Good afternoon, ladies and gentlemen, and welcome to Valmet's Q4 2021 Results Publication and Webcast. My name is Pekka Rouhiainen. I'm the head of investor relations here at Valmet, and the presenters today are President and CEO Pasi Laine and CFO Kari Saarinen. Without further ado, Pasi, please go ahead.
Thank you, Pekka. Hello. It's Pasi again. Our main message today is that our orders received increased to EUR 4.7 billion and comparable EBITA increased to EUR 429 million in 2021, so a good year for Valmet. The content is , as usual, first 2021 in brief, then some words about business lines and how they have been developing. Then Kari will go through the financial development. I'll come back to talk about dividend proposal, guidance, short-term market outlook, and about merger with Neles. First, 2021 in brief. Our orders received in stable business were EUR 1.954 billion, so I'll come back to that later on a couple times. In capital business, orders received were close to EUR 2.9 billion. Our net sales increased to EUR 9.335 billion.
Our backlog ended up being EUR 4.1 billion, and comparable EBITA increased to EUR 429 million, and margin was 10.9%. Our gearing was, in the end of the period was -7% . Here are the same numbers on the left side, and then on top of that there's information that we had in the end of the year, about 14,200 employees. If we look to order intake by business lines, then of course the big news is that that even if stable business, meaning automation services, had a good year and were growing nicely, still the pulp and paper activity and paper activity were such that the ratio between stable business and capital was heavily on the capital business side. Area-wise, Europe was stronger than normally.
Normally it's about 40% in order intake. North America is a little bit below normal, which is 20%, and last year it was 15%. Of course it's very nice to see that South America, Asia- Pacific, and China were all having good order intake also in 2021. If we look at our development since 2013. In orders received, we had a record year. In net sales, we had a record year. In comparable EBITA, we had a record year. In comparable EBITA margin, we had a record year. We have eight very good years behind Valmet, and I'll come back later on to the future. Of course we are very, very satisfied how the company and our operations have been developing over the last 8 years.
As I said, our orders received ended up EUR 4.7 billion, and there you see the quarterly variation, so nice development in the end of the year. Here you see also the order intake by our areas. North America was growing from EUR 620 million to EUR 720 million. South America had a very good year, almost EUR 700 million. Last year close to about EUR 380 million. Europe was strong in especially in capital, ended up having orders over EUR 2 billion. Last year about EUR 1.4 billion. China is the only area that declined, but EUR 755 million is still a very good number for China as well. Asia- Pacific grew from about EUR 350 million to EUR 540 million.
All the areas, four areas were growing, and then China, even though it was declining, it had a very good year. Geographically also a strong performance in Valmet. If we look at our development in stable business. In 2013, 2014, we had only services business. We acquired automation business, and then we have made some more bolt-on acquisitions. 2019 was the record year before COVID, and the order intake was EUR 1.875 billion. We dropped a little bit under EUR 1.8 billion, and now we had a record year in order intake in stable business. Order intake in stable business ended up in EUR 1.954 billion. Order intake was higher than pre-COVID year, and that was also the target.
We are of course very pleased that we achieved that target. Our backlog was about EUR 4.1 billion, and out of that 75% is in capital business and 25% is in services business. We estimate now that about 70% of the backlog is expected to be realized as net sales during 2022. Last year, the corresponding percentage was 75%. The backlog was about EUR 3.2 billion. We have stronger backlog now for 2022 than we had in 2021. Some words about the business lines. Services order intake ended up at EUR 1.488 billion, and it's about EUR 30 million higher, close to EUR 30 million higher than in 2019.
We are very happy that services order intake was at higher level than pre-COVID, and now we are in growth mode again. Good development in services. Net sales, Kari will come back later on, but was growing from 2020 and ended up at EUR 1.366 billion, but we are still there behind the pre-COVID level. This is maybe a slight disappointment to us how services net sales has been developing, and Kari will come back to the reasons later on. Services business line, business unit-wise was developing well. All the business units had growth in order intake compared to last year. That's, of course, very good. All the areas had growth as well.
