Metso (OTC:MXTOF) Corporation (METSO), a global industrial company serving the mining, aggregates, recycling, and process industries, held its third-quarter earnings call on October 30, 2024, discussing financial performance, market activity, and leadership changes. CEO Pekka Vauramo and CFO Eeva Sipilä presented the results, announcing that Sami Takaluoma will take over as CEO starting November 1, 2024. Despite a slight increase in overall orders, Metso reported a decline in sales and an 8% year-over-year decrease in adjusted EBITA. The company also highlighted its sustainability initiatives and the acquisition of three companies to enhance its business segments.
Key Takeaways
- Adjusted EBITA declined by 8% year-over-year to €196 million, with a margin of 16.9%.
- Overall orders increased by 3%, but sales were down due to lower order intakes in previous quarters.
- The Aggregates segment saw orders €10 million below last year, with service orders down 8%.
- Equipment orders in the Minerals segment rose 13%, but sales fell 4%.
- Negative cash flow from operations was reported, primarily due to a €250 million one-time expense.
- Three acquisitions announced to strengthen the Aggregates and Minerals segments.
- The company aims for net-zero operations and has achieved this goal in some plants.
Company Outlook
- Stable market activity is expected across all segments.
- Continued investment in technology and talent is planned under the new CEO, Sami Takaluoma.
Bearish Highlights
- Service orders in the Minerals segment slowed due to customer hesitancy.
- The Aggregates business faces challenges, with a cautious outlook for Q4.
Bullish Highlights
- Minerals segment margins improved to 18.3% due to favorable equipment mix and restructuring efforts.
- Optimism in the copper sector, with an increased proposal pipeline.
Misses
- Sales declined as a result of lower order intakes in previous quarters.
- Aggregates segment underperformed with a decrease in service orders.
Q&A Highlights
- Inquiries were made about the sustainability of the Minerals margin and large orders.
- The importance of inventory management and operational efficiency was discussed.
- The upcoming leadership transition and future priorities under new CEO were addressed.
- Concerns regarding geopolitical factors and foreign exchange impacts were noted.
During the earnings call, the management team of Metso provided insights into the company's financial health and strategic direction. The company's commitment to sustainability, coupled with its strategic acquisitions, positions it for potential future growth. However, challenges in the service orders and uncertainties in market trends indicate a cautious approach moving forward. As the company prepares for a leadership transition, it remains focused on improving customer value and operational excellence. Investors and stakeholders will be watching closely as Metso navigates these changes and market conditions in the coming quarters.
Full transcript - None (OUKPF) Q3 2024:
Juha Rouhiainen: All right. Good morning. Good afternoon everybody. This is Juha from Metso's IR and I want to welcome you all to this conference call where we discuss our Third Quarter 2024 Results, which were published earlier this morning. Results will be presented by our President and CEO, Pekka Vauramo; and CFO, Eeva Sipilä. And at this time, we are also joined by our new President and CEO, Sami Takaluoma, who will take over on November 1st. And Sami will say a few words after the results presentation, and then we'll open the lines for the Q&A. Before we start a reminder of the forward-looking statements, we will be making and with this, I'll hand over to you, Pekka. Please go ahead.
