Valmet Oyj (VALMT) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Valmet's Second Quarter 2022 Results Publication and Webcast. The highlight of this quarter was the fact that Flow Control, the former Neles was now fully part of Valmet during the quarter. My name is Pekka Rouhiainen, I'm the Head of Investor Relations here at Valmet, and the presenter today will be Pasi Laine, President and CEO of Valmet. And after the presentation, there will be a chance to ask questions over the phone lines. But Pasi, please go ahead.

Thank you, Pekka. Welcome. Our headline today is that orders received increased to EUR 1.3 billion and comparable EBITA to EUR 122 million in the second quarter. I will go first through quarter 2 in brief, then some words about the segment of business lines, then some words about Flow Control integration into Valmet, then CFO appointment, financial development, some words about Valmet's Way Forward, and then guidance and short-term market outlook. And then Pekka will join me in the question-and-answer session. First, quarter 2 in brief. So like I said, orders received increased to EUR 1.3 billion. Net sales was almost EUR 1.3 billion, EUR 1.290 billion. Backlog ended up being EUR 4.780 billion. And comparable EBITA increased EUR 122 million and margin was 9.5%. And gearing in the end of the period was 22%. And here are the numbers and some charts as well, like you see here, we employed last year about -- or in end of the quarter, 17,670 people. So we have been, of course, growing because of Neles merger. In net sales, about 46% came from Process Technologies, 31% came from Services, and 23% from Automation. Geographically, Europe continued to be biggest one, 36%, North America, the second one, and thereafter, China, South America and Asia Pacific. So quite good contribution now from all the areas as well. Orders received in the quarter increased to EUR 1.3 billion. And here, you see the graph, which is showing the 12 months cumulative curve is a little bit less than EUR 5 billion currently. Orders received in first half of the year have been such that the Europe, Middle East and Africa has contributed 43%, North America 22%, China, the third one, Asia Pacific, the second -- fourth and the smallest area has been South America. Stable business orders received totaled to EUR 2.3 billion, and this is the big development that has taken place in Valmet over the years. So when we started our services, order intake in 2014 was about EUR 1 billion. When we acquired Automation, continued to grow both Automation Systems and Services. And now we have first quarter when we have included Flow Controls for one quarter and the order intake now. So Flow Controls is only one quarter, not LTM in this figure. The order intake is EUR 2.3 billion. And this is, of course, big development in Valmet has changed the company considerably. Backlog ended up in being almost EUR 4.8 billion. It's the biggest backlog we have reported, of course, Flow Controls has an impact there as well. But we are saying that 65% of the backlog is coming from process technologies, 20% from services and 15% from automation. We are saying now also that 50% of the backlog is expected to be realized as net sales during '22. Last year, the similar figure was 45%. And then, of course, the number was small as well. But 50% of the current backlog is expected to be recognized net sales. Then some words about segments and business lines. First, Services. So orders received increased in first half to EUR 911 million, and that's, of course, big increase. It grew from EUR 752 million to EUR 911 million, so good growth. Net sales has been growing from EUR 625 million to EUR 720 million. Then EBITA has been growing from EUR 83 million to EUR 88 million, but we still have a situation that the EBITA margin for services is lower than a year ago. A year ago, it was 13.3%, and now it has been for the first half of the year, 12.2%. For the quarterly numbers, I'll come back later on. But good development in services, in order intake, in net sales and for the quarter in profitability as well. And what is important is that orders received has increased in all geographical areas and all business units as well. So strong performance of the total -- all unit. In Automation segment, orders received to EUR 452 million in first half of the year. And here, of course, the big delta price is Flow Controls, we come back later on. Last year, our order intake was EUR 239 million, and now it has been EUR 452 million. Net sales has been growing EUR 161 million to EUR 380 million. And profitability, so comparable EBITA a year ago in Automation and then all systems was EUR 20 million. And now in first half of the other segment EBITA has been EUR 60 million. And what's, of course, nice is that last year, our profitability in the segment was 12.6%, and now it has improved 15.9%. So good development in Automation segment as well. Flow Controls first quarter as part of Valmet, a strong start. So last year, order intake was in former Neles, EUR 151 million, and now second quarter order intake was EUR 198 million. So good growth. Net sales has been developing favorably as well from EUR 146 million to EUR 177 million. So all in all, Flow Controls has been performing like we have expected. So nothing material to any direction. So it's a good organization, good products, good