Especially strong was the performance in North America. We are of course happy that in the end of the year, Europe started or the activity in Europe started to improve, and even Europe ended up in growth numbers compared to last year. In automation, we ended up with order intake of EUR 467 million, and that was clearly about EUR 50 million higher number than a year ago. Good growth in order in automation. Net sales likewise wasn't developing as quickly as one would have maybe wished, and we ended up in net sales to EUR 412 million, so EUR 10 million higher than a year ago. In automation, about 74% came from pulp and paper, and the rest came from energy and processes.
Geographically, Europe was strong, China was strong, and the other areas were developing well as well. There you see that we still have a lot of work to globalize our automation business. It's still very much Europe-dominant business. In pulp and energy, order intake ended up a little bit below EUR 1.2 billion, so good order intake in pulp and energy. In net sales, we ended up a little bit over EUR 1 billion, so EUR 30 million increase there as well compared to last year. All in all, steady development in pulp and energy. Then the big change compared to earlier years is that 78% of the order intake came from pulp. Energy was 22%.
Some of you might remember that it was almost a 50/50 share when the marine market was very active. We have had, even if we have been losing some projects in pulp, order intake in pulp has been good. Here, geographically, Europe is strong, and an obvious reason is that we got very big order from Metsä. That's of course affecting the order intake. South America was strong as well, and North America is a market area where we still have quite a lot of work to be done. Paper. Four years in a row, paper was about EUR 1 billion in order intake, and last year it ended up almost EUR 1.7 billion.
Jari and Jari's team have been doing a very good job in keeping our market share high, and of course, market activity has been high as well. Very good order intake in Paper business line. Net sales has been developing favorably well as well. We were in net sales almost at EUR 1.2 billion level, and growth was about EUR 120 million compared to last year. Good development in Paper. There, when we looked at by business units, or by customer segments actually, 79% of the orders came from board. Board machine market has been very active.
7% came from paper, so we have been selling paper machines as well and rebuilds to paper machines, and 14% came from tissue machines. Geographically, Europe was the biggest. China was smaller than in previous years, but it was still active. 24% out of this EUR 1.7 billion is of course very good market activity in China. Then South America was active. North America was active, but compared to the others, a little bit less. Asia-Pacific was active as well. The same story compared to the others, 13%, but absolute numbers, Asia-Pacific has had good activity as well. This is a quick overview of the business lines, and now it's Kari's turn to talk about the numbers.
Okay. Thank you, Pasi, and also good afternoon on my behalf as well. First I would, of course, like to thank all the Valmettians who've been involved in this closing now and during these difficult times. Some folks even having the virus, coronavirus and still, like, excellent work. Thank you very much. Now then looking at quarter four in brief. Both capital businesses, both stable and also capital business orders increased during the quarter. Stable business increased by 10% and capital business by 20%. Net sales were EUR 1.2 billion. Quarter four is seasonally high for us. Order backlog at EUR 4.1 billion. Previous year, we were at EUR 3.3 billion, so this is 26% increase.
EBITDA was the same as the previous year, so EUR 147 million. Previous year was EUR 146 million. EBITDA this year, EBITDA percent, year 2021, 12.2% and previous year 12.5%. Balance sheet was strong. Our gearing was -7%. Some more key figures here. As said, our quarterly orders received increased by 16% to around EUR 1.1 billion. Paper business line, that increased by 71%. Services business line by 13%, and automation by 8%. That means that Pulp and Energy actually decreased a bit. Out of the areas, South America increased by over 100%, EMEA by over 60%.
Biggest countries for the quarter, they were Brazil, Sweden, and the U.S.A. Quarter's net sales, EUR 1.2 billion. This is 3% higher than compared to the previous year. Automation and pulp and energy business lines increased. Services was flat, and paper business line was -5%. Service business line clearly had some delays from subcontractors as well as from transportation impacting the timing of revenue. Paper business line is currently capacity limited with the longer delivery times than usually with its projects. That also impacts the revenue recognition there. Cash flow for the quarter, EUR 96 million. Full year's orders received increased by 30%, and orders were EUR 4.7 billion. All business lines increased, driven by paper business line's 65% increase.