Pekka Vauramo: Okay. Thank you, Juha and welcome to this call from my side. A few comments on the quarter first, market activity very much in line what we said one quarter ago, no change in that regard. We -- of course, we are headed in Aggregates to low season and the third quarter was already the low season. Season, strong seasonality where the first half of the year is always more active than the second half. And as we said also in the previous results call that we have a few larger projects in Minerals side, which we think will progress during the rest of the year, and we saw some of them moving ahead as we have announced some of the new orders during the quarter and also after the closing of the quarter, we have announced some additional orders. Margin performance, that was probably the highlight of the quarter was a very robust 16.9% adjusted EBITA that is exactly the same margin that we reported in the second quarter. And cash generation has been an issue for us for several quarters. We had a good cash generation, especially if we exclude the discontinued operations where we announced separately a sort of cost relating to waste-to-energy -- termination of waste-to-energy business during the third quarter. But then if we look at the numbers, orders, we see a 3% increase on order line in group level. Sales continued to decline, and that is because of the lower order intakes during the previous quarters through three quarters, four quarters, we've been on declining trend already. before this. Adjusted EBITA, €196 million, that's 8% down from the previews and that's because of the volume difference. But good margin, as I already said, improvement on the year before and operating profit, €178 million, also following the -- following mainly the volume and slight uptick because of the margin out there. 15.3% operating profit and the earnings per share, €0.15 and cash flow from the operations here, we need to remember that there is the termination of waste-to-energy business, which makes the cash flow from operations negative. We'll see later on what it would have been without it. In the Aggregates, when we look at the segments, a slight decline still in the orders, €10 million below previous year. This is a low season. We earlier said that we might be fairly close to the previous year level, and this is what this one shows. Equipment orders slightly down more so in services, 8% down in Aggregates segment. Sales continued to decline more, and that's again because of the order bookings development during the previous quarters and services share continued at 35%. Adjusted EBITA from the Aggregates, €45 million and a year ago, we had €8 million more. Margin, still very resilient at 16.1%, and we continue to manage our court costs well, and that's what is supporting our margins at this moment rather than the market. Then to the Minerals side, orders up, as you see there, we have also booked some orders after closing of the quarter, as I said already, which will be then reported in the fourth quarter numbers. About the equipment orders grew 13%, services remained flat. Sales continued to decline for the same reason as in the Aggregates order bookings during the previous quarters are not supporting higher level services down 4% equipment, 26%. We do have in all of these numbers about 3% or 4% negative currency impact. So, that should be also noted. I'm quite sure Eeva will talk about that one. a bit later on. Services share, 66% along the lines as in the previous quarter, but up from a year before. EBITA, €161 million versus €174 million. Margin went up to 18.3%, so we are on our journey towards the 20%, but on this sort of volume levels where we are, are -- it is tough to reach out. But once the cycle turns, we are in well-positioned to head towards that one. Strong execution altogether. And yes, we are managing our costs and of course, the services high share supports the margin development. And at this moment, I'll hand it over to Eeva.
Eeva Sipilä: Thank you, Pekka and good morning, good afternoon to all of you on my behalf as well. Continuing from what Pekka already said, I will comment a few additional lines from our group income statement. So, indeed, on the currency impact on the sales line was -- had a 4% negative impact on the group level. Then the graph on the right deserves a comment as the result from discontinued operations materially differs from the earnings from continuing operations. And as Pekka already reminded you in early September, we announced that we had completed the termination of the waste-to-energy business. And settle the related legal processes concerning these historical projects. The related one-time expense of €250 million pulls down the result of the discontinued operations in the third quarter. That's where it is booked in and hence explains the negative reported earnings per share as well. On the tax row, effective tax rate for the quarter was 24%, and year-to-date, we're at 25%, which is what we have guided on for the full year as well. So, well in line. Regarding our balance sheet. So, total assets at €7 billion are up, a few hundred million euros from the end of June, but slightly below where we started the year from. Inventories are finally down a notch on the previous quarter. Net debt is up by €100 million to €1.16 billion due to the funding raised to pay out the one-off cash charge from the termination of the waste-to-energy business. Group cash flow for the quarter is also, as already said, impacted by the one-off cash outflow in discontinued operations. Hence, we've separated the two rows for the profit for the period, so continuing operations and discontinued separately to help you then do your do your own math on what's truly operational. And if we exclude the cash outflow of €275 million in discontinued operations, our net cash flow from operating activities would have been €256 million positive. Cash flow remains supported by the healthy profitability and the strong margin, as Pekka referred to. Also, the change in net working capital was finally positive for the quarter. clearly, obviously, a very small number, but we do expect a clearly bigger positive impact from working capital in the fourth quarter. And moving to my final slide on our financial position. So, liquid with funds, consisting of cash and cash equivalents amounted to €467 million at the end of September. During the third quarter, we drew one €250 million loan that we used for the payment of the one-off on an item, while another new smaller €50 million loan was undrawn at the end of September. Both our equity to assets and debt to capital at the end of the quarter were -- stood at around 38%. And with that, I would hand it back to you, Pekka.
