Valmet Oyj (VALMT) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Valmet's Q3 2020 result publication webcast. Valmet's orders during the third quarter decreased, but the comparable EBITA was one of the best for Valmet. My name is Pekka Rouhiainen. I'm the Head of Investor Relations here at Valmet. And with me today are Pasi Laine, Valmet's President and CEO; as well as Kari Saarinen, CFO. We will start with presentations. And after the presentation, you will have the chance to ask questions over the phone lines. But without further ado, Pasi, please go ahead.

Thank you, Pekka. So Valmet's orders received decreased to EUR 700 million and comparable EBITA increased to EUR 91 million in the third quarter. So today, I will talk briefly about quarter 3, then development of business lines, then some words about Neles and PMP Group. Financial development will be presented by Kari, and then I'll come back to guidance and short-term market outlook. So first, quarter 3 in brief. Our orders received decreased in stable business to EUR 369 million. In capital business, orders received decreased to EUR 347 million. Net sales remained at the previous year's level, and we're at EUR 832 million. Order backlog amounted to EUR 3.3 billion. EBITDA -- comparable EBITA increased to EUR 91 million and margin was 10.9%. Gearing was 18%. And we agreed during the quarter to acquire PMP Group, and we acquired 29.5% of Neles shares and votes. So first, a couple of words about the numbers. So orders received, like I said, were EUR 700 million, net sales EUR 832 million and comparable EBITA EUR 91 million and comparable EBITA margin, 10.9%. And backlog were EUR 3.3 billion, and we employed about 13,400 people. Business-wise, by business line, business type, stable business, plus roughly 50% and capital was roughly 50%. Like I'll come later on, paper had a strong quarter, and pulp and energy had a weak quarter. Geographically, order intake was strong again in China. 27% of new orders came from China. Europe was strong as well and the rest of areas has an average. Orders received decreased to EUR 700 million. And here, you see that the 12 months curve is now somewhere EUR 3.7 billion. Last year, the total here was EUR 4 billion, so we are below of that speed. If you look the orders received, totally geographically, China has corresponded to 24% of orders received. So Chinese market has been strong for Valmet. And Valmet has been successful in China as well. North America, like you remember, normal year is 20%. So North America is less than the normal year. South America because of the big project in the beginning of the year is more than average, and Asia Pacific close to the average numbers. Then our stable business orders received totaled to EUR 1.816 billion. At the highest, that was, if I remember correctly, about EUR 1.950 billion. Now the total in 12 months is EUR 1.816 billion. So the trend is not where we want it to go, but that reflects now the current market situation, and I'll come back to that later in automation slide and services slide. Our backlog is still EUR 3.3 billion. It's at good level, so -- or more than a good level. So when we were at EUR 2.7 billion, we were saying as well that our backlog is at a healthy level. So 3.3% is a level where most of our units are well-loaded. They have long workload. And we have a situation that in some cases, we have to say to customers that we -- our delivery time is longer than what they would expect. So 3.3% is a good number for us. We are also saying that stable business is about 30% of the backlog and 70% is related to our capital business. Then some words about the business lines. So yes, services. Orders received and net sales decreased comparing to earlier year. So now if you looked at the cumulative numbers, so our orders received has been about EUR 1.14 billion. And last year, it was EUR 50 million more. So there is about 5% decline in orders received. And then, of course, if you compare EUR 288 million against last year, EUR 335 million, so there is decline last year. So it was quite active in the end of the year. So I'm not trying to say that it was a good number, but I just want to say that look at the bigger picture and the orders received has decreased by 5%. In net sales, we are also behind last year, about EUR 49 million and that's due to the COVID restriction. So we have challenges in implementing some of the mill improvement projects where we need to have access to customer sites, and that hasn't been the case in all the places. So all in all, in services, we see the impact of -- in order intake and net sales impact of COVID in travel restrictions and utilization of graphical paper machines, which have been decreasing. And that has -- both have had a negative impact both in orders received and net sales of our services. Automation, orders received last year, EUR 304 million, and this year, EUR 295 million. So we are EUR 9 million behind, so about 3% behind last year's order intake. Quarter 3 was a disappointment to automation management. But all in all, we are now, like I said, 3% behind last year's order intake number. In net sales, automation has been performing better. It's easier to get access for automation persons in customer sides compared to the rest of the service personnel, and that's why we haven't seen same kind of restriction of the activities in automation services than we have seen in rest of the services. So -- but all in all, COVID has had an impact to order intake and especially in capital business. Services business and automation has been actually performing well also in COVID-19 situation. Pulp and energy, like I said, quarter 3, order intake was only EUR 52 million, though it's the lowest we have had in Valmet. There have been 2 similar kind of -- 3 similar kind of quarters. So it happens in capital business, that 1 quarter is low-ish. Our order intake is now EUR 643 million compared to last year, EUR 805 million. We have still a good workload in our units. So like you see, the order intake graph has been -- trend has been over EUR 1 billion now for almost a year or a little bit more than a year. And that, of course, means that we have good backlog in that unit, and we still have plenty of work to be done in pulp and energy. Net sales were EUR 717 million compared to EUR 604 million. And then, I have to thank pulp and energy's organization, that they have been able to execute the projects very well even if there have been some challenges with COVID restriction in different parts of the world, so well-managed situation all-in-all in P&E. Paper orders received and net sales increased. So quarter -- order -- quarterly order intake for paper was EUR 295 million, so it's a strong quarter. And then if you look at total year, EUR 818 million against EUR 844 million. So there's decline -- decrease, but both numbers are big. So of course, if our paper business is getting orders, we're to follow EUR 800 million in 3 quarters. It's a strong market and good market like we have been saying. Net sales has been increasing as well. Last year, EUR 646 million, and this year, EUR 713 million. And the same comments here then in pulp and energy that our organization has been managing COVID-19 very well both in our own operations but also at customer sites. So good development from that perspective in both in paper, pulp and energy. Then ownership in Neles and the acquisition of PMP Group. Like you all very well know, we have acquired 29.5% of Neles shares during quarter 2 and quarter 3. We approached Board of Director of Neles with a proposal to start discussion on a potential statutory merger between the 2 companies. We were not invited to discuss further merger details with Neles Board of Directors. But we still see that for Neles shareholders and Valmet shareholders the merger between Valmet and Neles would be a very good solution. We would see that it would create a Nordic-based global leader in many of the segments where it operates. And we believe that in long term, that the solution would be very good also for long-term investors and long-term shareholders of both Valmet and Neles. And we continue to say that as a major shareholder of Neles, Valmet does not support the recommendation of the Board of Director of Neles to accept Alfa Laval's tender offer. So our position is like it has been the whole time. Then we announced a very important acquisition in quarter 3 as well. So we told that we have signed an agreement to acquire PMP Group. Later on, in October, we told that we have been finalizing that acquisition as well. And that it has started to operate as part of Valmet since beginning of October. PMP is operating on the market where Valmet is not strong or not operating. So they make small and medium-sized new tissue machines. They made rebuilds and machine sections for small-to-medium paper and board machines. And of course, they have spare parts and services operation. So it's focusing on small and medium-sized tissue machines and board machines and rebuilds. And that's the market where we haven't been active. So it's a very good addition to our offering, and we are very happy to have now about 650 professionals from PMP Group joining us. Last year's net sales was about EUR 70 million, and the value of acquisition were about EUR 64 million. So this is a very good addition to our paper and services operation. So Kari, now it's your turn to go through the financials.

