Valmet Oyj (VALMT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Valmet's Second Quarter 2026 Results Webcast. I'm Pekka Rouhiainen from Investor Relations. And with me today are Valmet's President and CEO, Thomas Hinnerskov; and our CFO, Katri Hokkanen. Before we begin, I would like to briefly mention the separate stock exchange release we published this morning. Valmet's Board of Directors has initiated a strategic review regarding a potential separation of the company's 2 business segments: Biomaterials Solutions and Services and Process Performance Solutions into 2 stand-alone publicly listed companies. We are pleased to be able to share this important strategic step with you today. Next, Thomas will start by discussing the continued strategic development of Valmet, including the recently completed Severn acquisition and the strengthening of our Process Performance Solutions business. He'll explain how these developments have led to the strategic review we announced today. He will then move on to review the key highlights and operational performance for the second quarter and Katri will cover the financial development in more detail, after which Thomas will return to discuss our guidance and market outlook. As usual, you may submit written questions through the webcast platform at any time, and we will then also open up the lines for Q&A. But with that, Thomas, the floor is yours.

Thank you, Pekka. As mentioned, I'll start by discussing the recent Severn acquisition and how we are continuously strategically developing Valmet's portfolio. Before turning to those topics, however, let me just make 1 comment shortly on our Q2 performance. For me, the second quarter, which was relatively strong in terms of net sales and comparable EBITDA and also order intake showed that Valmet continues to move in the right direction. Our strategic actions, our delivering results, our competitiveness remains strong, and we continue to strengthen the company for the long term. While I'll come back to our Q2 performance in more detail shortly, the strength of those results provides an important context for the strategic step that we announced earlier this morning. Now with that, let me begin with Severn. As you all know, on July 1, we successfully completed the acquisition of Severn and welcomed approximately 950 new colleagues to Valmet. It was really great to be in Houston on the day, meeting colleagues there, having the opportunity to talk to many of them in person and also walking the shop floor there. Severn is a well-established industrial valve company specializing in severe service flow control solution. Severn generated approximately EUR 205 million of net sales in 2025 with an EBITDA margin of around 16%. The business has an excellent strategic fit and also cultural fit with Valmet and brings valuable technology expertise and customer relationships to Valmet. So we're extremely happy to be able to start working with our new colleagues and customers. It's important to highlight how Severn acquisition strengthen our Process Performance Solutions segment and accelerates Valmet's growth beyond the traditional biomaterial markets. Severn expand our addressable market, increase our installed base, create new opportunities in life cycle services and aftermarket business. With the acquired business included our Process Performance Solutions segment, annual net sales will now be approximately EUR 1.7 billion on an annual basis. At this scale, we can respond faster to customers wherever they operate and invest more or invest with more conviction in the technology and service capabilities they need. In fact, during the first week since the closing, we've already seen significant interest from new kinds of customers towards the process performance portfolio. And not just towards flow control, but also towards our broader portfolio, including automation solutions. That leaves us today and today's strategic announcement which Pekka mentioned earlier. As highlighted by the Severn acquisition, Process Performance Solutions has indeed developed into a large, highly profitable business. Together with the strong Biomaterial Solutions and Services, this has led us to ask ourselves the important strategic question. Could these 2 businesses create even more value for shareholders as independent companies than they can together? To really look into this question, we have decided to initiate a strategic review to evaluate a potential separation of Biomaterial Solutions and Services and Process Performance Solutions into 2 stand-alone publicly listed companies. Let me emphasize one point immediately. Today's announcement is about initiating every view. No decision has been made to implement a separation. There's no certainty that the review will lead or result in a transaction or a structural change. The purpose of the review is solely to assess where that separation could create additional long-term shareholder value compared to with the current combined structure. We expect to have an update no later than in connection with the publication of our full year 2026 results. Now let me explain further why we believe this is the right time to start this review. The automation business we acquired in 2015 was highly complementary to Valmet's core Biomaterial business at the time. Back then, around 80% of the business came from Valmet's traditional customer industries, making the industrial logic and customer synergies very strong. Over the past decade, through successful execution, organic growth and strategic acquisitions, we've transformed that business substantially. Today, Process Performance Solutions is no longer primarily an automation business, servicing pulp and paper customers, but instead includes equally strong automation and flow control businesses servicing a versatile group of customers. In fact, currently, of the 70% of the segment's order intake come from industries outside pulp and paper. Many of them linked to long-term trends such as energy transition, industrial efficiency, and digitalization. This is a significant shift and discuss the acquisition of Severn further strengthen these characteristics. At the same time, the Process Performance Solutions segment has developed into a major earnings engine in its own right. Today, this segment generates more than EUR 300 million of comparable EBITDA on an annualized basis and contributed nearly half of Valmet's total comparable EBITDA. In other words, what started as a highly complementary business supporting Valmet's core biomaterial offering has evolved into a scaled high-margin growth platform with its own attractive end markets, growth drivers and value creation opportunities. As a result, Valmet today consists of 2 large profitable businesses with strong market position and the scale to succeed independent. On the left, Process Performance Solution, as discussed earlier, this business has grown significantly in scale, profitability and strategic importance. It serves a diversified base of industries with mission-critical automation and flow control solutions. And close to 70% of order intake already comes from outside the pulp and paper industry. Then on the right, Biomaterials Solutions and Services, this traditional part of Valmet business has also created substantial value over time. Since Valmet was formed in 2014, it's net sales has grown from EUR 2.5 billion to nearly EUR 4 billion. And the share of services has increased to 55%. This marks a clear shift towards a more resilient service-led business with a high level of recurring revenue. At the same time, our margins have improved from around 2% to close to 10%. Importantly, we're not standing still in today's softer market environment. In fact, peers like this are often the best time to drive meaningful change. Through the operating model renewal, the global supply transformation, we are strengthening customer proximity, increasing our focus on aftermarket opportunities, improving in procurement and optimizing our manufacturing footprint. These actions are already visible in the steps we've taken, including the facility closures announced earlier this year in both Europe and China. They position us to emerge stronger, gain market share in service and continue improving profitability as market conditions recover. Today, Biomaterials Solutions and Services is a global technology leader, life cycle service leader, servicing customers across pulp, board, paper, tissue as well as energy. We are at the core of our customers' operation. From the niche technology investments to decades of life cycle services, we help keep their production running safely, efficiently