Valmet Oyj
OMXH:VALMT
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
21.62
29.2348
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Valmet Oyj
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and welcome to Valmet's Q1 2022 Results Publication Webcast. My name is Pekka Rouhiainen. I'm the Head of Investor Relations here at Valmet. And presenters today are Pasi Laine, President and CEO, Valmet; and Simo Saaskilahti; the Business Line President of Flow Control. [Operator Instructions] So Pasi, please.
Thank you, Pekka. Welcome as well. So the headline is today that orders received amounted to EUR 1.3 billion and comparable EBITDA to EUR 79 million in the first quarter. So then I have a little bit longer agenda today than normally.
First Q1 '22 in brief, then some words about merger with Neles. Then some words about development of segments and business lines, financial development. Then, Simo will come to talk about Neles' Q1 numbers. And then, I'll come back to the stage to talk about financial targets, guidance or short term market outlook.
So I will be presenting many slides today. So first, Q1 in brief. So our orders received totaled to EUR 1.3 billion. Net sales increased to EUR 960 million. Backlog is at a record level, a little bit over EUR 4.4 billion. Comparable EBITDA remained in euros at -- was EUR 79 million and remained at last year's level and margin was 8.3%. Gearing after the quarter was 0.
Here, the numbers more in detail. So orders received EUR 1.3 billion; net sales, EUR 960 million, comparable EBITDA EUR 79 million and that was 8.3%. And like I said, backlog in the end of the quarter was little over EUR 4.4 billion. And we employed about 14,400. In net sales, Process Technology segment, which I explain later on was 58%, Services 33%; and Automation segment, including now only the automation system numbers was 9% of the net sales.
In geographic participation or in geographical areas, Europe was about 39%; North America 18%, so quite much on the traditional level, South America 13%; China 20% and Asia-Pacific 10%. So comparing to, let's say, 1.5 years ago, of course, the Chinese volumes have been going down, but still they are at a high level.
So orders received has been growing and was nice at EUR 1.3 billion level again. And the 12 months cumulative curve is now about EUR 4.7 billion. Then stable business orders totaled about EUR 2.4 billion. And I think this is a nice graph to show. We started at EUR 1 billion level. We have been growing services from EUR 1 billion level to EUR 1.549 billion in order intake in the last 12 months. And then automation, first full year was EUR 337 million, and now the LTM is EUR 490 million, so altogether over EUR 2 billion.
It's very nice that first time ever our order intake in a stable business is over EUR 2 billion, good achievement by Services and Automation. Backlog is at record level, EUR 4.459 billion. 75% of the backlog relates to Process Technologies, 20% to Services and 5% to Automation including all of the systems business of course currently. And we are saying that about 60% of the backlog is expected to be realized as net sales during '22.
Then some words of the reasoning and merger with Neles. So like you all know, now Valmet and Neles have merged. And I'll describe the company in next 2 slides. So like you remember, in 2020, we acquired about 29.5% of the Neles shares and paid EUR 456 million, and average share price was EUR 10, 27 million. And now, the merger consideration amounted from in Valmet shares and the value was about EUR 978 million. So the total cost of Neles shares acquired by Valmet amounted in EUR 1.434 billion. So that's the total cost of the acquisition.
Now what kind of company of the merge -- so what kind of company we created. We created a company with unique competitive and balanced total offering for process industries. In paper, of course, we are strong in paper machines, board machines, [ TCU ] machines. In pulp, we can make the whole pulp mill. In energy, we have boilers and emission control.
In Services, we have technology, all the services for all the technologies. And now in Automation, we have systems. But on the top of systems, we have also the flow control offering, meaning valves, valve automation and valve controls. So the core customers we can serve with the full offering and then of course, especially automation customers.
With automation offering, we serve all the customers in process industries. But now the triangle is very strong in all the corners in Process Technologies corner, in Services and in Automation. One big change after the merger is that even if I'm very happy with this over EUR 2 billion LTM order intake in stable business, now with Neles, it would have been even higher.
