M&A Announcement

Jul 2, 2021

Slides

Good morning, ladies and gentlemen, and welcome to this press conference regarding the news announcement today. So the headline for today is that Valmet and Nel is to merge, creating a leading company with a unique offering for Process Industries globally. My name is Pekka Rohen. I'm the Head of Investor Relations at Valmet. So before we continue, a couple of practical matters. First, a disclaimer. So I will now read it aloud and then pause for a moment so everybody can have time to read the disclaimer. Please note that this presentation is not an offer of merger consideration shares to be issued if the merger is approved in the United States. The merger consideration shares have not been and will not be registered under the U. S. Securities Act of 1933. This presentation does not constitute an offer of or an invitation by or on behalf of Valmet or Neles or any other person to purchase any securities. Okay. Then another practical matter, guidance to the media. So the management of Valmet and Neles are available for face to face media interviews and photo shooting at 12:15 to 13:15, finished time at Valmet headquarters at KEA Satama V, Espoo. After 1:15, Teams or phone interviews are also possible with the management. Media is advised to reserve time slots for interviews by contacting Mirka Aarti, whose details can be seen here. So today's presenters are here. We will have Presentations by Mikael Makinen, the Chairman of the Board of Valmet Pasir Leyende, President and CEO of Valmet Jaakko Escola, Chairman of the Board of Neles and Ole Isotalo, President and CEO of Neles. The agenda can be seen here. So we will start with an introduction to the merger briefly by Mikael McKinnon and Jako Escola. After that, there will be presentations by Pasilainen and Olli Isotala regarding Palmetto Nelis today. And after that, Pasilainen will continue. So Bullet number 3 is that the merger creates a leading company with unique offering for process industries globally. Then he will continue on the rationale for the combination, Valmet's financial targets after the merger, governance, merger structure and indicative timeline. And after Past this presentation, there will be concluding remarks presented by Mikael Makinen. And after that, we will then open the telephone lines for Q and A session. So I will now welcome the Chairman of the Board to the stage, Gentlemen? Yes, on my behalf as well. Good morning, everybody. After frank open but fairly tough negotiations, we are very happy to announce today The merger between Valmet and Neles. I think this is a fantastic opportunity Not only for Valomet and Nelis shareholders, but also for the employees in both companies. This will create A big company, €4,300,000,000 illustrative combined sales with more than 17,000 employees. As I said, we have today early this morning signed the combination agreement And the merger plan to combine the 2 companies. How will this happen? It will be a statutory absorption merger, where Neles will be merged into Valmet. And I think it's important to say already here now that the name of the new company is Valomet, just to make it clear to everybody. Another important thing is that Pasilainen will continue as the President and CEO of the combined company following completion of the merger. So very exciting news. I think we have created something Fantastic here. And now I hand over to Jaakko, please. Thank you, Mikael, and good morning, everybody. I definitely Support Mikael's starting point. This is a great opportunity. And at the completion here, now I give you a couple of facts. At the completion, the Nelis shareholders will receive As a merger consideration 0.3 to 77 times new shares involvement for each share, they hold in LS on the record date. And this actually creates a company where Neles shareholders, excluding Valmet, We own around 18.6 percent and Valamec's shareholders 81.2% of the shares going forward. In addition To this merger consideration of new shares, Snerles' shareholders will received a €2 per share extra dividend. It's a distribution of funds prior to the completion of the merger. The combination is subject to, of course, Both companies, EGM, Extraordinary General Meetings, and The votes, of course, have to be in favor for this merger and the normal Control approve merger control approvals. Completion is accepted to be 1st January around 2022, subject, of course, to our conditions for completion being fulfilled. At this moment, shareholders representing around 16.9% of the shares and votes in Valmet and shareholders representing around 15.4% of the shares and votes In Neles have, subject to normal and certain customary conditions, Irrevocably undertaking to vote in favor of the combination. And together with Valomet, The above mentioned, share orders in Nelles hold approximately 45% of the outstanding shares and votes in Nelles. So a fantastic opportunity for both companies. At this stage, I would welcome the CEOs of both companies on stage. So, Pasi and Oli, welcome. Thank you, Jakob. So first, Olie and myself will go through Valomet and Neles today, and I'll start first with Valomet. So like many of you know, Our key figures are such that in 2020, order intake was about €3,600,000,000 net sales about €3,700,000,000 And comparable EBITDA, EUR 365,000,000. We have a long history, industrial history. We are saying that it's Over 220 years, so long heritage of serving industries. We employ currently about 14,000 people and We operate in about 30 countries. Our R and D spend is about €75,000,000 which, of course, gives a good opportunity to develop the offering Further. And then we have been building the business so that we have triangle, which I will Cover a little bit more in details. Twice today still, we have process technologies, we have services and automation, And this merger would, of course, strengthen that triangle. And then, of course, as a