Metso Corporation Unsponsored ADR

Good afternoon and good morning everyone. This is Juha from Metso’s IR, and I want to welcome you all to this conference call where we discuss our fourth quarter and full year 2023 results, which were published earlier this morning.

Results will be published by our President and CEO, Pekka Vauramo; and CFO, Eeva Sipilä. And after the presentation, we’ll open the lines for your questions.

Before we start, a request that you limit your questions to one or two per person in order for us to accommodate as many questions as possible because the duration of this call is planned to be 60 minutes. And as always, we are going to make forward-looking statements during this call, so that’s why we have the disclaimer in our presentation package.

With these words, we are ready to start. And I’ll be handing over to Pek.

Please go ahead.

Okay. Thank you, Juha, and welcome.

So I will start as usual say a few words about overall on a quarter, look at the group numbers, and then Eeva will go deeper into numbers, and then I’ll return with wrap up before Q&A. But the quarter – during the quarter, we saw really stable market activity as we guided.

So basically no change from Q3 to Q4 in market activity. Services orders and services sales developed positively.

We saw growth on those lines, and that is, of course, very positive development as such. Our EBITA margin continued to improve.

Now the quarterly margin was 16.8% and if you recall, I mean, our revised financial target is to exceed 17% in the long run. And despite of the slowness – overall slowness in the market, we are taking steps towards the 17% as we speak.

Cash flow has been an issue – still is an issue for us, and that performance hasn’t been satisfactory for us, but this quarter was the strongest quarter when it comes to cash flow from the operations. As such and we start to see the actions already becoming effective and having an impact on our cash flow right now as we speak.

Then when we look at the numbers, orders, we saw overall a decline of 14% there is a negative currency impact on that one. So it will moderate a little bit the decline in that one.

We also do have a very tough comparison a year ago, we had lots of orders coming in, particularly in December 2023 – 2022. And that’s why the comparison looks a bit more dramatic than what it in reality really is.

The sales development, more or less flat, so minus 1%, but there also the negative currency impact means that the actual – there was an actual growth with fixed currencies. Adjusted EBITA, 7% more than a year ago, and margin translates to 16.8% and the year before 15.5%.

So good development on that one, and then we go further down operating profit, €200 million and that as a percentage of 14.9% and EPS during the quarter, €0.16 and cash flow from the operations, €216 million. And then when we look at the full year numbers, we had – on top line, we had a stronger performance in the beginning of the year and the orders received declined slightly 7%.

And then the sales did grow. I mean, yes, we have still a reasonably strong order backlog, and we are delivering the order backlog and therefore, we were able to grow the sales throughout the year.

The EBITA improved altogether 24% from €715 million to €887 million and margin for the full year comes to 16.5%. Operating profit, 14.9% and earnings per share, €0.65 and cash flow from the operations, €550 million.

And on the graph, we wanted to show a bit longer-term performance for us and starting really from the merger 2020 that was the merger year, 11.5% step-by-step growing year-by-year to 16.5%. And there’s been some major events there affecting the business all along.

I mean, first of all, the merger as such and then pandemics, then the war in Ukraine and so forth, and this development has taken place during all of these things. So at least we look at it with satisfaction this sort of development and are very proud of the achievement as such.

Then our segments, we have now two segments as we move on. The Metals is mostly in discontinued operations.

And if you recall, the smelting business line was moved into Minerals. So now in continuing operations, we have Aggregates and Minerals.

And Aggregates, yes, we saw the top lines coming down, but the overall resilience of Aggregates business and this really proves it out now that, that has improved greatly. We delivered 16.2% margin.

That’s exactly the same as was fourth quarter in ‘22 and there is €100 million reduction in sales and therefore, the margin resilience is really worth of noting in this one. We started to see improvement in market activity in late Q4.

This proves out that there will be a stronger season, spring season. But what makes us a bit even more optimistic about the future is that the market recovery is – or the outlook cover is broad-based – geographically broad-based.

We see it in North America. We see it in Europe, South America.

We see it in India and in China. So that gives us the reason to be more optimistic about the future.

