.
Okay. Thank you, Jari, and I will now just wait for a small moment to see if we have another follow-up question. Please feel free to ask. There's still a couple of minutes' time to pose the question to Jari if something is on your mind. All right. There are a couple more. You cut manufacturing capacity significantly in 2013-2015.
Have sort of kept your capacity costs stable since that. Is there a need to increase capacity again or are you just happy seeing delivery lead time increasing instead of?
No.
If board demand continues to be strong?
We got some additional capacity now together with the PMP Group acquisition. Mainly, we have been focusing on building up the new supplier network, and we have been, in my mind, quite successful in that area so that we have been able to increase our flexibility with the supplier network we have in place globally. We are happy with the situation we have today.
Okay. It appears capacity expansion is stepping up in the market. What explains the large expansion plans in China and even outside of China? From where does demand for the new capacity come from?
I think that the first thing is these new regulations, what we have in place in different part of the world and globally. There is the need for replace the packages, and that's where the main increase of the capacity and demand is coming from, is the food packages. The environmental needs, closing the older machines and replacing them with the new one, and with these needs for the new type of the food packages, those are the main reasons to increase of the demand.
Final question we will take. Given how fast package delivery due to e-commerce, I assume, is growing globally, why do you expect board to grow only 2%-3% per annum?
Our estimations are based on the outside company's estimation, and we have not done our own estimate so much because anyhow it's varying quite a lot from year to year, and that is the average demand increase expectation. It might one year be much, much higher and one year a little bit lower. That's the average value.
All right. Thank you, Jari.
Thank you.
We will now move on in the agenda, and next up is Bertel Karlstedt, who will be presenting the Pulp and Energy business line.
Thank you, Pekka, and good afternoon, everybody. Pulp and Energy up next. My intention is to go through achievements and forward-looking actions to further strengthen our position in the market. To begin with, a short recap of the offering we are quoting to our customers worldwide. On the pulping side, we have the complete capability for all the fiber processing needs that the customer has, and of course, also the chemical recovery processes and equipment needed for the biorefinery mill of today and the future. Also very interesting is the fact that we have a good set of biomass conversion-based technologies and readinesses and forward-looking. These are really, as I said, interesting. Energy side, the base technology is the fluidized bed boiler technology applicable for big boilers as well as for smaller modular power plants.
Big interest looking into the future is the gasification and pyrolysis processes, make it possible for us to offer opportunities to use biomass waste and side streams from the customer's processes for energy and fuel production. Very interesting is, of course, the portfolio of products and readiness we have for the emission control, strongly supported by regulation and legislation becoming more and more stringent. Both sides are today strongly supported by industrial internet and remote support capabilities and offering that we have in-house. Looking at the numbers, recent history, also in our case, three good years looking at orders received, roughly EUR 1 billion, slightly below in 2020. Those three good years led to the fact that also P&E, Pulp and Energy, actually went above EUR 1 billion in net sales in 2020 for the first time ever.
Net sales, an unchanged setup looking at the global market, EMEA still being the clearly biggest, or I should say, still the biggest area of ours. South America, almost the same size in 2020 due to the fact that we have multiple big pulp projects ongoing in delivery there as we speak. Asia-Pacific, 14%. China and North America, both fairly modest still net sales-wise in 2020. Looking between the two businesses, pulp 66% growing as a relative share, and energy 34% in 2020. Capacity cost, as mentioned already earlier, we are still now at the EUR 200 million, even below in 2020, looking at the capacity cost volume.
Of course, that is only 20% of the net sales, meaning that we have a flexible and efficient setup in the market, and also a good setup to meet future fluctuations in the market that we know will be there also as we go forward. Market share-wise, we are on the podium in both pulp and energy. Market share in pulp increased to 45% in 2020. Market size is unchanged, and expected long-term growth is 1% year-over-year. In energy, I would say a stable market share of roughly 20%, and size of the market unchanged there as well, and also there an expected 1% year-over-year growth as we go forward. Looking a little bit more in depth into the market, the drivers and outlook. Looking at the pulp side first, the active market will continue.
That is driven by the growing demand for sustainable packaging, tissue and hygiene, and now also textile products. That has been mentioned before here by many of the speakers already today. We also see the increased environmental and strict regulation actually demanding us to develop our processes further, and also to come up with new process applications to meet these demands in the key processes that we have. Fiber replacing plastic as well as second-generation bioethanol are both strong drivers when we look forward into the future. Based on that outlook, our expectation is that the big investment activity will continue in the area of pulp. Mainly the big mills will go into South America and Far East, China and Southeast Asia, based on southern hardwood. We also see continued plants and projects going forward in the Nordics based on Nordic softwood species.
The good thing is also, to balance the whole thing, we have a good set of small and medium-sized projects also being taken forward for a stable development in the market, that otherwise would be very fluctuating with the big projects. Of course, textile recycling and sustainable fiber-based textiles is of very big importance, or should I say, interest and potential importance for us as we go forward. More about that on a coming slide. The energy market is in a similar way, drivers and outlook. The drivers here is definitely the decarbonization as one part of the energy transformation that continues. We still see a good future for the combustion-based utilization of biomass and residual wastes, especially for heat and process steam production. Of course, the legislation and regulation related to emissions and environmental targets will support the environmental products and solutions portfolio.