and competitively every day. That gives us the confidence in the future is that we are building on an already strong foundation. We've strengthened the business significantly over the last decade, and we are taking further actions today to increase customer proximity, grow service, and improve profitability. We believe the next chapter is still ahead of us. In conclusion, this review reflects the fact that both businesses have developed into a strong and successful operations with distinct business model, growth opportunities and capital allocation profiles. This naturally leads to the question of where additional value creation might come from. At this stage, we see 3 potential areas where separation could add and create additional shareholder value. First, more focused strategies. Each business operates in different competitive environment, serve different customer needs and pursues somewhat different growth opportunities. Greater independence may allow each businesses to make their own decision entirely based on its own priorities and market dynamics. Second, more tailored capital allocation. The business have different investment requirements and different opportunities for both organic and inorganic growth. Also, as we highlighted in our Capital Market Day last year, the M&A potential is clearly high in PPS with focus on opportunities outside of the pulp and paper industry, as separation may allow each company to allocate capital in a more targeted way aligned with its own economics and strategic priorities. Third, clear accountability and investment propositions. Separate management teams, Boards and capital allocation frameworks could improve transparency and allow investors to assess each company against the performing drivers most relevant to that business. At the same time, we do recognize that a potential separation would also involve costs and other impacts. That is exactly why we are conducting a comprehensive review rather than making a decision today. We'll only see it if the review demonstrate that the long-term benefits clearly outweigh the cost, complexity and execution risk associated with such a separation. Finally, one more important note around today's announcement. Nothing changes for our customers, our employees or our day-to-day operation. Business continues as normal. The review does not change our strategy. Customer commitments, deliveries, projects and services remain unchanged, and our teams remain fully focused on executing and servicing our customers. In a separation, where if a separation were eventually pursued, one of the key objectives would be to preserve that customer about. This will remain an important consideration throughout the review process. The strategic financial and operational implications of a potential separation will now be assessed carefully. The Board will only move forward if there's a clear evidence of an enhanced shareholder value creation. With that background, we can now turn to our second quarter performance. We will get back to the strategic review in due time. Now the first part of the presentation focused on strategic development of Valmet, the quarter in itself clearly demonstrate the benefits of the strategic actions we have already taken over the past year. First of all, the decisive action we took last year to strengthen Valmet's competitiveness have continued to deliver during the quarter. Net sales increased 6% organically and comparable EBITA increased to EUR 152 million. Comparable EBITA margin remained stable at 11.5%, supported by higher net sales and cost savings. On a year-to-date basis, comparable EBITA is now slightly ahead of last year, demonstrating the resilience of our full year trajectory, despite the softer start to 2026. Orders received totaled close to EUR 1.4 billion, while orders did decrease 9% from the comparison period, which was mainly driven by capital project order intake in the Biomaterials Solutions and Services segment, orders increased sequentially from Q1 and were at a solid level. While uncertainty remains in the market, we saw some early signs of stabilization in the Biomaterial Solutions and Services during the quarter. Capital project activity improved sequentially from an unusual low level seen in Q1, while the service market remains soft, but did show signs of stabilization. While this is a positive development, it's important to note that the timing of large customer investment decisions continues to have a significant impact on quarterly activity. And we would not yet characterize this as a sort of definitive market turning point. Process Performance Solutions continued to perform well, continues to deliver resilient growth and strong profitability. And as I just briefly explained, the successful completion of the Severn acquisition marked another important step forward in strengthening our Process Performance Solutions business and long-term earnings profile. Based on our first half performance and current visibility, we reiterate our guidance for 2026. Looking then at the orders received, orders amounted to EUR 1.4 billion, decreased 9% organically compared to a strong comparison period last year. Despite the year-on-year decline, EUR 1.4 billion do represent a solid level of order intake in the current market environment. While orders included 1 single triple-digit order, overall order intake was quite broad-based. Orders include several midsized capital orders across geographies, across customer industries, demonstrating the breadth of our offering and customer base. With that, let's take a closer look at the segment performance. Turning to Process Performance Solutions. We delivered another solid quarter. Orders increased organically by 1%, with similar development in both automation solutions and flow control. This reflects the resilience of the business and the benefits of our broad industry exposure. With flow control, demand remained healthy across several customer segments and automation solutions continue to see especially good activity in the marine segment with notable new wins. Net sales remained at previous year's level. Flow control continues to grow, while automation solutions was lower than the comparison period. Comparable EBITA increased to EUR 69 million, and the margin improved to 18.7%. The profitability will remain high -- at a high level and was supported by strong operational execution. While we're very pleased with the current performance, our focus is not on maximizing short-term margins. We continue to invest selectively in growth opportunities within Process Performance Solutions. The recent acquisition of Severn is a good example of this approach. The transaction is primarily a growth and strategic position opportunity and not a cost synergy case. Our focusing on expanding our market reach, installed base and long-term growth opportunities while maintaining attractive profitability in the business. But there were some positive sequential signs the capital projects. Large project orders increased to EUR 501 million from the first quarter, supporting our view that Q1 represented an unusual low level of capital project activity. However, while Q2 was a clear improvement. As I noted earlier, the timing of customer investment decision continues to have a significant impact on individual quarters going forward. As Biomaterial Services orders declined 8%, the overall market remains soft, but consumables and performance parts held up relatively well in our largest markets, North America and EMEA. Mill improvements and field service decreased from the comparison period, which was strong in those categories last year. Overall, I would say that we do see some encouraging signs in customer activity, also in services. One element was the stabilization of consumable orders after several weaker quarters. There are indications that some customers are now gradually shifting focus from cost containment back towards operational performance and maintenance needs. However, it is still too early to characterize this as a broader market recovery. Net sales increased 8% organically, supported by a higher share of large projects and smaller mill improvement projects. Comparable EBITA improved to EUR 98 million, and the margin increased to 10.4%, supported by the higher net sales. We continue to see benefits from the actions taken during the past year, the operating renewal, ongoing footprint optimization and broader cost discipline measures are improving competitiveness and supporting profitability even as market conditions remains mixed. With that, let me hand over to Katri to take a closer look at the financial development.