But equipment orders, yes, like I said, I mean, €100 million below our – is it orders as well orders is anyways, 28% below last year, and that is because of the market situation where we altogether are. Sales coming down €100 million, like I said, and despite of that one, good margin development and services, a slight decrease in actual number, but because of the drop in equipment, the mix developed favorably.

Adjusted EBITA, €47 million follows, of course, the drop of the volume with a similar margin, 16.2%, and many good activities, actions in the cost side and overall management of the business in Aggregates resulted in very resilient margin despite of quite strong decline in the sales. On the Minerals side, orders we – so a decline as was expected, and that’s mainly because of the lack of major orders and very sort of tough comparison those orders that we did get a year ago, they were mainly in sort of Minerals side.

But overall, the development was very stable from quarter-on-quarter. Service orders did grow.

And here I also remind of the negative currency impact that we do – that is visible on our top line here. The sales continued to grow.

That was delivered from the backlog. Equipment, 4%; services, 12%; and services share climbing to 62%, which is, of course, a welcome improvement of the mix.

Adjusted EBITA €179 million margin translates to 17% and overall good performance, including also gross margin performance and the volume growth as such see in Minerals. And then I’ll hand it over to Eeva for the financials.

Good morning. Good afternoon, ladies and gentlemen, on my behalf as well.

Our CEO already discussed the operative performance, I will maybe add a comment on the group items and adjusted EBITA, which were only €1 million minus in the quarter. Now this low number means that some of the earlier quarter highs affected partly by timing and valuation-related issues where we’re balanced on the full year level as we were expecting.

But – and hence, rather than looking at the quarterly outcome, I would otherwise looking at the annual €52 million figure as being more indicative of the run rate, still somewhat higher than we expected going into ‘23 and also higher than what we would expect for ‘24. Moving forward on the P&L, we are indeed pleased of exceeding the €800 million mark for operating profit for the year, representing 14.9% of sales.

Net financial expenses at €25 million for the quarter were sequentially a couple of million up due to higher debt following the new bond issue. Again, this is a very good indication of our current run rate level until we then in Q2 of this year, we’ll pay back maturities falling due.

Our effective tax rate for the year was 26%, very well in line with what we expected and guided during the year. Our earnings per share for continuing operations amounted to €0.65 for the year, following the move of the 2 previous metals businesses into discontinued operations.

We had a slight positive result there leading to total earnings per share, including discontinued operations being a €0.01 higher for the year, which is €0.66. Moving to our balance sheet.

Total assets at year-end were up some €400 million from the beginning of 2023. We saw a small decrease in intangibles, while the value of plant and equipment increased following several ongoing CapEx projects.

Additionally, you see some movement in working capital items as well as then the new assets, liabilities held for sale categories related to the discontinued operations. From the graph, you see our net debt at the year-end was €884 million due to the €300 million bond transaction, our interest-bearing liabilities on the balance sheet were up but then we still held those monies as liquid funds at year-end as well, sort of balancing that out.

The majority of the new funds will be used to pay back our bond maturity coming due in Q2 of this year. Fourth quarter cash flow from operations was the best of the quarters in ‘23 amounting to €216 million.

On a full year level, we are not satisfied, but at €550 million, we are at least clearly ahead of the difficult ‘22. The improvement on the previous year’s comes from the better profitability.

While second half was clearly better than first half in terms of cash tied in net working capital, the full year figure for ‘23 was still high. And this next slide provides a bit more detail on our net working capital.

So at the end of the year, it was €990 million. At the start of the year, it was some €600 million.

Despite the 8% sales growth, this represents net working capital of 15% of sales, up from 9% the year before. So indeed, continues on a high level.

I hope the graph on the right-hand side is illustrative on the trends affecting the total and why the percentage hasn’t moved down yet. You hopefully see well from the graph when we started to see supply chains easing and reduced our purchases, namely the second half of 2022 when you look at the payables.

Yet it took 3 quarters before inventories peaked, not least because during this time, we saw high inflation and purchases, albeit less in volume coming in still with actually higher prices resulting in the inventories in euros going up. And something we have now been consuming in the couple of last quarters.

