Valmet Oyj (VALMT) Earnings Call Transcript & Summary

Good morning, and welcome to Valmet's First Quarter 2025 Result Publication webcast. Valmet's year started strongly in Services and Automation segments, while the market conditions remain subdued in the Process Technologies segment. I'm Pekka Rouhiainen from IR, and with me today are Thomas Hinnerskov, President and CEO; as well as Katri Hokkanen, CFO. Today, Thomas will first go through the highlights of the quarter and provide an update on the strategy renewal process. After that, Katri will go through the financial development in more detail also from the segment perspective, and Thomas will then conclude on the guidance and short-term market outlook. But with that, I hand over to the presenters. Thomas, the floor is yours.

Thank you, Pekka. Very happy to be here. Great to start the year in a good way, and let's start looking at Q1. Overall, orders received increased to EUR 1.3 billion, particularly pleased to see the performance in our stable business and we'll come back to that several times during the presentation. Overall, also a backlog -- order backlog amounted to EUR 4.6 billion, a bit higher than at the end of Q4, which, of course, is a positive development that we are happy about. Net sales were flat year-over-year. Stable business grew. Process Technology decreased, which, of course, is unfortunate, but it is a consequence also of this subdued market that we're currently experiencing. Comparable EBITA remained on the same level as last year, landing at EUR 121 million, with a slightly better margin of 10.2%. Cash flow was very strong in 2024, and I'm very happy to say that the good trajectory really continued and our cash conversion was very strong in Q1 and cash flow landed at EUR 217 million. Comparable ROCE increased a notch from year-end to now 13%. But maybe the biggest news of the quarter was our plan to renew the operating model. The proposed model will help us serve our customers better throughout the life cycle of our equipment and the things that we deliver and the solutions that we deliver to customers. It will also simplify how we operate, and it will increase our efficiency, and I'll come back to that later in my presentation as well. First of all let's have a look at the Q1. Did we skip a slide or what?

No.

