ANNUAL REVIEW 2020 Progress in operations and sustainability Valmet is the leading global developer and supplier of process technologies, automation and services for the pulp, paper and energy industries. We aim to become the global champion in serving our customers. CONTENTS 1 Contents 14 Business reviews 43 Mitigating effectively the 16 Valmet’s business lines impacts of the COVID-19 2 CEO’s review 17 Market data by business pandemic 4 Key events in 2020 18 Services 44 Comprehensive approach 22 Automation to sustainability 6 This is Valmet 26 Pulp and Energy 46 Progress on Sustainability 8 Valmet in brief 30 Paper 360° agenda 9 Key figures 48 Sustainable supply chain 10 Global presence 34 Strategy 52 Health, safety and 11 Market data by area 38 Strategy highlights 2020 environment 12 Value creation 39 Research and Development 56 People and performance 40 Progress of Must-Win actions 60 Corporate citizenship 42 Financial targets 64 Contacts Key events in 2020 4 Business reviews 14 Strategy 34 valmet | annual review 2020 | ceo’s review SOLID PROGRESS IN EXCEPTIONAL TIMES All in all, none of us expected such a year, but we managed to make it successful together. 2 valmet | annual review 2020 | ceo’s review Valmet entered 2020 confidently, supported by a high order backlog focus has been on strengthening our stable business and expand- at the end of 2019. As with all companies and people around the ing business in the pulp, paper and energy value chain. In 2020, world, 2020 proved exceptional because of the COVID-19 pandemic. Valmet strengthened its board and tissue technology and services Thanks to the good and consistent development of the company’s offering by acquiring PMP Group in Poland and integrating it in performance since 2013, Valmet had a good foundation for meeting the Paper business line. The former PMP’s offering of small and this new situation and uncertainty in the global markets. medium-sized tissue, board and paper machines, and machine rebuilds complements Valmet’s existing technology and services During the year, we at Valmet focused on ensuring the safety of offering for wide and fast machines and rebuilds. our people, business continuity, and accelerating our digital trans- formation in serving our customers and ensuring effective internal In June 2020, Valmet agreed to acquire a 14.9 percent ownership in operations. Our global Valmet team showed remarkable adaptation the future Neles Corporation and gradually increased its ownership and resilience in these new circumstances. Our employees have to 29.5 percent of the company. Valmet sees that Valmet and Neles shown flexibility by taking on new roles, familiarizing themselves together would create a Nordic-based global leader with a unique with new digital tools and solutions to do business and serve our offering for global process industries and with excellent potential customers, and creating new ways of working. By working together for long-term shareholder value creation. Valmet’s current Auto- inside the company and with our customers globally, we have taken mation Systems business and Neles’ Valves business would make a a huge leap forward with our internal and external digitalization. strong combination in the automation market. We will continue to All in all, none of us expected such a year, but we managed to make keep Neles as a long-term strategic development project for Valmet. it successful together. Strong sustainability profile based on In 2020, Valmet’s orders received decreased by 8 percent to systematic agenda implementation EUR 3,653 million, and our order backlog at the end of the year During the year, Valmet continued its systematic Sustainability360° was EUR 3,257 million. Net sales grew by 5 percent, amounting to Agenda implementation. The COVID-19 pandemic mostly impact- EUR 3,740 million. The comparable EBITA margin was 9.8 percent, ed our ability to reach the targeted number of supplier audits. Oth- close to our new target range of 10–12 percent. erwise, we proceeded with our program as planned. We focused on ensuring sustainable business practices throughout our operations Good results in process technology businesses and key business processes. Our approach of continuously improv- Our Pulp and Energy business line had a strong year, with many ing our performance has positioned Valmet as the industry leader significant orders from our customers around the world. The Paper in sustainability. In 2020, Valmet was included in the Dow Jones business line also continued its consistently excellent performance, Sustainability Indices (DJSI) for the seventh consecutive year and receiving multiple major orders worldwide. The Chinese market the Ethibel Sustainability Index (ESI) Excellence Europe, and re- was especially active, with several pulp, tissue and board technol- ceived an A- leadership rating in CDP’s climate program ranking. ogy orders. Forward together In Valmet’s stable business – the Automation and Services business