customers and good business. And it has been performing like we expected during the planning phase of the merger. Then systems business, order intake has been growing in first half from EUR 239 million to EUR 253 million. Net sales has been developing from EUR 161 million to EUR 203 million. Here, I'll come back later on to the quarterly numbers in financial segment. We can be happy of the total growth a 6%, but the second quarter was not as strong as maybe we would have wished. But all in all, good development still in Automation Systems business as well. And in Process Technologies, orders received decreased to EUR 1.268 billion. Last year, it was about almost EUR 300 million more, but that's normal. So the order intake level in first half of the year has been good. Net sales grew from EUR 1,015 million to EUR 1,146 million. Comparable EBITA last year was EUR 84 million, now EUR 71 million. So our profitability has dropped in this segment from 8.2% to 6.2%, and of course, we are not happy of that. And mainly the development is caused by some margin erosion in some of the pulp and energy projects, like I think I was saying last time as well, that there we have inflation pressures, touching our business and that has been now materializing also in the second quarter of the year. Pulp and Energy business line order intake was EUR 581 million, smaller than a year ago, but at a healthy level. The big difference here is now that -- now energy has been increasing and pulp side has been decreasing. So last year, service or energy order intake was lower than Pulp, this year, actually, energy has been increasing more and pulp has been decreased. So there is a change in the mix of the order intake. But EUR 581 million is reasonable order intake for the business line. Net sales has been developing favorably. So from EUR 463 million to EUR 542 million in the first segment. Then Paper business line, last year was a very good year in order intake, this year was a good year. So EUR 688 million in the first half is a very strong order intake level. Net sales has been developing favorably as well from EUR 552 million to EUR 604 million, and one, of course, has to remember here that our Paper business line has manufacturing in China, where the lockdown was affecting. And then we had also the fire in Rautpohja. So despite all these challenges -- and Ukraine war on top of that, so despite all these challenges, Paper business also able to continue growth mode in net sales. So well done by Jari and Jari's team. Then some words about war in Ukraine. So like we have been saying that direct impact development are limited. So we had about 140 people working in Russia, currently, we have about 80 people, and then they are working primarily in sales, engineering, maintenance, financial administration. We don't have any production in Russia. Last year, about 2% of the net sales came from Russia. We have now reversed about EUR 80 million of order backlog in H1 '22. And then we have roughly made EUR 20 million expenses related to withdrawal from Russia in first half of the year. And they are booked as items affecting comparability. So we have still a small backlog, which we believe that we can deliver or have to deliver. And our best understanding is now that the expenses we have booked are correct ones to close our businesses in Russia. And like we have communicated, we will withdraw the business from Russia completely, but it will take some time to work in a manner that we are not causing any risk to any person. And then, of course, the biggest impact what we have from the war in Ukraine is the cost inflation, which we discussed in last quarterly call as well. Now, then some words about the integration of Flow Controls into Valmet. So integration proceeding is proceeding according to plan. So we knew the company and they know us. So they are not -- no major surprises to anybody. Maybe our style to manage business is different than Flow Controls is used to, but nothing very big change there. We have now started to market the whole offering to our capital, our technology customers to sell the Technology Services, Automation, with System and with Flow Controls. And then later on, we'll start to see the synergy potential -- revenue synergy potential to materialize, but of course, it will take some time. We have started some cost synergy actions in second quarter. We still confirm the earlier statement that we expect to have about EUR 25 million annual run rate synergies, which -- out of which about 60% is achieved by '23 and 90% by end of '24. So we will continue to work on this topic after summer vacations. Then merger had, of course, a big impact to our balance sheet. It looks quite different than earlier, like you will see in later graph as well. So the total merger consideration was EUR 1.476 billion. And that's based on the share price Valmet had in end of March. And I think it's -- thinking about the performance of Flow Controls currently, I think it's correctly valued. Then out of the purchase, we got goodwill more and goodwill increased about EUR 879 million and other intangible assets by EUR 860 million (sic) [ EUR 830 million ]. And this means that there will be bigger amortizations in coming quarters. And now we are saying that about EUR 24 million per quarter until the quarter one in '23, so next year, and