So Neles order intake LTM is EUR 667 million meaning that if Valmet had been as Valmet is today, last year's order intake is stable business would have been EUR 2.7 billion. And that's of course big change compared to EUR 1 billion where from we started. So this acquisition of systems business and merger with Neles and organic growth have changed quite a lot Valmet's performance and offering.
And now like we have been telling now we have good offering in automation in -- from Neles we have, and today's flow control business line, we have valves. We have valve automation, valve controls or total offering for valve customers.
And then system side, we have distributed control systems. We have quality management systems. And we have analyzed as a measurement. So the automation product offering is now twice what it was before the merger with Neles.
Then some words about development of the segments and business lines. So starting from today, but of course including the first quarter, Valmet has changed the revenue financial reporting structure. So we have now segments, 3 segments, Services, Automation and Process Technologies segment. And out of those -- from those segments, we tell orders received, net sales, comparable EBITDA, comparable EBITDA percentage, items affecting comparability, EBITDA, EBITDA percentage and amortization.
So you will have a lot of better visibility to Valmet's performance. We'll continue to report the business lines with orders received and net sales. In Services, the numbers are the same. In Automation business, systems business line retail orders received and net sales and the same from flow controls. And these 2 together, our Automation segment and Pulp and Energy, we tell separately, paper business lines separately and then these 2 business lines together are the Process Technology segment.
So -- and then on top of that, we report in comparable EBITDA other and other items there are other items affecting comparability. So meaning that they are mainly the head office costs, which are not allocated to business lines. So I hope this change helps you to analyze Valmet's performance and helps also us to explain Valmet's performance. And I hope you see this as a positive move from Valmet's side.
I'm not going through this number because -- page because we have the same numbers later on. So in Services business line and segment here the numbers are the same. Orders received was EUR 451 million, and order intake grew by 18% compared to last year, so good growth. Last year still was of course affected by COVID. But we are very happy with the performance in services order intake.
Net sales grew also from EUR 288 million to EUR 317 million. And that's also important because of course once the services order intake is growing, then of course the net sales has to grow as well. To the profitability over last year, our EBITDA was EUR 36 million and this year EUR 30 million. So even if we had higher net sales, our profitability went down, and I'll come back to percentage later on.
In Automation, order intake was strong as well, EUR 147 million against last year's EUR 123 million. Net sales grew also to EUR 88 million comparing the last year's EUR 37 million and EBITDA improved from EUR 5 million to EUR 11 million. Last year, we had ERP project ongoing automation. So that affected the numbers a little bit. But in any case, we are now happy that Automation had a good start for the year.
In Process Technologies, the segment numbers are such that orders received for Process Technologies was EUR 727 million against last year's EUR 807 million. And I'll explain the difference from business lines.
In net sales, we grew from EUR 503 million to EUR 555 million. And EBITDA was last year, EUR 43 million and this year EUR 41 million. In Pulp and Energy, last year, we had very big order booked in orders received in the first quarter and the order was Medscheme. And order intake was very, very good. So this year, order intake was EUR 327 million. And of course, if you see that as a quarter, even if it's small, it was a good quarter for Pulp and Energy.
Net sales was developing as planned as well and ended up in EUR 276 million, an improvement almost EUR 40 million compared to last year. In Paper business line, we had, again, a strong quarter. So EUR 400 million is, of course, very strong quarter. And order intake grew by EUR 51 million compared to last year even if last year's quarter 1 was strong as well.
Net sales hasn't been developing that quickly. So our net sales was EUR 279 million, so EUR 4 million more than a year ago. Of course, it's quite a lot of discussion about the situation in Russia. So we, of course are all very upset about the war in Ukraine. And we have been supporting our employees and partners in crisis area in all the possible ways.
About 2% of our net sales came in 2021 from Russia. We, of course, make sure that we comply with all the sanctions and export regulations, which are impacting either the products, of course, country, product, customer and financing. So we are very careful that we apply with all the rules. And in practice, this means that it's very difficult to do any business anymore in Russia. We had -- we made a reversal of about EUR 70 million in our backlog. This didn't affect the order intake in quarter 1, so it was taken out from the older backlog.
