Good afternoon, ladies and gentlemen, and welcome to Valmet's Q3 2021 Result Publication and Webcast. My name is Pekka Rouhiainen. I'm the head of investor relations here at Valmet, and with me today are the presenters, Pasi Laine, President and CEO, as well as Kari Saarinen, CFO. After the presentations, you will have the chance to ask questions. Now, without further ado, Pasi, please go ahead.
Thank you, Pekka. Good afternoon. Headline today is that orders received increased to EUR 1.1 billion and comparable EBITA to EUR 107 million in the third quarter. First I have some brief words about Q3, then development of business lines, then Kari will go through the financial development. I'll talk about guidance and short-term market outlook, and then some words about Neles. First, quarter three in brief. Our orders received increased to EUR 451 million in stable business. In capital business, the orders received increased to EUR 681 million. Net sales increased to EUR 935 million. Our backlog is now quite big, EUR 4.2 billion. Our comparable EBITA increased EUR 107 million, and margin was 11.4%, and gearing in the end of the quarter was -1%.
Here are some of the same numbers and some graphs. Orders received total was EUR 1,107 million. It was a good quarter again for Valmet. Net sales increased to EUR 935 million. That's good number as well. Comparable EBITA 107, like I said, and comparable EBITA margin 11.4%, which is in the targeted range. Backlog almost EUR 4.2 billion, and we employed in the end of the quarter about 14,200 people. If we look geographically first how the orders came. Asia-Pacific was strong. We had one big board machine order there. Europe was strong. North America traditional level 20% and little bit smaller numbers in South America and China.
Business lines-wise, Paper continued to have strong performance, so 48% of the orders came in from Paper business line. Pulp and Energy this time a little bit smaller, 14%, and Services 31%, and Automation 8%. Like I said, orders received was EUR 1.107 billion, and now if you look at the 12 months curve, now we are for the first time over EUR 4.5 billion, and that's of course a good achievement for Valmet. We have four strong quarters behind us. If you look at the geographical distribution of the orders in the first three quarters, it is quite traditional. Europe again about 40%, North America less than traditionally 15%, South America a little bit stronger than on average 12%, Asia-Pacific close to the average, and China now 18%.
The big change between 2020 and 2021 is even if China is big this year, it's not as dominant as it was in year 2020. Our stable business development is such that now the orders received during last four quarters is EUR 1,909 million. We are again over EUR 1.9 billion and targeting of course to get to the pre-COVID levels as soon as possible. But we are of course happy with the development. If I have calculated correctly, all three quarters are stronger than in the pre-COVID time in 2019. We are back in business, in stable business. Backlog has been increasing steadily.
Now it's EUR 4.2 billion, which is about EUR 180 million higher than end of the second quarter. Now we are not anymore saying how much of the backlog will be materialized as net sales during 2021, but about 25% is related to stable business and about 75% are related to capital businesses. Strong and good backlog. Some words about the business lines. First Services. Orders received was EUR 343 million in the third quarter. If we look the orders received cumulatively, now we're at 1.099 billion. About EUR 85 million higher than a year ago, which corresponds to close to 8%. We are back in growth mode compared to earlier year in services.
Of course that's what we have been targeting, and it's good development. Also in net sales we are ahead of last year, about EUR 26 million, and that's of course important as well that we are getting goods out. We still have some COVID-related travel restrictions in some parts of the globe, especially in Asia-Pacific, which still affect our services business. Geographically, Europe is still a little bit slower than the other areas, and the other areas have been growing more during the year, and Europe is still in a mode that we are waiting the growth to come. Not waiting, actively working, but the market is not back yet in Europe.
In Automation, orders received was strong again, EUR 109 million, and now cumulatively we are at EUR 347 million, which is 52 million higher than a year ago. Good growth in Automation as well in orders received. Net sales hasn't been developing as favorably, so we are EUR 9 million behind in net sales compared to last year, and we have some challenges with the component supplies, and that will of course continue in coming quarters. Some timing issues are also affecting net sales development in Automation. The positive thing is that order intake is growing nicely compared to previous years.