The outlook here, based upon those drivers, is that there will be continued need for investments in the installed base, looking at thermal power plants. We expect a multitude of industrial segments, including pulp and paper, to be continuing to use biomass and, like I said, waste streams from their own main process for steam production. Air emission control with ever more stringent regulations and requirements, as well as the use of new fuels as such in energy production also brings about new challenges where we're talking applications or the performance and capabilities of these applications. Looking at the future, 2021, and looking back, the only really significant COVID-19 effect we can see in the market is the fact that the marine scrubber segment was almost non-existing in 2020. The expectation for 2021 is, should I say, modest as well.
The reason for that was, of course, the fact the uncertainty in the market, the energy price spread, as well as the fact that 2020 was a good opportunity now for end customers and suppliers alike to verify and evaluate the concepts and the deliveries. If we look at our achievements and the future through the must-wins, starting with the customers, I would say that we have been able to strengthen our position in the market based upon offering and cooperation. The market share is based on the fact that we have a good technology that is appreciated by the customer, giving us the orders. I also want to bring forward on the cooperation side two dimensions.
First of all, I think we have been learning to ever better work together with other business lines, services, automation, and paper, in the market and the customer interface from day one. Of course, altogether, we are developing the industrial internet that glues us all together as a customer supporter and a good partner for the years to come through the life cycle. The other dimension I want to bring forward is the fact that 2020 really showed us the strength of our area organizations locally, close to the customers. They helped us to reach these orders received volumes with efficient, close customer relation, and that is something that we will continue to build further upon. The case that I bring forward here is a delivery to Copenhagen in Denmark.
Valmet delivered the fuel handling and the biomass boiler, a key step for Copenhagen to reach its carbon neutrality targets set for the city of Copenhagen for the future. Next steps, put it simply, we are going to further improve our market share in both Pulp and Energy, driven by the offering and the cooperation strengths that we can leverage. Next, technology. I mentioned that one key to success in reaching the market share and orders received was the technology, and here we really can report, as we say here, breakthrough in multiple fronts and with quite many different technologies. We can report today, we actually released yesterday, another order that gave us another set of references and sold projects for our new Continuous Cooking Generation 3, G3 technology.
Something that was well awaited by the market, well developed by us, now ready to be launched, and we have more than two handfuls of orders already. We have, of course, also recently been able to release the fact that we are, together with Renewcell, in the forefront of developing a process and an industry and an opportunity for us as well, been talking about recycling textiles to dissolving pulp and from there on to spinning and yarn production to a recycled textile and recycled garment for the market. We have also, during the last year, been able to release the fact that we have sold now multiple references for second-generation bioethanol production in Europe and in Asia as well, based upon the prehydrolysis technology that we have developed during the recent years. Further to that, industrial internet and remote support.
We are well on our way to have a good reference base and a good customer appreciation and experiences on that side as well, both in pulp and energy as we speak. Really breakthrough on multiple fronts. The case that we bring forward is the Klabin Puma project in Brazil, an upgrade of the customer's existing mill, a prime example where we are working together with a total Valmet delivery encompassing paper volume, automation system, as well as P&E, pulp and energy, portions. Actually, Klabin Puma is one of the first Generation 3 Continuous Cooking deliveries and references sold. Will start up later on this year. Technology, next steps and development actions. I would bring forward the fact that resource efficiency is, whether we are talking energy or pulp, a key topic for our customers.
Raw material efficiency, consumption numbers, whether we are talking water, electricity, chemical consumption, are all key operating expenditures for them. Also the emission side with the tighter regulation, whether we are talking about noise abatement or emissions to air or waters, are all going to be key in our technology development as we go forward. Continued focus on resource efficiency. Another thing that we have ongoing, starting in the energy side of the business, is to look at modularization as a way to improve our competitiveness, internal competitiveness and efficiency, talking about the concept generation, but also a competitiveness and efficiency of the supply chains, looking at both cost and delivery time dimensioning. Processes, the third must-win.
I think that Pulp and Energy business line has been developing very favorably and has strongly contributed to Valmet's development, looking at profitability, and we have been improving in our delivery and project management excellence. I would all start the recent developments with health and safety, first on my agenda always as a leader, and here I can really say proudly that the health and safety statistics of our business line has improved significantly in 2020, especially so when looking at the statistics for our own personnel. The fact remains, though, that on the contractor side, we still have issues and we still have room for improvement, and that is, as we will see later, in the continued focus. During the last three to four years, we have invested quite significantly internally in Pulp and Energy to improve our capabilities in project management and delivery.
We have built competence, we have generated and created tools, we have changed our ways to operate and our processes, and the results can really be seen when we look at our performance and our profitability today. One example of us taking new things into use is the fact that we can report that in the case of the new ERP that Valmet is rolling out, we have in Pulp and Energy in Finland been going live all through 2020 with good success, without any major problems, and the implementation and rollout of that ERP will continue in Sweden in 2021 and in China and India as our countries of operation during the coming years. Good success on that side.