Thank you, Thomas, and good morning, everyone, also from my behalf. Happy to be here today. I will start with the group level development of net sales and profitability. Net sales increased 6% year-on-year to EUR 1.3 billion. Currencies or M&A did not have impact in the figures materially, and organic growth was also 6%. The increase was driven by Biomaterials Solutions and Services, where net sales grew due to higher activity in large projects, including a good development in the landmark Arauco project. Process Performance Solutions' net sales remained at the previous year's level. Comparable EBITA increased by EUR 9 million to EUR 152 million, from the EUR 143 million in the comparison period. The comparable EBITA margin remained at 11.5%. Higher net sales together with continued cost savings from the operating model renewal supported the earnings development during the quarter. And like we staple in the graphs, Q2 followed a rather typical seasonal pattern and sequentially, both net sales and comparable EBITA increased from the first quarter. Overall, the quarter demonstrates that the actions taken over the past year continue to support the profitability even in a market environment where customer decision-making remains cautious. Let's then take a look at how our cost base has developed in recent years. The benefits from the operating model renewal continue to be clearly visible in our cost base. On a last 12-month basis, comparable SG&A expenses have decreased to EUR 905 million. Compared with the 2024 baseline year, SG&A expenses are now EUR 79 million lower. As a share of net sales, SG&A has improved from 18.4% to 17%. Importantly, these results reflect more than just cost reductions. The operating model renewal was designed to simplify the organization, improve accountability and bring us closer to customers through a stronger life cycle focus. The lower cost base is, therefore, a result of structural improvements in how we operate the business rather than just short-term cost cutting. Order backlog amounted to EUR 4.3 billion at the end of the second quarter, compared with year-end 2025, the backlog was EUR 47 million lower, but remained at a healthy level. Approximately EUR 2.2 billion of the current backlog is expected to be recognized as net sales during 2026 based on our current delivery schedules. The backlog continues to provide good visibility for deliveries and supports our execution plans for the remainder of the year. As always, our focus remains on disciplined project execution, profitability and cash generation. With that, let's now turn to cash flow development. Cash flow from operating activities was EUR 65 million in the second quarter compared with EUR 79 million in the comparison period. The decrease was mainly related to higher net working capital. Reported net working capital included a EUR 123 million dividend liability that has no cash flow impact. Excluding this liability, net working capital was EUR 154 million higher than at the end of 2025. The development was mainly driven by project timing and phasing effects which are typical in our business. Comparable cash conversion on a last 12 months basis was 62%. While below our historical average, it is important to remember that quarterly fluctuation in working capital and cash flow are normal in Valmet, due to the project-driven nature of the business. We continue to expect cash conversion to improve during the year, supported by normal project pacing and disciplined working capital management, while quarterly fluctuation can remain significant. The balance sheet remains strong. At the end of the quarter, net debt was EUR 965 million and gearing stood at 39% compared with the 42% a year earlier. Net debt-to-EBITDA improved further to 1.42 billion from 1.60 in the comparison period. The average interest rate of our debt remained stable at 3.6% and liquidity was strong with EUR 584 million in cash and cash equivalents at quarter end. In addition, our EUR 450 million revolving credit facility was fully undrawn. This balance sheet strength provided the financial flexibility needed to complete the Severn acquisition immediately after the reporting period, and this will have approximately 15 percentage point impact to the gearing. We are comfortable with that level given the strong cash conversion ratio our business inherently has. Comparable ROCE improved to 13.5% from 13.1% in the comparison period and 12.7% in 2024. As shown in the graph, capital employed decreased by around EUR 79 million compared with 2024. While we remain below our long-term ROCE target, the direction of development continues to be positive. Adjusted earnings per share increased to EUR 0.47 from EUR 0.23 in the comparison period. The increase in both reported and adjusted earnings per share mainly reflects the restructuring expenses related to the operating model renewal that impacted the comparison period. This slide summarizes the main financial figures for the quarter, and most of these items have already been covered, but I would like to highlight 2 additional observations. First, items affecting comparability amounted to minus EUR 1 million during the quarter compared with minus SEK 62 million in the comparison period. And last year's figure was mainly related to restructuring expenses of the operating model renewal. Secondly, the effective tax rate was 34.7% in the second quarter, which is above our long-term average level. Valmet's tax rate typically fluctuates between quarters due to profit mix and timing effects. And as a result, the second quarter level should not be considered indicative of a normal quarterly tax rate going forward. Our long-term average effective tax rate is approximately 25% which we expect also going forward. In summary, the second quarter demonstrated continued benefits from our operating model renewal, supported by higher net sales and solid operational execution. With that, I hand it back to Thomas to go through the guidance and short-term market outlook.