And the EUR 70 million is now away from our backlog. So we estimate that it's very difficult for that backlog to materialize as net sales, so little bit simplifying the Russian business is not a big issue. The big issue is that what kind of impact all this will have to the material prices, energy prices and logistics once companies start to source everything from other origins and Russian origin. And this will, of course, make that causes big changes in the logistics change.
For us, it's not a very big issue because our procurement from Russia was very small. But of course, there are customers who are buying, for example, energy from Russia, and it will have an impact to the thing. Then, I will talk about financial numbers as well. And then later on, when we had the Question-and-Answer Session Pekka will join me. So that we are sure that we can answer your questions also from this perspective.
So if I first go through the key figures. Like I said, orders received were roughly at last year's level. Backlog has been growing by 20% compared to last year. Net sales was growing 12% compared to last year. And comparable EBITDA decreased by 1%. Comparable EBITDA percentage was last year 9.4% and now 8.3%, so declined by 1.1%.
Operating profit EUR 63 million and last year EUR 76 million. Our earnings per share was EUR 0.30; return on capital 15%, and cash flow provided by operating activities EUR 19 million, last year is EUR 148 million, and I'll say some words about that later on. And gearing was 0 compared to last year's 3. And here, the segment figures in a table. And like you have maybe noticed, you have received also today the quarterly numbers for last year. So it's easier for you to compare this year's numbers with last year's numbers.
But I have gone through all the other numbers. I focus on profitability. So in Services, last year, we made EUR 36 million, and it was 12.6%; this year EUR 30 million and 9.6%. Last year's total number was EUR 204 million and 15%. So of course, it's clear to see that our services didn't start as strong as it started last year. And of course, that's now the focus area to make sure that the performance in Services will be adequate in 2022 as well.
Automation last year EUR 5 million, this year EUR 11 million; and last year the total year EUR 79 million. Now, we started reasonably well to 12.1%, so first quarter is usually in automation a little bit slow. So this 12.1% is a good achievement comparing last year's 7.2% and last year's total profitability was 19.2%.
In Process Technologies, total year last year was 8.1%; last year first quarter 8.5% and now 7.3%. So we had a little bit lower profitability in the first quarter. And of course there continues to be a lot of work to be sure that profitability in process technologies continues on a favorable trend as well.
But all in all, I hope that these segment figures help you in analyzing the current performance and estimating the future performance of Valmet.
Our SG&A gross profit was 23% and that was of course not at the level where it has been, so LTM is now 25%, 2% down, mainly the decline was caused by increasing cost levels, both in products, but then also in direct procurement, indirect costs. So we had negative variations in both. SG&A were about EUR 20 million higher than a year ago. Part is -- of course, we have been growing. So we have a bigger amount of SG&A personnel. We have SG&A personnel salary increases, LTI and STI increases. And then, of course, traveling has started as well.
Last year, first quarter was still quite moderate when one thinks about the traveling amounts. But all in all, one can, of course, not be happy that gross profit was EUR 23 million and SG&A EUR 17 million. So the capital between is not big enough.
Then looking at the graph, how we have been developing. So now the target is officially to make 12 to 14 points EBITDA comparable EBITDA, and now the LTM is at 10.6%. Cash flow was EUR 19 million, and it's of course a lot lower than a year ago. And then, if we look at the graph, which is showing the net working capital against the orders received during the last 12 months now, we are close to 12%, where we have been seeing that the average is.
So last year, we were also saying all the time that now the net working capital is more negative than it usually is. And now we are roughly at the level where it normally is. And this has caused now that the quarter cash flow has been only EUR 19 million. So at least up to now, I haven't seen any big changes, which will cause that. So it's just that the net working capital is coming to the level where it traditionally has been.
Our net debt is EUR 3 million and then gearing is 0. So balance sheet is still strong. And equity to asset ratio has increased compared to last year, so it's 40%. Capital employed has been 24%, comparable ROCE has been 24%. And earnings per share, if I remember now correct, was EUR 0.30. So LTM is now [indiscernible] EUR 1.90.
So this was a quick overview of business performance and the numbers.
And now I'll let flow controls -- Head of Flow Controls Simo and ex-CEO of Neles to present his results.