Receivables has continued to turn well while in absolute euros following, of course, the sales growth with some delay. Going forward, we are positive that we will see continuation of the movement in this graph as we continue to work on reducing inventories across our businesses.

And this will then support our cash flow generation in ‘24. Moving to my final slide and main points on our financial position.

As mentioned before, during the fourth quarter, our main financial event was the launch of our first sustainability-linked bond of €300 million. Additionally in the quarter, we drew an earlier agreed loan from the European Investment Bank worth €50 million directed to fund our research and development activities.

Our credit ratings are unchanged and our committed facilities continue ample. Finally, highlighting from the table our gearing at the end of December was 33.8% and debt to capital stood at 35%.

And with that, I would hand it back to you, Pekka.

Okay. Thanks, Eeva, few words about sustainability and then finally, outlook before going to the Q&A.

As you recall, I mean, we have had the planet positive label for our most sustainable products for the past 3 years – 3 years and we continue to grow planet-positive sales faster than overall sales growth year-on-year, the planet positive sales was 18% higher, and that is, of course, a good result and very positive result. We are seeing somewhat a slower pickup rate on planet positive, but this is also what we are expecting because now the share of planet positive offering is reaching quite high level and to build growth on top of that one starts to be tougher-and-tougher.

But we continue committed to more sustainable offering and making sure that our sales converts into sustainable products and services, and that’s a path we believe will be also the winning formula into the future. Our net zero target by 2030, a great improvement.

We’ve done almost 3/4 of the journey – journey at the end of last year. So we’ve seen a reduction of 73%.

And this is an absolute reduction. It’s not a relative as such.

And therefore, it’s a very good achievement. Then on the other hand, we also do have an absolute reduction target in logistics, but that is clearly more difficult to achieve than own operations.

And it’s partially linked, of course, with the transportation and means of transportation, but even more so, it is more of a structural thing to minimize the transportation distances and then on top of that, one choosing the sort of cleanest possible means of transport. But there are things that we can do.

We reduced our logistics emissions already by 7%, but we have more to be done in that area. We are, of course, trying to limit the use of airfreight, minimize it to only those few cases that where there’s no other means of reaching out and then choosing the best possible means of transportation.

With our suppliers, we continue to do good work. I mean our target that we set ourselves was to have a supplier base based on spend committing to science-based targets at 30%.

And we are on 26% level now and very close to that target. So all others, we very nicely with our targets.

But in logistics, we need to step up our efforts in terms of CO2. Then we also announced a dividend proposal, which we would pay from last year’s results, the proposal is €0.36 and that represents 55% of EPS and our policy – dividend policy is to pay more than 50% of our earnings per share as dividend.

So this fulfills that criteria. It will be paid in two equal payments and the total dividend payment will be just short of €300 million that we returned to the shareholders.

And there in the graph, you see the dividend story since 2020, growing from €0.20 to €0.24, €0.30 and now proposed €0.36. Then our outlook, as I said in the beginning, we see a light in the horizon for aggregates and in aggregates markets and we see that the activity will remain on the same level in Minerals.

In Aggregates, it’s worthwhile of noting that the improvement is really broad-based geographically. And it’s also across our main product brands, Metso and McCloskey and that’s what makes us believe that changing the outlook for Aggregates is really broad-based and unjustified.

With these ones, I think we are ready for Q&A.

Yes. Good morning, Pekka, Eeva.

Thanks for the questions. My first is on the Aggregates outlook, and I appreciate the color there in terms of product brands.

And I know this isn’t the first time we’ve discussed the mechanics, so forgive me for raising it. But I just wonder if this outlook changes incorporating seasonality, if we exclude last year, first half of ‘23 you’d find an average step-up in Aggregate orders for the first half versus the second of plus 14% since 2019 due to that seasonality effect.

Just wondering whether your outlook change is reflecting just that seasonal shift or are there any other factors in the outlook such as inventory adjustments in the supply chain that give you more or less confidence relative to the seasonal pickup?

Yes. There is both that we see currently.

There is a slight movement in our dealer stocks, for example, and dealers have started to place new stock orders. There is still plenty of material there in inventory, though, but we are starting to see movement there.