Thanks, Katri. Let me now move to our guidance and short-term market outlook. We reiterate our guidance for 2026, like I said earlier, Valmet continues to estimate that net sales in 2026 will remain at the previous year's level, and then comparable EBITA will remain at previous year's level or increase compared to 2025. Turning then to our market outlook. For Process Performance Solutions, we continue to expect the market will remain at low year-on-year growth. The segment has demonstrated good resilience throughout the first half of the year. At the same time, uncertainty related to the geopolitical situation and global economic outlook remains elevated and continues to reduce short-term visibility. For Biomaterial Solutions and Services, we estimate that market activity will remain similar to the second quarter. We were encouraged by the improvement in cancer project activity compared to the first quarter. However, timing of large customer investment decisions continue to have a significant impact on activity levels in individual quarters. The Biomaterials Services market is expected to remain soft in the coming quarters, but the overall market appears to be stabilizing compared to the beginning of the year. Overall, the external environment remains uncertain with low visibility. As we look at the remainder of the year, it's worth noting that year-to-date comparable EBITA is already slightly ahead of last year. In addition, Severn will provide a modest contribution following the closing of the acquisition. At the same time, capability continues to depend heavily on service activity where market uncertainty remains. Overall, our large installed base, strong life cycle offering, disciplined execution and the addition of Severn provides a solid foundation as we move into the second half of the year. Before I conclude, let me comment on another important announcement we made this morning. As you know, we announced earlier that -- earlier this year that Katri would be leaving Valmet. And since then, we've conducted a thorough search process with a number of strong candidates. I'm very pleased that the pros have resulted in the appointment of Pia Aaltonen-Forsell as Valmet's next CFO. Pia clearly brings demonstrated, broad financial experience, and experience from leading complex global organizations. We believe she is an excellent fit for Valmet and for the next phase of our development. Pia is expected to join Valmet no later than the end of January 2027. We look very much forward to welcome Pia to Valmet and to introducing her to many of you next year. Until Pia joins, we are naturally in the process of appointing an interim CFO, and we expect to be able to announce that during August. With that, let me conclude today with 3 key messages. First, our performance in the second quarter demonstrates that the action we have taken continues to deliver. Our competitiveness remains strong, profitability improved, and we continue to strengthen Valmet for the long term. Second, both our businesses have developed into strong, increasingly distinct platforms. Process Performance Solutions have evolved into a scale business of approximately EUR 1.7 billion in net sales with growing exposure to industry is critical for the energy transition while Biomaterials and Services continue to hold a leading position in its markets and also offer significant long-term value potential -- value creation potential. Thirdly, today's announcement reflects the significant progress both businesses have made. The strategic view is tends to assess how that progress and future potential can best be translated into long-term shareholder value and we'll get back to this. At the same time, our day-to-day priorities remained unchanged, servicing our customers, executing our strategy and delivering profitable growth. So with that, Pekka, I'm going to hand back to you.

