All right, ladies and gentlemen. Welcome to Valmet's Q4 2020 result publication webcast. My name is Pekka Rouhiainen. I'm the Head of Investor Relations here at Valmet. With me today are Pasi Laine, Valmet's President and CEO, as well as Kari Saarinen, CFO. The agenda is so that Pasi will first go through the highlights of the quarter. Kari will then present financials in more detail. After that, we will be taking questions over the phone lines. Without further ado, Pasi, please.
Okay. Thank you, Pekka. Welcome also on my behalf. Net sales in Valmet amounted to EUR 3,740 million, and comparable EBITDA increased to EUR 365 million in 2020. I have traditional agenda, first 2020 in brief, then development of business lines, then like Pekka said, Kari will go through the financial development, and thereafter I'll go through financial proposal guidance and short-term market outlook. First, 2020 in brief. Our orders received decreased to EUR 1,772 million in stable business, and orders received decreased to EUR 1,962 million in capital business. Net sales were EUR 3,740 million, and backlog amounted to about EUR 3.3 billion in the end of the year. Comparable EBITDA, like we said in the heading, increased to EUR 365 million, and margin was 9.8%. Gearing was 13%.
Here you have the same in numbers as well, like total orders received was EUR 3,653,000,000, which take into account the challenges during 2020 because of COVID, was a good number. Our net sales were EUR 3,740,000,000 and comparable EBITDA, like I said, 9.8%, and backlog in exact numbers, EUR 3,257,000,000. End of the year, we employed about 14,000 people. Business-wise, it's remarkable that big part of the business, about 54% came in orders received from pulp and energy and paper, capital businesses. The rest came from our stable businesses, including services and automation. Geographically, biggest change was that China was very active. Like you see, 24% of our orders came from China. Traditionally, it has been closer to 10%, 15%. 24% was a good achievement for us in China. Here you see the development of Valmet since 2013.
Our orders received has been increasing from about the EUR 2.2 billion level to EUR 3.6 billion level. Last year was the record, so this year we were a little bit lower. Net sales has been growing nicely since 2014, and last year we ended up a little bit over EUR 3.7 billion. Comparable EBITDA has been increasing nicely as well. First it was EUR 50 million, and this year we ended up in EUR 365 million. At the same time, we have been able to improve comparable EBITDA margin every year. Now we ended up in record profitability in EBITDA margin being 9.5%. That's close to the target which we said couple of years ago to reach 10%-12% EBITDA percentage level. Nice and consistent development in Valmet over last seven years.
Like I said, our orders received decreased to EUR 3.6 billion. Here you see the graph as well. At the highest we were over EUR 4 billion, EUR 4.3 billion roughly. Now we are at EUR 3.65 billion. Here you see the area-wise development as well, that China orders were EUR 885 million last year. China was very important market for us in all the businesses, in services, automation, pulp and energy, and paper. Here you see also that the order intake declined in North America comparing to earlier years, as well as in Europe, Middle East and Africa. Our stable business, which includes services and automation, orders received total to EUR 1.772 billion. That's roughly EUR 100 million down compared to last year. This EUR 100 million is coming, like you will later see, from services. Automation was holding the level of order intake of last year.
Our backlog is EUR 3,257 million. It's a little bit lower than in earlier quarters, but it's still at good level. EUR 3.2 billion means that we have very good workload in most of our units And it means also that in some units we have a little bit longer delivery times than normally we would have. EUR 3.2 billion order intake or backlog is good backlog for us. We are saying that about 75% of the order backlog is currently expected to realize as net sales during 2021. Last year, the corresponding number was about 70%. Some words about the business lines. Here first, services. Order intake ended up in EUR 1,356 million, and it's down compared to last year about EUR 100 million. Net sales went down as well compared to our last year, almost EUR 50 million.
Here one has to pay attention to one topic, and it's that orders received was higher than net sales. Our order intake was higher than net sales. All in all, we are of course not talking about the profitability of the separate businesses, but we are happy with the profit development also in services in 2020. Why order intake declined compared to last year? We have been saying earlier as well that the utilization of graphical paper mills has declined, and it has caused us a decline in order intake. Then of course it has been challenging to access customer sites, especially in mill improvement type of projects. That's the other reason for declining order intake. To the outlook, I'll come back in the end of the presentation.