thereafter about EUR 9 million a quarter for several years. So this is to help you to model the amortization in your calculations. Then the total balance sheet increased to EUR 6,480 million, and that's, of course, a big increase compared to the earlier one about a little bit more than EUR 2 billion. Total equity has increased and Valmet's equity per share has increased as well. So Valmet looks now from a balance sheet point of view different after the merger with Neles. Then today's news is that, after a very thorough selection process of CFO, we have selected Katri Hokkanen as new CFO, and she will start 1st of August in the role. Like you know, she is now also the intermediate CFO. We searched external, internal candidates, had a lot of interviews and select -- then decided in the end that Katri is the best person to continue the CFO function further. She has a long carrier in Valmet, has been working the whole working life in Valmet in very different roles. So she was running our area -- financial organization in Asia Pacific, for example, and last year, she has been business control in Pulp and Energy. So she knows Paper, she knows Service, she knows Pulp and Energy business. So she has a very good background and understanding of our business, and that's, of course, the strength of her. And we are very happy, of course, to have new blood in management team, and of course, we are very happy that the diversity in our management team, age-wise and gender-wise is improving as well. So Katri is listening the call, but we have agreed that she can take the well reserved break and she had -- which she has booked many, many months earlier, and she is not now presenting the results here with me. But next time, you will see Katri in person in this presentation. So welcome, Kathy, to the management team. Then some words about the financial development. I go through the -- I've discussed some of the quarterly numbers already. So orders received, backlog net sales and comparable EBITA and comparable EBITA of net sales. Then there is -- EBITA is bigger than comparable EBITA. And the explanation is that, when we did the merger with Neles, we booked EUR 59 million gain from the shares we owned earlier. And that's something you have to understand. Then that's netted with the expenses, which we have to book when we are withdrawing from Russia. And the delta is now the one what we are showing here, [ 59 and then 20 ] and the delta is positive. Might be that you would have expected that we book here a negative figure, but this is IFRS accounting rule, and that's how it goes. Then the other new thing here is that we have added adjusted earnings per share, KPI here, so that you can follow our adjusting earnings per share without acquisition. So we have calculated everything else except then the amortization, which is coming from the business mergers and acquisitions. And that should be helping you now to understand the company better, when our goodwill and PPA amortization is increasing compared to the earlier years. So then, the other -- okay, I'll go through the cumulative numbers still. So EUR 2.6 billion, 4% growth compared to last year. Backlog is 19% higher. Net sales has been increasing by 25%, so EUR 2.2 billion. Comparable EBITA EUR 202 million, 15% increase. Comparable EBITA percentage is 9% last year, 9.7%. Of course, we are not happy of that, but we try to work on that topic. Then cash flow is EUR 65 million negative, and I'll come back later on to that one. And Gearing now after the merger is 22%, including the lease liabilities. So all in all, strong first half also from figure perspective of Valmet. Then some words about the segment figures. Services had a good order intake in the quarter -- second quarter, EUR 460 million, 24% growth compared to last year. Automation segment, of course, has a big figure, growth because of the Flow Controls and Process Technologies minus 27% compared to last year. All in all, EUR 1.3 billion in order intake in the quarter. In net sales, Services was growing by 20% compared to last year. Automation, of course, as a segment, grew over 100%. And Process Technologies grew also by 15%. So totally 36% growth in net sales. Comparable EBITA services improved by EUR 10 million and by 22%, and that's, of course, good performance by Services. Automation had a good quarter, EUR 50 million, EBITA in a quarter. Process Technologies had EUR 10 million less than a year ago. And the reason I explained already. And then the other having the head office and everything, so there EUR 15 million is more than it should be on a normal basis, there are some differences in the timing of some of the costs, and of course, some other extra costs here, but we have to be now very careful with central head office function and head office costs. So this 15% is a little bit too much. But all in all, we made EUR 122 million. Comparable EBITA margin for services was 14.2%. And that's, of course, good achievement. So it was better than a year ago. Like you remember, our first quarter was not very good. So I'm very happy that Services and areas were able to turn the profitability to the decent level so quickly. Automation, strong 17% and Process Technologies, not that strong 5.2%, so 2.7% down compared to last year. So these are the segment figures for the quarter, and the half year figures I explained