And now it starts to be evident that we do see a spring season this year as well. But at the same time, we are below last year’s activity level right now in the beginning of the year, but clearly better than what we saw.

So like end of third quarter and during the second quarter of the year.

Thank you, Pekka. That’s very clear.

Maybe just on Aggregates again on pricing. I think in Q2, you talked about higher pricing being harder to implement as customers in Aggregate face broad-based inflation pressures sort of two parts to this, really.

Can you just talk us through the mechanics in terms of the pricing model in Aggregate, given the wholesale distribution model with dealers and whether they are sort of discounting effects? And then second, is that view on price sensitivity of customers still in place today as we move into 2024?

Yes. We, of course, need to remember that inflation is still in place.

The recent one comes from the logistics side and the situation in Suez Canal and things like that. And inflation still is though it’s a single digit and so forth.

And therefore, we need to take all measures that we can to protect our margin pricing as such. I do not want to comment at all, but like the performance of aggregates shows that with €100 million reduction in sales, the margin has been kept on the same level year-on-year.

And we haven’t stopped the work on our productivity, on our efficiency, and that’s part of it. And that’s still high on the agenda in our Aggregates team as it is in the rest of the organization as well.

Thank you. And maybe just on Minerals then progressing well despite the lack of greenfield activity, you’re a full flow sheet provider.

Can you just talk a little bit about the different product families or areas other sort of single pieces of equipment that are particularly in demand at present? Or is the demand you see fairly broad-based?

Thank you.

I would say that it is broad-based. There is no product lines that I would like to raise up out of – or higher than anyone else.

Our offerings and orders, they consist of very often of equipment packages and it means that if – and equipment packages, meaning that several product lines are included. Sometimes they include full offerings.

Sometimes they include front end, sometimes the wet end of the process in Mineral side. So I wouldn’t pinpoint anything in particular.

Very clear. Thank you.

Hi, thank you. Just my first question was around your services business.

And if I look at kind of where Mineral services are today in terms of order intake. And I compare that to kind of where we were at the start of the year.

We’re obviously exiting the year at much lower levels than where we are. So I guess I’m just keen to understand kind of what’s happening in your service business through the year as kind of demand has seemingly normalized on a sort of sequential basis.

Is that underlying activity. Is that some kind of early ordering that is now normalizing?

Is that some destocking? And I guess when I look at kind of the level of orders where we are in Q4 and extrapolate that out.

It looks like your service business will be down next year at Minerals. So I guess I’m just trying to understand kind of what the moving pieces are of where we were at the start of the year on orders and where we’re exiting.

Alright, Max. I mean, the underlying driver for our aftermarket, obviously, is how our customers are running, and they are running their operations basically full.

And I think the fact that we showed also order intake growth in Mineral Services in the fourth quarter is a demonstration of that, that there is demand for the offering. As we then enter ‘24, I mean, typically, we would see some seasonal improvement or pick up in orders in the sense that there is still certain activities that customers plan on a sort of a calendar year perspective.

And with the sort of activity levels we’re quite – I don’t think we see reason really to have a sort of to agree with your view on things going down. On the contrary, I think as on based on the healthy Q4, we think there is further opportunity to grow in Mineral Services in entering into ‘24.

Okay. I mean I don’t want to lay to this point just because of sort of obviously limits on questions.

But I mean, if you were at €570 million of service orders at the moment, and if I look at kind of this time last year, you were doing – in Q1 2023, you were doing €736 million. So obviously, much, much further above where we are today.

So I guess what I’m trying to understand is when you were doing kind of €630 million to €730 million of orders, was that kind of a normal level? Or is this a more normal level?

And I mean do you think normal seasonality is kind of going back up to sort of 650, 700 from where we are today? I’m just trying to understand kind of what’s on and what’s not.

Well, indeed, I mean, as I mentioned, there is that seasonal impact on first half typically picking up on the second half and hence, whilst I would sort of label the activity level as certainly healthy and normal both in the recent months as well as going – what we expect going forward, that seasonality support is very likely to continue. What’s the sort of up and down effect of – obviously, we have the project type of business, refurbishments, which tend to be a bit lumpier there.