Pekka Vauramo: Okay. Thanks Eeva. On the portfolio side, we've announced three acquisitions, two of them -- two first ones, have closed already. Already on third one we signed just recently and we're expecting that to close early 2025 index. The first one being a very small Minerals processing specialists for valves and flow control. So, we're talking really about the mining industry and Minerals processing application here. The second one, Diamond Z and Screen Machine supporting the growth of our Aggregates business. Screen Machine is supplying equipment fairly similar to mobile Aggregates production as the traditional Metso line and Diamond Z more focusing on recycling the waste that's coming from infrastructure, i.e., construction materials, materials and expanding our offering and we'll integrate these ones into our Aggregates business line. And then the last one, Swiss Tower Mills, where Metso did have a 15% shareholding as well, and we announced the plan to acquire the outstanding shares from the other owners here. The offering is vertical mills which are energy-saving mills and they very well complement Metso's existing verti-mill and grinding offering, and we feel that this technology is technology that is winning technology because of the energy saving features that it does have. So, these are the acquisitions during the quarter. Then the next one on sustainability development. Planet Positive side, the actual number is a decline, but decline is smaller than the overall decline -- our sales declined overall 12% and Planet Positive went down 9%. So, relative share improved slightly. Our own operations, we continue to implement actions, take actions there. We have now first plants that are already on net zero level. And we will see in the future more of our plants joining that group of where we are internally on net zero basis already. In the logistics side, we have more challenges and it will be difficult to reach the 20% target. What we have here, we are so much dependent on shipping fleet, global shipping fleet conversion to different type of fuels and therefore, our sort of ways and means to achieve that target or rather limited. Then on the other hand, with our suppliers, we are very pleased with the development that we've seen them and willingness of our suppliers to join the science-based emission targets. And we are already at our target level, which we should have had by the end of next year. And then the market outlook, we expect exactly the same outlook as before. So, we expect the market activity to remain on the same level in both of our segments. And then we announced also today appointment of Sami Takaluoma, the next President and CEO of Metso. Sami is here with us and he does have a long background with Metso. He joined Metso in 1997. He has been in different positions in our wear parts and consumables businesses and service businesses more lately so. And he has been also working in the market areas previously outside Finland. And from my side, I'll welcome Sami on Board and I will hand over as it here says on November 1, so very soon. Between November 1 and end of the year, I will be here with Sami, we'll make some customer visits, and we'll visit some investors to make sure that Sami gets going, and then I'm sure Sami has a few words to share with you before we go to Q&A.
Sami Takaluoma: Thank you, Pekka and good morning, good afternoon to everybody also from my behalf. Really excited about this opportunity to lead this really great company and continue a lot of the great things that during Pekka's leadership, the company has been developing. So, there's a lot of good that will continue. And then, of course, looking forward for the future needs to make this company even greater and towards the Tier 1 and the industry leadership. So, that's going to be in the agenda. We will continue to invest for the technologies that we choose. And then of course, we will continue to invest for the people in the company to make the company strong. The handover will be happening soon. I don't think that I need the traditional 100 days to understand that both the companies and what the products are. So that 100 days will be spent for much more different kind of things than in the other kind of situation, but looking forward for discussing more with all of you in the near future.
Operator: [Operator Instructions] The next question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind: Yes. Hi, Pekka, Eeva, Sami. First on the service orders in Minerals. I think Eeva, last quarter, you said it was a timing issue with weak June and we should see a bounce back. I mean just trying to understand the mechanics here. We also see pushouts of sort of decision-making or the mine is concerned, also on the service side, i.e., being hesitant, how should we think about orders here into the fourth quarter? That's my first one. Thank you.
Eeva Sipilä: Yes. Thanks Klas. Indeed, slightly softer than we hoped on that side. There is an element of that hesitancy and pushing on anything that's slightly bigger. I mean, obviously, in our aftermarket side for the mining customers, we also have some sort of refurbishment type of bigger ticket items. And there, you could say that the -- whilst the dialogue is very active with the customers, the final decision-making sometimes gets delayed. And indeed, the -- we had a slightly slower September than planned. But nothing really to sort of such pinpoint in a way on the underlying activity, we're still very comfortable with.
Klas Bergelind: Okay. My second one is on the margin. Did you manage to get through some incremental price increase here that came through in the P&L? Or was this sort of cost action that drove this mostly? I'm keen to understand how pricing in the P&L is looking both on the carryover or if you get any sort of new pricing on top? And then on the standardization of the project offering, which should help the gross margin over time, and this is obviously Minerals. Did we see any benefits here that is starting to come through? Or is it other cost measures driving this? Thank you.