Okay. Thank you, Pasi, and also good afternoon on my behalf as well. So as said, so our orders received reduced by 34%, so that's around EUR 360 million. Pulp and energy business line had a very strong quarter 3 last year. And orders alone reduced by EUR 350 million as our pulp and energy customers did not make any major new decisions during the quarter. Paper business line increased by 22% to almost EUR 300 million, and other business lines reduced, services by 14%, automation business line by 25% and pulp and energy, 87%. China increased, rest of the geographical areas reduced during the quarter. Our order backlog, EUR 3.3 billion, end of the quarter. So this is around EUR 100 million reduction from a year ago. And around EUR 200 million reduction from the end for the previous quarter in June. But as I said, EUR 3.3 billion is a high level for us as a backlog. Our net sales, EUR 832 million. This is 3% below last year's. Paper business line increased 13% during the quarter. Rest of our business lines reduced. South America, China and Asia Pacific increased compared to the last year. Our comparable EBITA. So that increased to EUR 91 million or to 10.9%. Last year, EBITA percent was 9.5%. Earnings per share for the quarter, $0.38 per share, and cash flow was EUR 94 million, gearing 18%. Cumulatively, our orders are now 9% below last year's. Paper business line, the same as last year. Services business line was minus 5%. Automation reduced by 10% and pulp and energy by 20%. COVID-19 that has caused access restrictions. Also mill maintenance projects are done with much more restrictive scope and also pulp and energy market where the market is quite low at the moment. Our cumulative net sales, those were 5% above last year's. Capital business had strong sales. Pulp and energy, 19% above cumulatively, and Paper business line is 10% above cumulatively. Automation at last year's level and Services are 5% below. Cumulative EBITA was EUR 208 million or 8.5%. Last year, we were at 8.1%. Cumulative cash flow, EUR 418 million on an actually very good level and clearly exceeding last year's. Then looking at gross profit and also SG&A development. So quarter's gross profit, 25%. This is the same as last year. Also cumulatively, gross profit percent stayed at the same level as last year's, split between stable and capital sales. So that was 46% stable, 54% capital. Last year, it was 48%, 52%. We are quite happy with the quality of order backlog at the moment. SG&A, those reduced 6% and were 16% of net sales. Our comparable SG&A is reduced by 8%. Travel costs were lower than last year. And we also had some impact of the headcount reductions that we announced during quarter 2, both permanent and also temporary. And at the moment, we also have multiple development activities ongoing, impacting SG&A, for instance, ERP project, as well as data harmonization and industrial Internet projects. Our comparable EBITA. So rolling 12 months EBITA increased to 9.1% and is EUR 336 million. This is the second time that we have reached this 9.1%, and this is high EBITA for us. And we are, of course, very happy of -- very happy of this development. Our cash flow. So our cash flow actually continued now for fifth quarter in a row being strong. EBITDA and cash flow were almost equal. So that means that actually our cash conversion was at -- quite good for the quarter. CapExes were EUR 21 million. And net working capital did not change very much and stayed at the low level, as we can see here. So our net working capital, it was minus 17% of rolling 12 months orders, which is actually in an all-time low level. Normal good level is between minus 10%, minus 12%. Trade receivables reduced, and we also have a very small number of overdues over 60 days. Project portfolio, that was strong, and our projects typically have a positive cash flow during the -- or through the whole lifetime of the project. Net debt. Net debt increased to EUR 184 million, and gearing was 18%. The acquisition of the Neles shares, they're close to 30%, showed here, and it's quite visible that the balance sheet -- at the balance sheet as well that we have used a bit more than EUR 450 million for the shares. Equity-to-asset ratio was 38%. That's the same as a year ago. And then return on capital employed. So that capital employed increased around EUR 250 million end of the -- compared to the end of the previous quarter. We had some new loans. And also equity increased as well. And then if we look at the return on capital employed, so that's 22%, which is within our target range. So back to you, Pasi.