The case that I bring forward, actually from a marine scrubber side, DSME, Daewoo Shipbuilding & Marine Engineering, as a customer of ours, actually a repeat customer, looking at the repeat order that we have received earlier this year. We have delivered the seven ships that we sold to them some years back with success in 2020. Everything went according to plan. The performance of the equipment is according to plan. The time schedule is according to the requirements of the customer. What didn't go according to plan was that we had to do it based on local resources in our area organization in China. Once again, a sign that we were able to build the capability locally, we were able to support remotely through our industrial internet and remote support opportunities and setups, and we were able to do this work with good success.
Going forward, I said that we have done significant competence building new tools, new processes. We are by no means, we have not leveraged and harvested that to the full yet. I see continued improvement opportunities of ours on that side. Last but not least, we need to have focus on the contractor safety performance. Their safety performance is part of our safety performance at the customer site and becomes part of the customer's safety performance and profile. Important to find a way to improve that further during the years to come. Last but definitely not least, the most valuable asset we have, our people. We have continued to invest in our key resources, the key asset, our personnel.
I'm proud to say that we have, through all the challenges we saw during the last 12 months, the year of COVID in 2020, we have been able to stay safe, we have been able to stay operational and efficient. And we have, as a consequence of necessity, been able to build the strength and capacity role and cooperation with the area organizations on multiple fronts. The plans that we had for internal further training had to be adapted to go from face-to-face to virtual, but we were able to commence with the important programs nevertheless. The picture is from a lead engineer training program, a program we have had on now for three years, from 2018 to 2020. More than 100 participants in this important discipline of ours, and teams coming together, working on topical items and challenges in the business with business sponsors as supporting.
Of course, the picture is taken in September 2019, hardly a picture taken during COVID times. Going forward, I still see the importance of building the competence and also transferring, as seen possible and needed, of the competence to the area organizations. By doing that, we can further build and ensure a flexible and efficient resource utilization for a global business with cyclical nature and sometimes also with external preconditions or circumstances that strongly affect the way we need to go about our business. That was the achievements and the further forward-looking actions aimed at strengthening our position in the market. We go over to questions and answers.
Yes, thank you, Bertel. There is a question that came already a little bit earlier, and this is regarding the medium or long-term potential for technology related to lignin-focused business. Can you elaborate a little bit on that?
Lignin has, of course, been a readiness we have had now for, well, between five-10 years, and I guess it's an example of a process that was a little bit ahead of its time. I think when I look at the biorefinery mill, formerly called a pulp mill for our customers, lignin is definitely of interest because it utilizes a side stream that is considered waste otherwise. You can create a fuel or a chemical that you can reuse, and it also has an effect on the load of some of the key components in the chemical recovery side of the pulp mill or biorefinery mill. I think we see a really good interest, and the change that I see now happening is that the end use of this recovered lignin starts to take form.
We start to see the request for and demand for this lignin in the market, and I foresee that we will see many orders coming during the coming years. We are still selling small pilot units, I should say, not say frequently, but now and then to key customers. Many customers are looking into it and investigating the opportunity and the potential of it.
Okay. Good. Next one is on China. Every time when Chinese carton board and pulp producers are announcing new capacity, there is the fear that there will be overcapacity. Any views on the offer-demand dynamics in China?
We are of course seeing good activity on the pulp side as well, and one can only speculate about the reasons and the drivers behind the Chinese pulp and paper industry development that we see right now. The activity that we see is mainly for integrated pulp mills, meaning pulp mills that are built adjacent to the paper machine and are an integrated entity. I see that as a consequence, partly of the recycled pulp ban that China applied a few years back. Now the paper mills need to secure their fiber source by importing typically chips and processing it in an integrated mill setup. I think that is not as such creating an unbalance. You can, of course, ask that, is there me-too type of investment decisions made right now?
I have to admit that the market is almost overheated. I don't see a real issue and problem as such in the setup.
Okay. Marine scrubbers, how much sales in 2020 did you get? Is there anything left for 2021 in the backlog?
The number of new orders have been low. It was only EUR 6 million in 2020 for the marine scrubbers. We still have, I would say, a good volume of orders that we are in the delivery phase of looking back at the really high numbers that we saw in 2018 and 2019. There is still an order backlog that we are working with, yes. 2021, like I said earlier, was almost a nonexistent year. For 2021, we expect to see some kind of a bounce back. We have one order already, a repeat order from DSME, not a big one, but a repeat order anyway. The market will change. Whereas we earlier retrofitted scrubbers into existing ships, now the market is a new build market, where the system will be installed originally into the ship as it has been built.
The other part of the market is the rebuild market of the installed base. The scrubbers that are out there, most of them are operating on an open-loop function set up, where you actually tie the sulfur to water and you pump it into the sea. Those will need to be rebuilt to closed loop, where you find a way to tie it chemically to a compound and you don't pump it, or you don't shift it from air emission to water emission, but you shift it to a chemical residue that you hopefully find an end use for. The rebuild from open loop to closed loop and new builds. That is the market of the future. It will still be there, but timing and volume remains to be seen.
Okay, thanks. Interesting. Then you mentioned an active greenfield pipeline, I guess, in the pulp side. Do you believe this continues to gather for at least two projects per year, this year, and after 2021 as well? Can you comment on greenfield pricing? One would expect that with both players well-loaded and good pipeline pricing should be okay. Is this correct in your opinion?
