Good afternoon, ladies and gentlemen, and welcome to Valmet's Q2 2023 Result Publication and Webcast. My name is Pekka Rouhiainen. I'm the Head of Investor Relations here at Valmet, and the speakers today will be Valmet's President and CEO, Pasi Laine, as well as CFO, Katri Hokkanen. After the presentations, you will have the chance to ask questions over the phone lines. Without further ado, Pasi, please.
Pekka, thank you. Welcome, everybody. Today's headline is orders received amounted close to EUR 1.3 billion, and comparable EBITDA increased EUR 153 million in the second quarter. We have the same setup than earlier, and usually I'll go first through the quarter two, then some words about the segments and business lines, then some extra topic about the execution of acquisition strategy. Katri will go through the financial development, and I'll come back to say some words about guidance and short-term market outlook. First, quarter two in brief. Our orders received were about EUR 1.3 billion. Net sales was about EUR 1.4 billion. Backlog in the end of the periods were about EUR 4.4 billion, and comparable EBITDA increased EUR 153 million, and margin was 10.8%.
Gearing in the end of the period was 23. Here you see the graphs as well. Process technologies in net sales was about 44%, services, 32%, and automation, 24%. Geographically, quite normal distribution, roughly 40% in Europe, a little bit over 20% in North America, and the growing areas, China, South America, and Asia-Pacific, between 11% and 14%. If we look at the orders received trend, our orders received were almost EUR 1.3 billion, and if you look at the trend, the trend was about close to or is ending up somewhere at EUR 5.3 billion, EUR 5.4 billion.
We have been growing constantly through the acquisitions and organic growth, and now we're in 12 months, cumulative terms, we are somewhere at EUR 5.3 billion-EUR 5.4 billion order intake. If you look, geographically, the first six months order intake, North America has been active, 26%, Europe about a little bit less than 40%, and Asia-Pacific active 16%, China 11%, and South America 10%. Good distribution in order intake geographically as well. We have been talking many years about, first about service, and then after the acquisition of automation business, about stable business. Here you see the development of Valmet's stable business over the years. When we started, our order intake was about EUR 1 billion, and now last 12 months cumulative is about EUR 3.2 billion.
We have acquired automation, we have merged with Neles, we have done some other acquisitions as well. Organic growth, we have calculated, has been about 8%. The big change in Valmet is that now order intake from stable business is about EUR 3.2 billion. Now, when the capital or process technology hasn't been that active, then it means that stable business represents about 60% of our order intake during the last 12 months. Big change compared to year 2014, when only one third of the order intake came from services. Good development in long run and in short run. Backlog, like I said, about EUR 4.4 billion. 60% of the backlog is coming from process technologies, 25 from services, and 15 from automation.
We are now saying that about 50% of the backlog is expected to be realized as net sales during this year. Like I said, about 40% of the backlog is related to stable businesses. Last year, the corresponding figure was 35%. Some words about the segments of business lines. First, services. Services order intake during the first six months has been a little bit over EUR 1 billion, so growth by 11% or 12% compared to last year's first six months. Katri will come back later on to the quarterly numbers, but first half year, services has been growing nicely. Net sales has been growing also from EUR 720 million to EUR 846 million, and profitability now for last 12 months is 16.8%.
Aki and areas have been doing good work in improving profitability of our services, now LTM is at 16.8%, I'm very happy with the performance of our services, both in order intake and also in profitability development. Automation segment consisting of Automation Systems and Flow Control. Now we have now second time, for first the whole year in LTM. The order intake, LTM is now almost EUR 1.4 billion. Like I said, some years back, we didn't have this business at all, EUR 1.4 billion. First half of the year, there we are not comparing apples to apples, but the order intake in first half has been EUR 732 million, good activity.
Net sales has been active as well, EUR 642 million. Profitability, LTM is now 18.4%, so good profitability level in Automation business as well. Now I'll say some words about my happiness later on after I'll show the business line graphs. Flow Control, here we have the total numbers, not only Valmet numbers, but Flow Control has been growing nicely in order intake from EUR 394 million to EUR 427 million, so nice activity in order intake. Net sales has been increasing nicely as well, so we are very happy with Simo and Simo's team performance in Flow Control. Emilia has continued the good development in Automation Systems, so order intake.