So guidance and short-term market outlook. So our guidance is that Valmet estimates that net sales in 2020 will remain at previous year's level in comparison with 2019, and comparable EBITA in 2020 will increase in comparison with 2019. So then short-term market outlook. So in services, we keep the same outlook, satisfactory and weak. So one can think of it geographically or business unit-wise. And I would say that the mill improvement market is weak, and the rest, actually, it's satisfactory. Geographically, most challenging area is North America and the best is China. In automation, it's good and satisfactory. And here, we can say that services and automation is good, and the capital is satisfactory. In pulp, we have, like I said, we have had good quarters, many of -- many good quarters behind us, and our backlog is good. And we still have sales activity, including, of course, 1 big letter of intent, and that's why we are saying that the pulp outlook is good. But the outlook is not depending only on 1 project I just mentioned. Energy, we have had satisfactory situation, and the big impact has been on the marine market where in marine business, we don't see any activity currently. And last year, orders received totaled to EUR 90 million, if I remember correctly. And now there is very little activity in marine market. Board and paper, like you saw, order intake was good, and we still have a good pipeline of sales cases in board and paper. And this year, satisfactory continues. So we have had -- we have won projects, and there are still projects in pipeline as well. So that's maybe in borderline between good and satisfactory, but we decided still to keep it on a satisfactory level. So no change in short-term market outlook in any of the businesses.