No. Sorry about that. Okay. That's -- no, here we are. So first of all, let's look at the stable business then. First of all, Q1 order intake, EUR 974 million, that was a record. Even though it was partly supported by an acquisition that we did last year, the organic growth was also strong. The year started strongly in the stable business, where we reported orders increased by 14%. So even on an organic basis with the acquisition or taking the acquisition out, we did also see organic growth of 8% in service, positively, however, supported by a large mill improvement project, but also consumables and the performance parts grew nicely. I would also have to say and we can come back to that as sort of the organic growth was also supported by price increases in the segment. Geographically, orders increased in Asia Pacific and South America and in North America, and we're flat in China and EMEA. So big thanks to all area teams for effort in Q1 and a special thanks to Asia Pacific for making a record quarter in service orders received in Q1 2025. Then organic growth in Automation, 12%, driven by strong performance in both Flow Control and Automation System. In Automation Systems, we saw good activity in the Pulp and Paper, but also in other Process Industries. In Flow Control, orders grew, particularly in service and in the valve controls and actuators. We might have seen some pre-tariff buying, might have been visible in particular in the Flow Control in North America. But overall, I think it's fairly -- sort of shows a fairly level of the actual activity that we saw in the market. So very pleased with the strong performance by our teams and a good level of customer activity in the stable business. So I'd say this sort of highlights the resilience of our stable business throughout the years, through cycles, really has been a strong contributor also organically 6% roughly, so of course, it's also impacted by acquisitions over the years, but 6% organic growth nicely improving. So good to see. So yes, very pleased overall with strong stable business, orders totaling close to EUR 3.5 billion on the last 12 months basis. So that really sort of demonstrates our abilities to serve customers from equipment throughout the life cycle sort of true life cycle approach. Just to -- a small customer highlight of the quarter, we launched Valmet DNAe in 2024. It was 1 of the highlights of '24, very pleased to see that we continue getting traction. We've already have -- we received a good amount of orders for our DNAe. This customer case is from Q1, finished power plant, selective Valmet DNAe to modernize its automation of its power plant, great win by the team in the energy sector. Customer made a thorough evaluation process and ended up concluding that Valmet DNAe adds the most value to them. So this customer, ESE-Energia, decided to replace old third-party system with this comprehensive DNAe solution. So really sort of full automation system upgrade of their power plant. Strategically, I mean, this brings Valmet really sort of a much closer to the customer and adds value with sort of deep system integration, and we can add value to the customer throughout the life cycle with upgrades, remote support, future add-ons that will come into the system. So clearly, we strengthen our reputation outside Pulp and Paper and particularly in the Energy segment. So big thanks to the team and also a big thanks to our valued customer for your trust on this one. So moving on to strategy. Strategy process started late last year, and I have to say it's progressing and proceeding very well and really exciting and fruitful discussions that we're having on a broad basis in the company. But let's first look a little bit of sort of recent history and the background for the strategic renewal, but also the operating to a very large extent. Looking at our numbers from the last 3 to 4 years, organic growth has clearly plateaued both in terms of net sales and comparable EBITA as well as margin. So of course, that's not something that we are really happy about. On top of that capital employed has increased. So ROCE clearly decreased as well. So this is something we'll want to take action on and improve in the coming years. On top of that, you can say market activity in the process technology, as we also saw in Q1 remains on a loan level. And here, we need to make sure we have an efficient operation that performs also in challenging market situations. So that's why at the end of Q1, we as a consequence of all this, and announced a plan to renew Valmet's operating model as a first action in this strategic renewal process. Overall, we're aiming to serve our customers better. This is basically the most important end goal and purpose of what we -- the changes that we are making. It will sort of make us -- put us in a better position to sort of achieve delivering and taking that life cycle approach to what the customer will have a strong business areas who are then responsible and accountable for driving the profitability and the growth of both capital and related aftermarket service. So throughout the customer life cycle and customers will actually be interfacing with 1 business area. Secondly, it will simplify the organizational structure. The current 5 geographical areas will be integrated it into the new business areas. So keeping that local proximity to customers. Thirdly, we will drive efficiency by establishing a global supply unit to support our cost competitiveness, but also put us in a position where we can have a more flexible supply chain that actually can manage peaks and troughs in the demand in the market. So the process we're going through now will impact up to a maximum of 1,150 roles globally. All these roles are white collar employees. So no blue colors are included in these 1,150 potential people. So in terms of financial, we do estimate like we said when we came out as well that an EUR 80 million savings with full run rate achieved by the end of 2026 -- or beginning of 2026, sorry, so in roughly a year's time. The renewed strategy will be fully communicated at our upcoming Capital Market Day on June 5. The renewed strategy really sort of aim of identifying future growth areas, both existing of our current business, but also simplify the way we're working and increase our operational efficiency. So yes, we're really looking forward to meeting you all in person in Tampere and really have a good thorough discussion on where the future strategic direction of Valmet is going. So with this, I'll hand over to Katri for the financial. Here you go.