Thank you, Thomas and Katri for the presentations, and we now move to the Q&A session. And as usual, you may ask questions either through the webcast platform, in the written format or through the conference call line. So we have a question here from -- 2 questions here. First, from [ Christian Nucord. ] Thank you, Christian, for the question. So I'll read it here. At the Q1 call, you said that the expected Process Performance Solutions margins will decline in order to invest back into growth. However, the Q1 margin increased. Do you still expect lower margin for the rest of the year?

Yes. A very good question, Christian. I mean, overall, we are very happy with the PPS performance, and they continue to deliver strong operational performance. During the first half, profitability has also been supported by sort of elevated product margins. What really is important in that business is, happy with the level of profitability, and we really want to sort of make sure that we push the growth accelerator on that one, and that's why we want to sort of keep always looking for potential investment into organic growth. This year has maybe been sort of some of these growth investments may be been, what to say, set back slightly due to some of the geopolitical tension that was created early on in the year.

Thank you, Thomas. Then another one, anonymous question. Is the main reason behind leading up the splitting up the persistent low multiples of the group?

Yes. Good question. I mean, like we said in -- also in this presentation, we've developed over the years, two very strong segments. We introduced in the segment last year on our Capital Market. Now it really is about how can we position these structurally to be in the best position to development. Important to note is, now they're actually so that they are servicing different customer segments to a very large extent, only 1/3 of the customer segments are overlapping, right? It's also clear that both of the 2 different platforms have different growth agendas. One is much more, which is the PPS business. [indiscernible] that's where we're looking into M&A inorganic growth. Serven is a good example of that. So that means that the capital allocation for these 2 segments is going to be different going forward. Then as a third point, there can also be a point in this, would a separation make it a simpler equity story with dedicated KPIs for these 2 different segments in order to actually follow and evaluate are they executing the strategy as communicated.