We’ve seen that market improving in the past months. I think that’s partially also compensating some of the hesitance on the new equipment investments that customers are more focused on retrofits and rebuilds.

So that would sort of logically support our view as well then indeed, we’ve maybe something else that you’re aiming at is that due to the sort of decrease in raw material prices during last year, yes, obviously, that has an impact on sales – not volumes, but on sales in euros. Then again, I think that’s – the bulk of that is behind us.

And yes, so from our point of view, there is not really that many other moving pieces to comment on.

Okay, thank you very much.

Yes. Good morning.

Thank you for taking the questions. Kepler Cheuvreux.

So my questions would firstly come back to pricing. Can you share at least a sense of the split between the volume and the price dynamics within the service businesses for Aggregates and Minerals.

Just to get an idea of what the level of contribution was achieved through your spares and service repricing last year in the results. I’ll start with that.

Yes. First of all, I mean, we don’t disclose that sort of information.

So that’s – and we’re not sort of don’t even carry that kind of detailed data with us as we are here. But if in general, I mean, structurally Minerals and Aggregates services are very different.

Aggregates, where we go to the market through distributors, we do sell spare parts and wear parts to our distributors. And that’s almost all that we do in services.

Whilst in Minerals, we provide, of course, spare parts, wear parts we sell mostly almost 100% directly to our customers. Then we have other activities.

We have – we do have labor services or professional services. In our Minerals side, we have our engineer to order type of modifications, upgrades that we do, and they are structurally very, very different.

And margin-wise, if we look at them spare parts and wear parts, they carry the highest margin always. And despite of the fact that Aggregates spares and wears, which is the almost 100% of the service content, despite the fact that we naturally have a discount to our distributors on spares and wears prices, the margins are high on Aggregate services altogether.

And therefore, the contribution, I would say, is very equal of the services margin. the Aggregates as it is to the Minerals.

Of course, services volume is much greater in Minerals side.

Thank you for the color. Then if I maybe move the question towards Aggregates.

And you called out the success in maintaining profitability despite the €100 million lower sales. Can you attribute any specifics within the bridge, which has enabled you to retain the profitability?

And to what extent we should consider that to be sustainable.

Well, I think one – there is maybe two factors. Again, these will not be new items for the audience, but two factors that have been important on the sort of structural improvement.

First is the work we’ve done on the supply footprint and really sort of focusing on what we produce where. And obviously, we have, as you know, been investing quite heavily in India to further grow our footprint there.

And that obviously has then enabled us to sort of work with our global footprint and really optimize based on cost and how to sort of – how to utilize. And I think that’s – it’s work where you first need to do some investment, and that optimizing actually is heavy work, then that continues for quite some time.

And I think we’re now really being able to demonstrate the benefits of the work that started already a few years back. Then the other item in addition to the footprint per se is modularity and where we’ve also worked very heavily on how do we make our supply chain more efficient from design to sort of how and where we source.

And again, in tight times, as we had last year, these things are very, very instrumental in protecting the margin. And overall, I think also the Aggregates team is focused well on sales mix.

It is finding those sort of pockets of growth, pockets of opportunity be it then from volume or pricing point of view. And there, I think really sort of good cooperation with our dealers and direct sales is an area where we’re clearly improved recently, and that’s showing benefits.

Great. Thank you.

I will get back in the line.

Thank you and good afternoon. I wanted to ask about sales projection for 2024.

Your backlog is down by approximately €350 million or more than 10% compared to a year ago. I don’t know how large part of the backlog that is supposed to be delivered over the next 12 months.

Is it the same kind of decline as we’ve seen for the full backlog? And do you think you will be able to bridge that through stronger orders in 2024 or is it fair to expect a meaningful sales decline?

Well, I think – sorry, some noise on the line. Well, certainly, our base case is not meaningful decline as we’re actually indicating a slightly more positive outlook in Aggregates.