First, the first six months is about EUR 300 million, last year, EUR 253 million, so EUR 51 million improvement compared to last year. Good development in Automation as well, and net sales has been developing favorably in Automation as well. Process Technologies, orders received was about almost EUR 1.1 billion in first half of the year. Clearly, the order, the market activity has been slowing down. Year ago, our order intake was almost EUR 200 million more than this year in first six months. Net sales has been, of course, active because of the earlier good order intake, so net sales this year has been a little bit over EUR 1.2 billion in first six months.
We still have challenges with the profitability and s till the same reasoning. We have some selected pulp and energy projects which are still impacting the profitability, and Katri will come back later on on the quarterly profitability numbers. Last year, we ended up at 6%, now we are 5.2%, and of course, it's clear that our target is to get to 6% level as soon as possible. pulp and energy order intake has been EUR 489 million, down almost about EUR 90 million compared to last year, and now the LTM is EUR 980 million. Net sales has been developing favorably, net sales was almost EUR 550 million of the first half of the year. Here you see the lumpiness in order intake.
Net sales has been not that lumpy, and of course, now there will be a lot of questions also in this conf call about the flexibility of our capital business. We have been saying all the years that we have been preparing for many years the business to be as flexible as possible. We are prepared for the situation that sometimes the order intake is EUR 1.3 billion, sometimes it's EUR 700 million, and now the LTM is EUR 980, so nothing dramatic here either. Paper business line had excellent year in 2021. It had a good year in 2022. Now, LTM is almost EUR 1.2 billion.
First half of the year, almost EUR 600 million, almost EUR 90 million, EUR 95 million down compared to last year's first half. Net sales, about EUR 702 million, here as well, net sales is higher than the order intake. Here, the same answer that we have been preparing ourselves for flexibility, Jari and Jari's team have been working on that topic a lot. Today's paper business line has a lot of more flexibility in its capacity cost than the paper business line we started with nine years ago or almost 10 years ago. There is always lumpiness in the order intake of capital business, the market is not as active as it has been, we are prepared for that. Good.
There has been quite a lot of discussion about acquisitions in these conf calls, but also in one-on-one meetings. There have been a lot of discussion around the topic. Now I am happy to inform about two acquisitions we have signed now. First, some words about the strategy. We have been saying the whole time that we continue to strengthen our process technology, services, and automation. We are not prioritizing whether we would focus more on automation or services, process technology. We look for opportunities to strengthen all of these corners of our triangle. Then we have been saying that we are selective, like we are saying here, that we annually evaluate about 50 cases. We work a lot on this topic.
Of course, we are targeting acquisitions which are helping us to reach our financial targets, to reach 12 to 14 points in EBITDA. We have executed 10 acquisitions and one merger with Neles after 2014. We have been active on this topic for many years already. Now we are very happy to announce two acquisitions, and the first one is the acquisition of Körber's Business Area Tissue. We have had many years discussions with Körber, and I'm very happy now that we are in a situation that we have signed the acquisition agreement. It was signed on the 7th of July.
The enterprise value is about EUR 380 million. Of course, we need to get the competition authority approvals in selected countries. Not that many, but in some countries. We expect that we can close the transaction in November 2nd, this year. The business will be integrated as one part of Paper business line, as a separate business unit, and in our reporting, we will report part in Process Technology and Services, in Services business line numbers, but the unit will be as one unit managed by the head of Paper business line. The business, what they are doing. Or first, let's start what we do. We do currently tissue machines.
After tissue machine, you get so-called jumbo roll, and then Körber has all the technology to transfer this jumbo roll to rolls, what you buy in local stores or what the away home, away from home market is using. They have all the technologies to transfer the jumbo roll to consumer rolls, and I'll have a picture of that later on. Körber has the widest offering in converting industry, and it's the market leader. Net sales was about EUR 305 million last year, and EBITDA margin 12 points, and it has a good and strong and growing service business, which is about 36% of the net sales or was 36% of the net sales in 2022.
Headquarter is located in Italy, in Lucca. It's a so-called Tissue Valley, and then it has operations, of course, in Italy, Brazil, China, Japan, and USA. The rationale of the acquisition is that we are now, after the acquisition has been closed, we have the widest technological offering to make fiber, to make tissue, jumbo rolls, and then convert that to the end users. It's strengthening process technology, strengthening customer services segment as well, and then it's strengthening also our automation offering. We have good automation offering for tissue, and Körber has very advanced automation offering, where they're using third-party hardware, but they have very good applications and remote services, everything else for the converting customers.