very important topic, we have been 7 years in Dow Jones Sustainability Global index. And we have been focusing a lot of in sustainability. And I think in that respect, like Oli will tell later, The companies would be very good from sustainability perspective as well. So, Olli, please, Jorg, Teuen? Thank you, Pasi. Nelis is a great company. And the combination will be even stronger. You see here the figures close to €600,000,000 on the top lines. In 2019 pre COVID figures, it was close to €700,000,000 We are close to 3,000 people present in 40 countries 40 plus countries. On top of that, we have some countries where we have distributors. So we operate in all, I would say, all relevant industrial countries. We are a company that Canopy, from many perspective, said that we are a product company, 400,000 About valves every year. Valve automation components, 160,000 every year. But when we are product company, it doesn't mean that we would not make systems. Strong brands, Neles, Jeansburi and the newcomer, EasiFlow by Neles, Those are important in this industry. And indeed, our brands are globally known and well recognized. The most important part maybe today in today's context is the bottom part of the slides or the slide, And that is Neles as an investment case. Mission critical products. Predominantly, Our products, they are mission critical or process critical, meaning that they play an important role when we talk about Safety of the process, productivity of the process, quality of the process. At the same time, Our share of the total investment from the customer perspective, it's maybe 1% to 2%, depending on the case, Meaning that these critical components are not the first the place where the customer wants to save. This gives our kind of companies and our peer companies certain pricing power. And you can see that our peer companies being in the same mission critical corner of the flow control business Have a tendency to be profitable like we are. We are diversified company Tuberous Industries, Pulp and Paper and Bio Products as well as the end customers are transforming them to more and more renewables and bio based material producers, important and growing area. There are we are exposed to oil and gas. There, the opportunities are really in the energy transition And in other chemicals, gases, I would highlight here separately. We are the market leader like So in industrial gases, hydrogen being one of them, that gives us a good starting point in energy transition from hydrogen point of view. Our business model In colleagues in Valbit, they call this part of the business stable business. Our Business model is such that 70% of our revenues are customer OpEx driven. In many ways, from the investment point of view or shareholder point of view, kind of a comparable part of the business to aftersales in many other industrial engineering companies. 30% is then related to customer CapEx driven, meaning Customer projects. But even in those cases, we are delivering the same valves, but bigger quantities. This resilient business models have made it possible to be profitable year after year, even in the bottom The cycle, like you can see from our adjusted EBITDA figure last year in the middle of COVID. Ozi, handing back to you. Good. That was a good summary, Thales, and I agree on all the points. Like maybe you know, I have been working in the organization for 8 years. So it's very good Organization with excellent products. So what kind of company the merger will create? So a leading company with unique offering for Process Industries. First, if we go through the offering. So the offering is Process Technologies, Board and Paper, where and Tissue, where we are clearly number 1 in supply in the world. In Pulp and Energy, we make pulp mills and we make power plants as well. And there, our market position is Number 1, number 2 or number 3, a little bit depending on the product and the year, but strong player in any case. In services, we have strong market position in those same process technologies, so we are number 1 or number 2, Depending on the products as well. And then the 3rd leg, automation. There, Valmet has systems business, where and the products, I will tell it a little bit more later. And then of course, Nelef has the flow conference, both having good market positions, good products and both Being leader in Pulp and Paper, but then what is very important is that Flow Controls has been and Neles has been showing the way How to develop the business outside of Pulp and Paper. So about 70% of the revenue comes from outside of the Pulp and Paper. In our in systems business, it's about 30%. So we have a lot to learn from Neles how to expand the business In outside Pulp and Paper as well. So very good offering. And then, of course, we have same heritage, same kind of value. So the combination would be easy to create on strong value base. Then if we look a little bit how historically our A combined company would have been developing. So here you see that orders received would have been somewhere €3,500,000,000 level in 2014, 2015, and then steadily going up to €4,500,000,000 and LTM would have been about €4,300,000,000 Net sales, same kind of development from €3,500,000,000 level To €4,300,000,000 €4,400,000,000 level. Comparable EBITA, of course, starting from low levels, combined Little bit of €100,000,000 and LTM would have been about €480,000,000 So Solid development on all those numbers. And then of course, the comparable EBITDA margin would have been developing nicely as well from 4% to LTM is about 11%. So we have a good track record as a combined company. And then, of course, The presentation later on, Gupla, is emphasizing that by combining the companies, we can have the good development for the future as well. So here are the illustrative key figures of the combined company. So last The orders received would have been about €4,200,000,000 net sales, about €4,300,000,000 comparable EBITDA about €450,000,000 being 10.4%. And we would have employed about close to 17,000 people. Geographically, EMEA would have been 40%, Americas about 34%, and Asia 25%. So Very nicely covering all the areas. And of course, Neles is stronger in Asia and Americas than our automation business Well, Valomet's Automation Business, and that, of course, would stabilize the geographical presence we have in the businesses. We look by business type, about 48%, So less than half would have been coming from the project business, being pulp mills, board mills, paper mills, About 30% from services and then 21% coming from automation, where the offering is systems and flow controls. So nice distribution here as well. So very balanced geographically and balanced by product type as well. Global presence with the 17,000 people, we, of course, covered all places where our customers are active. Yes, some of the dots described, but altogether we would have 140 services and sales centers, 40, 54 production units and 23 R and D centers. And then of course, 8 performance centers where from we can Remotely serve both processes, systems and valves. So very good Very good organization all over the world, wherever our customers are active and need sales and services and manufacturing capabilities. Then like Olli was also saying, sustainability has been an important Factory in Nele, and it has been an important factor also in Valmet. So Valmet has been now listed in Dow Jones Sustainability Index 7 years. For 7 years, and of course, the work continues. And I think Neles will fit very well into this framework, Knoest is the valve supplier who tries to improve energy efficiency, reduce the emissions from the valves And then, of course, have a sustainable delivery chain as possible. So from that perspective, Neles and Valamed fit very well together to continue to develop the sustainable offering. We of course will continue with the ambitious climate program we have announced And then continue to build a sustainable supply chain together, and both companies have been focusing a lot In improving the health and safety culture. And one important thing is that both companies are very much people focused. So to develop our personnel constantly has been the focus in Neles and Valmet and will You to be the focus in the new company as well. So very much similarities from sustainability perspective. Then if we look at the offering from growth perspective, so we see that in Process Technologies, of course, we are Into markets where we have been, but we see that there are also possibilities to organically and with acquisition to continue to grow that part of the business. So currently, we are active in expanding our offering to textile recycling and cellulose based fiber. And we have a A program where we develop new 3 d model fiber products together with Metzer Spring. So constantly developing new business avenues also for our Process Technologies. In Services, We, of course, continue to develop the services as we have been, and there are also acquisition and organic growth opportunities to make sure that the track record we have had in growing services will continue. And then of course, in automation, once one has a Flow Control and Automation System, then there are a lot of growth opportunities where I come a little bit later on And then also acquisition opportunities. So the main message being here that the combined company has a growth opportunity, Both organically and then acquisition wise in all these three corners, Process Technology, Services and Automation. Then the rationale for the combination, I think both Chairman and Olli were a little bit Saying also part of the strategic rationale, and I'll try to summarize here the message. So we have unique competitive and balanced total offering for process industries. We have a large recurring stable business providing resilience Business cycles, we have strong industrial logic from the combination of flowcons and automation systems. Automation would be a solid platform for further growth. We have synergies, revenue synergies, technology development And then of course, Valomet's track record in developing the Combined businesses has been good, so we believe that the track record continues or even improves with Neles as well. So first, the offering. Like I said, we have very good and the balanced offering. We make port mills, paper mills, tissue mills, Bulk Mills, Recovery Islands and then Energy Boilers, Bio Boilers And Air and Mission Control, so good offering of process technology. In services, we serve the industries where we have process technologies with full offering, Spare parts component, maintenance, outsourcing services, consumables and then of course process optimizes. So full service there as well. And then in automation, having flow control automation would give very good offering in automation. Then there's a recurring and stable business. So since Valmet has been born or when we We started our order intake in services was roughly SEK 1,000,000,000. And we saw then already strategically that it's very important to grow services and that Kind of stable business further. So we have been growing by small acquisitions and organically the services So that in 2019, the order intake was about €1,450,000,000 Last year, it was a little bit under €1,400,000,000 Or actually, SEK 1,350,000,000. Then we made automation acquisition, which has been contributing to the growth. And now if we have also flow controls there, then actually the same numbers, for example, like 2015 would have been about SEK 2,500,000,000. So, Valomet the new Valomet will have €2,500,000,000 or would have had in 2019, €2,500,000,000 Stable recurring business with good profitability levels as well. And this is, of course, very big change to Valomet. And that's why we are very, very happy now that we are now being able that we are able to announce the