Okay. Thank you for the presentations. And now we will continue with the questions. And as we don't have physical audience here at Keilasatama today, we will go directly to the questions over the phone lines. So operator, I hand over to you.

[Operator Instructions] Our first question is from Antti Kansanen from SEB.

The first one would be on service and kind of if we're looking at the year-on-year declines that we see in orders and sales. How much would you put it on, on the graphical paper side and how much of this is kind of permanent closures, something that is not expected to come back in '21 and '22? So any numbers on this would be highly appreciated. And also then on the mill improvement side, is it just a function of COVID impacts or are you seeing something else in that market?

First, this mill I think it's COVID impact. So we haven't seen any other reasons. So now it's -- customers are, of course, very careful with extra personnel getting to their sites and mills, and then it's difficult to execute any projects. So that's the main reason why the market is not active. In graphical paper, I don't have the number there, but internally and now externally, I would say that this is nothing unexpected for us, that graphical paper demand is decreasing. We have had that development going on for several years or 1 decade already. Maybe the exception has been last year that there weren't actually too many closures in the graphical papers. Now we are in a way jumping to the future somewhere in year '23, '24. So we assume that there is small bounce back from the lowest level in the services for and consumption of graphical papers. But then it will not come back to the levels where it was early. And we have been living with this kind of development earlier. Earlier, we were saying that roughly EUR 10 million to EUR 20 million of our orders received is disappearing because of the closures of the board and graphical paper machines. And that's now the case, well, maybe a little bit more this year in an average year. But then how big -- part of this 5% decline is coming directly from graphical papers? I don't have the number.

Okay. And then secondly, on the profitability, the gross margin was quite strong in the quarter. So is there something specific that you would want to highlight within -- especially on the capital division, extraordinary good project execution? Or is it just a favorable pricing from the backlog or anything specific around there?

Well, of course, this is like good margin. If we talk about the margin, it's a mixture of multiple things, but we have relatively good order backlogs and project backlog at the moment. And also Pasi was already saying that the capital business, both pulp and energy and paper, they have actually managed their business now well. And we haven't any major interruptions, and work has performed as normally as -- as normal as possible. We have been pushing gross profit up for many years, and that has continued. So COVID hasn't been any reason why not to push gross profit up. And then, of course, Kari in his part of the presentation saying that now we see [indiscernible] down because of COVID, because people are not traveling, but then taking also actions to reduce our cost level, and those starts to show impact in our profitability as well.

Okay. And then lastly from me on the backlog. Can you provide a figure on how much do you expect to book as revenues before end of '21? And how much is kind of stretching for '22 and beyond?

We haven't published that number, but our tradition has been that we tell that number in Q4 session.

And our next question is from Sven Weier from UBS.

So the first one is also on [indiscernible] side. You've seen a lot of the pulp and paper companies have delayed the maintenance shutdown to Q4. So wouldn't that actually benefit you guys then in terms of your service activity? That's the first one.

It's maybe the best model is that the shutdowns, which were planned to take place in quarter 2 took part -- place in quarter 3 and 4. So in quarter 4, there will be shutdowns as well. But not extraordinary much, because customers are, of course, now try to shift the shutdowns. And then there are limited resources as well. So we don't see that there will be 1 boom quarter when a lot of shutdowns will take place.

Okay. Understood on that one. And the other question I had was just on Neles. I was just wondering, obviously, the [indiscernible] by the end of the week. And if I understand you correctly, there are currently no more talks between Neles and yourself. And you've said you're not going to tender your shares to Alfa, which, I guess, is a statement towards the current tender. But is that statement also holding true that, let's say, Alfa succeeds with the 50%, is that also a statement you would make for after the tender, right, that you will also not sell or tender your shares to Alfa after awards?