Thank you, Thomas, and good morning, everyone, also on my behalf. And I will go through the financial development next on the slides. Valmet's orders were nicely tilted towards stable business during the first quarter. And good to remember that the first quarter is typically a seasonally strong quarter in stable business for us and year-over-year growth was also strong. In the first quarter, 73% of our orders came from stable business. On the net sales side, they were more evenly distributed, and seasonally, our net sales in the first quarter are typically a bit lower than in other quarters. Then in terms of comparable EBITA, almost all of our profits were made in Services and Automation segments, and the quarter was weak for Process Technologies profitability. Q1 orders increased to EUR 1.3 billion, and the order backlog was close to EUR 4.6 billion, and the big Arauco pulp mill order is visible in the order backlog. Net sales decreased a bit, and comparable EBITA was exactly the same as last year at EUR 121 million, and the margin was 10.2%. Both net sales and comparable EBITA decreased sequentially from the fourth quarter, which is a typical seasonal pattern for us in Valmet. Items affecting comparability were minus EUR 8 million for the quarter, and they were mostly related to our other segment and to a smaller extent to Process Tech and Automation segments. The IAC provisions related to the operational model change and the workforce reductions are to be expected to be booked in the second quarter this year. Amortizations were EUR 24 million for the quarter, leading to EUR 89 million operating profit. And going forward, the quarterly amortizations are expected to be roughly on a similar level than in the Q1. Adjusted EPS remained at the last year's level at EUR 0.33. Some words about the order backlog next. So order backlog is EUR 122 million higher than at the end of last year. And order backlog has grown in stable business and a bit lower in Process Tech, and roughly 60% of the backlog is related to process technologies and then 40% to stable business. And the order backlog for this year is roughly EUR 2.9 billion, and is the same amount we had last year at this point. And this is in line with our guidance of flat net sales for this year. Moving next to the segment financials, starting from the Process Technologies. The market activity continues to be low, but the orders received on the last 12 months basis are on a good level, supported by the big order in Q4 last year. Net sales, however, are decreasing, and this has also led to lower comparable EBITA in March. Orders received in Process Tech increased in the first quarter, but it is fair to admit that the market activity continues to be subdued and book-to-bill ratio is below 1. Net sales decreased by 17% or EUR 84 million, which then led to a lower comparable EBITA and margin was disappointingly low at 1.5%. Moving on to Services next, where the development looks much better. Both orders and net sales have been growing steadily in the last years and comparable EBITA margin reached now 18% on the last 12 months basis. The first quarter marked a very strong start for the year in Services. Orders received grew 8% organically across the Service portfolio. Net sales also increased by 6% organically and supported also the comparable EBITA. And comparable EBITA margin was 17.6%, which is the best ever Q1 margin for Services. Looking at Automation segment next. Orders received and net sales trends are also very positive here in the recent years. And the last 12 months comparable EBITA was EUR 258 million and margin, 17.6%. And the margin has plateaued, but partly, this is explained by the acquisition of API, where the margin has historically been lower. Orders received increased by 24% in Automation segment, of which half, which is 12% was organic growth. And this also means that the start of the year was very strong in terms of orders in Automation segment. And 63% of the orders came from outside of Pulp and Paper industry in the first quarter. Net sales increased by 10%, and this was due to the acquisition of API. But organically, we saw a slight decrease of 2% here. Comparable EBITA increased to EUR 55 million, and the margin was 16.2%. And good to remember that Automation's net sales and profitability are typically seasonally lower in the first quarter. Looking then at the segment's big picture. So as said, Services and Automation performed well, while Process Tech has been suffering from the low market activity. The expenses in Other were EUR 16 million for the quarter, and the expenses in Other have been roughly EUR 50 million in the last years, and we expect similar or slightly higher level this year. Then comparable with the gross profit, it was exactly at last year's level on a last 12 months basis, while the margin went up a notch to 28.4%. Comparable SG&A expenses have been increasing faster than our net sales since '22, which is partly why we are now planning the EUR 80 million cost reductions. Cash flow continued to be on a strong level, and this was clearly 1 of the highlights of the quarter and last 12 months cash flow increased to EUR 633 million, and Q1 was EUR 217 million. CapEx amounted to EUR 24 million, a bit lower than in the comparison quarter. And then when you look at the net working capital, it decreased clearly from the year-end to minus EUR 193 million, and this is now minus 3% of the last 12 months rolling orders received. And it's worth noting that the AGM decided on a dividend of EUR 1.35 per share, and it's paid into installments in April and October, and the net working capital, therefore, included EUR 249 million dividend liability. Moving then on to the balance sheet. Thanks to the strong cash flow, net debt decreased to EUR 875 million, and gearing to 36% and net debt to EBITDA decreased to 1.3%. And the average interest rate was 4% and net financial expenses, EUR 15 million in the first quarter. Lastly, a few words about ROCE and earnings per share, both ROCE and adjusted EPS have been under pressure in the recent years, but they remained roughly at par with the end of last year on last 12 months basis. That concludes my part of the presentation. I will now hand back to you, Thomas.