Merge. Then from the stable business side, about a little bit more than 50% would have been Coming from services and then the rest from flow control and systems. This is an important point in the path to develop parliament further Together with Neles. And like I've been saying, the offering for our customers would be very good. So Well, Omid can then solve the issues with flow having valve software and valve automation, Valve controls, like Ole was saying, and then solve all the challenges also with system products, having DCS, Quality Management Systems and Analyzers. Of course, this whole product portfolio fits the best to pulp and paper. But like I said, Neles has been developing the non polypand paper business, a lot of better, 70% is coming from that. And we have we still have a long way in our systems business to get to the same level. And I'm sure that the cooperation Between Neles and between our systems people will enhance our growth also outside the Ballpoint Paper and Systems business. So good combination. Then like I said, then we can continue organic growth in Flow Controls in Systems, But then also acquisition wise, the combination is such that we can think about expanding our product offering also to different kind of automation products, analyzers and transmitters as well and measurement equipment. So The combination gives also an opportunity to grow automation further with acquisitions. Then synergies, like I said, we have sales synergies. So we Neles has very good position in Pallop. So I'm not sure that we or we cannot improve that position a lot. But we believe that by combining Neles offering and also with Falomet's paper, Tissue and board offering, we can improve the market share in paper, board and tissue. There is also Cross sales opportunities in milli improvement type of services projects and cross sales opportunities to together with Automaze. And of course, one important topic is the services offering. So Very good services offering and we're the same and we can, of course, combine the services offering to customers where we both operate. In technology, we can develop further the predictive maintenance and volatile industrial Internet topics. In cost side, we can find locations where we can put people together. And then of course, we have an opportunity to have only the cost of 1 listed company, so we have cost synergies as well. But then very important point, what I said already earlier is the integration that we have same heritage, similar management models. People know each other already, so we believe that the integration will be Very effective. Integration is never easy, but I'm sure that it's an effective integration. And we are saying that the estimate for the Run rate synergies is 25,000,000 out of which 60% roughly 60% will be achieved by 'twenty 3 and 90% by 'twenty 4. And then track record, how we have been developing, For example, system business is that when we acquired it in 2016, order intake was 3 37,000,000 And in 2019, euros 416,000,000 and that has been coming partly by direct sales and partly by package sales. And now, for example, package sales last year, together with our systems, the process supplies were about €80,000,000 and the beginning, it was Under €40,000,000, so we have been able to double that, and I'm sure that we can do the same also with valve software. Then some so that was the rationale. Then some words about financial targets. So Like you know, Walamet has set all the time targets so that we have a target for growth, profitability, ROACE and dividend. And our Board of Directors have now approved the target setting for the combined company, and of course, in Close cooperation discussion with Nellis as well. So we target to grow the net sales in Services and Automation Twice the market growth, and that's exactly the same definition what Neles had for Flow Controls as well, and we'll continue with the same. Net sales for capital business should exceed market growth. That has been the earlier target setting as well. Profitability, Like you remember, 1st target for Valomet was to raise the EBITA to be between 6% to 9%. Once we reach that, we change the target setting to be between 8 to 10. And once we reach that, we change that target setting to be In 10% to 12%. And now with this combination, we see that the good target Setting for coming years is to improve the comparable EBITDA of the combined company to be between 12 to 14. And how we will do it with the same tools that we have been doing now? Of course, NLS combination will help a little bit, synergies will help a little bit, And then thereafter, continuous improvement in all the topics we have been improving earlier. And We see that the new target setting is reachable as the earlier target settings have been as well. Gross target, we are saying that will drop such that it's at should be at least 15% and nowadays the target is 20% and the change is because of the increased goodwill in balance. And dividend policy would continue to be the same as early. So dividend payout, at least 50% of the net sales. Then as a summary, from management and governance point of view, I am following information. And Now the text is so small that with my eyes, it's a challenge to read. But if I make reading mistakes, then please correct me In the question and answer session. Like the Chairman said, the combination will be implemented as a statutory The merger, Neles shareholders will get 0.3 to 77 new shares based on their shares And then additional €2 dividend, pre dividend. And then Nela shareholders will own 18.8% of the new company. The decisions we need are, of course, the EGM decisions where 2 third of maturity has To vote in both company EGMs in favor of the merger. Then The covenants is such that the Board of Directors are proposing that Mikael Makinen will continue as the Chair, Jaakko Escola will become the Vice Chairman. Anu Hamalainen will continue or come from