So we are saying what we have been saying all the time that Valmet is here long-term. We have now 29.5%. We see that for Neles, shareholders were -- 71% are the same or Neles' shareholders -- out of Neles shareholders, 71%, including ourselves, are such that they are Valmet shareholders as well. And we see that this merger is long-term financially the best solution for both companies. And we hope that many shareholders take this into account when thinking about the actions during this week.

And our next question is from Antti Suttelin from Danske Bank.

Just on the profitability, which was the beating item in this report. If we look at it by segment, I understood from your previous comment that it would be pulp and energy and Paper that stand for the improvement versus a year ago. Is that correct? And how has the profitability development been in services and automation if we compare year-over-year?

Well, Antti, of course, one thing that we need to remember here that we are one reporting segment. And -- but then if we just look some ingredients here, so we'll be saying now sometime that we are quite happy of the order backlog, what we are having. So that refers to the capital business. And then also, we were happy with the performance there and regardless that the share of the capital business of net sales has increased. So of course, that means that if the capital business is share of the net sales increases, and we have -- and we improve the profitability, so that means that there's positive development there, but it doesn't mean that there was no positive development at stable business lines as well. So I think that overall, there was a lot of good performance at the organization this time.

Okay. Good to hear. And then the temporary cost impact, how much would assess that would be? Meaning that if COVID went away, how much would your cost base increase?

Well, one thing, of course, is that once the COVID is around, so the business activity like travel point of view has reduced. And of course, we have had some reduction on the travel costs and there's one way that our personnel and also customers have changed their way of working, but then business is still done face-to-face kind of meetings. And then also our people would need to travel to a customer site in order to perform the sales. So some of this cost is also -- has a relation to sales increase. And then some of the costs are just like related to like other business activities, sales costs. And so I think it's fair to say that there would be some permanent reduction out of this because the ways of working have changed. But at the moment, it's quite difficult to evaluate how much that is. And then if we look at the temporary cost reductions and levers that we have done, so of course, we hope that, that cost comes back because that means that then we go back to the normal business levels.

And our next question is from Robert Davies from Morgan Stanley.

My first one was just around the outlook for the larger project business. I know in the past, you've mentioned a couple of times the number of larger set of projects you're expecting to come in any 1 year. Just I guess, kind of looking into 2021, do you have any feel at the moment for a number of projects kind of out in the pipeline and how that compares to 2020? That was my first question, please.

So the guidance we give is for the outlook we give for 6 months. And in that 6 months, in capital business, like I said in pulp, we see that activity is good. Then if I go there more in details, then, of course, we have had now 1.5 years' time when there have been a lot of big pulp decisions. And usually, after that kind of very active pulp market, there will be a while where there are no big pulp decisions. And I think that's maybe the time of the coming 6 months. But we see already some -- or we don't see we participate already in some active discussions about next pulp -- big pulp mill projects. So will they start to materialize in '21 or more in '22? I don't know yet. But there are discussions already with customers in paper. The decisions are coming a little bit faster. And there, we still see, like I said, in this 6 months outlook, we see good sales activity. And in tissue, satisfactory, where I said that it could turn to the good as well. But that's maybe what I have to add to that. Kari, do you want to add something more?

Well, not very much to add. You got that point to point, yes.

Okay. And then my second question is just on the automation business. Just wondered if you could give us a little bit more color in terms of where you're seeing the sort of strongest or weakest areas of interest in your product there is? I guess, once -- if and when we get sort of through the COVID disruptions, which bits of that business is showing the sort of the strongest growth segments, I guess, or the kind of biggest uptake from customers?

Where I see the strongest -- let's put it a little bit the other way around. So we are a small player in DCS, digital -- distributed control system market, but in Pulp And paper, the segments where we are a strong player. Now we have introduced new features and totally new technologies in our DCS like we announced this year or was it end of last year, the new user interface for DCS. So in long run, I'm sure that we start to gain market share in these years because of our new technology. Then I think in quality control systems, which are the systems which are measuring quality in the end of paper machine or pulp drier or tissue machines. We have been developing the offering all the time and services. And I would be quite confident that we continue to increase market share there as well. Then in analyzers, we are so strong that it's difficult to increase the market share. But of course, we try to influence customers as much as possible that they would increase -- upgrade their fleet of analyzers and then increase the fleet of analyzers in place is their need. So I actually see that there's growth potential in all the segments where we operate in automation.