Pulp and Energy, the orders received is now 937 million, so almost EUR 290 million higher than a year ago. The trend is at good level of about EUR 1.2 billion level. Net sales has been developing nicely as well, so it's the twelve-month curve is there at about EUR 1 billion level. Net sales in first three quarters has been EUR 729 million, so a little bit bigger than a year ago. Here, our organization has been managing the COVID impact very well, so we are not now reporting any COVID impact. Of course, life is not normal, and we still have to be careful with COVID in all the installations where we are.
We're working of course in offices and factories as well. The organization has managed the COVID situation in Pulp and Energy very well. In Paper, we had a record quarter, so EUR 531 million. It's of course very strong quarter for Paper. Here you see that the order intake has been several years now about at EUR 1 billion level. Now the 12 months cumulative trend is little bit over EUR 1.5 billion. Strong year. The strong last 12 months for Paper. Order intake in the beginning of the year in first three quarters has been a little bit over EUR 1.3 billion, so being about EUR 500 million higher than a year ago, and we have to remember that last year was good year as well.
Jari and Jari's team are performing very, very well. Market is active, especially in board and paper and stock preparation, and then our orders received have decreased a little bit in tissue, where I come back later on again. Good development, and here the same message as what I had about COVID management in Pulp and Energy. Paper business line, together with areas, has managed very well the COVID. We have had many startups, where local people have taken a higher, bigger role than earlier, and remote support has been given from central organizations. Very well-managed COVID situation in Paper business line as well in 2021. Financial development, and it's now Kari's turn.
Okay. Thank you, Pasi, and also good afternoon, good day from my behalf as well. Very happy to be here. About the quarterly figures. Our orders received increased by 58% to EUR 1.1 billion. All business lines increased with their orders. Pulp and Energy business line increase was more than around three times. There the comparison was low. Paper business line increase 80% and the comparison was strong and now Paper business line had the highest quarterly orders ever. Automation business line increase 29% and Services business line 19% increase. Very encouraging also is that Services EMEA area orders received turned to increase now during quarter three. Orders received also increased at every geographical area except China area.
Order backlog, that was record high, EUR 4.2 billion. This EUR 900 million or 27% increase. I said this EUR 4.2 billion order backlog, that is highest ever with Valmet. Also if we compare year ago, end of last year, all the business lines and also all the areas are higher than at that point of time. Now, net sales for the quarter increased by 12% to EUR 935 million. Here also all the business lines increased. Capital business lines were the strongest. Pulp and Energy growth 23%, and Paper business lines 14%. The sales mix for the quarter was 57%-43%, capital, stable.
Q3 comparable EBITA, EUR 107 million or 11.4%, also higher than last year, and EPS that was EUR 0.5 per share. Cash flow EUR 57 million, so this is lower than last year. We were net debt free end of quarter three. Gearing end of the quarter was -1%. A year ago, it was 18%. Cumulatively, orders received end of quarter three were EUR 3.65 billion. This is the same as full last year. So cumulative increase we have 34%. Every business line increased. Paper business line 63% increase, pulp and energy almost 50%, Automation 17%, and Automation 8% increase. Our good success in gaining new project orders shows also in the mix.
Capital share, capital's share of the mix was 62% cumulatively and stable was 38%. Cumulatively, net sales are 6% increase, comparable EBITA cumulatively EUR 282 million, equaling to 10.3%. Last year we were at EUR 280 million or 8.5%. Cumulative cash flow EUR 385 million, a bit lower than last year's EUR 480 million. Okay, gross profit, capital business line share of quarter's net sales has increased. It was 57%. Even though this increase at capital, Valmet's gross profit for the quarter was 25%, which is quite good for us. Overall, we are quite happy also with the quality of our project portfolio at order backlog. Cumulatively, SG&A's increased by around EUR 8 million during quarter three.
That's driven by the acquired businesses. We also had some personnel-related bonuses and travel costs increasing. Business activity is more, so it has improved and that also shows at the modest cost increase. Looking at comparable EBITA. Rolling twelve months, net sales were EUR 3.9 billion and EBITA was the highest ever, 11% or EUR 428 million. We are in the middle of our target range, which is 10%-12%. The EBITA development, looking from the year 2014, right, we have had strong and continuous development here. Our cash flow, nine quarters cash flow has been positive. Now it was EUR 57 million. This is the lowest quarter in two years.