Great. Thank you, Thomas. Now that's all from the written format. Operator, handing over to you.

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

A couple of questions from me. I'll take them one-by-one. And I will start one regarding the potential separation of the 2 divisions. So Thomas, could you maybe talk a little bit about the synergies between the automation systems business and the flow business within the PPS in terms of shared client base, R&D and then contrast to kind of what type of synergies the automation business and the pulp and paper equipment business actually have had historically in terms of if these businesses end up under a separate company going forward?

Yes. Great. Great, thanks for having -- great to have you on the call, Antti. Let me just write down. So synergies -- so the synergies within PPS between automation solutions and flow control, that's the clear customer overlap in that. And also even since we launched the strategy in the new structure last year at the Capital Market Day in June last year, we've even sort of gone further into that as part of also our commercial excellence efforts and looking so that there's a greater actually customer overlap than probably what we initially thought. So that's clearly sort of a top line synergy between the 2 within the PPS. Then between PPS and Bio, I think it's important to note that just like I also said earlier today is that we started out to have a very, very strong industrial logic to actually put automation into the Bio business. The fact is now that the overall PPS business have been gone from actually being 80-plus percent, Biomaterial customers to now be less than 1/3 of the Biomaterial customers. It is, of course, important also to note that, and I guess maybe that's a little bit what you allude to is that there is -- there's also a strength in some of that automation into the Bio. And that's, of course, one of the things that this strategic review needs to assess is, what is the dis-synergy there, and how do we actually preserve that strength from a customer value proposition perspective.

I know that it's early days in -- regarding kind of the strategic review, but how should we think about in terms of the structure? Would they outcome where you would separate only the flow control business out of the remainder? Or would that be a possibility? Or is it just a binary of PPS, Bio or just remaining as a with the current structure?

Yes. What we clearly are looking into is looking -- taking the 2 segments which are very strong individual in itself, and they are based close to 50%, 50% of the bottom line and looking into would it make more sense to have them as 2 separate listed public companies. So the purpose is to keep flow and automation together if such a separation should occur. That's the hypothesis.

All right. That's very clear. Then a couple of questions on the actual Q2 performance. And maybe on the Biomaterials Service demand, I mean you're flagging what stable parts of the transactional parts and consumables demand, but reduction on the field and mill improvement side. So is this just a function of certain Q2 comps? Or how would you comment on the market outlook for a different type of service elements within the buyer?

Yes. I think it's a great reflection, Antti. This is -- how I would think about is basically twofold. First of all, we've had a number of quarters with soft or particularly soften declining parts and consumables. Great to see that that's coming back on a more normalized levels. I think it also shows that customers are getting back to sort of we need to operate efficiently. That is the only way to really stay competitive in the market. Then on the improvement of mill improvement projects, it's also clear that the first half last year was particularly strong in those. We really had a year where there was lots of customer focus on this. Now in particular, maybe in China and Latin America, we see very little activity on the sort of the large mill improvement and a strong focus instead on the capital of bigger capital projects. So I would sort of interpret market wise, there's a little of preservation of CapEx going into -- in these 2 areas going into large capital project rather than the larger improvement projects.

All right. And then the last one for me is regarding kind of the earnings outlook on the second half where you are essentially guiding flat to growing earnings. And could you maybe talk a little bit about on the contribution of Severn in terms of any seasonality on the business? And any kind of integration, let's say, headwinds that maybe would kind of curtail the earnings contribution in third and fourth quarter?

Yes. Severn, as I said, we're very happy with the Severn acquisition. It will give us a slight tailwind going into the second half. It's hard to talk at this stage, we're very early in the integration. So far, we don't see sort of bigger seasonality in that business. It's also important to remember, it actually consists of 3 businesses with different industrial focuses. Then also -- they are also impacted of the geopolitical situation, particularly in the Middle East currently. But some slight tailwind there going into the second half, but difficult to talk about the actual seasonality in that business at current.

The next question comes from Panu Laitinmaki from Danske Bank.

I have 2. Firstly, on the strategic review. I understand you have only just announced it, but can I ask about the potential kind of negative synergies in terms of group costs? So if you separate that to what kind of additional costs should we assume for the new business? Like is the kind of current group sales-to-sales percentage, a good guide for that? Or any comments around that?

