Half-Year Review

Overall market development was positive during the second quarter, but there were differences between markets. The Services business continued its strong momentum that started already in the first quarter in all markets. We also saw good demand for our Valve Controls and Actuators business across market areas. In our project businesses the second quarter was slow, in particular in the Chemicals and Oil & Gas businesses, while Pulp, Paper and Bioproduct activity continued at the same good level as in the first quarter. There is however a healthy pipeline of project opportunities both in Chemicals and Oil & Gas, as well as in Pulp, Paper and Bioproducts projects, many of which we expect to turn into orders in the second half of 2021.

North American business was strong during the second quarter, while APAC orders received were negatively impacted by customers’ cost saving activities and delayed project investment decisions in China. The recovery of business in EMEIA was slower than estimated; the pick-up in MRO-driven business and projects was slow, while demand for Services continued to be strong.

The global logistics situation continues to be challenging and impacted our deliveries in the second quarter and is causing some shipments to be delayed until the third and fourth quarter of 2021.

We continuously develop our offering to meet the tightening requirements from customers and to improve the sustainability handprint of our products. We launched our next generation butterfly valve platform in the second quarter. The new platform offers both increased performance and sustainability benefits for our customers such as reduced fugitive emissions, longer periods between services, less complexity, as well as new configurations that were previously unavailable.

One of our strategic aims is to improve our delivery times and delivery accuracy in our project business. To achieve this, we are expanding our technology center in Finland to increase the capacity and reorganize the production flows. This development project was started during the second quarter and is expected to be completed in early 2022.

In 2020, the Services and other MRO-driven businesses were negatively impacted by pandemic-related mobility restrictions and our customers’ tight cash management. Especially large maintenance shutdowns were postponed. The global situation in the Services and MRO-driven businesses has been clearly improving in the first half of 2021, but uncertainties and risks in certain regions are expected to continue into the second half of 2021, while the overall business activity in these segments is expected to continue to improve.

In the first quarter of 2021, Neles’ Brazilian supply center was temporarily closed due to Covid-19 cases, which caused delays in deliveries and a reduction in sales in the first quarter. The supply center reopened more quickly than initially expected due to attentive management of the situation. Currently, the facility is operating. We had similar challenges in our Indian factories at the beginning of the second quarter, leading to temporary closures. Currently the situation is being carefully managed by local management and the factories are back in operation, prioritizing the health and safety of our employees and partners.

The deferred sales due to the facilities’ closure is expected to be recognized during 2021. Neles has operations in several regions where the Covid-19 pandemic continues to cause disruptions. There continue to be risks of similar temporary closures of local Neles operations as those experienced in Brazil and India.

The global logistics situation continues to be challenging. The availability of transportation and difficulties in arranging logistics by Neles or its customers has caused delays in our deliveries. In addition, we have experienced shortages of electronic components causing delays in deliveries. We expect to catch up with these delays during the second half of 2021, but risks related to the logistics situation continue.

Since the second quarter of 2020, Neles has taken proactive measures to ensure the safety of employees, control costs and preserve cash flow to protect the company’s financial position. The measures have included a variety of enforced safety procedures at manufacturing sites, remote working, travel restrictions, cuts to external spending across the organization, as well as cost-saving and optimization activities.

Increased attention has also been paid to managing net working capital. There have been no material credit losses or order cancellations.