Thank you, Katri. Good. So let's move to the guidance and the short-term market outlook. Overall, our guidance is unchanged. We continue to estimate that full year net sales and comparable EBITA will remain on last year's level. Short-term market outlook for Process Tech continued to be the same as earlier. Customer activity is stable, however, on a low level overall. So when we sort of double-click a bit on that, in Pulp, some discussions with customers on some larger greenfields projects in South America that are out there in the market. These discussions continue, and it's always very hard to say anything about timing of customers' decisions, in particular, in these kind of very large decision processes. Outside of these big greenfields, customer activity for smaller projects and rebuilds continue to be rather low. Same goes with Board and Paper customer activity also on a low level. However, if you then sort of look there a bit on the energy side of things, there is some activity. There is active discussions, but there's also a delay in the decision-making. It's clear a little bit that the current market sentiment with a lot of clouds and on global economy is sort of dragging processes or decision-making processes a bit out or at least a bit extra rounds of discussions. Tissue market continues to be quite active, which is nice to see. Then when it comes then to Services, we had a very strong start of the year and good organic growth, both in terms of our orders, good customer activity in general. We estimate that, that activity continues to be on a stable level going forward. But on a, what we would say as a good level. Automation, also good activity will remain stable. Of course, there's some seasonality in Q1. We typically have a strong quarter in terms of what is received for the service and for the Automation business. However, that, of course, also went for last year, but they would still outperform this year. Maybe also just to say that short-term market outlook sort of that when we talk about this is aiming to capture sort of the underlying customer activity and it shouldn't be sort of read as our guidance in terms of our orders received because that is, of course, reflected on how well we perform, how good we are in the market in the selling process. Then lastly, maybe let's just touch when we're here on outlook on the current tariffs, briefly, at least. First and foremost, we're, of course, following very closely the U.S. tariffs as they change or any potential response from other countries. I would say, though, with thanks to our sort of global footprint and especially strong presence in the U.S., especially also in the service part. We are rather well covered. But of course, we are constantly looking at can we take and make proactive steps to protect our supply chain, our cost structure, the planned global supply chain unit that we're planning in the new operating model will be key in keeping us competitive, especially in such a sort of a lively situation as we currently experience. Second, in many areas, especially in the Process Technology, our geographical footprint is quite similar to our competitors. So we're not at any structural disadvantages there as well. We're sort of an even playing field, I would say. Thirdly, the broader question is how this uncertainty impacts the global economy, then our customers, their customers and then at that end, also Valmet. I would though say 23rd of April, I haven't really seen any sort of major changes in customer activities, so still continuing quite well. We are maybe seeing some hesitations like we've seen for the year-to-date on sort of investment decisions, including in our stable business on bigger repairs or bigger maintenance things. But this may continue to see more clarity on the overall tariff situation. I think the uncertainty is probably the worst thing, but we are clearly managing and doing our best. And I think we've got in a good position to actually manage the situation quite well. So overall, unchanged guidance, that's all for me, and I'll hand back to Pekka.

Thank you, Thomas. Thank you, Katri. Let's now move on to the Q&A section of this webcast. And as a reminder, you can post the questions throughout the online platform, and I will read them out to Thomas and Katri here. So please utilize that option as well. But first, let's go through the teleconference lines. So operator, handing over to you.

[Operator Instructions] The next question comes from Antti Kansanen from SEB.

It's Antti from SEB. A couple of questions from me, all on the Services business. First is on the Q1 margin, which was obviously strong, as you mentioned, best ever for the quarter and a big increase year-over-year. Maybe a bit color on behind the margin improvement? And should we kind of expect normal seasonality from here onwards? Or was there something extraordinary supporting the Q1?

Thanks, Antti. I think overall, Q1, as you said, a very good quarter for the service business also from a margin perspective. I think the team has done a really good job in terms of pricing being ahead of the curve. That, of course, impacts and shows in the strong market or margin. I think that's sort of actually basically the main driver behind the whole thing efficient. The volumes also coming through also helps the margin and then good pricing.

Any color on kind of the level of the price increases on a year-over-year basis?

I think it's sort of -- it depends a bit on where you are in the world, of course, and where -- what the tariffs have been, how the inflation situation have been. But I think broadly quite good overall price increases and with sort of in line or above what you would expect, hence, the improved margin.

And I guess there's nothing kind of extraordinary in terms of mix. I mean, regarding consumables versus parts versus projects type of thing that would be visible on the margin that is more of a pricing thing?

Yes. No, I wouldn't read -- there's no sort of -- I can't say these 2 things impacted its -- apart from the pricing side. It's basically sort of a relatively, in that sense, an average view of the business that you see. Not a mix change.

And of course, the strong volume as you said it really supports.

It's clear that when the volume goes up, the drop-down rate is, of course, good.

Yes.

And then also on Services and the outlook. I guess, after Q4, you had a gradually improving market activity, which is now stable. Is this just a function of kind of the comparison period? Or are you referring to maybe slower decision-making on some of the mill improvements and such. So is there any change? Or is it just a different comparison?

I mean for me, Antti, quite clear it's just sort of good Q1. I don't -- it's not a -- I don't see it as a change. It's just that we just reached a very good level, right? Good level. Stable on a good level. That's how I read it, the market currently in the yes. So I would say don't take it sort of as a downgrade on the service outlook in that sense when we say stable.

The next question comes from Mikael Doepel from Nordea.