already. So gross profit, 24%, and we, of course, still have work to do to make sure that the gross profit continues to develop favorably. Then in SG&A, the growth is bigger than it should be, part of that is coming from Flow Controls, which increased SG&A by EUR 55 million. And then the legacy Valmet SG&A has been growing as well. And there we have to be very careful now that we manage the SG&A costs carefully, and at the same time, boost the gross margin up, and then we should be again on the path where we would like to be. And why I said that was that, of course, here, the nice curve is -- historically nice curve is not a trend in the correct direction. So the LTM is now at 10.4%. And last year, we ended up at 10.9%. And of course, our target is to get as soon as possible between 12% to 14%, and currently, the trend is not going the right direction, and we have continued to work on that topic in coming quarters and years as well to reach the target what we have set to ourselves. Then cash flow, like I said, was not good. So cash flow provided by operating activities was minus EUR 85 million in second quarter. Our inventories have increased. And then the net working capital in project business has increased, and then Flow Controls has added net working capital as well. So currently, we trade somewhere close to 6% of the rolling 12 months order intake, at the best, if we could say, it was at 12% and 14%, and then we were saying in '20 and '21 that we have more money than we should have. And now it's going to the other direction. But of course, we continue to work on this topic. We haven't seen any big changes in the contract terms and payment terms in our contracts. But then one fact is that, now when the delivery times are longer, we have to order things earlier than we used to. So it has a negative impact. And then, of course, Flow Controls has an impact on net working capital as well. But these 2 topics, net working capital and cash flow are things where we will be focusing on in latter part of the year. Now net debt has now increased. So now we have EUR 510 million net debt and Gearing is at 22%. And like I said, however, our equity and total assets have increased considerably as well, and that comes at the next page. Where you see that the capital employed, what we have now due to the merge has increased from EUR 1.8 billion to EUR 3.2 billion. And now our return on capital employed comparable return of capital employed is 16%. Our target is to be over 15%, so we have targeted range, but because of the merger, of course, is a comparable ROCE has dropped compared to the earlier times. Earnings per share is developing favorably, when we calculate the adjusted EPS for '21 and '22. And then of course, if that would be just EPS, then it wouldn't be as good as this graph shows. Then, some words about the strategy. So we have fine-tuned our strategy being such that first of all mission, we get the say. So converting renewable resources into sustainable results. And that's still the mission we have. In strategy, we developed it such that we say that we develop and supply competitive and reliable Process Technology, Services and Automation, and the Pulp, Paper and Energy industry. So there, we work with the whole triangle. Then we say that Automation business covers a wide base of global process industry. So we have offering by which we can serve others than Pulp, Paper and Energy Industries. And then we are saying that we are committed to moving customers' performance forward with our unique offering in a way to serve. So the changes that Automation is now as a segment working with wide range of industries. We continue with the same continuous improvement on renewal topics, we continue with business accelerators, and in vision, we have modified it a little bit when now we say that our vision is to become the global champion in serving our customers, and in moving the industries forward. We have aligned the financial targets with the reporting structure. So now we are saying that the Services and Automation segment should grow over 2x of the market growth, and net sales for Process Technology segment to exceed market growth. This is semantic, but now it's according to segments, what we are saying. Profitability targets are set between 12% to 14%, comparable return on capital employed at least 15%, and dividend policy continues to be like earlier, dividend payout at least 50% of the net profit. So still guidance and short-term market outlook. So we have kept the guidance intact, Valmet estimates that included the merger with Neles net sales in '22 will increase in comparison with 21% and comparable EBITA '22 will increase in comparison with '21. In Services, we keep the market outlook good. Automation, Flow Controls, good. Automation Systems, good. Then in Pulp, we are saying good to satisfactory. And this is coming from the fact that in some of the units in Pulp, we have a little bit worse workload situation. In some, we have very good, in some, not that good, and that's why we are saying good to satisfactory. In Energy, we have increased outlook from satisfactory to good. In Board and Paper, we continue with good and in Tissue with satisfactory, good. So sorry, it took too long, I know, but we had many topics to cover. So now it's your time to make questions and Pekka comes here to help me with answers.