Thank you, Pasi. So Q1 orders EUR 196 million versus EUR 154 million a year ago and sales EUR 166 million versus EUR 129 million a year ago. So I would say, volume-wise, a good start for a year. We saw growth throughout the market areas. And also looking at -- or in Neles, we are typically commenting also about how we are progressing in certain business types.
We saw good development throughout the business type. So our pulp paper orders, project orders stayed on a good level. We also saw a good development in oil and gas project orders. It is still not at the levels that it used to be, for example, in '19, but clearly moving ahead from a slow '21 or year '21.
And then our kind of more stable recurring business, our services and MRO-driven business developing positively. In addition to the good organic development, we were also now reporting first time a full quarter of [ Florex ] business that we acquired in November of last year. And there the integration of that business is moving very well. And also the orders and orders were contributing to the growth and also the kind of funnel that our teams have been able to develop is developing well. So I'm quite pleased with that development also.
That gives us a very good growth position in the growing metals and mining industry as a new area to grow in. Order backlog at the level of EUR 331 million, clearly up from a year -- a situation a year ago and also compared to the end of the year situation.
And as I said, good sales volumes and also stable kind of margins sales margins. And as you can see, improved gross profit, those were contributing that our adjusted EBITDA was on a good level 16.1%. There were no adjustment items actually in the first quarter this year or the previous year. So this is also corresponding to the kind of full EBITDA.
Cash flow was not -- was the weak point. It was not satisfactory. Main reason is that our net working capital grew and in particular, inventories -- as we have been discussing earlier, there are continue to be issues in the global logistics and electronics components. So obviously, that is impacting both margins, but in particular, net working capital as we want to be prepared. So that was Neles still in Q1 in a nutshell. And now we are the flow control business line.
In addition to the good results, I would say that also during the first quarter, the team did a lot of work to plan for the integration. And I can say that there's a good level of excitement about the merger and the opportunities that it will create for us now as part of Valmet.
So back to you, Pasi. Thank you.
Thank you, Simo. So that's good that Simo left these numbers here. I'm very happy that Neles' performance has been so good in quarter 1. So we believe the Neles is already now showing that the future flow controls will be a good business, no pressure to use more.
So here are the next topics, our financial targets, guidance and short-term market outlook. So the financial targets like as we've been saying that after the merger, we changed the targets on 2 topics.
Now, the profitability targets is that comparable EBITDA should be between 12% to 14%. And then, because of the goodwill, which will be created in the merger comparable return on capital employed target will be reduced from 20% to 15%. Otherwise, the targets will continue like they are.
So these are now the new targets. Then, guidance and short-term market outlook. So we keep the guidance what we published on April 1st at Valmet estimates that including the merger with Neles. Net sales '22 will increase in comparison with '21 and comparable EBITDA '22 will increase in comparison with '21, so no change there.
Then, if we talk a little bit about the short-term market outlook. So in Services, order intake has been good in the first quarter, and we still see a lot of activity. So we keep the outlook as good.
Automation has now 2 business lines, flow controls. We keep a good level, like you saw, Flow Controls first quarter was -- had very good order intake.
And then of course, we have to remember that there is some seasonality in the order intake. So that usually the first quarter is the highest quarter for flow controls. Simo is nodding, yes. And then Automation Systems had a good order intake and the sales activity continues at a good level as well.
Pulp continues to be good. There aren't any major developments and big pulp projects. But there are still good amount of small- to medium-sized projects where our sales teams are active. In energy, we still keep the outlook at satisfactory. But one has to say that, of course, this situation in Europe might lead to a situation that the demand for biomass boilers will increase and waste-to-energy boilers will increase.
Board and paper, order intake has been good, and business activity continues at a good level. And this year, order intake has been reasonable in first quarter, but still we keep the outlook as satisfactory. And there, the issue from our customers' perspective is that increasing gas prices are affecting especially European tissue producers and then limiting the investment willingness in that segment.
So that's the summary of guidance and short-term market outlook. And now, I assume that it's time for question and answers, and Pekka and Simo please join me here.
[Operator Instructions] Our first question is from Antti Kansanen of SEB.