I think it is a valid point that indeed the slower order intake in Minerals equipment that we’ve seen in the past couple of quarters will have some impact on ‘24 because the lead times in this business are more than 12 months. So even if we would get improved orders later in the year.

The full effect doesn’t come in ‘24, whereas in an Aggregates being a more short-cycle business, the improvement in order intake will indeed benefit sales in ‘24 as well. But I think that sort of on – based on what we have, it’s clearly we are working – and our basic assumption is that we were not going to see a dramatic sales growth.

But again, that’s clearly more positive than what I read between the lines of your comment.

Okay. So it sounds like you do not really expect the sales decline at all in 2024.

It’s only January gone, so we have 11 months to fight it back. And of course, we will see where we – how far we get, but we’re very motivated now in pushing on the order side and especially in Aggregates and on the Mineral services, I think that’s those areas we have all but given up on.

Great. And then secondly, I’m sorry if I didn’t get this from your presentation, but what do you expect from working capital in 2024?

Should we expect a significant release.

We are working to improve the – reduce the inventories. Then again, AR then and AP will somewhat be related to our previous discussion on the sales volume.

But inventories, clearly, we see additional potential even with improved market activity that we can improve our efficiency on what we stock and wear.

Thank you very much.

Thank you. I have two questions on Minerals.

Firstly, on the outlook, can you talk a bit more about what you are seeing and expecting this year in terms of the equipment orders, are you more optimistic that you would get more of these big projects during ‘24 and equipment orders could be higher than in ‘23?

How we look at the market currently, there are, of course, several factors why the orders are not converting the way they convert it earlier. I mean one factor there is obviously the electric car market as such, which has not developed according to previous forecast.

But we believe that it’s only a question of time when that market returns to normal trajectory. Second part is then interest rates, which has made funding of everything, all investments, more expensive and as we know, mining is a long-cycle investment, where returns can be very high, but the investment period, as such, is very long, and this has hit the industry to some extent, now already.

Nobody knows when the interest rates really turn down, there is a lot of discussion on that one. Very little movement at this moment, but these two factors, I would say that how nickel prices, how lithium prices do develop and what’s going to happen with the interest rates.

Copper market, as such, is relatively active. We have booked some orders in that front.

There is something happening in the iron ore space as well, which is quite positive for us. At this moment, our pipeline is healthy.

It’s in good shape. There is plenty of small things.

There is plenty of bigger things as well, but the conversion from the pipeline that is an issue at this moment, most likely for those reasons that I mentioned.

Okay. Thank you.

And then secondly, on the margin in Minerals, if you look into ‘24 are there any other things that we should kind of keep in mind in addition to volume and then the mix between services and equipment. So, any positive or negative drivers on top of those?

Well, we are getting, I would say, rid of the last legacy things in this year in Minerals, and that is a positive contributor what else Eeva you could say.

No. I think what Panu already mentioned around sort of mix, obviously relates to the – is something that we see bringing some tailwind and of course, overall reduced inflationary pressure at the same time as we improve our execution, like you said.

And then, of course, we need to remember that we continuously do improvement. We have our annual productivity plan, which we already have it in place.

We said that we will take all the actions by the end of first quarter. And we normally dimension it to €50 million, which corresponds salary inflation that we have in the company.

And we are in the middle of taking these actions. And that’s on a run rate basis, we should be pretty close to that one by the end of first quarter this year.

So, this is one of those actions. And of course, now on a day like this, we have also some temporary measures in place, and they will naturally support the margin development.

Thank you. Can I just ask as a follow-up, the legacy projects, how meaningful prior is that?

So, were they like a big part of revenue last year, and how much is this like changing?

Well, we haven’t disclosed that one, but there is a sort of meaningful part of revenue and where the margin is very low. So, we have less and less of that one going forward.

Okay. Thank you.

Yes. Thanks.

I am Antti from SEB. A couple of topics that were already discussed, the line was a bit breaking.

So, perhaps I am repeating some of the things, but both related to sales growth. And if we start from mineral services, and I mean your sales has been kind of running behind your order development, but now end of Q4, your seemingly have caught up.