Reduction in cash flow was caused by increase in net working capital. CapExes for the quarter were normal. Looking at net working capital, -60% of the rolling twelve months orders. Normal good level of net working capital is around -12%, so meaning that we have around EUR 160 million cash above the normal good level. Our net debt -EUR 17 million, and gearing was -1%. A year ago, our net debt was EUR 184 million and gearing was 18%, so we have had favorable development here as well. Equity to asset ratio that increased to 41%. Our comparable return on capital employed that was 24%, remaining at relatively or actually quite, you know, quite good level.
Favorable development even though capital employed increased as the equity or retained earnings increased. Thanks. Back to you, Pasi.
Thank you, Kari. It was effective like always. Guidance and short-term market outlook. We still keep the same guidance which we announced in April. Valmet estimates that net sales in 2021 will increase in comparison with 2020 and comparable EBITA in 2021 will increase in comparison with 2020. Services, short-term market outlooks. In services we increase our market outlook to good. Earlier we were saying good satisfactory, and mainly we were saying that Asia-Pacific and Europe have a little bit less activity. That said, Europe has not recovered yet, but still because of our order intake has been growing by 8%, and the level of order intake is at the pre-COVID levels, we don't have any other reasons not to say that the market wouldn't be good.
Market outlook and capacity utilization are good in Services currently. In Automation, like you have seen, order intake has been developing favorably for a long time. Capacity utilization is good as well, so we continue with the market outlook good. In Pulp, order intake has been good. Capacity utilization is good, so we keep the same market outlook. In Energy, market activity has improved a little bit, but still we are not at the level that we would like to increase it, and that's why we keep the outlook at weak. Of course, one factor is that the marine market hasn't come back yet. That's one factor in that statement. Board and Paper, good.
We have only words weak, satisfactory, and good, but of course in order intake, we are now at the level which we have never seen earlier. Board and paper market and outlook is good, workload is good, and our success in that market has been very good. Tissue, we decreased the outlook to satisfactory. The order intake, it's at satisfactory level, workload is at satisfactory level, and we work of course hard now to make sure that the situation is improving. We had all reasons to reduce the outlook from good to satisfactory. Pekka, now it's your turn.
The next part of the presentation and the question and answer session after it will contain discussion regarding Valmet's contemplated merger with Neles. The securities laws in the United States and in other jurisdictions restrict Valmet from discussing or disclosing information with respect to the contemplated merger. Until the completion of the merger, Valmet and Neles will carry out their respective businesses as separate and independent companies. The materials and oral comments regarding the contemplated merger are not provided for and are not directed at any person that is a citizen or resident of or located in the United States.
Thank you, Pekka. Some words about merger with Neles. We are merging with Neles to create a leading company with a unique offering for process industries globally. This process has been going for a while, and now we have had important steps during this quarter. Both companies had the extraordinary general meetings for their shareholders on September twenty-second. The merger was approved in both general meetings. Over 99% of votes cast at the meetings were in favor of the merger. That was of course very important message from our shareholders to the board of directors in Neles, Valmet management in Neles and Valmet. It was very important and strong message that shareholders are behind this merger. We have started the integration planning, now after the EGMs, we can plan the integration.
Of course we all the time have to remember that we are not allowed to share any competition law related information between the companies. The integration planning has started well, and we have decided that the new business line in Valmet would be named Flow Control. We have filed the all-time critical competition authority filings, and up to now we have got unconditional clearance from Germany and Poland. Both companies, Valmet and Neles, are working constructively with all competition authorities who are reviewing the transaction.
It's important to remember, and this is also for internal and Neles people who are listening to presentation, that until the completion of the merger, Valmet and Neles will carry out their respective businesses as separate and independent companies. This is important topic to be remembered by everybody. The planned closing date is January 1, 2022. There is a risk that the planned closing date may be delayed as a complaint has been filed to a Brazilian competition authority. One has to now remember a couple things. First of all, Neles and Valmet don't have any overlapping products, so that's not an issue at all.