Paper business line increased from around EUR 1 billion level to EUR 1.7 billion level, as Pasi already noticed. Pulp and energy business line increased by 26%, automation by 14% and services by 10%. Important here to notice is that service business line was -3% after quarter one, and that full year orders were now 2% above pre-pandemic, so year 2019. Services clearly back on growth mode. All areas except China increased, but regardless of that, China remained the second highest area with orders. Full year net sales increased by 5% to above EUR 3.9 billion. Paper business line 11% above. Other business lines between 0% and 3% growth.
Full year sales split was 57% capital and 43% stable. Pretty much the same as last year. That was 56, 44, so no major change here. Full year comparable EBITDA EUR 429 million or 10.9%. As Pasi mentioned, record high for us. Increase from previous year, 1.1 percentage points, EBITDA. That was EUR 448 million, including EUR 40 million profits from Neles' profit. Earnings per share, EUR 1.98. Cash flow was EUR 482 million. Gearing -7%, so good development from previous years, 13%. Gross profit for the quarter 25%. Previous year's quarter four was 23%.
Stable businesses share of the net sales increased slightly for the quarter from 44% to 46%. Full year gross profit was 25% as well. Last year it was 24%. Project portfolio remained decent. Project execution as well as project management have been solid. Also cost inflation, so we have been able to mitigate cost inflation by procurement savings as well as price increases. Business activity. Looking at the SG&As, business activity increased during the second half and specifically quarter four, which also shows that development on SG&As. SG&As were 15% of the sales for the full year. The comparable EBITDA development here. Increase each year. Year 2021, as said, ended at 10.9%.
This is in the middle of our target range between 10%-12%, which we set for year 2020 onwards. Cash flow and net working capital. Our cash flow was EUR 96 million for the quarter and EUR 482 million for the full year. Profitability and also reduction of net working capital were the key components for a strong cash flow. CapEx was EUR 97 million for the full year, EUR 28 million for the quarter. This is slightly higher than our normal between EUR 80 million and EUR 90 million. We had EUR 570 million cash end of the year. This is 90% more than we had a year ago.
Our net working capital reduced to -EUR 673 million, and it was -14% of rolling twelve months orders. Previous year was -16%. Net debt and gearing. Gearing was -7% end of the year. Our previous year was 13%, meaning that the net debt actually reduced from around EUR 150 million level to around -EUR 90 million level. Good development here with the gearing and net debt. Retained earnings increased, and that means that the equity to asset ratio was 42%. A year ago, we were at 39%. Capital employed and also the return on capital employed. Comparable return on capital employed was 23%, good figure.
Our capital employed increased, as we can see here, because the retained earnings increased. That's the driver there. EPS, earnings per share, EUR 1.98 per share, and that's 29% increase from previous year. This EPS 1.98, so that is pretty much 6.5 times higher than what we had 7 years ago once we started. Thank you very much, and back to you, Pasi.
Good. Next topics are dividend proposal guidance and short-term market outlook. Dividend proposal, first our dividend policy. Our policy is to pay a dividend payout that is at least 50% of net profit, which Kari just explained. Now board of directors has a proposal to annual general meeting that we would be paying EUR 1.20 dividend per share, which represents 61% payout ratio. Here you see also the development of the dividend per share. We started with EUR 0.15. Last year it was EUR 0.90, and now the proposal to AGM is EUR 1.20, being 61% of the net profit. Our guidance. Valmet estimates that net sales in 2022 will increase in comparison with 2021, and comparable EBITA in 2022 will increase in comparison with 2021.