Let's put it like this, that like Jari said earlier, it's difficult to speculate on customer actual decision-making. There is a huge number of plans that are being taken forward. Whether they all will go remains to be seen. What we will see during the first half of 2021, what we will see during the second half of 2021 decision-making wise, remains to be seen as well. If you look back, we all know that we have seen years with five decisions, we have seen that followed with two or three years without decisions. Whether that is going to be the case in the future as well remains to be seen. I'm trustful that many of these plans will go forward. I won't speculate on the timing.
The pricing of what we sell is, of course, a function of how good we are at selling and how good the customer is at buying.
Good. Regarding the textile opportunity, how much could the annual 140 million tons pulp demand grow because of the textile opportunity?
Well, the future of the textile recycling is interesting. There are projections that we will see in 10 years' time, an equally big recycling volume on the textile side as we see on the paper side today. If that happens, I do not necessarily see that we will see a huge impact on virgin fiber for that demand as such. The main volume will be something that recycles or cycles, rotates in that recycling scheme. How many times you can recycle a fiber, wood-based fiber for textile needs remains to be seen in the future as well. I don't necessarily see that affecting the virgin pulp demand that much, but I'm looking with interest into the future and for the future volumes that actually will cycle in that recycling setup.
Regarding scrubbers, follow-up question on the scrubbers. If you look at the rising fuel prices, do you expect a new boom in scrubbers? Oil price has been increasing, I guess.
Yeah, the price spread has grown some, and like I said, 2020 was partly due to the price spread, partly due to the uncertainty, and perhaps partly the fact that our key customers took the time to evaluate the installed systems and the different suppliers. Like I said, the demand continues to be there, and as the energy price spread increases, that will further support that market to take off one more time.
Good. Still a little bit time left here, so we will utilize everything. China, where does the previously exported recycled fiber to China go now after the ban? Can it crowd out pulp capacity outside of China?
I would say that part of that fiber, rather than to be shipped back to China for recycling and cleaning purposes, is being processed elsewhere. I don't have the exact number here, but of course, it affects the balance of material flows and what type of fibers is needed where. The consequence of that, like I said, is we see more imported chips and raw material to China for local processing of virgin fiber. We see an increased need for Latin American-based virgin processed pulp already for the Chinese market. We also have seen some activity in processing that elsewhere than China. It has, I would say, three different effects on the market and the market activities that we see.
All right. Thank you, Bertel. We will now move on to the presentation by our CFO, Kari Saarinen.
Okay, good afternoon on my behalf as well. We are in a good position to grow and also increase profitability. Valmet is today, top line wise, orders received as well as net sales, around EUR 3.7 billion company. Our EBITDA is very close to 10%, so we were 9.8% last year. Our order backlog, EUR 3.3 billion, and we are around 14,000 Valmetians. Our order backlog or orders received typically is split 50/50 between capital business and stable business last year because of headwinds that we already discussed earlier today, so capital business was a bit higher than stable business orders received wise. Now we are truly global. EMEA is our biggest area. Last year, China was strong and North America was weak.
If we look at the development over the years, we started with the top line of around EUR 2.5 billion, reaching now to these EUR 3.7, EUR 3.8 billion levels last year. Looking at our profitability. Our profitability, we started from EUR 50 million or 2%, reaching then all the way up to EUR 365 million last year, with equals to this 9.8%. If we look at this financial development, it also shows that at our total shareholder return, where actually our total shareholder return has been 380% since January 2nd, 2014. In other words, that means that one of you who has invested EUR 10 million at Valmet share at that day, January 2nd, 2014, that one now has EUR 48 million worth of Valmet shares. That's quite okay. Looking at our financial targets. We have four financial target.
The number one is the growth target, where stable business to grow double the market and capital business to exceed market growth. Important thing here to notice is that last year where we hit the record high profitability, actually, we had some because of the pandemic, the stable business growth was limited and even negative. We had growth at the capital business and still growing profitability there. Our profitability target. That's now 10%-12%. That was set a year ago. After 2019, beginning of February 2020. We almost reached that during the first year. If we look a bit back, our first target was 6%-9%. We reached that 6%, then we increased the target rate to 10%, we reached that one, and now target is this 10%-12%.
Return on capital employed, there the target is over 20%, and then our dividend policy or dividend payout target is we pay more than 50% of dividends as net profits. How do we then grow faster than the market? Important thing is that, we need to add new customers, and then also together with that also we increase the share of wallet with existing customers. We know what our wallet share is with the services in each of the customer machine or mill, and we target to increase that. Also growing services so that we do multi-year service agreement and also sell services together with the new projects, new greenfields, as well as with the renovations. This is equally also important with the automation. We have globally a very sizable field services team.
Those teams are now eagerly waiting for the pandemic to be over to increase their volumes there. Automation has been very successful with the competitor replacements, and the target is that we grow there. Then Sami already discussed that automation brought the new DNA user interface to the market that actually then combines multiple control systems to one interface. That actually creates us opportunities beyond pulp and paper. Capital business, both Jari and Bertel thought that we have strong and favorable megatrends at pulp tissue, board tissue, pulp and energy. Those are, of course, then impact also on the demand of customers equipment there. We are putting 2% of the revenue to R&D. That means that we further improve our competitiveness and on the technology and also our leadership there. Then also we have new beginnings there and new products as discussed earlier.