Pekka Vauramo: Naturally, the mix contributes to the margin, margin at the time when the equipment orders -- or sales are declining faster than services. Services is rather resilient on top line anyways in our case. So, that's probably the main contributor. Pricing itself, I don't want to comment too much on that side of it. But we are doing continuously improvement actions, productivity improvement actions in the company. And if you recall, we had a certain restructuring ongoing in our Minerals, which we completed earlier in this year and that has contributed also to the improved margins in our Minerals side.
Klas Bergelind: No, I get that the mix is obviously positive, but I was thinking whether pricing is coming through in a big way than I might have thought, but okay, fine. My third and final one is on the copper side, Pekka, where you sound a little bit more upbeat than -- if you look at the order pipeline and the discussions, would you say that they have intensified i.e. quotation activity compared to when we spoke last quarter? We say that the overall decision-making is slow, but we started to hear of a bit more greenfield activity on the copper side coming through. And I'm keen to understand if that is what you're seeing as well?
Pekka Vauramo: That's what we see and we feel and if I look at our proposal pipeline we are now third quarter into clearly higher level in proposal pipeline in our Minerals side. So, -- and predominantly anything bigger there is predominantly copper, we do see some gold, but gold is very different type of business, it turns into smaller orders rather than big orders. And then typically gold, which is byproduct in many mines almost like, I would say, most mines have some gold and extremely high gold prices is naturally motivating the miners to be to sort of make sure that they do more gold out of the material that they are handling as a side product. So, that's -- we see some investments there in that area, but they are smaller ones.
Klas Bergelind: Thank you.
Operator: The next question comes from Christian Hinderaker from Goldman Sachs (NYSE:GS). Please go ahead.
Christian Hinderaker: Yes, good morning Pekka, Eeva and welcome to Sami. My first question is a follow-up on Klas is one an aftermarket orders, I think you called out slow decision-making around rebuilds in Minerals. I'm just curious as to whether you think that, that's temporary hesitancy today versus perhaps a normalization from the strength we saw in 2022 and 2023? And then similarly, on the aggregates business, I think this is the first sub-€100 million aftermarket order number since 2020. Do you think that's just a summer slowdown? Or should we take from your stable outlook statement that this is a more realistic run rate for the quarters ahead?
Sami Takaluoma: Maybe I can take this. So, definitely, there is a customer need for the bigger upgrades and that is also driven by the demand of the production, so a little bit how Eeva was already answering. So, the hesitance comes more from the timing that when the customers want to spend this money from their own financing plan point of view. So, in that sense, this is a slowdown of these orders as we speak, and they are all in the pipeline and customers have not dropped the discussion about these opportunities with us. They want to continue, and they are waiting for placing those orders as well in the upcoming months.
Eeva Sipilä: Specifically, Christian, to your question on the Aggregates side. So, obviously, there's a seasonal issue plays a role here. I think you should be cautious on the Aggregates fourth quarter, be it equipment or services for that matter last year, there was -- the sentiment was somewhat better in away and we did have that end of the year increase in orders. And now looking at the external environment around, as I think we see we're less -- we're less optimistic of seeing something like that -- rather in that sense on these levels and it will really, in our view, take into 2025 before we see an improvement in the Aggregates side, be it equipment or aftermarket.
Christian Hinderaker: Thank you, both. Maybe I can turn to inventories now, €1.97 billion in the quarter, so broadly flat sequentially, but still at around 40% of revenue. You've previously talked about an ambition to cut that number by about €500 million. That's about a quarter of the current balance sheet number. I'm just curious if that ambition still holds? How long do you think it will be necessary to achieve that? And is there any risk of any write-downs on the inventory balance today?
Eeva Sipilä: Well, I think we also were happy with Sami to continue with Pekka's ambition level in that sense. However, I think in most of the calls, we've been kind of indicating a couple of hundred million as the more sort of shorter term targets, so maybe a reflection of that. And indeed, I think we were slightly behind as said, the actions are moving forward. So, we are more -- clearly more optimistic on the Q4, but I think we will be -- some of the work will certainly go into next year as well. And then really to achieve the higher ambition that requires also more work with our tools and more work in how we plan and a bit more on the operational planning side as well.