And then my final one is just around, I guess, the service opportunity. When you look across your suite of installed base globally, where do you see the biggest prospects for kind of growth over the next sort of few years coming from? And I guess within that, how would you contextualize the age of your installed base over time? Is there any sort of particular regions or product lines that are kind of particularly old relative to anything else? Is there any potential kicker from an upgrade or replacement cycle coming? Or is this kind of more steady as it goes?

So I think the -- first of all, the new installed base has been growing during last years in all geographies, not only in Asia or Latin America and China. So geographically, I see that there's opportunity to grow in all regions. Of course, the growth should be higher in China, Asia Pacific and Latin America than in Europe and North America, but Europe and North America have to grow as well. And then how to grow -- we have still quite many customers who are buying 1 product of our services offering 2 products, but not the total offering. So I think the growth will come from us penetrating more and more with the total offering, bigger and bigger part of our installed base, and then, of course, competitions' installed base as well. And then as a new interesting market with the acquisition we just made in Poland, we will get access also to the markets of medium and small machines where we haven't been early at all practically at all. So that adds 1 new market segment where to grow in service.

[Operator Instructions] Our next question is from Tom Skogman from Carnegie.

So I just wonder, first of all, the order trend, it's quite easy to understand that. You need to have people out traveling and seeing clients to book orders. And now Q2 orders were smaller than Q1 and Q3 are smaller than Q2. Should we be afraid of the same in Q4 if you exclude the large meta project that can be booked in Q4? Is it just so that the sales funnel is getting weaker based on less traveling like?

Thanks, Tom. That was a good question. So we have been building our regional and area organization now last 8 years, and then that's now paying off. So we have actually quite strong teams in most of the markets. And now we -- the practice has started to develop in that kind of direction that earlier quite many of us were traveling and visiting customers and closing the deals. And now the local teams are playing more important role and the local teams are then supported from here, either from head office or offices from the business lines or business units. So we have all the time active sales negotiations, even if we can't travel from here to see our customers, something new, what we have to learn to live with. But that's the same for customers. But now everybody has -- everybody who wants to make a decision, the only option is that we all work in a new way, and that has been actually working reasonably well. Then, of course, some of the customers have been saying that it's different when we are talking over teams or 2 meetings compared to situation that we can stay together for a longer time in same meeting room and discussing longer term. So it's not the same, but sales is not stopping because of us from Nordic not traveling.

All right. And then a bit about the synergies between your automation business and Neles. So I think this is an interest of all shareholders, to really understand what this is about. And would this be a risk if Alfa Laval gets control of Neles? Would you lose a lot of sales in your automation business as a consequence of it?

So first question to the -- first answer to the last question. No, we will not lose. We will lose an opportunity, but it's not a threat to us in automation business. Then synergy in automation, the synergy would be in, first of all, in R&D. So Neles has an intelligent position called ND9000, and then we have DCS. And they communicate with each other. And then there are different kind of software by which to utilize the features of both systems. And that would be very straightforward development action we could just continue with Neles if we were in the same company. Then, of course, sales together for energy and hydrocarbon customers or sales together to energy customers would be opportunity. And then, of course, for pulp and paper customers. So selling the total automation package, including the control valves and systems, so that could be one synergy source. And then like earlier on, we have been saying then, big part of the synergy would be coming also including Neles valves in our board machine offering and tissue machine offering. Numbers, I can't unfortunately...

I think it's also in the interest of all shareholders to understand what you can do protect shareholder value involvement if Alfa Laval will get an acceptance exceeding 50%. What -- does the law protect you with that? And what can you do in that scenario?

So we are saying now that we see that there is more value in Valmet and Neles together, and we hope that shareholders are taking that into account when making their decisions.

And what is the reason that you don't come out now with a merger proposal with some numbers then that people could compare?