If we looked at business by business unit, the biggest change is that the mill improvement business is now 25% of the business, and in earlier years has been quite much bigger percentage. That's where the biggest hit has happened in our order intake. Geographically, I would point out that China was active, like you see here, 10% ending up somewhere to EUR 135 million. The other area which was active was South America, but there we had currency headwind, and that's why it was not growing in Europe, but in local currencies we had very good development in South America. The rest of areas were impacted by COVID, like earlier explained. In automation, our orders received were EUR 415 million, and last year EUR 416 million. We had very good catch up in last quarter.
Last quarter order intake was EUR 120, which is the record order intake in Valmet years. We were successful in package sales, about EUR 80 million of the order intake in automation came from packages where we are selling together our capital equipment and automation. That market was developing well. All in all, we are quite pleased that automation, even if there was a COVID year, was able to achieve last year's numbers in order intake. Net sales grew to EUR 402 million, which is also a good development. COVID was impacting our services business mainly in direct sales, exactly like in services, otherwise our team managed COVID impact very well in automation. Customer-wise, 71% of our order intake is coming from pulp and paper, 29% last year came from energy and processes.
Geographically, China was also stronger than it has been in previous years due to the package sales we have been getting together, automation has been getting together with the capital businesses. In pulp and energy, third quarter was low in order intake, and then we had bounce back in or it's more a timing question, not a bounce back. Timing was more positive in pulp and energy in order intake, and our order intake ended up in EUR 291 million in the last quarter. The whole year was EUR 934 million, which is lower than a year ago, but still at good level. Net sales ended up in EUR 1 billion and grew over EUR 80 million compared to earlier years. In pulp and energy, our organization managed COVID well as well. Of course there are some delays in some of the projects, but nothing material from our perspective.
All in all, our teams have focused a lot in making the best that our personnel is safe as well as customers' personnel are safe in the sites where we work. Good development in pulp and energy as well. The big change is that 72% of order intake came from pulp, and energy was 28%. Some years ago, energy was over 50%. Energy market hasn't been that active. Pulp market has been active, and the positive thing, of course, is that to the big extent, we can use the same resources, both in manufacturing and engineering, in selling energy boilers and making recovery boilers for pulp sites. This flexibility in our organization means that we have good workload utilization for energy engineers and energy manufacturing capability because they are now used for pulp projects.
Geographically, again, the same comment that China was more active than it usually is. Of course, we got in the beginning of the year, nice order in South America from Amadeus project and that's why South American order intake was nice as well last year. Paper business line continued with the order intake over EUR 1 billion, so EUR 1,029,000,000, and it's the fourth year in a row that our order intake is over EUR 1 billion. This year or last year, our net sales were also EUR 1 billion, EUR 1,076,000,000. Market has been active in paper business line again. The same message than what I had for pulp and energy. Our organization has managed COVID-19 exceptional situations well, trying to make sure that our people are safe and then also making sure that our deliveries are working on time.
Of course, in all our businesses, people have now learned to work remotely a lot compared to earlier years. The way how we make startup is different than it was two years ago, and so our organization has learned many new things and ways to work in 2020. Paper business line by customers is interesting one. 21%, roughly EUR 210 million, orders came from traditional paper machines, so printing and writing paper machines. Board was about 53%, so majority of our business. Then tissue came back in nice volume, so about 26%, which corresponds to EUR 260 million order intake roughly. It was a good year for tissue, and you will see that as a change in our market outlook as well. All parts of the business were performing well.
Like you remember from earlier years, we can use the same engineering manufacturing capacity for board and paper both. Here you see that 50% of the order intake came from China. We are very pleased with our market development and market position and market activity in China. Good. That was my summary, and now it's Kari's turn to go through the financial numbers.
All right. Thank you, Pasi, also good afternoon on my behalf as well. First, I would like to thank all the Valmetians who have been working restlessly on very difficult circumstances to deliver these excellent results for year 2020, and also big thanks to the finance team around the world for the quality that is second to none. Quarter four in brief. Stable business orders reduced by 9% to EUR 463 million. Our capital business orders received remained at previous year's level at EUR 502 million at the quarter. Quarter's net sales, those increased by 6% to almost EUR 1.2 billion. Capital business increased here 11%, where stable business was flat. Sales mix, 44% net sales was stable, 56% capital. Last year, we were at 47% stable and 53% for capital, some change there. Our order backlog, EUR 3.3 billion.