Both net sales will increase and EBITA will increase. Short-term market outlook. In services, we keep to good. Order intake was growing 10%, like Kari was saying. We have good workload situation, and market is active, so all the reasons to keep the outlook as good. In automation, you saw the order intake as well. It has been EUR 468 million, so good order intake and order intake activity and market activity continues at good level. In pulp, order intake last year was good and we still have many cases under development. They are smaller ones maybe than last year, but still good activity in Asia- Pacific, especially in China.
In energy, our order intake improved in the latter part of the year or last quarter, and we have also reasonable pipeline now in business going energy sales cases. Those are the reasons why we now increased outlook from weak to satisfactory. Board and Paper. Last year we only have terminology up to good, but maybe it was little bit more than good. We still have good market activity, we have all the reasons to keep the outlook as good. This year, like you saw, order intake was satisfactory last year, and so is the market activity, and that's why we keep our outlook at a satisfactory level. Guidance increase. One change in outlook. Now I'll change the slide so that Pekka can talk official talk.
Thank you, Pasi. The next part of the presentation and the Q&A session after it will contain discussion regarding Valmet's contemplated merger with Neles. 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. That's all. Pasi, please.
Okay. Thank you, Pekka. Merger with Neles. Like we have been saying, Valmet and Neles will merge, creating a leading company with unique offering approach for process industries globally. We are very eager in developing this merger. Like both companies' AGMs or AGM general meetings approved the merger in September 2021. We have integration planning ongoing. Of course, we have to take into account all the competition authority limitations, but all the teams which now can work and the actions what we can do, I have seen a lot of energy and positive atmosphere in the teams. We have competition authority process ongoing. We have obtained unconditional clearances in Germany, Poland, Saudi Arabia, Turkey, South Africa, Chile, and Russia.
With the rest, Valmet and Neles both are working constructively so that we would get the approval from competition authorities as quickly as possible. Of course, it's clear that until the merger is completed, we will work as two independent companies without any other cooperation. The planning close date was targeted on or before April 1st, 2022. Now as we are already in beginning of February, it's not any more practical or possible to have the merger happening before April 1st. Currently the target is April 1st, and of course it's still depending on competition authority approvals whether we can keep that date.
Atmosphere is good and long-term target is good, and then we don't see any big obstacle. We don't see obstacles in the competition authority processes either, but it takes more time than we estimated in July when we announced the merger.
Okay. That concludes the presentation part, and we will now move to the Q&A session once we have both gentlemen here behind the tables. We don't have a physical audience here at Keilasatama today, so we will directly go to the Q&A or questions over the phone line. Operator, I will hand over to you.
Thank you. If you have a question for the speakers, please press zero-one on your telephone keypad. Our first question comes from the line of Manu Rimpelä from Nordea. Please go ahead.
Good afternoon. My first question would be on the services growth, so, that was a bit slower than what I had expected, and what you had expected in the fourth quarter. How do you think about these challenges with the component availability and logistics that impacted Q4? That, when do you think that you will be able to reach more normal delivery schedules?
Yeah. I assume—no more, Manu. I assume your question relates now to the net sales. I'm happy with the order intake growth, which was 10%, but then net sales growth was, like Kari said, only 3%. Partly it's timing issue that, but partly it's also component availability issue, and partly it's the component delivery time schedule issue. Our organization is working on all those topics. Of course, I can't tell how much growth we expect, but of course, the aim has to be to get the speed of net sales development closer to the order intake what we are having now. Otherwise, the backlogs is growing too much. Our organization is working on all those topics. Kari, do you want to add something?
Yeah, of course, Manu, obviously you can calculate it so that if the orders increase 10%, net sales 3%, that means that order backlog that we are sitting at is more than EUR 100 million or higher than what it was a year ago. It's based on the calculation here and so it's in the backlog now.
Yeah. I appreciate that, but, maybe I'm trying to understand that, do you think that these same challenges will continue still in the first quarter, or are you seeing the pipe delivery schedules improving so that we can project the couple of quarters sales in Q1 and Q2?