And I know that Q1 of last year was still a very tough comparison figures. So, maybe repeating kind of, is it reasonable to expect mineral services sales to grow into ‘24, considering quite a challenging comparables and the dynamics between orders and sales?

Our expectation, I mean we are definitely not planning. I think I have already mentioned that earlier that, that’s not our view.

I think if we look at and especially mineral services, there are structurally so different items in the things like modifications and upgrades. Once we book the order, they have quite some delivery time and delivery times of everything was much, much longer last year than they are at this moment.

So, now we have the delivery capability, we can turn our order book faster today in our services than we were able a year ago. And maybe this explains a little bit the dynamics as well that we are seeing here.

Alright. That makes sense.

And then the second comment was on Aggregates side, and here, the line was quite bad. So, if I understood correctly, you are seeing demand improving sequentially, but below last year’s levels.

So, here again, I guess a sales growth would be a bit of an optimistic assumption for ‘24 or am I wrong here?

Yes, I think you are on the right track, I would say, with that one.

Yes. And of course, in Aggregates, we have the visibility now for the first quarter, second quarter and indeed, picking up in the first part of the year will be a challenge to reach last year levels, but then let’s see what happens in the market in the second half.

That’s obviously still prediction.

Okay. And then maybe talking about the Aggregates profitability, I mean you are defending your margins extremely well in a quite difficult market.

So, does – should this change our views on kind of the profitability upside on Aggregates? I mean you have been talking about roughly 15% over the cycle levels.

But clearly, the performance is better. So, how should we think about this if and when kind of the volumes start to recover in Europe and China and India become bigger markets for you guys?

Yes. We have improved the overall gross margin levels in our Aggregates business and naturally when climbing up, depending, of course, on execution, but our Aggregates team and supply is in very good shape at this moment.

So, there is, of course, further potential for that one. And we always and continuously work towards improving our results.

But there aren’t any kind of specific tailwinds on the ‘23 numbers that we should be wary of when we make our estimates going forward?

There is no such things, no.

Okay. Thank you.

Yes. Good morning.

Thank you for taking my questions. I would like to follow-up on a few things.

And the first one is working capital. I just looked at the cash flow and working capital was a headwind to cash flow for nine consecutive quarters.

And over these nine quarters, you invested about €900 million in working capital. I am just wondering what proportion of this €900 million do you think you can get back over what timeframe?

Any idea of what’s the sustainable level of working capital would be very helpful.

Well, I think the sort of best way to look at it is that – and this is something I think we try to indicate already earlier that this net working capital as a percentage of sales is a better reflector than absolute figures, because of course, during the nine quarters, we also had quite a bit of growth. So, putting the sort of – putting it relative to the sales is then balances a bit the sort of that effect.

And indeed, we would sort of want to be closer to sort of 10% than the current 15%.

Understood. Thank you.

That’s helpful. If I can follow-up on the revenue mix in the ‘24 as well.

It sounds like you think Aggregates will not grow. It sounds like you are saying services in Minerals will grow.

Would that mean that mix could help the margin in 2024 in that sense?

With those assumptions, that would be a correct conclusion.

Understood. And very quick last one, if I may.

Corporate cost line was very favorable, you saw in particular. I think it was even positive a little bit.

Are there – were there any one-offs in this corporate line? And what sort of corporate line would you suggest we should model for ‘24?

Yes, indeed, the quarterly volatility was a bit higher than we would ideally like. It was actually minus 1% in the quarter.

My advice would be to look at the annual roughly €50 million level. We previously said that anything between €5 million and €10 million is very normal, and then you have to assume that there will be some fluctuation in currencies and pension, something that will impact the total then a bit plus and minus.

So, ideally we would be somewhat below what we achieved as a full year level in 2023. But really rather look at the full – because that balances a bit this sort of fluctuation in valuations that unfortunately this bit collection items gathers.

Super. Very clear.

Thank you very much.

Hi. Thanks and good afternoon.

It’s Erkki from Inderes. Judging by your current order book and the funnel that you see, do you see prerequisites for group gross margin improvement in ‘24 structure or operational, or will the potential group EBITA margin improvement mainly come from operational leverage.

That’s my first question.