This is pretty much the same level as last year. Our comparable EBITDA for the quarter, that was record high 12.5%. Looking at the key figures in a bit more detail. Orders received reduced by 7%. Paper business line increased. Automation total, so including the package sales, those remained at the previous year's level. Pulp and energy and as well as services business line reduced. Orders to China and orders placed at Pacific increased. The other geographical areas reduced during quarter four. Order backlog, last year's level. We estimate that around 75% of order backlog will be recognized as revenue during this year. Last year, this figure was 70%. Net sales. Total net sales were plus 6%, an increase during the quarter at Paper business line. Services and Automation were flat, Pulp and Energy reduced. Net sales in China increased.
Rest of the world was at the previous year's level. Our comparable EBITDA, EUR 146 million, which equals to 12.5%, and as said, this is record high. Key drivers for strong EBITDA were good sales, also successful project execution, also prudence with the costs. Please note that the comparable EBITDA here does not include Valmet's share of Neles' profits. Our quarter's order cash flow, EUR 114 million. That's a bit below than last year's, but on a relatively good level. About full year. Orders received for the full year, those reduced by 8%. Paper business line and Automation business line total, including package orders, were at previous year's level, and then Services business line and also Pulp and Energy business lines are reduced. Pasi already elaborated the impact of COVID-19 pandemic specifically on services here.
Orders received in China, those increased and were 3.5 times higher than 2019. That highlights our strong position in China. Foreign exchange impact to orders received was negative, so calculating with the comparable currency, it was minus EUR 101 million. The impact and majority of that is coming from Brazilian reais. Net sales for the year, a bit over EUR 3.7 billion. Paper Business Line and also Pulp and Energy Business Lines increased, so Capital Business increased, and Automation and Services Business Lines were at the previous year's level. We had a big increase in South America, over 60% at full year net sales. Full year comparable EBITDA, that increased to 9.8% of net sales or to EUR 365 million.
Here, important thing to notice is that we have been able to improve both EBITDA % as well as EBITDA EUR every year since the beginning of Valmet 2014. We are also getting close to our target range of 10%-12%. Operating profit, 8.5%, and EPS, that was EUR 1.54. Cash flow for the year, EUR 532 million, and gearing was 13%. Absolute gross profit, that was the highest ever. Gross profit percent, that was 23.4%, almost the same as last year. I said earlier that Stable Business sales were 44% of the quarter's net sales. Last year, we were at 47%. Full year Stable Business net sales, also 44%. Last year, it was 48%. Our organization has been successful in maintaining gross profit levels even though the sales mix has changed during the year.
SG&As were lower than last year for the quarter, as well for the full year. Pandemic has reduced travel, also our personnel has found new remote ways to serve our customers and also perform in both external and internal projects. During last year, there were also permanent and temporary layoffs at some functions and locations. Then going further, of course, there will be some pressure on SG&As once the pandemic is over and business activity returns. Our internal improvement projects, such as ERP and digitalization, continued pretty much as same level as earlier. R&D costs were 2% of net sales. Our EBITDA target, that's 10%-12%, this was set a year ago. We got very close to the target already within one year, even with the changed sales mix.
The highest ever EBITDA shows that our Stable Business were able to perform well even though the net sales were flat and their relative share reduced, and that our Capital Businesses had very good project progress to ensure strong revenue. They also had resilient project management and execution during the challenging year as well. Cash flow. We have had now six good quarters with cash flow. Quarters cash flow EUR 140 million and full year EUR 532 million. Favorable development of profitability as well as new capital orders were the key contributors to the record high cash flow. Net working capital.
Net working capital was -16% of rolling 12 months orders received, it was -EUR 588 million, that means that in case the net working capital would increase 5% to a bit more normal level to -11%, -12% rolling 12 months orders, net working capital would increase EUR 180 million-EUR 200 million. That's important to notice here. Looking at net debt, our gearing increased to 13% from last year's -22%. We need to notice here that we took some loans now because of the acquisition of Neles's shares, as well as the PMP Poland.
Our equity to asset ratio 39%, our equity to asset ratio actually has remained quite stable around 40% over the years. Return on capital employed. Our capital employed increased because we took that EUR 230 million loans to finance the acquisitions. With the good financial performance, our return on capital employed was 22%, and that remained over our target level of 20%. Thank you, and back to you, Pasi.