I think it's very difficult to give a yes or no answer because there are so many moving components there. In some countries still the COVID restrictions continue and then currently almost all the European countries are opening more or less. It will have a positive impact. If Omicron will be spreading more in Asia, then it might have a negative impact. Our organization has of course learned to live with the longer delivery times from our subsuppliers, but the delivery times are still longer than they were some months ago. There are many components which are changing, and it's very difficult to say, give you an exact answer, Manu. Sorry about that.
Okay. No, that's fine. Second question on the gross margin and the cost base, especially the SG&A part of it. Do you see that the step-up we saw in this fourth quarter was now we have reached a normal level? When we look at the Q1 to Q3 comparison base from 2021, is that on a normal level, or do we have more this step-ups to be expected in 2022?
Yeah. Thanks, Manu. One thing is that the gross profit is 25%, so it's a good gross profit for us, and also shows that we have resilience on the cost inflation side. The project execution, project management has been good. If we look at the SG&A side and the cost side, you are right in that sense that first half of the year was lower with SG&A than the second half. Second half also shows, so we had increase in quarter four compared to previous year's quarter four, which was unusually low. I would say that we are now very.
Quarter four was very close to the normal level where we are. That's how I would say it now.
Okay. Maybe just to clarify, so is it fair to assume that also the first nine months of 2021 were abnormally low, or were they close to normal?
F irst half was low, but I wouldn't say so that the third quarter was low, that was coming close to normal already.
Okay. Perfect. Not sure what you can comment about this merger with Neles more than you commented already. Any thoughts around or can you share anything about the countries where we have competition authorities looking more at the details? Have you received any requests for more information, or has there been any one of them that has already approved the process? Anything you can share why it's taking longer?
Yeah, there are still discussions ongoing, for example, in Brazil. To my knowledge, only one company has been complaining about the merger, and it's Andritz.
Okay. Thank you. No further questions.
The next question comes from the line of Sven Weier from UBS. Please go ahead.
Yeah. Good afternoon. Two questions from my side, please. The first one is on what you've announced on the taxonomy. Sorry if you maybe commented on that already in the past, but I was just wondering why the stable service business does not qualify and the capital equipment business does. What's the difference here? Thank you.
You said it exactly like it is. We have been calculating that from our business 51% is eligible in this Taxonomy calculation. The definition is such that if you sell, according to our understanding, if we sell a biomass boiler, it's included. If we sell a board machine, it's included. But then if you service it's not included. That's the definition in Taxonomy, and we of course had to take that into account in our calculation. Does it make sense? For a master of science, not.
To me neither. Yeah. I'll accept that. It's kind of independent what you serve. The service as a general activity.
Yeah.
Is not applicable.
If I remember correctly, and might be that I don't remember correctly, but it's so that if you make maintenance work for wind turbine, then it's calculated. If you are making the same kind of activity for biomass boiler, both being CO2 neutral electricity providers, then in biomass boiler, the maintenance work is not included. Why it's so, I don't know.
Was this already expected, this outcome for you before or-
No
not a surprise to you?
Let's put it the other way around that this is the first time when companies are doing it and the Taxonomy definitions are new. Let's hope that in coming year the rules are getting better and will make it easier to make good analysis of the company. Maybe that's a politically correct answer.
Yeah, I f nuclear is sustainable, then there is hope for you guys as well. Strange taxonomy thing.
Yeah.
Let's go to the second question that I had was just on the further margin improvement. You already now reached the midpoint of the guidance. When I look at some of the starting points for this year. Of course it seems that capital equipment business could be growing a bit faster than service, so there's maybe a bit of a mixed headwind there, but you had the same last year and this didn't stop you from improving margin. We have inflation of course. We have maybe the mix within the capital equipment business, which to me seems to be a bit more biased to the board side of things in terms of sales increase, which would be positive. Yeah, just in terms of how we should think about further margin progression towards the, let's say, higher end of the target.