We have this modified fiber with Metsä Spring. We have the coatings and then also the renewable fiber with the Renewcell. These are new there. How do we increase profitability then? Of course, important thing is that we increase the stable business volumes as said earlier. Also other important thing is that which we have worked already quite long, is that we improve our project execution, we improve our project management, and we have worked with that actually many years already. I have to say that last year, 2020 was the best one there. Important thing is also that once we sell a project, so that in the end, the actual margin for that project is better than the as sold margin.
This is one of the key KPIs, and we actually follow that very thoroughly, and the organization knows that as well. With our procurement as well as with R&D, we are bringing new design to cost product solutions to the market. We are working on our footprint. Important thing there was the acquisition of PMP Group, which actually then brought us two new workshops, one in Poland, one in China. Our return on capital employed. Our target there, as said, is over 20%. We have been over 20% now for three years in a row. Last year, we were 22%, even though we raised some loans for the acquisition of Neles shares. Looking at our peer group, our peers last year, the return on capital employed was 11%. It means that our return on capital employed, 22%, that's really world-class.
Dividend, also our dividend payout. We have paid more than 50% of net profits as dividend each year of our existence. Last year it was EUR 0.90 per share, which equals to 58% of net profits. Important thing also here to note or detail to notice here is that our dividend per share has increased every year, even though that's not our promise, but that has come because of our profitability has increased. We have a strong balance sheet. We need to have a strong balance sheet in order to be able to take sizable contracts. EBITDA was 0.4 last year. The highest ever was actually in the end of 2015 after the acquisition of automation when our net debt to EBITDA was 0.8. We have a strong balance sheet.
Also one important thing why we need to have our strong balance sheet is that there are certain fluctuation at our cash flow. Acquisitions. We do selective acquisitions that have clear industrial logic and then also that support our organic growth. We have done seven acquisitions now since 2014. We were 2015, we had automation as well as then for tissue technology. We had 2018 for power diagnostics for automation. 2019, we had two acquisitions for services as well as pulp and paper technology. Last year, we did this PMP Group for paper and tissue and services. Also we acquired the 29.5% share of Neles. If we look at the money invested, so we have invested since 2014 around EUR 1 billion to acquisitions. It's quite a sizable amount for us here. Then world is not ready.
We are systematically building the future. ERP project is one of the key thing here. We started the project 2016, and we will be ready 2023. Project is progressing quite well. We have now had some headwind because of the travel bans and the teams have not been able to travel, for instance, to China, where we would need to have an ERP team in order to progress. as said, progress is progressing well. We have around 5,000 users, that's pretty much 50% of the total amount of the users in the end. We get benefits because of digitalization projects. Our processes will be more efficient. ERP is a foundation for other IT platform improvements as well. looking at the other operational development improvements, what we are now doing, we are working on procurement.
Each year we have exceeded or we have been at our savings targets at procurement. The team is working like every day better, and it's coming close to world-class. We are also working on the quality. We are working on the IT platforms. Also, as said earlier, the project management, we started that activity at the beginning of Valmet and last year was the best ever. Also with R&D management, we are now managing that as a pipeline, and we look at the time to market, time to cost kind of KPIs there. Thank you very much. We go to Q&As.
Thank you, Kari.
Thank you.
We will start with the Q&A session here. There was some technical issue with the Q&A platform earlier on, so some of the questions I didn't notice here, but I will come back to those if there's a possibility later on. Kari, when the 12% EBIT margin, when would the 12% EBIT margin be feasible? Do you expect a gradual increase towards the 12% upper end of your range, or do you expect some volatility in the margin over the next five years?
Well, of course it's difficult to say how the future goes. If we look at our track record, we have improved every year. Of course, that would be very nice that we are able to continue that kind of an improvement every year, but of course, there's no guarantees for that. We work extremely hard now to first go to 10%, and look what's our next target there. It's also worth to notice that the good Nordic engineering company makes EBITDA that's closer to 15% than 10%.
All right. Could you remind us on the cost bridge from 2020 to 2021, impact of structural savings, versus how much higher cost base year-over-year when COVID restrictions are lifted?
We did some temporary activities year 2020 that of course are coming back, that amount is actually quite limited. We did some structural restructurings, close to 300 people. Once business grows, then we also maybe need to grow some place. There's some savings, I wouldn't count a lot on those. Important thing here is that, yes, business activity was low quarter two onwards and there was less travel. At some point of time, world opens up, we of course need to then also take some learnings out of that, I don't believe that we go to the same levels with certain activities what we had before the pandemic.
Organizations have learned now to utilize various tools to communicate instead of traveling, and I think that these become a new norm as well.
Yes. Regarding the financial targets, is a merger with Neles included in the Valmet's financial targets?
No. No acquisitions either. That's just what we have now.
Good. Could you remind us on the numbers? This was little bit touched upon, but could you remind us on the numbers behind the ERP project? How much has been invested, and what is the payback time or the cost savings per year from 2023 onwards?
I think It's very difficult to communicate all the savings what we are getting. Of course, we have a figure in our mind, but I would not like to speculate that now. Of course there needs to be also then or there will be clear benefits once we have the ERP up and running.