In the long run, we can see that we will have the benefit of having the data from both sides and trying to optimize the production units. We see that we will have sales synergies and cost synergies, so that we estimate those to bring about EUR 8 million by the end, EUR 8 million benefit by end of 2026. Here's the picture, how it looks like. We have first tissue stock preparation, tissue machine, tissue rewinders, and then the converting lines. Converting lines can be together with the machine in the same location or in other location. A big part of the converting lines are sold to tissue machine, to companies who make tissue as well, about 80%. The customer base we are here serving is actually not expanding that much.
Our current customers are buying the machine from us, and they are buying the converting line from somebody like Körber, and now we are the one-stop shop, one-stop shop supplier, or will be that kind of supplier to that segment in the future. I'm very, very happy that finally we have signed the agreement, and we are waiting eagerly for the closing date. To strengthen automation, we have signed a deal to acquire the Process Gas Chromatography business from Siemens. We have been looking for opportunities to strengthen our automation business for many years, and there aren't that many companies available which would have a reasonable size of a product business.
We are very happy now that we have been able to sign the deal to acquire this part of the Siemens business. Enterprise value was about EUR 102 million, and net sales of that business was last year about EUR 120 million, and profitability about EBITDA margin, about 10%. First of all, where they are used. These are used in chemical and gas processes to analyze the component or components of different gases and chemicals. They are used by big corporation, big chemical corporation, big petrochemical corporation, big gas corporations, and all the big ones are using these products. Then this product, which is called Maxum, is the market leader.
It's very well recognized by end customers and appreciated by end customers. The rationale is that we can provide good framework to continue this business. We have global network, and we can integrate or provide good facilities and good support for the business. It will be organized as one business unit reporting to head of Valmet or Valmet Automation Systems business line head. We will, of course, have some synergies with Flow Control as well, because Flow Control is serving the same customers. Then we see that this is an opportunity also for our system business to learn new industries and get new customers. In long run, I see this as important step to widen the customer base of our very, very well operating automation business.
I'm also very happy that we were able to sign this deal, and we are estimating that the deal will be closed in the 1st of April next year. Good. Little bit longer story from me this time, now I let Katri to tell the important topics.
Good afternoon on my behalf as well. Good to be here today to share the financial results with you. I will highlight the key figures for the quarter, starting from the order intake. That was close to EUR 1.3 billion and 3% lower than the comparison quarter. Order backlog was at the level of EUR 4.4 billion or 8% down, and net sales was EUR 1.4 billion and 10% higher than the comparison quarter. Comparable EBITA was EUR 153 million, or 10.8%. That was 1.3 percentage points higher than last year. Items affecting comparability, that was EUR 2 million for the quarter. Last year it was EUR 32 million. Last year it was impacted by Neles. Earnings per share, adjusted earnings per share for the quarter was EUR 0.60. That was 12% lower than last year.
It was impacted by financial expenses as well as effective tax rate, which was lower last year, again, because of Neles. Starting from the orders, services was EUR 430 million. That was 6% lower than the comparison quarter. Maybe good to mention that the second quarter last year was our second best order intake quarter ever. The best was the first quarter this year. Now, services is a little bit over EUR 1 billion when we look at the year-to-date numbers. Automation had good quarter in terms of order intake. It was EUR 340 million and 12% higher, and year-to-date Automation was EUR 732 million. Process Technologies was little bit below EUR 500 million for the quarter.
That was 8% lower. Year-to-date, Process Tech is close to EUR 1.1 billion or 15% down. As total quarter was EUR 1.3 billion, and year-to-date we were at EUR 2.8 billion or 7% higher. On the net sales side, it was developing well in all the segments, both for the quarter and also for the year-to-date numbers. Quarter was EUR 1.4 billion, and year-to-date we were at EUR 2.7 billion, over 20% higher than last year. Comparable EBITA was developing nicely for stable business. Services was EUR 80 million for the quarter or 17.5%, and year-to-date services was at the level of 16.8%. Automation segment was EUR 61 million or 17.9%, and year-to-date they were at 17.2%.