A couple of questions. So first, coming back to your commentary, Thomas, around the tariffs. And I think you said that you haven't seen any change to the customer activity overall, but you also said there is some hesitation on bigger investment decisions. But just to be clear on that, so you have a stable outlook for Process Technologies, right? So does that mean that you don't see any hesitation currently due to the uncertainties around the potential tariffs? Or how should we read that?

In the service side or across the board, Mikael?

In Process Technologies in particular.

In Process Technologies. I think in Process Technologies, we -- sort of market is overall subdued that may be created sort of also -- then the tariff on top of that creates a bit of a longer decision-making process. So it's getting harder to predict which quarter the orders come in. I think when we look at the pipeline, it's sort of unchanged on the Process Technology part.

Okay. Okay. That's very clear. And also on the tariffs, how do you really deal with those when you agree on a project order currently? How do you kind of deal with those?

So that's...

Or let's call it the potential tariffs.

Yes, exactly. And that's why, of course, contractually, you need to have an opportunity to pass on any tariffs impact on to the customers. I mean it can -- I mean, it might be -- you're actually finalizing delivery in 18 months' time or 2 years, right? So that can, of course, have a -- a lot of things can change by then. And both we, but also the customers wanted to make sure that, that is being dealt with in a fair way so that if tariffs increases, we can pass it on. If it decreases, of course, the customer gets the benefit of that.

Yes. Okay. No, that's clear. And then just finally...

Process technology of course, right.

Yes, of course. And then just finally, on the cost savings, the EUR 80 million that you are targeting. I'm just wondering, do you have any views of what the costs will be for implementing this and how and when you will book those? And also in terms of 2025, any idea of what kind of benefits you would expect to gain from these savings to support your numbers as well as the guidance for the year?

Yes. I mean like Katri said in her, it's going to be booked in Q2.

Yes.

We're middle of the negotiations. It's progressing actually quite well, the negotiation. I think it's in a very good spirit overall. We all see the purpose of these changes. Of course a bit early to say what's the exact or sort of a rough number on that, but it is something that we will have a clear view on in Q2 and book in Q2. Katri, any further?

Yes. I think just to mention for the provision that it's going to be sizable. I think that's fair to say. But as Thomas said, the impact for this year, too early to comment. So we will definitely come back to that when we publish the second quarter results.

Yes. I think it's also important to state, Mikael, that sort of just because there's costs associated with a thing, it should not keep us from taking sort of the difficult or making the difficult decisions, right? We need to do the right thing for the company even if it has short-term cost consequences.

No, no, absolutely. That's absolutely clear. I was also thinking a bit about the -- given the fact that you expect the full run rate from the beginning of the year, EUR 80 million, just wondering how much out of that you expect to achieve in 2025? But perhaps it's too early to comment on that.

Yes.

The next question comes from Panu Laitinmäki from Danske Bank.

I have a question on the Process Technologies margin, which has been coming down sequentially for about 3 years now. How do you see this developing going forward given the order book that you have? Will it go negative before it starts to improve? And are you kind of planning to do additional cost savings in the process technologies to kind of protect the margin.

Yes. Maybe if I just give a quick comment, Katri.

Yes, you go. Sure, of course.

I mean, good question. Overall, of course, 1.5%, EUR 6 million, not something we're particularly happy or proud about. Clearly something that needs to improve. It is important, though, to sort of see this in an overall context, sales down EUR 124 million, if I remember correctly, from Q4 last year, right? So where we had 2.8% margin, there is a lot of sort of this sales volumes impact the overall margin quite a bit and actually also more than I would like. And that's also 1 of the reasons why we're taking this, the operating model change with the global supply unit we need to create a much more agile global supply chain that can actually deal with peaks and troughs in a better way.

Yes. And if I build on top of that. So of course, the current market activity, our existing portfolio. So for this year, I'm not expecting that the margin would improve from the current 3% last 12 -months level for the full year.

Okay. Then a bit related still on Process Technologies. So you had good Pulp and Energy orders, but then quite low in the Paper side. And you mentioned that the kind of pipeline is unchanged, but timing is more difficult to predict. So how do you see the Paper or kind of order intake going forward? Was this exceptionally low due to timing? Or is this more like a run rate to expect? Or what are your thoughts on that?