We told that, when we came out with the merger proposal, we came -- we said that the PTO would only trigger bidding war where the ones who would be benefiting would be the shareholders of Neles who want to just get the money and invest somewhere else, and the ones who would be losing would be Neles shareholders and Valmet shareholders who would stay in the system. Then to make -- to give a number for a merger needs discussion with the Board of Neles. It's impossible to give the number just on our own. And like you know, Neles Board has made that kind of contract, and that's public knowledge that they can't discuss with other parties without bankers' approval, lawyer approval and Alfa Laval's approval. So it's very difficult for us to have meaningful discussion with Neles and think about Neles Board and think about good solution for the merger. So we would like to discuss that, but in practice, it's very difficult. Then can we tell alone what would be the -- the best solution? Of course, we could tell something. But then that wouldn't be supported by anybody else. And I'm not sure that it's interest of Valmet or Neles shareholders that there would be a proposal without preapproval of Neles Board for that proposal.

The risk of Alfa Laval bidding against 2 years down the road is as high as bidding today. So I mean, you were just -- this situation might just continue as I see it. And what was the answer on -- how do you protect shareholder in the scenario that Alfa Laval would gain majority? I mean you have invested a huge amount of money into this. How -- is it only about negotiating with Alfa Laval and hoping for a good deal, basically [indiscernible]?

Like I said, we are in long-term in Neles, and which I just said, what is our opinion of Neles' future.

And our next question is from Antti Kansanen from SEB.

Just kind of returning to the backlog and workload situation, you mentioned that new orders are stretching the delivery times. How should we think about the revenue bookings going forward? Is it possible to achieve, let's say, on the paper side, essentially higher revenues that you are doing now? Or is the capacity kind of filled? And same with the pulp side, if you now add the meta project going forward the next years and then you have a couple of bigger ones, how would that kind of impact the annual revenues that you book from these projects? Any color on that?

Of course. Okay, not going to the revenue of any particular project. But if you take the graph, what we have here, for the different business lines, then you see that the pulp and energy revenue has been varying between EUR 800 million and a little bit more than EUR 1 billion, EUR 1.50 billion maybe. And I -- is that our maximum? No, it's not. But that has been the volume which has been needed to deliver the projects. In pulp and energy, we have quite much outsourced model, and we can increase the revenue, if needed, from that level, what we have had. Then in paper side, you see that the net sales trend is going upward. So we are now somewhere between EUR 900 million and now starts to be close to EUR 1 billion.

Yes. EUR 1 billion.

Close to EUR 1 billion now. So 2 years ago, I would have said that we can't reach EUR 1 billion net sales, and now we have it. And now, of course, our organization has learned to be more effective. And then we have, of course, PMP Group on top of what we had earlier as capacity. So from that perspective, this EUR 1 billion is not the maximum, but of course, it can be that EUR 1 billion is maximum from market perspective.

Okay. And then kind of other side of the coin, if we now see a bit of weaker, potentially weaker orders going forward. What type of kind of annual run rate orders or backlog levels would you be comfortable regarding kind of reaching our financial targets and improving profitability? Or is it more about the services coming back to normal growth?

So in Capital Markets Days, Jari and Bertel both have showed that -- what has been the capacity cost against net sales in both capital businesses. And I don't remember now the numbers by heart. But in practice, in paper, without the acquisition we just made, we haven't been increasing our capacity cost at all even if the volume has gone up. And that's to make sure that if the -- if and when the volume goes down, that we don't have immediately profitability challenge. And the same applies to pulp and energy as well that pulp and energy has been very, very careful not to increase our own costs now when the business has been act.

So to maybe to elaborate still on that. So we actually cut down a lot of capacity at 2013 and '14. And and since that, we haven't really increased our own capacity. It's been done in some other ways.

And we currently have no further audio questions. So I will hand over back to the speakers.

Thank you for the questions, and thank you for the presentations. And we will then continue on the 4th of February with our Q4 results. But before that, we will have an interesting webinar relating to our pulp and energy business, so that would be on November 19. I hope to see many of you there. But thank you, everybody.

Okay. Thank you.

Thank you.