Christian Hinderaker: Thank you. And maybe just a final one. The Swiss Tower Mills acquisition, I think that they had a distribution agreement with Weir Group (OTC:WEGRY) previously for the vertical stirred grinding mills. Will that remain post the acquisition? And can you give a sense as well for the installed base of its products today?
Pekka Vauramo: We are currently between signing and closing, and we do not comment on any action after the closing at this moment. But obviously, we have looked into this one and whatever activities other companies may have around Swiss Tower Mill, we are happy to supply. Supply even after closing of these ones. But like I said, I mean any other actions, I cannot comment at this moment.
Christian Hinderaker: Fair enough. Thank you, Pekka.
Operator: The next question comes from Max Yates from Morgan Stanley (NYSE:MS). Please go ahead.
Max Yates: Thank you. Good morning. Just my question is just around Aggregates margins. And if you look at the price or price/cost on orders that are going into your backlog. How does it make you think about kind of margins over the next couple of quarters? Should we assume that the kind of 50%-ish level that we've just printed is the sort of trough level of this business? Or does kind of price cost and pricing in the equipment tell you that, that margin kind of could potentially go lower from where we are currently?
Eeva Sipilä: Well, I think we're quite comfortable with the price/cost development as such the challenge is more the size of the backlog, not the quality. And so obviously, the -- we lack operational leverage in what we do. But in a way, this is -- this third quarter is always the summer holidays when factories are closed. And in that sense, you could say that this is a tougher from our operational leverage than Q4, even if we then have Christmas holidays in some countries, but clearly shorter. I think we worked very hard to prove that Aggregates margins are more resilient than I think the market was expecting. And in that sense, that work does continue.
Max Yates: Okay. And just secondly, I just wanted to come back to the Minerals margin. just to kind of really understand it because I think if I think about it on a sequential basis, your margins have gone up by more than 100 basis points quarter-on-quarter with no real big change or no real positive change in the mix. So, I'm just really trying to understand, like if I look versus the first half of the year, margins are meaningfully higher this quarter. So, is there anything you can help us with or sort of point to try and explain kind of why that happened? And I guess what I'm really asking is sort of above 18% the new normal? Or do we kind of graduate back to those kind of low 17s? It would be really helpful to understand what drove that to understand the kind of sustainability and whether that should be considered a new normal?
Eeva Sipilä: Well, I think, Christian, like got hinted to in his presentation, we talked about the mix. We really had a good mix in the equipment side. So, not so much the service. capital mix, which perhaps is what you were referring to. So, product equipment side margins were high and yes -- and I think high on a level that certainly a lot of -- many stars were aligned. So, in that sense, I wouldn't say that we're sort of sustainably on an 18% level yet. But I think it's just nice to see that we are -- the direction is correct, and there is certain lumpiness and that's something that's good to bear in mind, but directionally correct. And I think that's really the hard work behind that, it's not only a volume game. It's really the efficiency game also behind.
Max Yates: And could you just -- sorry, just final one, just -- I mean, maybe I should know this, but could you just explain to me within your margin mix within equipment, what constitutes a good quarter of mix? Is it like a particular region? Is it a particular product type? Like what means you have a very -- what is it that drives a very good equipment mix when you talk about it?
Eeva Sipilä: Well, it means the offering. So, there is margin differences inherently between the product groups, so to say. And then, of course, it's just execution that things can sometimes go also very, very well from a delivery point of view and where we sort of do sort of really achieve a clearly better performance at the sites.
Max Yates: Okay. So, it might be like what crushes as particularly good margins relative to grinders? I've just never ever heard that -- I've covered that so for a while, I've just never ever heard this talked about side. I'm just curious just -- can you give us an example?
Eeva Sipilä: Well, I mean, it's certainly nothing new Max and I think it's -- obviously, it does relate to sort of one's market share and kind of how strong stronger position we are, and then there's a certain element, obviously, related to the wear and tear as well and the criticality of the equipment. I mean nothing surprising, I would say, certainly in capital goods that you that you would have these differences.
Max Yates: Okay, understood. Thank you.
Operator: The next question comes from Chitrita Sinha from JPMorgan (NYSE:JPM). Please go ahead.