Well, I think based on what Pekka touched earlier on execution and some of the legacies and these type of things, so they do all impact gross margin. So, I think that is something that we certainly are addressing also with the various supply footprint.

Announcements made not even that long ago, the latest ones on that. So, gross margin is an important focus area for us to focus on as an enabler then for the sort of bottom line to improve.

Okay. Thanks.

And just a follow-up, do you see that there is still room to squeeze your SG&A? I mean your admin costs, for instance, they grew quite notably in ‘23.

What’s the outlook and where are your plans there?

Well, what we now have in place, I think as obviously, most companies with the sort of market uncertainty that we have some cost savings actions in place. And obviously, that then gives a certain temporary relief.

This is also partly a structural thing where, again, we can improve then again on being close to our customers and investing in sales at the front line has been well rewarded in the past couple of years. So, it’s a balance of what you are looking at in SG&A that what you want to cut on and where you actually want to perhaps even invest.

Okay. Thank you so much.

Hi team. So, I have just got one question, if that’s okay.

So, when we look at the mines which you are exposed to, how much of that is to Chinese controlled mines, or maybe if you could run us through the market dynamics here relative to a European control mine, it would be really handy. The reason I ask this is just trying to put some sort of assess the impact of any sort of flooding of lithium or flooding or – I suppose, of rare battery metals into the market by Chinese firms and trying to work out what the impact of that would be on you guys.

Thank you.

Yes. Of course, very detailed question already, but I would say that we are exposed to Chinese companies, both in China market and then outside China, the so-called Silk Road business, as we call it internally.

And these two in mining side, they are almost equally sized. Of course, it varies quite a bit, and we saw somewhat decline in Chinese investments outside China towards end of last year and so forth.

But over time, they are roughly of the same size and they are sort of percentage-wise, out of Metso’s total sales somewhere between 5% to 10%.

Perfect. Thank you very much.

That’s all for me.

Hello. Thank you very much for the follow-up, Pekka and Eeva.

A couple of housekeeping questions, you called out the development of new products around the battery metals technologies and the R&D budget went up a guide to where your spending is being directed and thinking for ‘24? And a similar sort of question to CapEx, which stepped up last year and seem to have been undertaken in a variety of locations, what your thinking is for the year ahead.

And lastly, an update on the disposal program for some of the remaining assets linked to metals. Thank you.

Thanks for a good question. Our R&D remains a focus.

And obviously, we are allocating our R&D monies to everything that advances green transition and sustainability as it’s clear from messaging around the planet positive. Battery metals certainly rank high on our R&D activities altogether.

If we take also the work that we do with customer samples, currently, about half of them are linked with lithium. And yet also, I would say, most of the other half is linked with other electrification metals as well.

i.e., copper and nickel most likely today is more of a battery metal than anything else. And yes, we have developed some new technologies, new processes that will simplify the lithium process.

We are expanding that to cover different lithium minerals now and our coverage starts to be very good. Now of course, commercialization of that one is slowing down momentarily because of the lithium market, but we will be better prepared for the market when it sort of wakes up again sometime, hopefully later already in this year.

And maybe I will answer the capital expenditure one. So, indeed, last year was busy.

We didn’t have any one single big investment, but a multitude of smaller ones, all really across the world, be it service centers, be it product manufacturing capabilities closer to our customers in various parts of the world. And some of these were concluded, some of these continue into ‘24.

Now obviously, we are looking at the demand and market activity levels also to time some our ideas. I think as a starting point, we have what we think are good capital return projects for something similar to last year’s capital expenditure levels.

But whether we really move forward with the mall is something we will be closely monitoring depending really on the activity levels. And then on the divestment side, so indeed, discussions ongoing with potential buyers and we are not quite there yet, but moving forward and with the target of coming back to more news on them later in the year.

Thank you very much.

Alright. Thank you everyone for your questions and discussions.

We are punctually at the hour. So, it’s time to conclude this conference call.

Our first quarter results will be out April 25th, and we will have our AGM on the same day, but I am sure we will see and speak to all of you before that. So, thanks for this call.

Have a good week and goodbye.