Firstly, on the profitability and cost inflation, I guess, both for services and the capital businesses. Could you probably talk a little bit about how locked in are you with your pricing regarding kind of '22 deliveries and sales versus kind of unseen cost increases? You have quite long backlog. So do we just need to kind of wait until you get through that and the pricing action is on new orders? Or can you do something regarding your existing backlog as it is?
So if I start a little bit from longer term. So if we talk about the process technologies, paper and pulp and energy first. So in paper, we can -- when we make the contract, then we know quite much in detail when -- what kind of machine we are delivering because the engineering is well advanced when we make the deal.
And then a big part of the manufacturing happens in our factories. So meaning that actually we are not depending on the raw material changes. And there -- and so that's where the risk is limited. But then of course, once we have the contract, we are open for cost increases. I'm -- so of course, the cost increases will affect paper business as well. But at the same time, we have actions ongoing improving our efficiency and improving procurement savings in other topics.
So how would I say, I'm worried. But I know that our organization is doing quite good work on this topic. In Pulp and Energy, we have a situation that in pulp and energy project, the engineering is finalized, maybe 6 to 9 months after the deal is done. And then we are open for the cost changes during that time. And there, of course, we are also trying to now have contracts where we have different kind of clauses to try to save us from the material savings.
In both businesses, of course, we include when possible, some kind of indexes in our own cost calculation to take into account the raw material changes, raw material cost changes. In Services, of course, the backlog is rotating quicker. And there, we have a little bit longer -- we have longer contracts for example, for paper machine clothings where we have to make contract for 2 years with customers. And then that has a -- that kind of contracts are of course, delaying the possibility to push the prices up to the customers. But of course, we work now quite much in making sure that when the costs are increasing to us, we have to put cost pressure to our customers and not to bear it ourselves.
Yes. I mean, I know that you don't guide for the margin for this year. But I guess it's probably overly optimistic to assume that kind of on a gross margin level, you can reach the levels that you were last year, given kind of the cost inflation that is now very visible on Q1?
We are not guiding for that accuracy. But I hope the segment figures can a little bit help you in analyzing and estimating our future profitability.
Yes. The second question was actually on those ones. And I mean, thanks for the granularity for last year. But if you look at more Valmet, if there's something extraordinary on the last year's figures. I mean, I know that you've been improving profitability on group level throughout the years. But if there's something extraordinary good or maybe extraordinary weak on the last year's profitability and then kind of reflecting on the margin target 12% to 14%. Any comments on what that would look on divisional levels?
No. I think it's -- of course, we have been improving all the time. So of course, this profitability numbers were good from historical perspective, but nothing extraordinary on the profitability of any of the segments. And the same answer will be now valid as well as earlier that for Valmet to improve 1% then if only one part has to improve then it's 0.5%. And then if everybody is improving, then 1% is enough.
So of course, we continue to push the profitability up in all the segments. But nothing extraordinary in last year's numbers, except that, of course, there were record numbers, all in all in Valmet.
Okay. And last one for me is on demand. I mean, your outlook is mostly good and orders were strong in Q1. But have you seen any, let's say, softness or hesitancy in, for example, in Europe among your clients after the war and also the situation in China with the lockdowns. Has that kind of impacted any longer-term discussions or your pipeline?
Not yet. Not yet. So customer discussions have continued normally. And then in China, I'm more worried about actually then the consequence -- the consequences of the lockdowns in delivery capability and delivery accuracy. So I haven't seen that it would be a challenge to our customers to invest but more that can we keep the delivery time promises we have made. So that's our big worry currently.
Then of course, one could think that there might be some slowdown in hesitation in some decision-making in Europe because of the increasing cost level and increasing delivery times. But we haven't seen that happening yet.
Our next question is from Johan Eliason from Kepler Cheuvreux.
Johan at Kepler Cheuvreux. Coming back to these sort of restated historical margin numbers, which I obviously appreciate finally getting to see. One thing stood out in my eyes, and that was sort of the 19% margin in Automation. I remember when you acquired it from Metso, it was around 11% if I remember correctly.