Good. It's time for dividend proposal guidance and short-term market outlook. Our dividend policy is saying that dividend payout should be at least 50% of the net profit. Our board of directors is proposing to Annual General Meeting that we would pay EUR 0.90 per share, which represents about 58% payout ratio. If that will be approved by AGM, then we would have nice history of growing our dividend constantly year after year. Now the increase would be EUR 0.10 per share comparing to last year. EUR 0.90 per share is now the proposal. We are of course happy that we have been able to increase our dividends year after year since Valmet has been de-merged. Guidance and short-term market outlook.
Guidance is that Valmet estimates that net sales in 2021 remain at the previous year's level in comparison with 2020, and comparable EBITA in 2021 will remain at the previous year's level in comparison with 2020. We are saying flat for net sales and EBITA. Market outlook, which is for coming six months, we are saying that 50% roughly is coming from capacity utilization and 50% from market activity. In services, we are still saying satisfactory and weak. There if I little bit describe the areas, we have good activity in China. I would say Asia-Pacific is becoming more active. In Europe it's very difficult to know how things are developing. North America the same, South America will continue to be active. That's geographically.
Business type-wise, we will have still challenges to access customer sites in mill type of project, any type of projects, and rest of the services should be more coming to the normal level. How we see a little bit longer-term, the future is such that the first half, because the vaccination hasn't been proceeding further, there are some implications to our services business. During the latter part of the year, we start to see more activity in mill type of projects as well with our customers. That's our current thinking in the long run. In automation, we changed the market outlook to good, or the outlook to good. Like you saw, our order intake was at last year's level. We have good capacity utilization in almost all the units, and there is good market activity in automation still.
All the reasons to say that the market is good. In the pulp, you saw the order intake was good in 2020, and there are still several projects in development phase and negotiation phase. We have all the reasons to say that pulp continues to be good. In energy, the market was not active last year, and currently we are saying that the outlook is weak. There, like I said, of course it would be nice to have satisfactory and good in energy as well, but capacity utilization point of view, we can use almost all the people in recovery side and in other parts of the pulp and energy business.
We don't have a challenge with the capacity utilization at all in that business. Paper and board, good order intake like you saw, and market activity continues with as good. Tissue order intake improved in latter part of the year, which means that now we have good utilization and the market activity is good as well. This is the outlook we have now for coming six months. Pekka
All right. Thank you, Pasi and Kari. We will then move to the Q&A session. We don't have a physical audience here at Keilasatama. We'll be taking questions over the phone lines. Operator, I hand over to you now.
Thank you. If you wish to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel. Once again, that's zero one to ask a question or zero two if you need to cancel. Our first question comes from the line of Robert Davies at Morgan Stanley.
Yes. Thank you for taking my question. My first one was just around Neles, and just in terms of the accounting. When you provided your guidance for flat EBITA for 2021 on 2020, is that including or excluding the Neles contribution, just to be clear?
Well, thanks for the question. Our comparable EBITA does not include anything from Neles. It's without any impact on Neles.
I see. Okay. Thank you. Just on, I guess some of the sort of changes in views in sort of the short-term outlooks. Maybe if you could just kind of walk us through there, what was the kind of key driver behind the change in energy in particular?
Energy, like you saw last year, order intake was quite low compared to earlier years. The market activity hasn't been good. There, the biggest contribution to the change is the marine scrubber business, which was not active last year. Two years ago, our order intake was roughly EUR 190 million, the year after EUR 120 million-EUR 130 million, last year the order intake was very low. That's maybe the biggest contributor to the low order intake. We don't see that that market will bounce in big way back in 2021. It will be more active than 2020, but not to the level where it was in 2019.
My final one was just around, I guess the medium-term outlook for margins. You've obviously sort of had a number of years you've made very good progress on the margins. The guide for 2021 is sort of flattish. What's the kind of thinking over the sort of next two to three years in terms of the kind of evolution of the sort of margin profile over that period? Is mix going to be the biggest impact on the sort of margin outcome? Is it going to be kind of cost actions? What's going to be the sort of biggest swing factors in your view now over the next one to two years for where you come in that range?
Like you know, our target is to reach EBITA 10%-12%. We are now close by. Since the acquisition of automation, we have been saying that the margin improvement comes with operational improvement in all the topics. Trying to push the sales prices up, try to develop new, more cost-competitive products, reduce cost in existing products by R&D, improving project delivery by project management, improving quality, improving procurement savings. We continue to drive all those actions forward. We are not saying that we are ready with any of those.