No, I think it's -- I mean, first and foremost, I don't think that in any quarter, you can take it as a run rate sort of really in the Process Technology in particular in the current environment, there's very sort of digital binary in terms of decision making and the size of the project. But I would say, compared to where we were looking into, let's say, 3 months ago, basically same pipeline, when it comes out, a little bit harder to predict, particularly with the global economy sort of clouds or at least fog in terms of the clarity that is there, then some customers take bolder bets. Some just want to see a little bit how it's going. But yes, I think viewed roughly unchanged in terms of the pipeline. But timing can be hard to predict, yes.

I still have 2 quick ones on Automation, if I may continue. So on Automation, you mentioned the pre-buy in Flow Control. So was this significant in the U.S. in Q1?

I wouldn't say that it was significant. It is -- we just saw that there was some visibility of potential prebuying in Flow Control in North America. But I wouldn't say it's not a big ticket item. We just want to be very transparent.

And the final 1 on Automation, you mentioned that the API profit contribution was now positive, and I think it was negative for most of last year. So can you comment on where is the margin now? How do you expect that to develop going forward?

I think the only comment for that is that it contributed positively. So we cannot give on that level comments. But actually, everything is proceeding very well with -- the carve-out was challenging, and we're happy with the work that the team has been doing there.

I just visited them actually in their -- in the Houston head office or sort of the North American headquarters in Houston where there's also some manufacturing production there a few -- a month ago, roughly. Really positive visit. I would say, I'm very happy that we made that acquisition last year, and it is trajecting in the right way. That's definitely how we see it currently.

So if you think about '25 full year, the API contributions should be clearly positive compared to what it was a year ago -- last year?

Yes, that's the expectation.

The next question comes from Johan Eliason from Kepler Cheuvreux.

It's Johan at Kepler Cheuvreux. Just coming back to your competitive picture a little bit. I mean you highlighted from a tariff situation your competitors primarily in Process Tech is basically with having the same geographic setup as you. But I was more wondering about the currency developments. We have seen a very strong appreciation of the Swedish krona. And I think you have quite significant capacities in Sweden in tissue, pulp and energy. Would you have any comments on how do you see this impacting your competitive situation going forward?

I think overall, back to it depends on if you see the North American market, the dollar swings that we've seen lately, of course, a bit hard to predict, but it is sort of what it is and you just need to manage it when we get orders, when we have currency exposure, we do tend to hedge them in order to make sure that we don't really sort of -- we're not here to take currency risk and that goes for the Swedish krona versus if we send things to South America or North America or Asia in the pulp and tissue business.

But is it fair to say that you have a bigger cost exposure to the Swedish krona than your peers in tissue and pulp, for example?

That's pretty -- I mean, you would say that's a relatively logical, what can I say, conclusion as I guess we are the only 1 who has sort of major manufacturing in Sweden, so that's clear.

But of course, it's good to remember that it's a global business. And also when we talk about project business, also the subcontracting plays role there. So it's a combination of many things.

The next question comes from Tom Skogman from Carnegie.

This is Tom from Carnegie. I have a couple of questions surrounding the new strategy. I guess we want to hear more about this in the Capital Markets Day. But is it correct to read between the lines, first of all, that there will be some larger cost cutting also when it comes to blue collars? Is that what you're trying to signal to us?

Of course, we will discuss it more when it comes to -- at the Capital Market Day in Tampere. It is clear that we need to have a more effective efficient -- we want to drive a more efficient, more effective, cost competitive global supply chain that can impact blue collars, of course, depending on how the market is, we will also need to sort of make the, what can I say, the make or buy decision is also up in the air sort of how much do you actually need to control yourself. How much can you subcontract. But I think it's important to just say that the first step on this new operating model, it is impacting white collars and not blue collars.

And you have a new Chairman. I wonder is he just kind of funding what you are proposing? Or is he very active in building the new model?

We've got 3 new members of the Board, very engaging good input from different perspectives. So of course, that's exciting. That's their full support on the operating model change. Of course, it's been intense in terms of get them up to speed on the different actions, the reasons why and what we're doing as we are doing. But of course, also getting them up to speed on the current thinking strategically so that there's full backup from the new board in -- when we're going to present to you guys in June -- on June 5. But great to have a Chairman also who has sort of a little bit of understanding the whole background of where we're coming from, also from a cultural perspective, right?