Chitrita Sinha: I've got two questions, please. So, firstly, on Minerals orders. I think in the release, you said that you've got about €170 million of large orders. But given the announcements that were made, I had about -- I had more than €200 million. So, I guess if the large orders was indeed €170 million, does this imply the base order intake was about €220 million, and therefore, this is the level we would expect for Q4? That's my first one.
Eeva Sipilä: Yes, I would confirm, Chitrita, that your calculation is correct in a way, on that. And it was then it doesn't sort of automatically, of course, mean anything for the fourth quarter, but in indeed, the smaller side was a bit slower in Q3.
Chitrita Sinha: Thank you. And then I guess a second one, which is a follow-up from the earlier question on inventories. Could you just provide a bit more color in terms of what have been the challenges in reducing the inventory levels thus far? And obviously, I guess, how you would get to those €100 million to €200 million incremental going forward?
Eeva Sipilä: Well, it's a broad-based effort. And then of course, the main challenge, I would say, is really getting all our efforts aligned globally and sort of -- not sort of sub-optimizing somewhere else when you -- if you take two aggressive action in one part of the value chain. And how we sort of break it down is really into very granular efforts coming from sort of a few million rather than sort of a one big program. It's really a sort of long list in Excel that I look at and when we follow it up on a monthly basis. So, I think it's really -- the speed is perhaps also one thing where I think originally, we were -- we thought that the supply chain kind of works through the -- from order to delivery quicker. And then when you start sort of even if you stop ordering or slowdown ordering new do things in the actual sort of turn times in -- through our sort of global system, so to say, which consists of many inventories in warehouses and factories. So, kind of, that chain -- the length of that chain. And obviously, that points to certain opportunities for us going forward in a way where we can and do need to further streamline. But it's these type of things. And as I said, we've also wanted to sort of do it in a very responsible and away from a margin point of view because we feel the inventory as such is current.
Chitrita Sinha: Thanks Eeva. Very clear.
Operator: The next question comes from Vlad Sergievskiy from Barclays (LON:BARC). Please go ahead.
Vlad Sergievskiy: Hi, good afternoon and thank you for the opportunity. I have three questions, and I'll ask them one by one. First one is a follow-up on inventories. So, this €200 million reduction -- or first €100 million reduction over the long-term, would you be able to give us an idea how those numbers could be split between finished goods inventories on one side and all other inventories on the other?
Eeva Sipilä: Well, the bulk of the work Vlad is going on, on the finished goods side in a way, that's where we consider the excess to be. I mean, then obviously, we have in our business model is inherently that work in progress goes up and down depending a bit on how projects move and that is something that we wouldn't such want to, in any way, sort of mess up with it. It follows the course more of kind of how things move and proceed in the customer projects. And sometimes, there may be delays sometimes as things move earlier and that -- there's -- obviously, that's a big puzzle of many parties involved. So, in that sense, this €200 million is really around the finished goods side.
Vlad Sergievskiy: Superb. That's very clear. If I can also ask about the customer hedges, which you highlighted from both small and new equipment orders and larger upgrades and service, what do you think is driving this case today? Metal prices are very favorable. Your customers, I don't think have any problems with the cash flows. So, what do you think is the reason for that?
Pekka Vauramo: Yes. Of course, we need to look at what metals we talk about or what Minerals we talk about copper prices and gold prices are favorable, and we don't see any issue in that part of the market. But at the same time, nickel mines, zinc mines, zinc mines and -- and of course, all the battery metals side, those businesses are very much in sort of cost cutting gas preserving mode by themselves. And we need to remember that both our segments, our customers and our distributors went into or came out of pandemics with fully, fully stocked. And so we're fully stocked and this destocking is there still -- that needs to take place before we start to see the sort of fresh volumes flowing in and properly.
Vlad Sergievskiy: Got it. That's very clear. And my final one, more a housekeeping one. Other operating expenses in the P&L were €19 million positive this quarter, which is the highest quarterly number over the past years from what I can see. What is the nature of this big positive contribution to earnings to this line, please?
Eeva Sipilä: Well, Vlad, it is a bit of a mixed bag. I mean, there's gains from disposals, various kinds. There is some FX included. Sometimes there is some sort of nonoperational provisions related. So, yes, indeed, it was a higher number in this quarter, but really nothing specific I would pinpoint to in a way. But yes, I wouldn't sort of expect that every quarter from here on is like that. So, -- but sometimes a bit lumpy.