I think Kari can continue. I give first one answer that if you look at the history then from 2015 then we have had half a point quite often improvement. Last year we had 1 point improvement. Of course we continue to try to develop the profitability or margin as well as possible. It's not developing maybe all the time as fast as it has been developing during the COVID times. Of course, we work on improving gross margin, but at the same time, like Manu was asking, companies like we will have heavier SG&A cost when the normal activity level is in place again. That's how I would answer. Kari can continue.
O f course, stable business increase is important as Sven and then another thing is these volumes, and if we just purely look at our backlog, it is 26% higher than what it was a year ago, and that means that we have a strong starting point now for this year, 2022. 26% backlog, EUR 4.1 million. It is strong.
Okay. You're going to have obviously good operating leverage this year.
Of course. Yeah.
Okay. Thank you, Kari. Thank you, Pasi.
Thank you as well.
I go back in line.
The next question comes from the line of Sindre Sørbye from Arctic. Please go ahead.
Yes. Fine, gentlemen. I think two of my questions were answered, but another one on the energy side where we see upgraded your near-term outlook. Would you say that this perhaps could be related to the energy squeeze on the increasing energy prices you see? Also in following the line of the previous questioner, would it now according to your understanding, be taxonomy alignment for bio-based boilers?
No. I think in energy side, the project development phase takes quite often one to two or even three years. Now when we talk about energy crisis in the middle of Europe, if somebody is now reacting to it, we will start to see that in our order book maybe in a year or two or three years. Currently, the ones where we have been getting deals and where we are negotiating deals are of course projects where we have been active a long time. This CO2 battle has a positive impact to our boiler business in Europe and of course in Asia as well. That's maybe the long-term thing that's impacting our energy business.
People want to replace coal boilers with the biomass boilers and sorted waste boilers and create energy, electricity or steam, and that's the market where we are active. Taxonomy of course helps because these products have been included in taxonomy. There are some details which are not supporting us, and those I hope will be corrected in the taxonomy later on, but of course taxonomy helps in that respect.
Okay. My final question. You discussed SG&A, and I think you, Kari, said that Q4 was, let's say, close to normal. Would you say is it close to normal in, let's say, a percentage of sales or is it more like the nominal level?
Sindre, that's of course like the quarterly sales fluctuate and last year's SG&A were 15% of net sales and I think that overall it's a good level to be at 15%, but there's no guarantees that we would be exactly that next year or this year now.
I f you aim to at least nudge up your margins as you have been doing successfully for a number of years, that would most likely be seen in the gross margin and not in the SG&A as % of sales.
O f course, gross margin or gross profit percent would need to increase and also then keeping the SG&A in a decent level and 40%-50% there is a good target.
Yeah. Yeah. My final then is my final, how satisfied are you with the development on quality cost during 2021?
I was just looking at the five years graph in our quality cost development, and I was pleased with that. We have been working all the years now, eight years, in improving quality, and we see clear improvement. I'm satisfied with the development.
Okay. Thank you.
Thanks, Sindre Sørbye.
Next question comes from the line of Peter Testa from One Investments. Please go ahead.
Hi, thank you for taking the question. I have three, please. One is just looking at the environment for what we call book-and-bill business, a business which is orders received and executed during the year. Last year was a pretty good performance in how it grew the average for the sales of the group. I was wondering if you had any thoughts based upon with reopening of access to sites and commercial activity, the extent to which we should have some thoughts on that part of the business and what you think are the key determinants or drivers of book-and-bill, please.
Of course, if we now look at this year, Europe is opening up and Europe is our biggest service market. USA or North America is, US is opening up as well, so that should support our business clearly.
Yeah. Okay. Fine.
That's maybe.
And then-
If I continue, that's in services.
Yes. Yes. Sure.
Of course we have very high backlog now in Paper business side.
Yeah
It means that maybe the capability to do book and bill in a year in capital side is less than it was a year ago.