The other thing we have been saying that once we have been increasing the target setting by 2%, then it's not possible to achieve the improvement if only one side of the business is developing profitability. If half is coming from stable, half is coming from capital, roughly, then if you want to develop it by 2%, then if the development is coming only from one side, then the other part has to improve by 4%. We have been pushing profitability up in all our businesses, and Kari can now comment on the mix issue, which was interesting in 2020.
Still to continue, our stable business and capital business mix typically is 50/50. That's a normal year if we look at past years, now it was 56/44. Even with that mix, we were able to reach 9.8%. That of course shows that our capital business is strong, and we are executing our projects well. Also to elaborate a bit what Pasi was saying, not to forget the ERP project that one day is going to bring us efficiencies as well as the internal digitalization as well.
That's great. Thank you.
Thank you. Our next question comes from the line of Manu Rimpelä of Nordea Markets. Please go ahead, your line is open.
Thank you. My question would be on the margins of the different business units. I know you don't talk about the absolute margins, but maybe you could help us to understand that how did they evolve during the year? Did we see margin improvement across all of the business lines, or was there some that didn't improve margins, for example, services?
All our businesses were developing favorably.
Okay. That is clear then. If you talk about these bigger pulp projects that you mentioned that you have in the pipeline, can you comment a bit about how do you see them being geographically spread across the globe?
Bigger and medium and small. South America will become active either this year or next year again with capacity extensions or even there are discussions about new mills. Asia has potential, and then one interesting area is China as well. Some of the Chinese customers are planning to build virgin fiber pulp mills in China, so China will be active market. At least these three will be active.
Thank you. Maybe to follow up on that topic, would you say that the current backlog, which is at a pretty good level, would carry you through 2021 with good utilization rates? Do you still have backlog left in the equipment business for the start of 2022? What I'm trying to understand is that when do you think that you will need to start getting new orders from these bigger projects in order to ensure the backlog continuation or utilization continuation in the equipment business?
If I answer a little bit the other way around, last year, pulp and energy order intake was somewhere at EUR 940 million, it's good enough level for us to keep everybody busy. To get to that level, we needed one bigger order, and it came in South America. With this EUR 900 million level, we have good utilization, and when it goes over then we have, of course, even better utilization. Currently we are only giving market outlook for coming six months, but if I give more general answer, it seems that all our customers are pretty confident that the long-term development of pulp demand is good, and also that the long-term board and packaging grade demands as well as tissue demands are good. Of course, there are variations between the quarters and half years, but I think all our customers are pretty confident with the long-term development currently.
Okay, thank you. I'll get back in the queue.
Thank you. Our next question comes from the line of Tom Skogman of Carnegie. Please go ahead. Your line is open.
Yes, this is Tom from Carnegie. A bit of technicality. I understand you don't book Neles now as part of EBITDA adjusted, but is it booked as IAC items and is that the line where we'll find it in the future, or where will it be found?
Well, the share of Neles' profit is part of EBITDA and also EBIT. It is there, but it's not part of the comparable EBITDA. We treat that as an item that management can't really impact on the level of the profit there.
Can we say that we think about it, how to make sure that everybody understands how much is coming from Neles?
Yeah, it is there. Maybe Tom, to continue still. We have our share of Neles' quarterly profit from quarter three 2020, and that is around EUR 3 million in EBITDA.
Yeah, I noticed there was plus one between EBITDA adjusted and EBITDA reported. There are then IAC items, and then it's +3 from this. It makes a bit complicated here also.
Yeah, that gets a bit complicated, Tom, but there's also then other items between comparable EBIT and EBITDA as well.
Yeah, I hope you can clarify that in some tables in incoming reports.
Yes.
I wonder how much sales came from the acquired PMP company in 2020.
That was around EUR 27 million that came from PMP Poland.
That's the full year figure, right?
That's all in quarter four because we started to consolidate beginning of October.
Yeah. The FX impact on top line last year, I heard you say it was quite a big number, but I couldn't catch it during your presentation.
Yes, Tom. It was EUR 101 million, the conversion for orders, so EUR 101 million, and for net sales it was EUR 100 million.
Negative.
Negative, and a big piece coming from Brazilian reais.