Okay. Should we fear a significant negative margin impact in 2021 from strongly increasing raw material costs?
Well, I think that we are hedging against nickel growth, some is hedged. Yes, there is some pressure on the raw material cost, I think that so far we have been able to work on those. Let's see now what the future is bringing to us. Of course, important thing is that we also keep the cost level down at the personal front as well, and also with the outsourcing as well.
Yes. This was maybe touched upon a little bit, but so some of the cost actions have been done regarding personnel reductions, but what kind of inflationary pressures do you see in 2021? This was a little bit relating to the question just right now.
I would say that there are some, but at the moment it looks manageable. As said, future is uncertain, but there are some.
All right. There are a lot of questions I'm trying to keep it screened so what is already asked. Well, maybe another question regarding the ERP. What kind of cost impact did it have in 2020, and how do you see 2021, 2022, 2023?
We have a cost around EUR 10 million each year that we would put to SG&A on the project, and close to similar amount also then that we book as investment and then we amortize that. Cash out is between EUR 15 million-EUR 20 million per year.
All right. Long-term question on Neles. What is your long-term aim for the combination with Neles? Do you prefer to do a merger or a takeover?
Well, the thing what we have said is that we like Neles and we would like to combine these companies one of these days, but we have not said what's the form. So we like the company a lot, and we like to combine them.
Good. Have you considered hiking your return on capital employed target since you have exceeded it in three consecutive years already?
Well, that's of course a good question, but this return on capital employed is kind of It's a bit multi-dimensional in a way that of course it's net profits and the capital employed itself, so it can increase because of various reasons. Over 20% is a good number already, and reaching that and staying there so it's still world-class. We are in the world-class position.
Good. Question on the quality costs in percentage of sales last year, and what is your target right now?
Uh.
How have quality costs developed?
Well, our target is to reduce quality costs, and quality costs has been one of the items that has been a tough one to beat in a way. Because we book there, if we are not successful with projects, so we book the kind of items to quality costs, and I think that last year was the lowest ever. There's still room to improve here, and I think that we are still not happy at the level where we are. We know that we can improve here.
Okay. Which regions and which divisions are the primary focus for your M&A strategy?
Well, actually, we haven't set that so that what is the target there? As I said, we are looking around 50 cases per year, that's quite a lot. It's kind of one per week in a way, and our market position, we are such a big player at the market, so even though we would like something, some company, we just can't because of the market regulation. It's more so that if it makes industrial logic and it supports our organic growth. These are the things here, and we are not saying that if it's services, if it's automation, or if it's technology, it's more so that it needs to support us overall.
Okay, a little bit more technical detailed question, the depreciation of the ERP CapEx. Is it depreciated over five years or some other, maybe even longer time period?
Oh, boy. I'm guessing it's 10 years, but now it's an educated guess, yeah.
All right. I guess those were the questions at this.
Yeah.
Stage for Kari. We will now go on to concluding remarks by Pasi Laine. At this stage, we will also open up the conference call line for questions. From now on, you can present questions via conference call or via the platform here. We're moving on.
Hello again. Now you have been listening to my colleagues, and now I have short time for the conclusion and concluding remarks. As a concluding remark, I have the list of investment highlights, what I still would like to highlight to you. First is that we have strong position in growing markets of converting renewables. We have strong market position, market shares are high, and most of the markets are growing. You have been asking also from my colleagues what are the growth numbers, and it has been discussed as well. We are a company having strong position in markets that are growing. One of the competitive advantage is that we have the widest technology service and automation offering to all of our customers. We have widest technology offering, which results that we have widest services offering.
On top of that, we have automation. Our competition doesn't have this kind of automation offering. It is closer, and it is further away from us in that respect. This offering gives us a very good opportunity to serve our customers well. In services, like I said, widest offering plays important role. Strong geographical presence. We are close to our customers wherever they are, and we can help them. Of course, capital business is creating new user installed base all the time that gives also services growth opportunities. In automation, we all talk about digitalization, the benefit of digitalization, and the need to improve efficiency and safety, and that's what automation is all about. We have about 2,000 people working in our automation business. We have long track record in digitalization, started that in 1979.
First digital control system was delivered then. We have good offerings starting from specialty measurements and ending up to plant-wide control systems. Offering is good, and this, of course, all gives us growth opportunities in automation as well. In paper, we all know that packaging needs continue to grow, hygiene needs continue to grow, and we are world-class technology supplier for that industry or those industries. We have good technology, we continue to develop the technology, and we have good references, and market position is strong. In pulp and energy, we have strength in our market position, we have good references, we have flexible cost structure. In pulp and energy, we are also bringing new technologies, like in paper as well. Today, Bertel has been talking about recycling textiles, and Jari has been talking about molding fiber technology.
Both units we are bringing also new technologies to the market. What we have been emphasizing is that we are building our future systematically. We believe that one has to work on all the topics in the company, not only to select one topic at the same time, but to develop how we deal with our customers and what we have to offer them, how to develop better technologies, better solutions for customers, how to develop our internal processes, of course, as a backbone, how to make sure that our personnel is developing. We have been doing that systematically last years and will continue to do that. That as a short summary of today's content, now it's time for lively discussion. Like I said, we all are here. Whomever the question comes, everybody's here available to answer the questions.