Okay. Any thoughts on modernization or other upgrading type parts of service where, given in some cases. Obviously, the pricing and margin environment for customers is very good. They'd probably be encouraged to run as much as they can, but it's been the case for a while. Any thoughts on how that might work too?
The conversion market we book quite often in capital if it's a bigger conversion. Then of course there are graphic paper machines which are being rebuilt to packaging grades, and that market was active in 2021, and we estimate that it continues to be active in 2022. Maybe one or two years ago, I was saying that now the market of the suitable machines to be converted is empty. But then, of course, what happens is that when more newer graphic paper machines are being shut down, then there are new possibilities for rebuilds as well. That's why the rebuild market has continued to be active even if maybe two years ago we were saying something else. Currently we see that this rebuild market is active in paper side and board side.
That's interesting. You talked a bit about the timing of execution at the end of the year due to maybe component delays of delivery on both pulp and paper. I was wondering if you had any thoughts as to how substantial that was the question asked earlier on the service side, the extent to which you feel that will be cleared through, whether there's a cost impact of that which you need to mitigate, just to understand how that supply chain factor may be impacting the capital equipment part.
M aybe one thing is that this component shortage, so that's impacting more on the automation and also somewhat to services as well. Then pulp business as such was not so much impacted on this. The paper business line is capacity limited. We do big piece manufacturing ourselves and we are quite full now. It means that once we take orders, the project deliveries take longer time than usually. Biggest impact I said of course for automation or services and also somewhat to automation as well, and impacting to revenue recognition end of last year.
Okay. 'Cause you made the point the revenue recognition was maybe a bit slower in some of those, the capital-
Yeah
... larger capital equipment. That's basically just due to your pace of capacity, not due to-
Yeah
suppliers or others.
At-
Okay.
At Paper business line. Correctly.
Yeah. Fine. The last question is just on China, which had a terrific order intake in 2020. Obviously came off that but was still good in 2021. You mentioned earlier on when going through the business line that you had some interesting visibility in China. I was wondering if you could just give any comments on how you think given the annual phasing we've seen your views on China pipeline and opportunity.
China was more active in 2021 than I thought. Currently we see good activity in China still.
Great. Okay. Thanks so much for the answers.
Thank you.
The next question comes from the line of Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah. Hi, Pasi. Hi, Kari and Pekka. Just a question here while we were on this margin and you still have upside to your high end of your margin targets. Historically, when we've asked you about where should this improvement come from, you basically said that all business lines can improve the margins as of now. Is this still the case?
No, it's still the case, and the answer is still the same, that if you want to improve by 2%, then if only half has to do it, then they have to improve by 4%. Then it's fair in management that we divide the pain evenly to our teams. We still try to improve profitability in all the business lines.
Okay. Good. I was curious about one comment you made about the pulp market. You mentioned you had a very small share of orders from North America, and I was wondering, I mean, the pulp mills in North America is pretty old, and then we've seen a big upgrade of the mills in Scandinavia here. Shouldn't there be an upside like upcycle coming for the North American mills as well? And should that be an opportunity for you, or is this small share of North America more related to the fact that you don't have a strong market position over there in pulp?
Our market position is not very strong, but it's strong enough one can say we can improve it. Interestingly, pulp mills haven't been rebuilt in North America. If I go a little bit in the history then there were maybe 20 years that they in North America there were no new paper machines or board machine built. First new one came maybe 2010 in operation, and now we are selling maybe one machine a year or even a little bit more. The same rebuild or new machine market hasn't started in pulp. Production assets are there, very old. We expect that the market will come, and we are preparing ourselves for that market. Then will it take off in 2023, 2024 or 2025? I don't know.
In a way it would be very difficult to see that it wouldn't be taking off at one point in time. North America has very good wood assets. They have industry and tradition to make pulp. That's a market where at one point in time Valmet will be active.
Okay. Excellent. Many thanks.
The next question comes from the line of Antti Kansanen from SEB. Please go ahead.