Process Technologies was EUR 30 million for the quarter, sorry, for the quarter it was 4.8%, and year-to-date, Process Technologies was at the level of 4.7%. Other segment costs were EUR 17 million for second quarter, and year-to-date it's EUR -26 million. Here, the beginning of the year has been cost-heavy, and there has been lots of activity which has impacted this number. The quarter EBITA was EUR 153, and year-to-date we are at EUR 286 or 10.5%, and that is 1.5 percentage points higher than last year-to-date. Comparable gross profit was 26% for the quarter, and when we look at the last 12 months, we were at 25% level. SG&A, last 12 months, we were at EUR 900, and that represents 16% of the net sales.
When we look at net sales and comparable EBITA, both have been developing favorably. Net sales, when you look at last twelve months, we are close to EUR 5.6 billion, and out of that, EUR 3 billion is related to stable business. Comparable EBITA margin, last twelve months is now 11.1%, and target is unchanged to be between 12%-14%, and that work continues. Cash flow for the last twelve months was EUR 273, and net working capital was EUR -31, and this is now excluding the dividend liability. It represents 1% of, sorry, -1% of the rolling 12 months orders. Net working capital, of course, the capital project payments are impacting quite a lot here, as well as the elevated inventory levels, which we have had.
Maybe good to mention here also that the proportion of stable business has increased, of course, that comes also with the positive net working capital. Net debt was EUR 542 million at the end of second quarter, and gearing was 23%. Good to mention here that we have now paid the first installment related to dividends out in April. Net debt to EBITDA ratio was 0.77. Capital employed was close to EUR 3.4 billion at the end of second quarter, and comparable return on capital employed was 15%. Good to note here that integration of Flow Control has impacted the capital employed as well as the percentage when looking at the last twelve months numbers.
Last but not least, adjusted earnings per share was EUR 2.42 when looking at the last twelve months numbers. Those were the financials shortly. I will give the floor back to Pasi.
Thank you, Katri. Still guidance and short-term market outlook. We keep the same guidance that we estimate the net sales in 2023 will increase in comparison with 2022, and comparable EBITDA in 2023 will increase in comparison with 2022. Increase and increase both. The short-term market outlook, like you remember, we are saying that 50% is coming from our capacity utilization, and 50% is coming from the customer activity. In services, we have downgraded from good to good/satisfactory. We have had good order intake, like I was saying, Katri was saying in services, that, of course, is resulting that we have very good capacity utilization currently.
We have seen that the market activity has been slowing down, and that's why we are saying the market outlook, saying that the market activity has decreased to satisfactory level. In Flow Control, we have still good market outlook. In Automation Systems, we have good market outlook. In pulp, we have downgraded from good/satisfactory to satisfactory, so that now when there's some uncertainty in the markets and economic development and also interest rates have been increasing, decisions have been postponed. We have, of course, active discussions with customers, but let's see when the decisions will materialize, and that's why we have been downgrading the outlook to satisfactory.
You see also that in our order intake, that now the order intake LTM is somewhere at EUR 1 billion level and not higher. In energy, we have. And that's, of course, the whole pulp and energy, not only pulp. In energy, we keep the outlook as good. In board and paper, the same what I said earlier, so we have had good, and now order intake LTM is somewhere at EUR 1.2 billion, and last, you know, EUR 600 million in first half year, and that's why we have now downgraded the outlook from good to satisfactory. This year, we keep the outlook at satisfactory level. Three changes in the market outlook. Good. Now we go. Oh, no! Now I'll let Pekka on the stage, and then I'll move.
Yes, thanks, Pasi. Now it's time to move to the Q&A session, so I ask Katri also to join Pasi here behind the tables. Thank you, let's then go to the Q&A. Operator, please.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Antti Kansanen from SEB. Please go ahead.
Hi, guys, it's Antti from SEB. A couple of questions from me, and let's start with services. I mean, after Q1, you still had the good market outlook for the business, and if you now reflect the order intake that you took during the quarter, was it as you expected? Was it weaker than anticipated? Maybe you can talk a little bit more detailed into kind of the market activity, parts and consumables separately, and then perhaps kind of project shutdown services and things like that separately. What do you see from your client base?
Joo! Like Katri said, I'll start, and then Katri will add. Like. No, now I lost myself.
Maybe it was the second quarter last year.
Yeah, yeah. Exactly.
Yes.