All right. Thanks, Pasi, and let's move on to questions. So operator, I hand over to you.

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

A few questions from me. First, on the outlook and the downgrade on the pulp side. Did I understand correctly that it refers only to the workflow situation? And perhaps, can you talk a little bit more broadly, what do you see regarding your customer discussions regarding them investing, taking into account the macro uncertainties and things that we have likely seen?

Yes. So we have some units which overload in Pulp and Energy, and some which don't have very good workload. And that's why we have downgraded. And then it goes also that for that unit, where we don't have very good workload, the market outlook is not that good either. And then for the rest, the market outlook is better. Customer activity in small to medium-sized projects for most of the business units, it's good. But for one, it's not that good. And customers are still planning small to medium-sized projects and then in long run, of course, new capacity investments as well.

But is it possible to specify where the workload and outlook is, maybe not as good as in the other businesses?

Pardon. Can you repeat?

So you mentioned -- yes, sorry. So is it possible to specify the business where the workload and outlook situation has worsened?

No. But I can be a little bit more specific, it's one out of 4.

Okay. And then secondly, on the kind of the Process Technology profitability, it seems to be quite isolated on the Pulp and Energy side. So is it such that -- is it very broad-based? Or can you pinpoint it to a number of larger projects? And kind of is it possible to think about how long these processes will run? Obviously, trying to get how long are we living with this mismatch of prices and cost levels. So I'm assuming that the new orders that you are taking in are more in line with the cost levels that you're seeing?

Yes, it's a small number. And some of them are bigger, one and -- some are smaller ones, where the costs have been over running. But like you said, it's -- in Pulp and Energy limited amount. And then, how long it will take to overcome? Then, of course, it depends on the booking speed. So I can't say exactly even if I know, how long will it take, but I can't explain it too much in detail. And then, of course, like you said, in all the orders, what we are now negotiating, then of course, we are taking all the inflation and more inflation as well into account when pricing the product. But this goes pretty much in the way what we tried to communicate in quarter one. I hope that we were clear on that, then that, we will have challenges with some Pulp and Energy project.

Yes, absolutely. I think it was very much in line with what you said. Then lastly from me on the Services side and there kind of the margin development showed quite good improvement from Q1. And obviously, order growth was strong, considering last year's Q2 was already good. So the price realization, I assume, is quite good there. And now you're already kind of seeing the impact of price hikes that you have made? Or is there something else that is also driving kind of the growth and profitability in that division?