Pekka.
Thank you, Pasi. As said by Pasi already, you can address your questions to also other speakers of today than Pasi.
Hopefully to others as well.
Hopefully to others as well. Please participate through the teleconference line if we can have the slide showing the numbers on the screen, please. You can see the numbers from here, and we will soon go to the conference call line. Now let's start with the questions that we have here for Pasi. What do you see as main risks in the markets, competitive environment, and own operations at the moment?
Main risks. In the market, I think one risk has been that China has been so dominant, but like Jari and Bertel were both saying, actually Sami and Aki as well, that the activity has now started to be in all the, not all the regions, but in many regions. We in end of 2021, 2022, we are less dependent on China based on our current market understanding. Of course, one risk internally is that we are heavy loaded now and we have to make sure that our organization is capable in doing all the projects what we have been taking, and especially now when there's COVID and part of the teams are working from home and they are not enjoying the normal work life, then it's challenging. I would see that as one risk.
One thing which is not risk, but we have to manage, is what was asked also that there is, of course, risk of inflation of raw materials, and we have to work hard against that.
Good. There are actually two little bit similar questions, but regarding the debt capacity of Valmet. Maybe summarizing this, would you have any problems with significantly higher net debt to EBITDA ratio, let's say, for example, 2x or 2.5x ?
I'm sure that the banks would be willing to give us the money. I think we have had a policy in Valmet to have strong balance sheet. When having the strong balance sheet, we have been able to take big projects, we have been able to make small and medium-sized acquisitions without any hesitation. Our policy is to continue with strong balance sheet in the future as well.
Okay. A follow-up to this one, I guess, is that do you see that it would be a risk for Valmet if the leverage would be significantly higher for winning big projects?
Maybe. No. We had that situation during Metso times, and we got big project, but it's safer for all of us. It's good for customers that we have strong balance sheet. It's good for management, it's good for the organization, and then it's also good for our shareholders that we have strong balance sheet.
Good. A question on Neles. What does long-term mean, and why would, let's say, a merger in two years from now be a better time than today? How much can Valmet integrate Neles into it due to its seat in Neles' board? Or are Neles and Valmet to be considered completely separate companies at the moment?
It was timing.
It was, what does long-term mean? How much can Valmet integrate Neles into Valmet due to the board seat that we have?
Okay. Board seat. We have been saying that if our long-term goal is to merge the companies, then of course, timing has to be such that it makes sense from Valmet shareholder point of view and Neles shareholder point of view, and that there's willingness in our board and in Neles boards to do it. We have time. The worst is that we now set short-term targets to ourselves, and then we make something which is not beneficial for the shareholders. We have time, and we have strong position now in Neles, and we take our time. Of course, we have one person is in Neles board who is working in Valmet, but then of course, all the board members have the obligation to think about Neles benefits.
Of course, that's the even legal requirement for all the board members that they have to work for the benefit of the company. So it is. Currently, we have good operational discussions, not on the board level, but on the practical level, how to work together to enhance Neles' position in paper projects or tissue projects. We work now on normal topics together with Neles.
Good. If I could ask Jari to stage for a while. There was a question addressed to Jari earlier. Board orders fell in 2020 as analyst calculated. Was it due to timing? How does the pipeline look in board?
Yeah, that's correct. It came down a bit from the 2019. It was EUR 700+ million in 2019. Last year, it was EUR 550 million, or something. That's the cyclicality inside the Paper business line with the different paper grades. Last year, the tissue grew, and year before it was a board which grew, and this is a bit of the timing issue, but that's the small changes and the differentiation between the years. Now we have announced one paper machine, one board machine, but I think that this year will be a good year for the board machine, like it has been the last few years, but hard to estimate if it's a EUR 500 million or EUR 700 million. There are differences between the years.
Okay. There was a question for tissue, you mentioned that because of the growing demand, was it 14 or 40?
40. Four, zero.
Four, zero.
Yeah.
middle-sized machines needed.
That's correct. Per year.
Good. For you as well, one more. How do you see the decline in graphic paper production playing out? How many have a realistic case for conversions? How many will just shut down? How far are we until the market bottoms out and only the most cost-efficient machines are left?
Okay. Tough one to answer. If we start from the machine, so it's not only the machine itself, it's also the location and what region the machine it's located and what is the customer base and who is the customer. There is a number of the things what needs to be decided and which is defining what can be and what will be modified to board. Really hard to tell how many there are still to be converted. I think that it will continue, and in my mind, it looks like it's going to continue like it is now from now on the coming years. Few conversion per year.
All right. Thank you, Jari.
Okay. Thank you.
Still we will take from one question here before we move to the teleconference lines. Pasi, analyst quoting here directly, "Listening to the message, market almost overheated, China stepping up, demand even outside China stepping up. How much could Valmet revenues grow by 2023?
I think I was maybe a little bit hinting that the market will, at some point of time, cool down in China. Then we wait that when that happens, then the other market starts to be back to the normal like last year, the other markets were not normal. I think we start to be in the situation in part of the businesses that we have to sell already now, long delivery times. That will sort out the part of the issue that we can't have too big peak in the order intake and net sales at certain time because we have capacity limitations. Next question is it easy to build up new capacity? No, it's not. Not personal-wise or sub-supplier based or our own operations as well.