Neles side. And then The other members who would continue from Valmet's side are Arokan Pel, Pekka Kempe, Perlimp, Monica, Monica, Maura, Erika Soderstrom. Like Mikael said, I will continue as a CEO, And Oli will work in close relationship with me to integrate Neles and, of course, continues to run Neles with full speed to the direction where he has been running it now as well. We need the approval of EGMs. We, of course, and then the competition approvals and authority approvals, Like Jako was saying, we have Got the support for the deal from largest shareholders in Neles, being Sevian, Ilumarinen, Elo and Varma and then, of course, ourselves and like Jako saying that altogether, it's about 45% of the shares of the company. And in Valomet, we have get the support for the merger from Soledium, Ilmarin, Elo and Varma. And if I remember correctly, that's about 16% of the shares. We are saying that we We start the preparation of the prospectus as soon as we can, and it should be available in September. And prospectus is based on the 2nd quarter finals. So first, we have to have 2nd quarter finals, then we can make prospectus. And then the plan is that the EGMs are organized in end of September. And then we currently plan that the merger is completed on January 31. So now it's time for Mikael to continue with the concluding remarks. Okay. I think you have heard a very, very good story about that. But I would like to go back a bit Further back, not in history, but it's a number of years ago when we started to look at the strategy of Valomet. And that's when we started to focus on certain areas, and that's where Nel Esk came up. So please remember, this is not something that, yes, now it We just look into it. This is a long term plan from the management to go into this area. And then the opportunity came To acquire Nelles. So also listening to Allian, and there are fantastic Nelles brands, and we should not forget those. Even if the name of the company is Valomet, there will be fantastic strong brands that we will develop further. You can see here solid business fundamentals that you have heard already from the previous presentations. I would like to bring up one thing that the one success factor is the sustainability. It was mentioned by Oulu. It was mentioned by Pasi. I think it's very important in the modern world that that's something that we focus on. Leading market position, yes, very good to have. The strong financial position profile that we have, I mean these are illustrative figures, That EUR 4,300,000,000 EBITA margin of EUR 10.4 billion It's a strong company. And please remember what Pasi said about the new EBIT margin target. That's also very, very interesting. We really believe in the future of this company. And our plan is not just to park Nelles somewhere, but to develop it together with the development of Valomet. Growth potential. In today's world, yes, the growth drivers are there. I don't see any I mean, it will be challenging, but of course, they will reach Leach the targets that they have put up to reach. Competence. We will have a fantastic platform of People, 17,000 people with a lot of competence. How about the shareholders then? I think that you have heard from Pasi and you have heard from him over the years that he has a very, very convincing financial track record. And we will, of course, push him to continue that. And we also know that Ol is a very seasoned CEO, so We expect there to be good development, good value for the shareholders. And of course, we're talking about integration and so on, but I mean those are the main points in my opinion. Fantastic story, good company, good opportunity for the employees, good for the market, good for the shareholders. What else could I say? Thank you. And I have over to you. Is it Q and A now? Yes, that's correct. So we'll now Go to the Q and A session over the teleconference lines, and I will welcome all the speakers now to stage here. So operator, I now hand over to you. Thank you. The first question comes from the line of Lee Dunlop Just the first one. You just mentioned there's some regulatory approvals that are likely to be required before closing the deal. I just wanted to clarify, I understand you already had development, already had regulatory approvals when you were Acquiring just under 30%. So I just want to understand, do you have to just repeat the process? And is it effectively procedural since I understand you already received regulatory approvals. And I just wanted to know if you have any comments in regards to The other large shareholder, Alfa Laval, of course, and any interactions and any response in regards to that? Thank you. If I take the first one and if Jako takes the second one, good. So when acquiring Nelesh shares up to 29.5 percent, we needed approval in Couple of restrictions, and we got them. But then when we are talking about merging the companies, we need Approval in several jurisdiction, and that's one of the processes which will start now immediately. And we don't see there Any challenge, but of course, we have to work hard and quick to get approvals from the competition authorities. So thank you for the question. And really, Alfa Laval is the 3rd biggest shareholder today at Neles and They know about the deal, but I'm not the right person to comment how they feel about it. I think You should probably ask their own opinion about the whole transaction at the moment. All right. Thank you very much. Thank you. We have no further questions, so I will pass back for any closing comments. Pekka comes, but that was a very quick Q and A. We would have had a lot of answers, But maybe we can read it so that our presentations were of good quality. Well, I'm sorry. So this was a quick Q and A then. But thank you all the speakers and thank you for the questions that we received. And Everybody have a nice rest of the day and good weekend. Thank you. Thank you. Thank you. Thank you.