Valmet’s motto has been “Forward” since 2013, and it continues lines – the COVID-19 pandemic especially impacted services pro- to describe well our aim of continuous improvement and com- vided at our customer sites. During the year, we streamlined the way mitment to moving our customers’ performance forward. I thank of working and organization in the Services business line to meet Valmet’s customers and partners for their strong cooperative spirit the new market situation and settle some long-term competitiveness during the exceptional year that was 2020. To Valmet’s people – all issues in certain parts of the business. Our Automation business our 14,000 colleagues around the world – I want to express my line had a stable year, managing customer delivery timelines well, appreciation for your excellent work and the agility you have shown with a minimal impact from the pandemic. Furthermore, Valmet in serving our customers and building Valmet’s success today and was able to launch more than 30 Industrial Internet-based solutions in the coming years. for customers and a revolutionary new web-based user interface for Valmet’s DNA Automation system. Strategic acquisitions continued In recent years, Valmet has followed its acquisition strategy of mak- Pasi Laine ing well-considered acquisitions with a clear industrial logic. The President and CEO 3 valmet | annual review 2020 | key events in 2020 KEY EVENTS IN 2020 Q1 Q2 Valmet into preliminary agreement for key technology and automation delivery to the planned Kemi bioproduct mill in Finland April 29, 2020 | Valmet and Metsä Fibre signed a preliminary agreement according to which Valmet will deliver key technology covering all main process islands and automation systems to Metsä Fibre’s planned Kemi bioproduct mill in Finland. The final agreement is subject to Metsä Fibre’s investment decision. If materialized, the new bioproduct mill would have an annual pulp production capacity of 1.5 million tonnes and in addition produce various other bioproducts. The production of the new mill is scheduled to begin in 2023. Valmet to deliver key pulp mill technology and automation for Lenzing’s and Duratex’s joint pulp mill project January 23, 2020 | The new 500,000-tonne dissolving wood pulp mill is being built in Minas Gerais state, Brazil. Valmet’s delivery includes a fiber line, a pulp drying and baling line, an evaporation plant, a white liquor plant and a mill- wide automation system. Valmet raises its finan- Valmet to supply the Valmet acquires cial targets world’s fastest coated ownership in Neles February 5, 2020 | Valmet decided boardmaking line June 17, 2020 | Valmet agreed to to raise its financial targets for Com- March 16, 2020 | Valmet will supply acquire 14.88 percent of all Neles parable EBITA margin and return on a coated boardmaking line (PM 2) Corporation’s shares and votes capital employed. Valmet’s new tar- with extensive packages of automa- from Solidium Oy. The transaction get for Comparable EBITA margin is tion and Industrial Internet solutions between Valmet and Solidium took 10–12 percent (previously 8–10%). for APP’s Guangxi Jingui Pulp and place on July 1, 2020. Valmet later The new target for comparable Paper’s (GJPP) Qinzhou mill in China. gradually increased its ownership in return on capital employed (ROCE) The start-up is scheduled for 2021. Neles to 29.5 percent. before taxes is at least 20 percent When started up, PM 2 will be the (previously 15–20%). world’s fastest coated boardmaking machine with the highest capacity. Image: Neles 4 valmet | annual review 2020 | key events in 2020 Q3 Q4 Valmet to supply world’s Valmet and Metsä largest bleached chemi- Spring cooperate in thermomechanical developing novel 3D Valmet continues to succeed in global pulp line fiber products sustainability ratings November 16, 2020 | Valmet was included in the Dow Jones Sustainability July 20, 2020 | Valmet will supply August 21, 2020 | Valmet and Metsä Index (DJSI) for the seventh consecutive year. The company was listed both in the world’s largest bleached chemi- Group’s innovation company Metsä the Dow Jones Sustainability World and Europe indices. Valmet also received thermomechanical pulp line to Spring are building a pilot plant in an A- rating in the CDP Climate rating in December 2020. Guangxi Sun Paper Co., Ltd.’s new Äänekoski, Finland, to develop a new Beihai mill in China. The start-up is wood-based 3D fiber product for the scheduled for the fourth quarter global forest industry. of 2021. Valmet acquires PMP Group September 11, 2020 | Valmet entered into an agreement to acquire Polish PMP Group, a global supplier of process technologies and services for tissue, board and paper machines. The value of the acquisition was approximately Mitigating the impacts of the COVID-19 pandemic EUR 64 million. The net sales of the company were approximately January–December, 2020 | The coronavirus pandemic, COVID-19, impacted EUR 70 million in the fiscal year 2019.