Exactly. Katri said that last year was very good order intake in the second quarter, the comparison number is tough. Of course, it's the fact that we are 6% down compared to that. Did we estimate it? I think in end of March, maybe not then maybe later on we started to see that the market is slowing down. Still I would say that our understanding in end of first quarter was that the market continues to be more active. There has been a change in the market compared to what we saw in end of March. More detailed view, South America is still active. North America is holding. Europe has been holding.
Let's see what happens now in Europe after summer vacation. Now, of course, during summertime it's a little bit difficult to see any good trends. There's clear slow market in China, and Asia Pacific is holding, so geographically so. In consumables, we see less activity. Now when the mills are not running as well as they are or as with as high production volumes than earlier, then we see that there is less need for our paper machine clothing and less need for roll workshop services as well. Those are related to the production volumes.
Then in mill service type of or project type of, and a field service type of services, we see a little bit different behavior that pulp customers have been more active than paper customers in that kind of segments. As an average, the market has been still reasonably good for the first half of the year. Performance parts has been active.
Yeah, I was just kind of thinking that, was Q2 demand then ended up being satisfactory? I mean. Do you expect the activity kind of sequentially weak and going into the second half, whereas is what you actually then ended up seeing on the second quarter, or am I kind of overreaching here?
No. We had quite a lot of discussion that should we keep it as good or should we change it? We were in the end concluding that now when the order intake in second quarter is 6% down compared to earlier year, then it would not be right to continue to say that the market is good, even if for the first half of the year order intake has been growing.
Okay, maybe a bit more detailed question on kind of the shutdown services and things like that. Are you seeing that your clients are kind of cutting production in a way that results you doing shutdown services, or are they just kind of lowering it but still continuing to run so that there's perhaps not as much demand as you hoped for?
I, well, it's of course, of course, it depends a little bit on the area. Once again, that we are operating all the continents, and we have thousands of customers, so it's difficult to make one summary. I would say so that the customers who are now worried about their cash flow are reacting on mill improvement projects quickly, because that's maybe the quickest way for them to reduce their cash outflow. If they have that kind of improvement projects, which are not 100% necessary to be executed now, then they delay their decision-making.
All right. Makes sense. Then one question on the cash flow, and I mean, you referred to the project payment schedules as one part of kind of what is driving the working capital to be negative. Is this kind of a, in your view, a normal project business type of a phenomena, or is there something related to, I mean, you have talked about profitability issues in some of the key projects? Are these also impacting the cash flows? How should we think about, and when should we kind of expect improving cash conversion from you?
If I kind of start from the overall situation, our projects are cash flow positive, and that's kind of our operational model. It was still highly on the positive side, even if it's lower than what it was, for example, at year-end. Nothing has really changed, no changes in the contract terms. There are lots of variations between the quarters, it's when we talk about these payment schedules, they are reflected on the time. That's normal, nothing special there.
It's just a kind of cyclical, kind of the project cycle and no issues at all. Perhaps at some point we should see a reversal or?
It kind of goes with the kind of the capital orders, those can fluctuate quite a lot between the quarters. I think that when we look at the net working capital as total, of course, the other focus point is the inventory level. They have been elevating, we have been discussing about it quite a lot, and we have to now check carefully that is there some levels which we can bring down, and where do we still face the component availability? Of course, we want to make sure that we can still deliver.
Okay, and what do you then kind of expect for second half? I guess based on the backlog, the growth is maybe slowing down a little bit on the sales side. Is it too early to expect a big improvement on the second half, or?
I think that if you're referring to the net working capital, of course, it's very highly on our management agenda, that I can say. One part, of course, is the inventory, but when it comes to these capital projects and their timing, that is cyclical, and it can cause a fluctuation into the net working capital.
Okay. Thank you. All from me.
The next question comes from Sven Weier from UBS. Please go ahead.
Yeah, good afternoon. Thanks for taking my questions. Firstly, I also wanted to follow up on the service order intake. I guess if we look at the situation sequentially, it looks a little bit more drastic than just a year-on-year comparison. I know there's been a big ticket in Q1. There is a bit of seasonality in Q2. It still seems like a more abrupt change on behalf of your customers, maybe also reflecting their poorer situation that they have in Q1 and Q2. I was just wondering, do you think that's a kind of a new run rate in the service order intake from here? Have you also been seeing kind of a destocking in Q2 that has maybe made these service orders overshoot to the downside?