In some countries, if you have a certain position on the markets, which the other company is also serving, you have to file in any case, and that's the case in Brazil. We have filed in Brazil, and one company has filed an objection to the merger—or not yet objection, but they have set a complaint against the merger. That process is ongoing in Brazil, and we'll continue to follow that and of course work actively with the Brazilian and all the other competition authorities to get the clearance for the merger. Good. Now it's Pekka's turn again to say some words.
Yes. Thank you, Pasi. We are now done with the presentations and ready to move to the Q&A session. If I may ask gentlemen to move behind the tables.
As we don't have a physical audience here today, we will start with or go to the phone lines immediately. Operator, I hand over to you.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero-one on your telephone keypad. Our first question is from Antti Kansanen of SEB. Please go ahead.
Hi, guys. It's Antti from SEB. Just a couple of questions. First on the kind of the component availability that you mentioned. Is this totally isolated to the Automation division, or are you experiencing any similar headwinds in the capital or services side?
It's mainly now in Automation, where we have to work a lot to get all the electronic components. Of course, the other businesses can be affected also by if they are buying products which include electronics. It can affect the others as well, but the main issue, it has been currently in Automation.
Kind of you don't see a similar shortages in any spare parts, consumable businesses or any components related to the capital machinery?
Up to now, our teams have managed to get the supplies working. Of course our procurement and logistics organizations have to work a lot to get the materials on time in deliveries. Up to now, we have been able to manage the situation. Of course, there's a risk that the situation is getting worse. Up to now, we have been able to manage it. Kari, do you want to add any?
No, yeah, that's right.
Okay. Sorry, Antti.
No, that was short and sweet. Now, the second question is maybe on kind of the broader cost inflation theme. I mean, I guess in your supplier base, they are seeing cost inflation, and I guess their energy costs are most likely going up going into 2022. What are the discussions that you're kind of having with your suppliers, and how should we think about timing of certain cost impacts versus pricing next year and how your gross margin would kind of on a business line basis develop? Any guidance on that front or any comments?
A little bit longer answer. We started to see the inflation rising in raw material somewhere in end of first half, end of first quarter, beginning of second quarter. Then our procurement team started to send alerts to all the organization, and now something is happening and we have had then discussions in all the management teams how to deal with the issue. I think it's important point that the organization has been alert to increasing costs.
Of course, how we have to manage this is that in sales phase, we have to be very careful what kind of cost base we are estimating for projects to be delivered so that we are reserving enough for the inflation but not reserving too much. Because if we are too pessimistic, then we are not any more competitive. Now the fact is that some of the costs have been rising more than we have been anticipating. The tool to counteract that is to increase the LCC sourcing we have in our organization and then of course continue the good work in other parts of the procurement, try to compensate the inflation in part of the categories.
How it will affect our results business line-wise, it's too early to say, but we work hard on keeping the project at solid levels.
Yeah, maybe something to add here still. Our gross profit for the quarter, 25%, even though the sales mix 57 capital, 43 stable. Typically our sales mix 50-50, so strong gross profit percent. Then also we recognize our projects through the percentage of completion, and that means that whatever increase in the costs are also visible immediately in the project updates as well. We had a strong gross profit here.
Perhaps if I may continue, like if there are some surprises or accelerating inflation, where do you think that you would be most vulnerable? Are the kind of long-term projects very well hedged, so it should be more on the services side or where do you think you would see any adverse impacts if any?
I think in services it's quicker to have discussion with customers about the pricing. There the risk is maybe smaller than maybe the risk is the highest on long delivery time pulp and energy projects.
Okay. Thanks.
Thank you. Our next question is from Sindre Sørbye of Arctic Asset Management. Please go ahead.
Yes. Hi, gentlemen. Just two questions from my side here. You alluded to the fact that you still keep your energy short-term outlook as weak, and you referred to the scrubber market, which is still weak. But on the other hand, given today's energy prices, have you seen or do you think it's likely that you see an increased demand for things like waste incineration solutions, recovery boilers, bio-fuel boilers and so forth?