Vlad Sergievskiy: Understood. Thank you very much for the answers.
Operator: The next question comes from William Mackie from Kepler Cheuvreux. Please go ahead.
William Mackie: Yes. Good morning. Thank you for the time to ask the questions. So, my first question is very top down. Pekka, you leave a great legacy of transforming Metso to its shape today and the transitional handover to Sami is done from an internal perspective to ensure continuity. So, with those things in mind, as the company moves into a new era or a new phase, can you share any thoughts as to where you see the most critical priorities to develop from here? And perhaps given Sami, your background, what do you initially sense if it's perhaps too early, but what do you sense are the areas where you can push to develop and take Metso to the next level?
Pekka Vauramo: If I start, of course, I don't want to put -- or add anything on Sami's list of things to do, but I see very much that we are on a journey. And even though there's a change in leadership, I don't think it's a reason for us to stop. And we have so many good things in the pipeline. We have a good mindset how to implement those implement those things. And I'm quite sure that Sami will sort of review what those are valid going forward and which ones are not. We have certainly discussed already in this call, called some of those things. And obviously, we need to pay attention to that in different shocks that we continue to see in the marketplace and in the environment that we manage our inventories better than we have succeeded during my time and I understand that part. I'm sure that Sami won't be able to escape that one, but I would leave more or less the rest for Sami to comment.
Sami Takaluoma: Yes, definitely, there is a good foundation to continue. A lot of the things that are already ongoing and they can be accelerated and having more focus. I think thinking your question here. So, one area that we can still improve is definitely to show for our customers, the true complete value in our offering from the perspective that the total cost of ownership is even more visible for our customers. And that is one area that we will go in to work together as a big team of Metso. And then, of course, we have those operational excellence areas where I'm more than eager to take a look at what can be done faster or better or with the better results going forward in the upcoming years. But the main building blocks are there already. We have a culture where we have people easily coming online to understand that what is important and we are then able to move as a complete company to the right direction. And then of course, we continue to build this resilience when it comes to the continuing the journey of our margins, for example, which will be very much in the agenda for the management going forward.
William Mackie: Thank you very much for that initial insight. My first -- second question comes back to mining or perhaps the group. I noticed that there was a big step-up in revenue recognition over time in Q3 this year compared to last year that's not broken into the segments. But I mean, how should we think about the revenue development in the fourth quarter of the year within mining or Minerals rather given that you've been trending down about 20% each quarter through the year, and we haven't seen a material shift in underlying orders?
Eeva Sipilä: Well, I think indeed, the backlog does kind of dictate what's sort of feasible to expect on the top line? And whilst we've now had a better quarter in orders, obviously, these recent orders don't really contribute much sales into this year that's more for 2025. So, in that sense, whilst I would say that the sales in the third quarter were on the low side, there's not that huge in difference necessarily. Feasible to expect in the fourth quarter, hopefully, a bit sort of a bit brisker activity on the aftermarket that -- and then some opportunity. Usually, the fourth quarter is slightly better on the capital side. There's deadlines on deliveries in a way that we'll certainly try to make.
William Mackie: Superb. Thanks. And the last one comes back to Aggregates and the service business. I mean, when you look at the decline in underlying service in Aggregates, maybe what's the best way to interpret that? Where do you think it is that the customers are dropping off on their service rates?
Eeva Sipilä: Well, the challenges in Aggregates are clearly focused around the mobile equipment. The stationary side is performing better and that does then apply both to equipment and the aftermarket side.
William Mackie: Super. Thank you very much.
Operator: The next question comes from Antti Kansanen from SEB. Please go ahead.
Antti Kansanen: Hi, I had two follow-up questions. First is on the margin and the positive contribution from the other operating expenses and an income, and I mean, you also have a clear reduction on your current provisions on your balance sheet. So, I just wanted to understand, is this something that is driving the strong margins on the Mineral side? I mean you flagged the equipment mix, but is there something related to project execution that results on the release of provisions and the contribution on the other OpEx line. So, maybe Eeva, if you could still open up that a bit more?
Eeva Sipilä: Sure Antti. So, the change in provisions, I would say, really relates to the waste-to-energy termination. I mean, as you remember, we did have provisions there, not unfortunately enough to cover then the final outcome. But that obviously is still a relatively sizable change. So, not really a link, as I was telling, I believe, Vlad earlier, earlier in the call, this other income and expenses is more than sort of combination of many smaller things, so to say, so not really linked with the sort of the project provision related issues.