Yeah. Yeah. I don't see that it's drastic, and it's good that you reminded that in Q1 we had an extraordinary order intake, and that's not the comparison. In a normal year, like we have been saying earlier, one should remember that about in a normal year, 55% order intake happens in the first half of the year, 45% in the second half of the year. That has been the normal phenomenon before the COVID times, and now we are maybe more in a normal situation. It's true that customers are most probably destocking as well.
When the delivery times were very long, then w e said that part of the order intake is active because customers have to react to the longer delivery times. Now when our delivery times are, all the transportation times are getting more back to the normal, then I'm sure that they are also making actions to reduce their inventory levels. That has, of course, impact to our services order intake. I don't see any drastic change in the customers' behavior. When they produce with the machinery, then they need to buy spares, they need to buy consumables, they need to continue to maintain the machines. Our customers are still financially strong. They still all believe in the future of the industry.
Even if there's now downturn, short downturn in their demand and pricing, then I haven't heard anybody saying that they wouldn't have a big belief in long term in the industry. This means then, of course, that the services market will continue.
Yeah, thanks for the.
That kind of fluctuates.
Yeah. I think you said in the Q1 call, if I remember correctly, you already said that, you know, consumable demand might go down, but on the other hand, you might have more revenues from maintenance shutdowns, and we saw the guidances of your customers, right? That there is also maintenance shutdowns in the second half. Is that still your kind of best guidance, that there is this kind of balancing out of the two?
Yeah. Maybe, maybe where I, where I was not correct is that, of course, the maintenance shutdowns are happening, but maybe some of the customers are postponing some of the improvement projects which are not 100% necessary if they want to manage their cash flows. That's maybe was something I didn't think of carefully enough before the kind of call after first quarter.
Okay, fair enough. Thank you. Second question I just had was on the, when I take your backlog guidance, the 50% remainder of the year, same last year, that's, I think, suggesting EUR 200 million lower sales than last year, if I, if I did it correctly. Does it mean you have to make any kind of short-term layoffs or to deal with that? Or how should we look at the overall volume in the, in the second half?
We are not giving any other guidance that increase, an increase in the net sales. I think one guidance is that there's now less capital business in the backlog and than year ago. About the layoffs, we have been building the business structure such that we have good flexibility in the organization. Currently, we don't need any extra layoffs, but then all the time we have situations that can be that in one specific location, we don't have enough work, and then especially in Finland, it's very easy to lay off temporary people, and then people will get back immediately when we have workload back on the normal levels.
That's in a way, normal capacity management, what we do every year.
Clear. Last question I had was just on the other line, which picked up to EUR -17 in the quarter. Is there kind of a Q2 seasonality here? We had the same swing Q2 last year. Something to keep in mind on that?
Okay, the Q2 was EUR 17 million, and year to date we are at EUR -26. Of course, if you compare it to last year's EUR 39 million, it has been cost-heavy beginning of the year. We estimate that it will be approximately somewhere between EUR 45 million-EUR 50 million.
Okay. Thank you.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Hi. Thank you. I have three questions. Firstly, on the revised market outlook for board and paper. I mean, how big is this change? Just wondering about the magnitude of the change you see in the market. If I look at your market outlook, you have had good outlook for this business for quite a long time. It was in 2016, the last time you expected it to be satisfactory. At that time you had, like, EUR 700 million run rate in the orders. Now about EUR 1.2. Is this a kind of level you should expect it to land now or any thoughts on kind of?
Yeah.
What this means?
No, we are not giving guidance on order intake on business lines, but 2016, thereafter, the market has been active and very active, and we are used to the levels where the order intake is at totally different level than in 2016, when we didn't actually believe that the order intake will go over EUR 1 billion. Like you have noticed, the record has been EUR 1.6 billion. Then in 2016, we didn't even dream of that kind of volumes. Now, of course, after the good years, our expectation level and your expectation level have changed. One should not compare these two words, satisfactory 2016, with today's word, satisfactory.
Okay. Thank you. On the services margin, I mean, can you comment on what do you expect in the coming quarters, given that the orders came down, so maybe revenue will follow? You probably had quite good pricing impact year-on-year, and you started to have that later last year. Basically, do you expect margin to improve going forward?
This is difficult.
I can.
You can take.