I think the short-term energy prices has changed so quickly that it doesn't have the direct impact. The investments, if somebody wants to build a boiler, the investment time horizon is at least 10 years and in normal, many cases, 20 years. Energy price increase in short term hasn't had an impact. In long term, of course, now when people are looking for solutions to reduce the CO2 emissions, then of course, all the products what you mentioned and solutions you mentioned will have a better market in the future. Biomass boilers, sorted waste to energy boilers will be one way to reduce the burning gas and burning coal in industrial and also district heating applications. In long term, we
Is "confident" too strong a word, but I see that the market continues to be active in coming years as well because of CO2 reduction targets.
Yes. Thanks. That was very useful. My second question is regarding the broader margin picture. As already Kari said, the mix is apparently slightly weakened in the sense that share of stable business is down approximately 3% year-over-year. In spite of that, you have a quite strong margin increase. That's to a minor extent due to increased gross margin. But apart from that, can you enlighten us on where that improvement comes from? Is it quality cost? Is it project execution, or is it mix within the equipment, or is it just kind of operational leverage?
I would say that in a big picture, our projects are going as we've been planning them to go. The project execution and project management has improved and is in a different level than what it was some time ago. We've had quite good development there. Also, Pasi was earlier saying about the prices, price increases. Of course, it goes so that this is also an environment for Valmet to go to Valmet's customers and with higher prices.
There's no more, I think. Actually, if I recall, I think you also said that project execution was quite satisfactory a year ago as well, but you have improved a little all over the board, if that's what you were saying.
Yeah. It continues to improve. We were in a good path already a year ago, but that continues.
Okay. Thanks, Kari. That's what I like to hear. Thank you.
Thanks.
Thank you. Our next question is from Robert Davies of Morgan Stanley. Please go ahead.
Yeah. Thank you for taking my questions. The first one was just on the change in short-term outlook. Apologies if you've covered this already, but just looking for a bit more color in terms of what were the kind of key drivers behind that. Is it particular regional dynamics there, or is it just the overall global picture that's changed? That was my first question. Thank you.
In tissue, the pulp prices usually has an impact to tissue order index. When the pulp price goes up, then those tissue makers who rely on market pulp has less profitability, and that quite often has an impact to decision-making in tissue. That's the global answer. Regionally, we haven't seen any differences actually. A year ago, China was very active. This year, not that much active, but I think the variation between the regions have been normal like in normal year. Was there another part of the question?
Apologies. I think I was on mute there. Sorry. The other part of the question was around your margin targets. You obviously had, I think it's three quarters in a row now where you've been in the 10%-12% margin, and you're kind of hitting the midpoint of that range. Just in terms of, I guess the evolution over the next year or so of that margin profile, how impactful is the sort of capital versus stable business mix gonna have on that? Are we gonna, I guess, are you expecting that margin to come down before it continues to go up or are volumes, is volume strength enough to keep that margin moving in a sort of sideways or upward direction over the next year or so?
Thank you.
Our target is now to be between 10%-12%, and that's where we are now. We have been saying all the time when increasing the target setting that to improve Valmet's EBITA, all the businesses have to improve. We have to continue to push because it's simple mathematics. If half of the business is coming from capital, half is coming from stable, then if you want to increase by 2%, if the other one side has to improve by 4%. Simple mathematics. We continue to push the margins up in all the business lines next year as well, and the tools are the same we have had.
Try to push the prices up, develop new products which are more cost competitive, improve project management, like Kari was saying, improve procurement, and reduce the quality costs.
Maybe also still one thing to add here, so that if we look at the growth now at quarter three, our Automation increased 29%, Services 19%. Good figures also. EMEA, which is the biggest market area with our services, increased now after having a bit difficult times earlier. Good development here with our stable business as well.
Thank you. My final one was just around the paper business. There was quite a strong print obviously in that business relative to consensus expectations from an order perspective. Were there any sort of larger ticket items? Maybe I missed them, but that would seem to be quite a strong print. I didn't know if you had a sort of a lot of medium orders, one big order. What sort of underpinned that EUR 530-odd million of orders you did in the paper business? Thank you.
There was one quite big size order in Asia Pacific, and then the rest of the orders were normal type of orders in Europe mainly.