Yes, Panu, as you sort of also alluded to in the beginning of your question, it is very early days on that. So far, we said we are initiating the strategic review. Part of that is, of course, also to look in what are potential dissynergies on that, including a group cost structure. But I think just like we've, what to say, we've shown the last 12 months at least, we are going into a much leaner or sort of committed to driving a very lean organization. You saw from Katri's presentation, EUR 79 million less SG&A cost versus EUR 24 million. So it's a focus area. How much it will be, that's if we should come back and say, this is what we're going to do, there'll of course be more information on that topic.

Okay. Secondly, on Q2 performance in the Biomaterials, so it was quite a bit better than Q1. So could you kind of describe what drove the delta? Was it positive growth in services compared to Q1 or was it more cost savings coming through or something with the equipment projects?

Yes. Generally, strong execution. Of course, services came out stronger, especially on parts and consumables which drive good bottom line, so a little bit better service mix than in Q1 this year. So that, of course, helped also some of the cost measures also coming through on that. We also executed quite, what to say, an accelerate on some of the capital projects, Arauco being one of them, making sure that we're actually getting ahead of the curve there to finalize that next year. So strong delivery on project side, a slightly better mix and on the service side and some growth on the consumables, and then cost containment, I would say as well. You also will know that we said in June that we would be doing some temp layoffs here in Finland, in particular. And that also given a little bit of of tailwinds in June, but the main part of that will actually be coming in the second half.

Okay. Can I just ask as a follow-up. Was there something unusual in Arauco kind of deliveries between Q1 and Q2 that Q1 was a bit weaker and then Q2 stronger. So just thinking like is the run rate something in between of those or? We're thinking of what...

No, no, not really. We've just been very, sort of, keen on constantly staying ahead of the curve on that one.

The next question comes from Sven Weier from UBS.

The first two are also on the potential breakup. I was just wondering what drove the timing of the announcement? Because typically, these processes go become a bit of more an active shareholder who asked for these things and then this happens, but you guys seem to be more proactive. And -- but it also sends more shareholder pressure in the last couple of months to do this. So what really drove the timing and the general decision to do the strategic review?

Yes. Thanks, Sven. I mean clearly, like I said, it -- last year, we came out with the Capital Market Day. We sort of split the business into 2 different segments, the Biomaterials segment, and Process Performance segment. We then executed this -- we've looked more into inorganic growth as well and we now executed the Severn acquisition. So it's sort of a very natural point in saying, we have 2 very strong segments, both on their own, of course, also together. So now just to go take time to sort of take a step back in the whole and ask a strategic question to yourself is, would these 2 segments be stronger and easier and better developed as stand-alone? Or is the current structure actually a good setup for developing these 2 segments? So it's just a natural progression of the strategic thinking from management and the Board.

So it was not really that during investor meetings in the last couple of months that there was an increasing kind of shareholder pressure to do this?

No. I mean we're hired to make sure we run the business in the best possible way, and that's where we need to take care of our developed shareholder value, but also deliver to our customers the best, strongest value proposition, right? So that's -- that's what it's all about.

And I also had a similar question to Antti, regarding the synergies between the automation business and the pulp and paper machinery business, because when you guys bought the business more than 10 years ago, I thought there was a strong business logic to do this. We could probably ask you [ Metso ] should have never spun this -- spun-off environment without and also given that Andres has this as an integral part of their offering. So -- but I did understand it correctly that having a spin-off of Neles alone is not an option. So either they go together or you keep the structure as it is.

Yes, I think that that's -- if you -- there's 2 ways of looking at it, Sven, that's what, of course, goes into the review. One is how to preserve that offering in the Biomaterial Services or Solutions and Services, with the automation, how do we actually -- can we create that and preserve that at an arm's length basis. That's one part. The other part is also that to your second part, which is that there are also synergies between flow control and automation. And there's a much stronger overlap there in the customer segments or customer industries that they're serving then into the biomaterials, which is now less than 1/3 of the overall PPS business.

A final question I have is just on the competitive environment on the board machine side because, obviously, we saw now for the first time that Andreas won a huge project in Africa. I mean, are you generally seeing more competition on those board projects? I mean, you won 1 in the quarter, obviously, but what's the competitive intensity that usually has gone up quite a bit this year? Or what do you observe?

I think the competitive situation is unchanged, and I think we've taken our fair share of the market this year so far on board machines.

The next question comes from Tom Skogman from DNB Carnegie.

This is Tom Skogman come from DNB Carnegie. I would like to start with a question about the cash flow outlook as you are approaching the end of the Arauco delivery.