I can start. Then you can continue. Of course, we are not guiding the margin going forward, but you are right, it has been developing. It was now 16.8%, and if you compare it to last year's 14.8%, of course, there has been good development. Volume has been supporting it, so we have more net sales. It's also good to remember what was the situation last year. The profitability for Services segment was below 10% on the first quarter, and second quarter was a little bit over 14%. Price increases have been done.
Okay.
And, of course.
Yeah
Of course, we continue to work on the profit improvement. Valmet's target is still to get between 12%-14%, and we continue to work on profitability of all the businesses, including services.
Thank you. My final question is on process technologies and the, let's say, problem projects in that business. The margin was similar in Q2 compared to Q1, so basically the question is that, do you have any kind of new issues there? Is it still the same projects impacted by inflation, or what is kind of behind the margin level we saw?
It's the same issue.
Okay. Thank you.
The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah. Hi, it's Johan here at Kepler Cheuvreux. Just a question on the on the M&A. I mean, you gave us some profitability numbers for the businesses you're acquiring. Are you targeting that these will be supportive of your 12%-14% EBITA margin target? When would that be?
We are, yes, we are targeting that they are supporting our targets. Of course, we will not in the future comment their profitability separately. They will be integrated into our organization. It will be part of the Process Technology Services and Automation profitability numbers. Of course, the target is that if we buy something, then it's also supporting us to in the long run, to achieve our profitability target.
Good. Obviously you are buying this right now, when interest rates are going up, this will impact your debt, quite significantly. Can you indicate anything about what sort of interest rates you're expecting to finance these acquisitions with?
We cannot give any kind of more detailed information regarding that. At the end of second quarter, the average interest rate was 3.6%.
3.6%. Okay. Finally coming back to services a little bit, we've seen now the orders trending well above revenues for some time, which is a bit unusual for services, which typically has shorter delivery times. Will there be a sort of a catch-up now coming on the revenue side from the services?
We have had, of course, long delivery times in services as well. From that perspective, it's good that for a while we will have higher net sales than order intake. Like I was referring earlier, to the normal year before COVID, it was so that net order intake was 45, 55 in the beginning, first half of the year and 45 in the second, and the revenue typically goes the other way around. S o first half, 45, and the latter half, 55%. That's a typical year.
Okay. And you haven't seen any order cancellations, irrespective of if it's in services?
No.
Or the project businesses, et cetera?
No.
Oh, excellent. Thank you very much.
The next question comes from Tomi Railo from DNB. Please go ahead.
Hello, Tommy here from DNB. Also on services, I hear you saying that the downgrade, you had a chat if it was good or satisfactory or get that good, it's a combination of customer activity and the capitalization. How should we read 430 level going into the second half? Is it fair to assume that the customer activity tracks down that 430, or should 430 be sort of a bottom level?
I have difficulties to follow. It was 430. Okay, 430. Okay. You mean now that what's the order intake against this 430, which was the second quarter order intake level? Like I said, in the beginning of the year, usually we get 55%, and the latter part 45%, does it happen every year? No. Are we giving guidance based on one quarter order intake, and what happens to the next one? Maybe, maybe not. No, let's start from the other angle. Like we all remember, last years, we have had a lot of challenges.
There was COVID and different kind of supply chain challenges and logistic challenges, and we had a war start in Ukraine, and we had also a fire in Rautpohja. Now, all that kind of extra hassle is away, and we can focus on managing the business. Of course, now, I'm sure that Aki and all the area heads are focusing a lot now in managing the order intake and services. That's the key focus on top of course, winning capital cases and on focusing on net working capital reduction and cost competitiveness actions. But we have now very well management capacity available to focus on order intake, and that's where services and area management will focus the latter part of the year.
Thank you. The second question, just on the capital pipeline, you talk about deals and decision-making. Has the pipeline as such changed in terms of the number of potential projects, values, or is it just a function of deal decision-making?
In pulp side, it's actually has been the same. We were also expecting lower activity level for this year, and the bigger projects will be starting to develop maybe more in 2024. In pulp or board side, there have been couple cancellations, public cancellations, at least one cancellation of one big project in Europe. Otherwise, they are postponements. Customers are now thinking about the interest rates, demand development, and their own cash flow situations and own balance sheet, and then estimating and thinking when to go ahead with the investments. I'm aware of only one cancellation of a project that's now in our sales pipeline.