Jari and Bertel have certain limitations in their capacity, and that might be one of the limiting factors. Of course, we want to grow in capital businesses. Both Jari and Bertel have shown long track record of growing the business, and we try to continue the same as well in coming years.
Good. We have some questions over the teleconference lines. We will now open the lines. Operator, I hand over to you now.
Thank you. We have a question from the line of Johan Eliason from Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, hello, I hope you can hear me well. Thank you for a very informative day. Just coming back to the Neles situation again. Obviously, you bought shares last year up to the sort of EUR 12 level, but stopped before the 30% level. You could obviously last year have decided to launch a mandatory bid for the rest that you had passed it. Judging from what you say about the strong balance sheets, et cetera, it would obviously have to be a share issue, but that should be doable as well. What stopped you? Did you think the EUR 12 price level was too high for you, or is it just a timing thing that sort of stopped you?
You see this as the long-term rather than something you need to move on right now, or was it really that you think EUR 12 is simply too much for the business at the current time?
I think we have been quite consistent saying that already after we bought the first part, that we are here long-term, and that's what we have been saying also when we increased our market or ownership to 29.5, and that's what we are saying already also today. Like I said, we have been telling that the merger would be a good solution and the merger could happen when all the requirements are in correct position. That's what we are now following, and that has been the tactics all the time. Why to make a merger? The merger would create a strong company to move forward, and that's why merger would be beneficial for both the company and the shareholders as well.
Okay, excellent. Many thanks from my side.
Thank you.
Hi, it's Antti from SEB. Just kind of a broader question, I guess, to Pasi on the profitability potential. 12 is the target ceiling, and I guess Kari even mentioned a 50% as a benchmark. You can't really change the market dynamics, competitive landscape, and so forth. If you are just looking at things that you can control, what do you think is kind of the most fruitful growth avenue for Valmet in terms of closing the profitability gap? Is it just continuing to invest in the core business, being an early mover in the emerging new businesses that you are seeing, or is it just on kind of gaining your market share to higher levels on the services side? Just broadly on this topic.
Yeah. Now we're at 9.8% or we were at 9.8%, and the target, like you said, is 10%-12%. I think we have been many years already saying that even if we increase it, then still we are below the best Nordic engineering companies. Antti, you are of course right there that the best engineering companies, they don't have project business, and that's the big difference between us and from profitability perspective, the best Nordic engineering company. We of course have to take into account in our target setting that the difference between us and our competition in capital business cannot become too high. Now, target setting for us and Andritz is actually quite equal, so that shouldn't actually make too big difference.
Of course, to increase from 10 to 12, which we haven't decided yet because we haven't even reached the 10 to 12, we have to be able to increase not the absolute number of our services business and automation business because they are, of course, in relative terms, more profitable. At the same time, of course, we have to push for the high market shares in capital business. Like we have been talking many years ago with you and with the other analysts, that the easiest way to improve profitability in percentages is to reduce your capital business. In long run, you lose your market share, and that's not in interest of the shareholders either.
Okay, thanks. Maybe second question on kind of the new growth businesses that you see around biofuels, biochemicals, also on the textile side. Where do you see kind of the biggest potential? What are you most excited, where do you allocate R&D the most currently?
I'm excited about all of these. The thing is that it's difficult to say when the market will become active. I think Bertel was talking about lignin after somebody asked it, and we had big hopes eight years ago with the lignin, and now it starts to become more discussion. It takes long time. The same has happened with second-generation bioethanol. We sold many pilot plants. Was it 15-16 pieces, 2014, 2015? Now last year, actually, we started to get the first commercial plants. One sometimes underestimates how many years it will take for a new technology to become mature technology. With this BioTrac, what we have now, it's proven technology. We can sell it. Textile is very interesting also from business point of view and then sustainability point of view.
If we together with our customer can develop technologies and plants by which we can recycle the cotton and viscose cellulose-based textiles, that's of course big thing. We work hard on that. The molded fiber products. All of us, I assume, don't like the plastic things or the foam things, what you get when you buy a hamburger or whatever. You feel bad because you know that there's a lot of trash because of your meal. If we can replace that kind of packages with 3D foam packages, which would be recyclable based on renewable raw materials, then I hope we all are excited.
Is there any M&A potential here, or do you think you'll just do it organically with the clients?
We have analyzed the M&A potential and sometimes it happens that when we are ready to pay, let's say, EUR 1 million, then somebody else thinks that they believe the growth targets of the entrepreneur, and they are ready to pay EUR 20 million. We are quite careful in investing to pick plans. There are opportunities, but one has to be careful.
Okay, thanks. I'll stop here. I remind you that if you want to ask a question, please press zero one on your telephone keypad now. There are no further audio questions registered.
All right, thanks.
Pekka I guess.
Yeah. Thank you from my behalf. I hope we have been able to tell you what Valmet is today and where Valmet would like to go in the future. Thanks a lot from my behalf and my colleagues' behalf participating. Now I let Pekka to thank you.
All right. Thank you, Pasi, and thank you everybody for the active participation today. I hope it was insightful CMD for you. Thank you, everybody, and have a nice evening.