So there's been a dramatic margin improvement in the automation division. What's behind that? Is there any specific changes that has happened during this year since you made this acquisition? Or -- and once again, is it sustainable? I mean, obviously, -- this implies that actually flow control is sort of dilutive to the divisional margins going forward?
No, that's exactly what we have been saying to Simo as well, so thanks for increasing that, Johan. So thanks for making my job easier. But to this automation, I think it Sakari who was running it earlier and [ Sami ] now and the management team there has been doing good work over the years.
Nothing special, just improving the sales capabilities, of course, growing the business in automation, it means a lot. So if you can grow the business. Then improving the product competitiveness introducing new products and making sure that the project execution service execution is good. So nothing spectacular, but improvement year-after-year. And I think we have been all the time saying that we are very happy with the performance of our systems business.
Then is it sustainable? That's -- let's see how it goes, but good work by automation team. Automation now have to learn to say automation system team.
Yes, correct. Now I was wondering a little bit about your equipment customers. You mentioned that, obviously, the price of energy might impact them as well going forward. But isn't there also a sourcing of wood material from Russia, for example, into the Finnish paper industry that might impact your customers negatively locally? Or how does that look like?
I don't remember now by heart the amount of wood which is coming from Russia to Finland. And of course, it's not anymore coming. And I'm sure that our customers are finding ways how to source a little bit more from Finland. So there is some potential in Finland and then, of course, importing some. And I'm quite confident that our customers will manage that.
Our next question is from Sven Weier of UBS.
The first one is coming back on the cost impact on margins in Q1. I was just wondering would you think that Q1 was the worst in terms of year-on-year impact on the margins. And it starts to improve because also your backlog starts to improve higher prices. Should we think along these lines?
Of course, we are not giving quarterly estimates. But if you look at the total number, so if we are now saying that the EBITDA will increase, then with 8.3% volume should be very high for us to say that so not giving any quarterly guidance. But of course, our target is to improve from this 8.3% level. And I'm not promising that we reached that. But of course, the target has been to improve EBITDA percentage every year, but let's see what happens this year.
Understood. And then when I think about the new divisional structure and the additional disclosure, which I also find quite helpful, so we appreciate that. Just wondering inside process technologies, I mean, should we still assume there is a big difference between pulp on the one hand, pulp and energy on the one hand and paper on the other hand? Or are they not so far apart?
That's now the total profitability we are saying, and we are not commenting on which of the business units is how much profitable because under Pulp and Energy, there are still 4 business units and then also under paper. So there are variations between those business units.
Yes. And as you said, I mean, in paper, you have much more value-added internally. So I guess that's something to keep in mind.
There is more value added in paper, but I'm not commenting the profitability.
Yes, that's fine. And then, just technically, in terms of flow control and from a Neles business, so is the former analyst entirely in Flow Control and in automation or as the service bids in the services business.
It will be entirely in flow control. There might be one little thing which is changing. But all the services are in flow control and all the products are in flow control.
And the change would be also only within Automation.
Yes, and very minor.
Okay, makes sense. And the final question I also was just on the CFO announcement from Katri. I mean you said it's an interim solution. I was just wondering why it's not a permanent solution.
That's good because I forgot to mention this very important news. So thanks for making the question. So like you know, Kari has resigned, and that's why Kari is not here today either. And then of course, we have to look -- find solutions how to go forward. We have good internal candidates many, Katri is one of them. Katri has been now nominated for the intermediate position. And then, of course, a big company like Valmet has to look at the total market. So of course, we are looking also what kind of capabilities and persons that would be available from external markets.
And because we want to make this process thoroughly, then, we needed an intermediate solution. We asked Katri and Katri has a long background in Valmet started in 2006, has Master of Economics Degree from the Vascular University, has been working in our Route Bose unit, has been working in our services, has been working in our Asia-Pacific as Head of Asia-Pacific controlling, and then currently is working as Head of Finance and Controlling in Pulp and Energy business line.
So she has very good versatile background of many businesses in Valmet. And that's why we asked Katri to take this challenge as intermediate CFO, and she accepted it. So I'm very happy that Katri accepted our wish for her to be the intermediate CFO. And she is not today here because she is now in Brazil, and physically, it's difficult to be in Brazil and Finland at the same time.