And then I guess the story has been about stability in service and automation in the last 5 years that Valmet has presented to the investors. But when I read what you are doing here, it sounds like the service business will be integrated. So I assume you will not report service profitability in the future. Is that right or wrong? And then I also wonder, why should we then not be afraid that you just start to subsidize the equipment business with service so you accept losses in the equipment business, if you don't report it because to report something externally puts some kind of pressure on organization, at least to avoid losses in a weak market?

Yes. No, good question. I think if you look at our current operating model, it is quite clear that it is quite complex, both from a customer perspective, but also from an employee perspective, right? So you have sort of basically a 3-dimensional matrix when it comes to service. So if the country is involved, the service business lines involved, the capital, the Process Technology business lies involved because they design actually the equipment which needs also to be designed to be able to service it better. I met a lot of customers, actually had few ones lately that was sort of -- even though if we discuss about very big large capital equipment, decision and order or decision making. They are already -- before that is sort of done, they're already talking about and discussing how we're going to make sure that you can service us in an effective and efficient way because, of course, they buy the equipment to maybe perform and give them an outcome over 25 years. So it's not for them just about the equipment, it's actually about making sure that we deliver that outcome that we're discussing with them that the solution can deliver also throughout the life cycle. So this closeness of integrating this for the -- seeing it from a customer perspective rather than a internal and then even maybe a market communication perspective. At the end of the day, what drives value is that we serve our customers better than competition.

Yes. Maybe just for the reporting structure, what we will report. So stay tuned, we will, of course, tell more in the CMD, it's the right timing for that.

And then finally, about sourcing from China. I mean, can you fully avoid sourcing from China in things that you sell to the U.S. market, for instance, board machines?

I think -- I mean when we look at the current economy that we have globally outside our industry as well, it is quite clear that it's -- the whole world is very, very integrated. So if you start to put tariffs up in 1 place and take sort of building blocks away of the current whole system flow of goods, it does impact somewhere, and that's, of course, it's such an integrated global economy that is. So it's hard to say that you can just do something without impacting another thing. I think that goes for everybody in this. How if it's actually possible to create a board machine without sourcing anything from China. You can probably do that. But the question is, can you win in an effective way or not.

The next question comes from Sven Weier from UBS.

It's just a follow-up, Thomas, on your earlier statements regarding market activity in South Africa -- South America, sorry, on pulp greenfields. I mean, look, when I look at the pipeline, it's a bit of a long dated one, right, with most projects probably ramping towards the end of the decade, maybe the earliest 1 making a decision on investment by the end of this year. I mean is this also generally the impression you have in the discussions that these are really early, early days and pre-engineering discussions where decision making on those greenfields or does anything be really on a 12 to, I don't know, 24-month type of view?

Thanks, Sven. Obviously, as you've done your homework, so you know that there are certain projects in the pipeline, certain customers looking for making big moves, big decisions or big investments in the area. And these are -- tend also to be, of course, longer projects, you need to have the forest, you need to plant the trees, et cetera, et cetera. But there are current -- there are certain discussions that are quite detailed as well so that the actual sort of developing the solutions is in the discussion phase, not just sort of what do we think overall, but in a quite detailed level.

And do you sense, I mean, regarding the tariff uncertainties, I mean, do you sense differences between your different customer groups, let's say, do the pulp clients, are they a little bit less sensitive to tariffs and other client groups are more worried about this? Or what do you find among your clients?

It's a good question. I think the ones I've sort of visited this year. I think it sort of -- it impacts everyone because it's just because the world has sort of become -- been put in a limbo situation, and there's very sort of little clearness of direction of travel. So that just makes people and our customers, and I think everybody's customers more or less, sort of stop up and pause and just sort of rethink what are we seeing? How can this impact? So I think it's -- I think it actually is less about the direct tariff, it's more about the global economy, how that's going to be impacted by it. And that's why it's sort of -- it's a bit across the board. Even when I meet oil and gas customers who, in North America, for example, who would you think that they are sort of say, very positive. But it's still that sort of -- yes, what's the directional travel of the global economy.

There are no more questions at this time. So I hand the conference back to the speakers.

All right. Thank you. Thank you for all the good questions to the teleconference line. So we have a couple more here in the online platform, let's take this by the order how they came here. So first 1 is from James Winchester who's asking, you kept your revenue and earnings guidance unchanged. What is your level of confidence on this given the downgrade of service activity and the high uncertainty with tariffs. So the guidance in relation to the service, the market outlook and tariffs.