Finally, I have to ask, of course, again about Neles now. We saw that Alfa Laval CEO yesterday stated that he's still very interested in buying Neles. What should we expect or without perhaps talking about your tactics, but is it so that this will remain an unclear situation most likely throughout this year? Or what do you expect?
We have been saying that we are long-term in Neles. We have now 29.5% of the shares. We say that we are long-term. We are also saying that it would be good to create a very strong Nordic engineering company merging by Valmet and Neles. That's still our thinking. Currently, there's nothing new to say about it.
I just noticed yesterday when Neles reported that customer satisfaction was record high. The first year the company was independent despite difficulties in the pandemic. To me, that signals that the company will perhaps do its best as a standalone company, but with a strong owner. That is not like any real alternative for you just to remain a big owner there.
Were you referring to customer satisfaction in Neles?
It jumped remarkably compared to when it was part of Metso. This really signals that employees and customers really like that Neles is an independent company apparently.
Customers like Neles products and have been liking Neles products last 60 years.
It was just remarkable how big jump it was in customer satisfaction when it was an independent company compared to being part of a conglomerate.
I can't comment on that, so you have to ask that from Olli.
All right. Thank you.
Thank you. Our next question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead.
Yeah. Hi, it's Johan here. Just a short question on the graphical mill closures. Do you think you've seen the negative impact fully on sort of the service order intake in the fourth quarter or is there further downside potentially offsetting the recovery post the pandemic for the service business, or how should we think about it?
I think we have seen the fall in fourth quarter.
That means basically, if you get access to clients, etc , Q4 next year should probably rather show a positive sign if you can access customers in a more normal way with the modernization.
Now of course, we were serving some of the printing and graphical paper companies like with our paper machine clothing, and then the capacity was reserved for those customers. Now when they have closed, then we start to sell the same capacity to board customers, and it will take a while before we can sell it. That's what we are planning. Graphical paper, those machines which are closed forever, that market of course will not come back. Earlier we have been saying that a year or yearly EUR 10 million-EUR 20 million of our order intake is disappearing because of the closures of paper machines. Last year it was little bit bigger, and that market partly will not come back. We can sell the capacity then to other customers, board customers and tissue customers.
Why would they change? Has the market share in fabrics been restricted by your capacity rather than strong competitors?
Last years we have been also capacity limited, so then we can sell that extra capacity to board and packaging grades.
Okay, understood. Thank you very much.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. We've had one further question just come through. That's from the line of Manu Rimpelä of Nordea. Please go ahead. Your line is open. Manu, if you have your line muted, you'll need to unmute.
Thank you. Follow-up question from me. Could you please talk about the self-help measures that you have? You mentioned this ERP program, and you also have some other measures that you're working on to improve the execution and other parts of your business. Could you just help us to understand a bit more what are the kind of main tailwinds that you expect from these into 2021, and which are the measures that you are working on?
Well, already mentioned this ERP and digitalization, which are like. Internal efficiencies for us. Of course, we are working a lot on the quality costs on the project management and project execution side. We are also working on the sales management side as well. Continuing with the same kind of activities that we have done over the years, and some of those are closed. Some of them we continue with the add-on topics as well, for instance, procurement. We started procurement all the way since year 2013, and we are not yet finished. We need to continuously improve many things. ERP project, it will still take some time before we are getting any major benefits out of that. This year we are going to have 21 rollouts, and we still work full speed ahead there.
Okay. Thank you. When will you have this ERP rollout completed and starting to generate savings? I guess it's generating costs at the moment.
I would think that most likely it will still take two years before we are on the savings side here.
Thank you.
Thank you. Once again, if there are any further questions, please dial 01 on your telephone keypads now. We've had one further question just come through. That's from the line of Tom Skogman of Carnegie. Please go ahead. Your line is open.
Yes. Hi, this is Tom from Carnegie again. I would just like to discuss your guidance for flat sales a bit based on your comments. 75% of the order book will be delivered this year. That means that the order book for this year is up by 5%. You will likely in Q1 book this EUR 350 million-EUR 400 million Metsä pulp mill order, implying the order book will be up a lot after Q1, especially for this year's deliveries. If you talk about service sales coming back in the second half, your guidance seems extremely cautious on the top line. Do you see anything negative that I don't see?