Yes. So our services team and areas worked very hard in turning to profitability, because it was not so nice to explain to all of you that we all knew that there has been inflation, and we haven't been fast enough in increasing our prices. And our organization has worked very well on that topic. So I'm happy of that. And I'm sure that now we know whether how to live in inflationary environment than half a year ago. Then about the growth, I think they are -- and I don't have a number, it's all complex, complex that I don't even have the numbers to tell that what the impact is. But one is, of course, coming -- one component of the growth is coming from price increases. Then, one is coming from good demand, because of the good operational rates of customers, and then because of a little bit pent-up demand during the COVID times. And then there is a third component, which I want to be specific, there is that component that customers are now ordering the services earlier than they used to, because all of us have learned that there are longer delivery times. And of course, our customers understand it as well. And then, if there is a service what they have been earlier, ordering performance before they need it, now they might be ordering it 6 months or 8 months earlier. So there is that kind of phenomenon happening as well.

And our next question comes from the line of Panu Laitinmaki of Danske Bank.

I have 2 questions. Just a follow-up on the Process Technology margins. So, I mean, can you give any indication what would the level of margins be going forward from 5.2%? Do you see like further pressure in the second half given the problem projects that you have? Or is this kind of improving? And then the second question on the Energy outlook, it was upgraded, so where is it coming from, and what are you seeing in the market?

Unlikely, I can't give a good guidance for Process Technology margin, but of course, we work hard on that topic. So no, I can't give a good guidance on that. But we know that there is a problem and we are working on the topic. Then in Energy, it has been active in Europe mainly, a little bit in Asia as well, but mainly in Europe. And I think it -- so order intake has been good, and then we have also good pipeline. And now because of all these Energy crisis, we are all reading in the newspapers every day, I would assume that the good outlook and demand and discussion with customers for biomass boilers and waste-to-energy poles will continue.

We currently have one further question in the queue. [Operator Instructions] The next question is Sven Weier of UBS.

The first one is just a follow-up on the service margin. I mean, as it was already said, you had quite a remarkable sequential turnaround there. I was just wondering, I mean, has that exceeded your expectations? Because you improved almost by 500 basis points. And I was just curious, how did you do that? I mean it's real fast. Is there more to go for? I mean, typically in the second half, you have higher service margins than in the first half. So I'm still a bit impressed by that improvements. But it's the first one.

Maybe one has to first say that we were disappointed with the first quarter service profitability. So then if you calculate the delta from there, then, of course, it has to be big, because first quarter was not good. Services team has worked very, very hard on this topic. And we from head office, how would I say, we have encouraged them. And I'm, of course, happy how it has been developing. And I was saying to our team, that I don't want to continue to explain to you that our services profitability is not developing favorably. And Aki and Jari has understood the message. So thanks for making the pressure for me.

Okay. I was just wondering also, I mean, you have obviously different units within the Service business, right? And if I remember correctly, there was one specific area that was falling quite a bit short of your expectations in Q1. Is that really then also responsible for the turnaround then? Or is it basically all the subdivisions in Services contributing to that?

I think it's all of them. And then, I wouldn't say totally turnaround, because last year, our profit was 13.9% and it was 14.2% now. So actually, we got back to the level where we should be. So the first quarter was bad, but now we are at the level where we should be. Not to all...

But you don't foresee such a quick improvement on the process technology side. So that would take a bit longer.

It's typically -- sorry, but I can't give too clear guidance on Process Technology. So like I said to Panu as well that we work on the topic, and we know where the challenges are. But I can't give any promises how quickly and when, because otherwise, I'm guiding too accurately. Sorry for that.

No worries. And then I was just wondering, I think on the Neles side of -- the flow side of the business, you had temporary layoffs. And if I remember correctly, this is more of an impact in Q3. I mean, is that a tangible impact? Or will we not be able to see that?

It's more normal way how to manage the workload. So seldomly you have that kind of situation that you have all the production units in full load. And in Finland, we have this possibility for temporary layoffs. And then when we announced the layoff, we have to tell the total personnel in that unit, and we are not allowed to tell that how big portion of them might be affected, if all of them are one or 2 days away. That's why the announcement was bigger than the planned action, and it's nothing dramatic. So I would say that, that's normal capacity management where this temporary layoff mechanism in Finland gives good flexibility.