Yes. As we said, we keep our guidance. I don't see the service, how -- that we're saying stable that, that's a change in the guidance. Really, it's just like we're on a good level. It is stable. That's basically in line with what we said a quarter ago where we sort of activity level increase and now they have increased, right? So it's still sort of now saying that it's on a stable level. So I don't see that part really. What was the next 1? So there was 2 questions in it.

Yes. Given also the tariffs.

Yes. So I think as we talked a lot about the tariffs. We're trying to manage the situation to the best possible really keeping our finger on the pulse, close to the customers, being with them in this time, it is about sort of the fog that the global economy is sort of creating that makes it a bit harder to predict the direction that we're traveling in. However, we stand by our guidance, right?

And maybe just to add that the order backlog to be recognized this year is EUR 2.9 billion, which is the same what we had last year. So of course, we do need orders we have book to bill, but that's a good starting point for the flat guidance.

Yes, also seeing that Automation, 14% growth in orders, 12% organically, right, for the quarter, even though that sales were minus 2%. So that actually also creates a good backlog for the coming quarters, right?

Thank you. Then a follow-up from James regarding the cash flow that was strong in Q1. So what's the expectation on cash flow for the full year?

Yes, it was really, really good outcome. So we're happy with the development and of course, supported by the positive development in the net working capital. And of course, it's our target to keep the cash conversion rate very steady. So very happy about the beginning and also for the last year's results. So there has been very good development.

I think it's also a good testament to, I mean, the relationship, the service, the delivery, that we bring to the customers that they're actually willing to pay, and we've seen net working capital coming down. So I think it is a good, strong testament to the value we bring to our customers that they're -- even in tough times, they're paying for it.

Yes.

Good. Good. And maybe to add to that, of course, on the other side, the dividend will be paid out during Q2 and then Q4, EUR 250 million about the dividend. Then to Katri question from James still on the same subject. Can you provide any color on other current liabilities, which were up a little bit sequentially.

Yes. If I remember correctly, the dividend liability is actually booked in there. So that's the change there, which was mentioned that it was EUR 249 million related to the dividends, what Pekka mentioned.

Exactly. Yes. Thanks, Katri. Then Sander Intelmann is asking what share of the business touches the U.S. and is therefore potentially exposed to tariffs?

I think it's good to remember that in the U.S., we more or less have the 2,500 people. So -- and strong service business and a lot of our service business is actually made in the U.S. or made in America, as it's called over there. So I think that sort of creates a strong foundation that we're actually standing on in our service business. So we visited API. We have manufacturing there. Of course, it comes in sort of there are parts coming from different other parts of the world where there can be -- or there will be potentially tariffs coming on, but that's all about having strong position from a value proposition perspective so that you pass on the tariffs to the customers, right.

Thank you. And then a question -- this is actually the last 1 for now. So about the organic growth in the stable business in Q1, which was 8% in Services and 12% in Automation. How would you characterize it? What share of organic growth was pricing related?

Yes. I mean, I think I said it to Antti from SEB as well. I mean pricing clearly helped the organic growth. It clearly helped the margin, but we don't sort of disclose the split of how much is driven by pricing, how much was volume, but...

And of course, it's a very normal tool for the stable business. So because of the inflation, there are always some price increases. So that's kind of a normal course of business anyway and then the tariffs.

And it's a flow business as well, right? It's a transactional business as well. It's just sort of...

Yes.

All right, fantastic. That's all from the -- from the Q&A for today. So since there are no further questions, it's time for us to start to wrap up the event of today. So thanks again for joining and for the interest for -- towards Valmet. But before we close, a quick reminder of the upcoming investor events, which were already marketed by Thomas, but most importantly, of course, we'll be hosting the Capital Markets Day on June 5, it will be live at our Tampere site, a great opportunity to hear about the renewed strategy, meet our leadership team and see the DNAe showroom demo in action. We warmly encourage you to join us there in person, Tampere is easy to reach from Helsinki and we'll be organizing also transportation from Helsinki and from the airport. So please welcome there. It's going to be an engaging day. And you can find more information and register through the investor website to the event. And of course, we will also be streaming it as a live webcast will be available for everybody also online. And then we'll be back with our Q2 results on the 23rd of July. And with that, we'll conclude today's webcast. Thank you again, and we hope to see many of you in Tampere in June.

See you soon. Thanks.

Thank you.