Thank you.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Yeah, hi. I just wanted to follow up on the Körber acquisitions. Could you maybe talk a little bit more kind of what is the biggest opportunity that Valmet can make to this business? I mean, from technology point of view, it looks like a separate technology from tissue machines and then the converting. Is there a benefit of you making both machines? Is there a benefit for the client that you sell both of those machines? Like, where can you actually move the needle with this business?
The machines are different, and then the positive thing, one difference is that the projects what we are, what we will be selling there are small compared to our machines. Even if the picture looks a little bit different, but you can buy a converting line from EUR 3 million to EUR 7 million. The project risk level is different in converting business. It's a more machinery, normal machinery business comparing to our big machinery business. Technology-wise, we see that there is, there's a improvement potential in the operational efficiency of converting lines.
Converting lines are not running very effectively currently, and we see that there's an opportunity that the ones who make the jumbo roll, we have the jumbo roll technology and data, and if we use that technology to optimize the jumbo roll for the converting and the data to optimize the converting line performance, the operational efficiency in converting lines can be increased. The combination will have a lot of more frequent customer contacts. The converting lines are there all the time, developing the offering for customers. They have frequent contact with the customers, and the machine supplier doesn't have the same. We actually get a lot of more intimacy with our customer base once we have concluded the acquisition.
From client's perspective, we can offer the whole solution if somebody is building a new plant, including tissue machine and converting line, we are then the only Western supplier who can supply the whole package to them.
Okay. Then just to make sure, kind of from competition authority or market share perspective, are these kind of a two different markets, the machine market where you are operating and the converter market that you are buying, that there shouldn't be any major concern?
They are different markets.
Okay. Maybe lastly, on Körber deal. We know the geographical split, but is there something kind of you can add, or are they underrepresented in some of the market areas where you're strong or anything like that?
We both have possibility to strengthen ourselves in Asia Pacific.
All right. Sounds good. Thank you.
Thanks.
The next question comes from Tom Skogman from Carnegie. Please go ahead.
Yes, hello, this is Tom Skogman from Carnegie. I wonder about pricing when you have a more uncertain market. My understanding, pricing has been improved a lot since, you know, let's say, seven, eight years back in the board and pulp. Are you prepared to use pricing now in order to secure orders in a more uncertain market or will you be really stubborn and hold on to your better improved sales margin in new orders?
In process technology, we'll continue with the same policy that we don't see any reason to be more flexible in process technology.
Okay. I wonder about Automation Systems and the order outlook there. When you now have lowered the outlook for pulp and paper, is it kind of just a question of time before you weaken that automation as well as such a large share goes to your own projects, and they come at a later stage in the project?
Currently, we haven't seen it. 30% of the system business is coming from non-pulp and paper customers. Our organization is has been developing new products to pulp and paper customers. We are introducing new products all the time. We have good customer contacts, we have good planning together with customers how to keep our systems up to date. Currently, we don't see that kind of phenomenon.
Just to get more exact data, how large share automation system sales goes to your own new equipment kind of projects?
It's between 10%-20% on a yearly base. Like you have seen this year, order intake in paper machines have been dropping already. It hasn't been that active than it has been earlier in some years.
Yeah. Then finally, about the pulp project sales funnel, is there more than one project in the funnel for next year, so we don't end up in a situation where competition as Andritz is horrible for if it's just one huge project? Are there more than one?
Timing-wise, I can't say when the decisions are coming, but there are several in development phase.
Okay. Thank you.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. The next question comes from Mikael Doepel from Nordea. Please go ahead.
Thank you. Just a quick follow-up there on Tom's question about the pricing versus uncertain markets. You talked about process technologies there, but how about the rest of the business, for example, the service business or any other segments? Do you see price pressure there?
We see price pressure there all the time. I think I've been all the time already earlier saying that markets are getting more normal. There were a time when it was easy, we were delayed, but it was more easy to increase the prices. Now we are normal market situation. We have to make sure that we improve our cost competitiveness all the time to continue to improve the profitability. Valmet's target is between 12 to 14. We can't get there if businesses are not continuing to improve their profitability. With normal market, in normal market, I'm that old that in normal market, in my mind, there is interest rate, there is inflation, there is competition.
Got it. Well, that's clear. Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you then for the lively discussion, and, Q3 results will be published on October 25. Until then, I wish everybody a really nice summer. Thank you.
You wish very long summer. Good. Thank you.
Thank you.