Understood. And the last one I just had was on the scrubber side of things. I mean, of course, the spreads at the moment are kind of record high, several $100. And still, there is not much activity. I mean what do you reckon the customers are waiting for you?

No, we haven't seen the activity yet. And that's something I have to check as well that, do we start to see it, because you are right that now the spreads are big and then there should be more market activities. So you have a point, but I don't have -- we haven't seen it yet.

Our next question comes from the line of Johan Eliason of Kepler Cheuvreux.

Just a question, follow-up on the Services side. You said part of the good orders were sort of catch up from last year's lower orders. If I remember it correctly, it was sort of rebuild and that sort of stuff that went away during the pandemic. Does this imply now that some of the order recovery you are seeing here, is this a bit lower margin type of services?

I would say that the order intake is now quite much normal like we are saying that all the business units have been increasing the order intake. So the mix is actually quite much like it has been.

Before the pandemic, you mean?

Now I'm comparing to last year. And last year, the activity -- so started to be -- I would say that it's quite close to the one which was before pandemic as well.

Okay. And then you gave this backlog and the delivery this year, will all of the Services and Automation orders be delivered this year? Or are those also some orders that slip into the coming years?

Some of the Automation and Services backlog is going to next year.

Okay. Good. And then just finally, on the margin here...

Not sleeping, they are planned for next year.

Okay. Then on the profitability overall, I mean, Kari always used to talk about the seasonality that you will have typically the highest margin in the final quarter, et cetera. You don't see anything that would change that this year despite the issues you have on the Process Technology side.

Yes. We have seasonality, and we will have this year's seasonality as well. Then it's, of course, difficult to say that how much there will be seasonality, so first half against the second half. But like you have been following us many years, so there is a seasonality that continues.

Our next question comes from the line of Tomi Railo of DNB.

This is Tomi from DNB. Coming back to this Process Technologies issues. I just want to get the picture right to confirm, is it project-related cost overrun issues? Or is it price and cost mismatch, which is causing the...

It's -- of course, different reasons for different project, but big thing is the logistic cost, which has increased. Then some of the inflation has been hitting more. And then in some projects, in some small projects, not in the big ones, but in the small project, there has been also some not good enough accuracy in costing. But that -- from Valmet perspective -- but Valmet's perspective, those are not material.

So are there sort of project-related cost overruns also playing out or challenges with product, as you mentioned? Is that not a major issue?

I would say that if one takes the biggest one, then it's the inflation in logistics and all the other sub-suppliers.

Okay. And another question on the services. You presented a good list of activities driving the growth. I was just wondering if the extended lead times -- can you see those as temporary? Or can you see that actually this activity, which is coming earlier than before, can that be sustained for a couple of quarters? Or is it just temporary for second quarter?

Now I would guess that it will continue for a while before all the delivery chains are working quickly again and with normal pace. And then customers have to also learn to trust that. And then, of course, we have to learn to trust to that as well, because now when we are quoting something, then we, of course, take extra time for the delivery times to make sure that we can keep the promise time scheduled. So it will take some time before the situation gets back to the normal.

And we have one further person in the queue at this time, that's Tom Skogman from Carnegie.

I have a couple of questions, starting with kind of some indications [ of the future ] net financial costs and taxes. We had no financial cost this quarter despite, of course, a big net debt coming from the Neles side. So what should we look for the coming quarters?

Yes. Now without CFO next to me, Pekka, can you answer to that? Or is it...

I didn't quite catch Tom's questions.

Taxes and financial costs.

I don't have an answer to that one.

So we have now the net debt what we have said, and then like we have been earlier communicating, our interest rates are competitive. So from that perspective, I wouldn't see any big change compared to earlier times except that we have a little bit more debt or we have more debt than earlier. Then in taxes, we don't see -- I don't see any change actually compared to the earlier years when thinking about when we have analyzed the taxation. So I don't see any change happening in that number either.