Hi, thanks for taking my questions. It's Antti Kansanen from SEB. I was just trying to get my head around the gross margin expectations for this year. I mean, a quite impressive result from 2021, but if you look what you have in your backlog and to be delivered this year and the cost pressures that we're seeing across the board, potential delays and so on, can you achieve the same gross margins with the same project execution? I mean, do you need to improve it further? Pasi, y ou said you were happy or pleased how it went in 2021. Is there a risk of a bit of a margin squeeze from cost side in 2022?
Antti, that's actually quite difficult to say, but if we look at the backlog that we are having, so of course like we have projects where the as-sold margin is higher and then there's some projects where the as-sold margin is a bit lower and so it really depends on the portfolio what we are having. Our target is that once whenever we take a project we also then improve the as-sold margin so that we deliver it even better than as we sold it. Once we do it, we improve.
In a sense the 2021 performance is nothing exceptionally good. It's a repeatable performance going into 2022 and onwards.
M aybe still one thing to say here that overall we've been saying now some time already that we are quite happy with our project portfolio. Last year we had good projects.
Good execution like you said.
Yeah. Yeah. Exactly.
Okay. Fair enough. Secondly, if we look at the paper orders, I mean EUR 1.7 billion is quite much higher than it was in the couple of previous years and driven by board. How would you account for the market share gains? Is it in a certain product types or larger machines, a certain region, more across the board? Could you talk a little bit more about that and perhaps the board pipeline going into 2022? I mean, the outlook is good, but is it normally good or as good as it was last year?
We have been successful with big and fast machines. When our customers want to make lighter and lighter board, then to be economically efficient, they have to build bigger and faster machines. Our R&D has been developing very good products which are helping customers to run wide board machines fast. We have had good startups and we have been gaining good references based on that. That's why paper has been improving the market share against the close competition. Market outlook, as I said, it's good, so we still have good size of projects in negotiation phase.
Of course, the challenge in our case is that the delivery time starts to be long, and because backlog is big and like Kari said that the delivery capability can't be increased quickly too much. Paper business has been developing well and I'm sure that Jari Vähäpesälä, who is running it, will make sure that the development continues in favorable terms in 2022 as well.
Yeah, I mean, my follow-up question was how do you manage it going forward? I mean, I'm sure you don't want to just build up backlog. Is it feasible to ramp up growth investments in the capacity to be more selective on taking new orders? What's the target at this type of a backlog level?
We have an investment program ongoing in Jyväskylä to increase the capacity and that program will have some impact in the latter part of 2022 if everything goes like planned.
All right. That's all from me. Thanks.
Thanks. Thanks, Antti.
We just have a follow-up from Manu Rimpelä from Nordea. Please go ahead.
Thank you. Just getting back to the paper division and the backlogs, also in the capacity which is full at the moment. How should we think about the potential for you to generate revenue from the deliveries? Is the Q4 level of around EUR 350 million of sales pretty much the maximum? Just trying to understand what kind of revenue growth we should expect since the backlog provides you more than enough revenue growth, but how to think about the limitations.
We of course are not guiding directly what is the revenue for Paper business line. If you look at the graph, the net sales was EUR 900 million, then it was EUR 1,076 million, and now almost EUR 1.2 billion. That increase includes, of course, PMP Group as well. So that's the historical pace we have had in our revenue increase.
Okay. That's clear. Then maybe another question just on the paper outlook. With EUR 1.7 billion of order intake and the last couple of years before that at EUR 1 billion, if your orders would be closer to that EUR 1 billion in 2022, would that still mean that the outlook for you is good since your utilization rates are probably going through the roof at the moment?
Yeah. It would mean because we have been saying that EUR 1 billion is a good level, but then I'm not saying whether we would be happy with EUR 1 billion.
Okay. That's all. Thank you.
As there are no further questions, I'll hand it back to the speakers.
Okay. Thank you for the questions for everybody, and this now concludes the event. We will then see each other next time on April 27th when the Q1 interim report will be published by Valmet. Until that, have a nice rest of the week.
Thank you.
Thank you.