If I remember correctly, last year we were saying 70%, but the backlog was a little bit bigger, and now we are saying that 75% from small amount of backlog, if I remember correctly. You can't say that it's 5% higher. This guidance is done now based on the current situation. We all know that there are reasons to be positive, and then there are reasons to be cautious because of COVID and COVID spreading and actions getting tougher in Europe. Our guidance is based on the current facts and some cautiousness.
You expect the Metsä order now to be booked in Q1?
I can't comment on timing of Metsä's decision-making. It's better that we all wait, and I'm sure that they will let us know when they are ready to make the decision. I can't comment on that.
You have earlier said that only the environmental permit is missing, and that was received already last-
It's Metsä's decision. It's not our decision. I can't comment on that. Sorry, Tom.
I understand. Yes.
Thank you. We've had one further question come through. That's from the line of Antti Kansanen of SEB. Please go ahead. Your line is open.
Hi, guys. It's Antti from SEB. Sorry, I might missed this if you said it earlier on the call, but coming back to the sales guidance, notably on the services side, and you mentioned tighter restrictions right now. Could you repeat a little bit what do you expect from services, from different type of activities regarding recovery and taking into account the impact from the graphic paper decline what we are seeing?
First six months, we are thinking the COVID restrictions will impact our services. Currently, we believe that in latter part of the year, the vaccination has been so widely used that the societies are opening and our services is opening. Graphical paper dropped a lot this year. Might be that some of the capacity will bounce back little bit, but then longer term, there is a decline in graphical paper. Part of the capacity what we have been using for graphical papers, we can sell now to packaging grades, and that of course will take some while. Our mill business where we make field services and mill improvement project, that has been mostly affected by COVID. I think Kari was saying 16% order intake drop.
Yes.
It's because we have challenges to get customer access, and then the other thing is that customers don't want to have unnecessary personnel. Disturbances in the processes. We think that that market will bounce back once the societies are opening again. Currently, we think that that will happen in second quarter.
Okay. I think earlier you've been pretty cautious on talking about the recovery in services. The comparison figures are weaker from last year when we go to second half, but should we expect return to growth or should we expect a pent-up demand-driven stronger year-on-year growth in the second half? Is there a lot of actions that haven't been done, and customers are just waiting for you guys to get into the sites?
I think it's good to remind that in quarter one last year, we had all-time record quarter. Of course, that's a challenging figure. I think it goes so, like I said, that currently there will be still COVID limitations, and then latter part of the year, the limitations will be getting smaller. Traditionally, we have been saying that 55% of the order intake happens in the first part and 45% of the order intake is second part. If our current thinking is correct, then this year it might not be the case. I can't say whether it's the other way around, we will not see a normal distribution of the order intake, most probably in services in 2021. Kari, do you agree with that?
Yeah, I do.
Yeah.
I do. Also what Pasi was saying that quarter one last year for services order intake, that was record high. It would be difficult to beat even with the good circumstances. Now it's a bit unclear here. If I may still to elaborate a bit what Tom Skogman asked earlier, of course we fight hard so that we increase the net sales. There's also certain uncertainties that may be here beyond management control, even though a lot of good ingredients.
Yeah, sure.
Yeah.
Okay, thanks. Could you still remind a basic question on the modernization or the mill improvement business. When you get an order, what's typically the lead time when you book sales from that?
In that business, we have field services also included, so it can be weeks, and then typical project is, let's say, six months.
Okay. Thanks so much. All from me.
Thank you. Once again, if there are any final questions, please dial zero one on your telephone keypads now. We have a follow-up from Tom Skogman at Carnegie. Please go ahead, your line is open. If your phone's on mute, Tom, you will need to unmute. Okay, seems we're getting no answer from Tom, so I believe there are no further questions then on the line. Oh, no, Tom's put himself back in the queue. Once again, Tom, your line is open. If your phone's on mute, you will need to unmute. Hi, Tom, can you hear us? Okay, I think Tom's having some phone issues. Yeah, therefore, there are no further questions in the queue at this time, so I'll hand back to our speakers for the closing comments.
All right. Thank you for the presentations, and Pasi and Kari, and of course for the good discussions. The next events for us will be the Capital Markets Day. That will be held on the 10th of March, starting at 1:00 P.M. Finnish time, so it will be a virtual event. Hopefully everybody will participate actively to that one as well. On April 22nd, we will have the Q1 result publication. Those are the next Valmet events, mark them down to your calendars. This now concludes this event. Thank you everybody.
Thank you.