Okay. Then on roll manufacturing, where you had the factory fire, how well have you managed to find replacing capacity? And as part of this question, also the former CFO said that he expected Paper sales could reach EUR 1.3 billion. And then we started the [indiscernible] after the fire, but now we had very good kind of deliveries in the Paper division. So what sales is kind of reasonable to expect in Paper this year?

So net sales, I can't, of course, guide too well, but our organization managed the fire very well. So of course -- so fire was, first of all, isolated to one island only. And then the 3, 4 others, we got back to almost 3 of them, we got reasonably quickly to normal operation, part of the fifth one as well. And then the one where the fire was part of that is now -- could be used in a normal operation, but we still need to work with the authorities to get the approval. Team has found some subcontracting capacity for many of the activities, for some of the activities, we still need to work on to solve all the delivery issues. But I have to give a lot of credit to Paper business lining, managing the situation. So they have done very good work. But sorry, I can't give you exact estimate for the net sales.

If I understand you right, the fire is not really holding back deliveries, as you see it 3 months, 2 months ago.

The impact has been smaller than what we feared. Thanks to the good work of our team.

Yes. And earlier talked about opening bottlenecks in paper to increase capacity. Could you give an update on where we are with that?

Actually, then Paper business line is now working on the same topic -- on this topic at the same time, because for us to catch all the delivery schedules, we have to increase the capacity. So they are working at the same time on the fire, but then also on finding extra new ways how to catch up the missed hours, we have lost due to the fire.

And then the steel price has come [Technical Difficulty] hedging, but what will the impact...

No, you are little bit cut. So you asked something about steel price.

Yes. So the steel price had a short peak, and now it is down again. And what will this mean for you with your hedging?

We, of course, had to buy steel for some of the deliveries when there was the peak of the steel price. And then now, of course, we have to see that what kind of possibilities we have now to benefit from the drop in steel prices. I don't have that number in my head yet. But this is, of course, an opportunity for us.

Yes. And then finally, just about this kind of dynamic demand implications from changes in the world. So the price of your board machines and pulp machines are up a lot in the last 2 years. And now we see, of course, you have this gas situation in Germany, and you have a lot of paper manufacturing in Germany, and you also have your key competitor being based in Germany. What do you see? If you not talk about the demand in the next quarter or 2 quarters ahead, but is it a problem in customer discussions that prices have increased so much in your type of products the last couple of years? And what do you see from this gas situation?

I haven't had too much now customer discussions of the summer vacation, middle Europeans are still on vacation. So some of the customers will, of course, think that, should they delay the decision a little bit the way that the commodity prices will go down. And some are seeing that the market has been that good, so they'll continue with the time schedules what they have had. And then, of course, the third component is that, if there will be a recession in Germany and Middle Europe, that what -- how much it will impact demand of packaging material. Then that will be kind of short-term challenge, but then in long-term, I haven't seen actually anybody saying that the demand for renewable packaging materials wouldn't be -- and recyclable packaging materials wouldn't be increasing. So our customers still have long-term positive view of the future. And then there -- between there will be maybe some hiccups. But long-term, I'm confident.

And we have one further question come through, that's from the line of Tomi Railo at DNB.

Yes. Still one housekeeping question. You had the EUR 50 million cost on the other line for common group costs. Is that a fair assumption now going forward with Neles? Or any guidance on the...

Not direct guidance, but we have to work on that topic.

But is that a little bit on the high side? Or should it be...

No. I think it's on high side.

There are no further questions on the line at this time. So I'll hand back to our speakers for the closing comments.

Pekka will close soon. But thank you. Sorry for giving half in our presentation, but luckily, you had enough energy to continue to follow it. Pekka, now it's your closing words.

Yes. Thanks. Thanks, Pasi. And thanks, everybody, for the good questions, and have a nice summer. And we will get back to the Q3 results then on the 26 of October. So thank you very much. This concludes our event.

Thank you.