I see. You didn't quantify the size of that large APAC order anyway, did you?
No. No, if I remember correctly.
Okay.
No.
Okay. All right. Thank you. That was all my questions.
Thank you.
Thank you. Our next question is from Manu Rimpelä of Nordea. Please go ahead.
Good afternoon, and thanks for taking my question. Firstly, in terms of your financial guidance on both the sales and the adjusted profit to improve this year, just checking that, do you have any other kind of guidance than increase, since that I think you've already your profits are up 29% in the first nine months, and most likely we are not expecting fourth quarter to be down either. Do you have in your toolbox a stronger word than increase, or does increase cover everything from plus to infinity?
We don't have stronger word than increase.
Okay. That's clear. Thank you. In terms of the services business, so you raised the outlook for that to more positive now, and how would you say that the customers are behaving at the moment? Are you seeing that there's kind of this pent-up potential demand is starting to coming into you as order intake already? I mean, the order growth has been strong, but do you think that can still kind of continue? I guess we still have easier comparables in the fourth quarter from last year, but when we kind of start looking into 2022 as well. Do you see that activity pace can remain at the kind of maybe above trend levels?
No. What we have been saying earlier is that first we target to get to the business level, which we had pre-COVID, and then thereafter the target has to be to continue the organic growth with the pace we had earlier. That's generally about the target setting we have in our minds. Currently, all the other areas are quite active except Europe, and then if one thinks about normal situations or quite seldom, all the areas are very active. Maybe this would be kind of normal situation that one area is not as active than the others. Of course, Europe is a strong area for us, so has big impact because of that.
Customer activity has increased. I think there won't be too much overshooting quickly because there's of course limited amount of professionals who can do services and who can do different kind of things at customer site. The market will not pump up suddenly by 10% or 20% because there's no extra resources anywhere. It's more that kind of step-by-step continuous small step growth what we see in the future.
Okay. Thank you. Finally, in terms of the backlog you have today, which is I guess at an all-time high level, do you see that there is still room for you to take on more orders? Also, are you able to in any way comment that how much of that backlog is kind of to be delivered in 2022?
We'll come back to this 2022, 2023 in first quarter. Of course, now a big part of the backlog is to be delivered in 2022 and 2023 as well. We can take more orders and what happens now is that the delivery times are getting longer and customers are even accepting longer delivery times. Part of the backlog is already for deliveries in 2023, and I think that phenomenon will continue to take place, especially in paper where our backlog is very strong and our market position is very strong. Kari, any comment to add?
No, maybe just one thing to say about our order backlog so that we don't book orders lightly. There needs to be some bank guarantee or down payment before we book an order. Also it means that for a customer it's also difficult to cancel any orders. That's the thing that we also need to remember, yeah, about our order backlog.
Great. Thank you very much.
Thanks, Manu Rimpelä.
Thank you. Our next question is from Antti Kansanen of SEB. Please go ahead.
Yeah, hi. Thanks for taking the follow-up. This was on China and kind of what you are seeing in that market now on Q3 and how the outlook looks like for the customer activity on the capital side. Apart from paper, it's been a very good market for you, helping during the COVID times. What's the activity level today, and what's the outlook there? Thank you.
It goes pretty much like we have been saying earlier, that China was very active in end of 2019 and 2020 and helped of course in Valmet keeping the good order intake level. Then we were saying that China will start to slow down and then the rest of the markets hopefully will pick up, and that has happened now. Chinese market is not as active than it used to be, and now the capital markets are more active in Europe, North America and South America. Activity in China has reduced, but it's still at good level, but it has reduced from last year's exceptional levels.
Okay. There, there's still a bit of a pipeline of bigger orders, but perhaps not on the same scale as we saw in the past couple of years.
More at a normal level, I would say.
Okay. Thanks.
Thank you. Our next question is from Tom Skogman of Carnegie. Please go ahead.
Yes, good afternoon, Pasi and Kari. I have two questions. First I would like to get some insight into orders and order outlook for the new growth avenues you have been talking about during the year. I have a follow-up question after that.