So when I summarize what you just said, it doesn't rule out that she also becomes the permanent CFO?
We have internal and external candidates.
Our next question is from Peter Testa of One Investments.
I have a couple. I'll go one at a time, please. Just on the service margin, and I was trying to understand how the component factor works through the intake and the forward margin.
I mean just conceptually, if you look at the speed of turnover, you have some contracts which are longer in the paper business. But mostly the business, including there also some significant short-term business that comes in as well. Can you just give us some understanding as to how quickly the re-pricing of the service backlog can or should happen in aggregate?
So roughly, we are saying now that 20% of the backlog is coming from Services. And then, roughly 20% is in rough terms, EUR 900 million. And then, if the services revenue is somewhere EUR 1.4 billion, EUR 1.6 billion then you can start to calculate how quickly that turns.
Then, in business units, if you take spare parts there, of course, the rotation is the quickest, when comes roll services, then comes fabrics. Okay, that's difficult because there, you have long-term contracts and then short-term purchases. And then a little bit more project type of businesses, Pulp and Energy Solutions and paper and tissue board and tissue solutions have a little bit longer backlog.
So it varies a little bit business to business. But if you calculate EUR 900 million out of EUR 1.4 billion, then you get somewhere to 6 months, 7 months. And then, part of backlog is turning quicker part is turning slow.
Yes. And you've been talking about the inflation environment for some time. So when you look at intake and services in Q4, maybe even before, were you already moving pricing on service intake at that stage to be able to take a view of what you've been saying generally that there would be inflation?
We started some actions in quarter 3 already in some of the units. But then one has to accept that not good enough actions and not in all the units, so some of our areas started to react to inflation already in quarter 3, but unlikely not all.
Okay. And your longer-term contracts and service, do they tend to re-price on a sort of rolling basis? Or do they really stay similar price for the whole period?
We have some fixed prices for paper machine clothing and of course, we try to talk with our customers if there would be some flexibility on the pricing. So we do all the possible actions to increase the prices where necessary.
Okay. And then just on the process tech part, do you have some of the larger capital projects and some smaller ones? I was wondering on the larger capital projects, whether you were just taking a general view on the cost to deliver these projects. And therefore, this is kind of through the delivery margin adjustment starting in Q1? Or is there something more nuanced than on that?
So we are not guiding the profitability of process technology. But let's answer that way that last year, the total year, I remember now correctly, it was 8.1%. And this year, the first quarter was 7.3%. So once you start to see more quarters, you will be used to the situation that there are quarterly variations in our process technology profitability.
Yes. Okay. But I just didn't know whether you just were taking a view that the cost inflation the way you can book through the life of the project is that based upon total project profitability, and I didn't know whether there's a kind of kind of over the project adjustment or whether it depends on phasing and timing of how much is booked in some quarters are up and down. So you'll see that on the cost base, the different booking.
So of course, if we see that there is a cost increase in approach, then we reduced the margin and then we are booking that with a lower margin, and then it has also impacted the past. So then we have to re-correct the correct that project. But all our projects are booked according to current customer and cost level understanding.
Yes. Okay. And then the last question is just on the intake margin. If you look at the intake margin on the process technology business, to what extent given your comment earlier about some of these, you have still some engineering phases to do before you finalize. To what extent is the intake margin we're seeing reflecting current situation? Or is there still some adjustment to make? And as you finalize some of the pulp and energy orders for example?
Of course, the current order intake after the war has started has been quite small. So even if the orders have been booked in quarter 1, then some were booked in January, some in February. And then in March, we have seen a cost increase. So the project we have practically negotiated and booked all 3 war orders.
[Operator Instructions] Our next question is from Johan Eliason from Kepler Cheuvreux. I believe Johan has accidently hang up. So there are no further questions at this time. So I'll hand back over to our speakers.
Thank you. So thank you for listening, and Pekka and Simo, thank you for supporting me.
Thank you. Now you can close.
Yes. And then we'll have the second quarter report out on the 27th of July. So see everybody then again.
Okay. Good. Thank you.