The orders for textile, no news on textile front. Now we end the phase that we are delivering the orders what we have been getting. Then of course the plants have to be up and running before we want to take more orders or somebody want to invest. Of course, we all have to prove that those processes work well. Then the same goes with, for example, with the 3D foam application we are developing together with Metsä. First we have to get the pilot plants up and running and then see the next steps in that area.
In our industry, once you get the order, then you typically deliver this kind of little bit smaller project for one year, and then you have a startup for half a year, and then you might have a possibility for the continuation order. The delays are reasonably long.
Maybe still one thing to add here is our Industrial Internet. So the solutions, the products or services that we have we have around Industrial Internet. So it's ongoing business and it's a growth business for us as well.
Yeah. There the development has been percent-wise actually quite good.
Yeah.
So.
All right. Then I heard a rumor that you had withdrawn the filing in Austria. Can you comment on this?
It's a technical issue that no business reason for that. It's technicality how the competition filings is working, and then it's more effective if we do it a little bit later in Austria.
Okay. You have a very strong balance sheet, you know, if you assume that the merger is completed. You know, also the new company will clearly have a very strong balance sheet. I just wonder how the merger will change your M&A strategy. Do you see that the majority of acquisitions will be in the Flow Control and Automation space in the future, or do you plan to or dream of buying more service companies, or are they still kind of-
You know, technology companies and equipment companies in pulp and in board that are of interest.
I think we have to be active on all those three fronts: strengthening technologies if there are targets available. The same goes for services and the same goes for new Automation, including systems and Flow Control. That's, I think, one of the thoughts in this merger, that it creates a company which has a strong balance sheet, good profitability, and then enough space in three categories to continue with the acquisitions. Of course, we have to be careful now that we are not raising the expectations of acquisition too much because, of course, first we have to make a very good and thorough integration with Flow Control to make sure that we get the synergies out of what we have been promising.
That will be the highest priority next year.
Okay. Thank you.
Thank you. Our next question is from Tomi Railo of DNB. Please go ahead.
Yes. Hi, it's Tomi from DNB here. Just a question on the pulp activity and the outlook, if you can comment a little bit, have you seen any hesitation from your customers or clients deciding on new bigger pulp mill projects? Or how does that market has been developing, and what would you expect in the coming months and quarters?
First of all, this short-term variation in pulp prices doesn't have too big impact in the long-term investments. That's one topic we have discussed sometimes. Other thing is that now quite many big decisions have been taken, so might be that there's a short while when there aren't that big decisions to be taken. From the other perspective, we have now good backlog and good situation, so there's no necessity to get orders. Medium term, I'm sure that the pulp investment continues because the demand of pulp is increasing because of the packaging needs, because of the hygiene and tissue hygiene needs.
It's like in the history that sometimes two, three decisions in a year, then little bit cool down, and then one or two decisions, and again, more decisions. I would say that history will repeat itself.
Okay. Thank you. Our next question is from Antti Suttelin of Danske Bank. Please go ahead.
Thank you. This is Antti. I have a question on China. We have heard recently that because of the energy situation, some plants in different industries have been forced to close down. I don't know if this has had any impact on the industry that Valmet is serving and whether this has potentially had any impact on the investment appetite in those industries, just seeing that the order intake from China fell quite a bit in the third quarter.
Yes. Our customers face that challenge as well, that they are not getting energy all the time from the grid. Even in our services center, once in a while we have to close down the services because of lack of energy. This is short-term issue. If I go a little bit back, wider. The investment level in China was very big, and we could not have thought that it continue at the level where we had it for one and a half years. It's normal that it now goes down. I think little bit longer term in China, the issue is maybe the availability of green energy. To get the environmental permit in China is a big challenge.
If you have green energy available, then it's easier than if you are relying on coal or gas. That's maybe the bigger energy-related question our customers have to deal with than the availability of electricity itself.
Okay. Thank you.
Thank you. Just as a reminder, if you wish to ask a question, that's star one on your telephone keypad. There'll be a brief pause while any further questions are being registered. There are no further questions at this time, so I'll hand back over to our speakers.
All right. Thank you then for the Q&A session. Next time we will see each other then on February 3 with the financial statements review. Thank you everybody for tuning in.