Antti Kansanen: So, if I understood correctly, the -- even if it's a discontinued operation and kind of the negative items are -- there -- it's still visible on the balance sheet on the provision line when you released the original one or?
Eeva Sipilä: Typically when -- because these have been sort of discontinued for many, many years, there's -- at some point, you need to bring some of the balance sheet things back on even if the business from a P&L point of view continues and discontinued. So, -- and of course, you also have the slightly reduced balance sheet in the interim review. So, that, I mean, fewer roles, it will be perhaps more clear when the annual report comes out.
Antti Kansanen: Okay, that makes sense. And then another follow-up was on the finished good inventory situation and on the, let's say, midterm potential to release the finished goods there. So, could you talk about -- is the bulk of that consumable spare part and aggregate equipment inventory that is sitting there because I think kind of the size of the market and the situation among the clients is a bit different between the different products. So, just wanted to understand what's the challenge of getting that out to the market?
Eeva Sipilä: Well, it certainly impacts both segments. On the Minerals side, it is really aftermarket. So, services, consumables related. In the Aggregates segment, it's there is a sizable equipment chunk, but there is also then aftermarket, so both spare parts and consumables related.
Antti Kansanen: And if we compare it to kind of the excess inventory value between what's Minerals, what's aftermarket, is there any comment on that one?
Eeva Sipilä: Nothing -- not quite sure of your question Antti.
Antti Kansanen: No, I just wanted to understand that on the size of kind of the inventory release that you're targeting, is it more bigger portion of the excess inventories in value let's say, Minerals -- Aftermarket products?
Eeva Sipilä: All right. Yes, then I would say that indeed, it's really the mining aftermarket where there's a sizable chunk, and that's really obviously the area that really got a bit sort of clearly too big with all the concerns for downtime. And obviously, in an area where our customers are very demanding what comes to availability of the spares and wears.
Antti Kansanen: All right. And then maybe a last one, if you could remind because you mentioned that a year ago in Q4, you had a bit of that kind of before year-end pre-buying on the Aggregates equipment. Was the turn of the year last year still a period when you made price increases on that business, which kind of resulted in clients buying before that?
Eeva Sipilä: That was part of it. But then if you remember, it was a very brisk start of the year into this year in the Aggregates. And then it actually then it quickly slowed down. So there was also a clear sentiment booster that impacted the customer behavior in sort of late 2023 already and then certainly continued well into early 2024.
Antti Kansanen: All right. Thank you very much.
Operator: The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Panu Laitinmäki: Thank you. I have three questions. Firstly, on the order intake. Can you talk about your expectations for Q4. I mean, we have now seen some announcements, but in Q2 report, you were expecting for better order momentum, and we saw a good Q3. But got this comment still hold for Q4 as well?
Pekka Vauramo: Yes, I would say, Minerals side, they still do hold, but I want to sort of just say that always, when we talk about bigger orders, they can easily move one quarter to a later date or even two quarters. So, there's great uncertainty when we really look at the order intake, how it develops. I commented earlier that we do have an increased proposal pipeline, and there is potential for near-term orders. But anything bigger, I mean, difficult really to say. I mean if the boardrooms are not ready to decide or so, I mean there's very little we can do about that one. But if things proceed in the boardrooms, then, of course, we do see then with a small delay from that on orders on our side as well. Proposals we have, but no certainty on timing.
Panu Laitinmäki: Okay. Thank you. Then secondly, on the margins, did you get a benefit from raw material costs in Minerals? Because I recall that two years ago, there was this issue with consumables suffering from high energy costs and so on, but have you kind of gotten it the other way recently?
Pekka Vauramo: If you recall, we also said that we are indexing -- we did index our contracts, which means that when the inputs are getting more expensive, we're getting price increases and then it works the other way around when the inputs are cheaper. So, nothing material. With these actions, we try to hedge our margin. And I think we succeeded reasonably well with that one.
Panu Laitinmäki: Okay. Thanks. Then the third and final question is just on kind of project risk. I just noticed that Freeport is having some issues with the smelter, which I believe you delivered there was a fire and delayed startup. Even if you cannot comment on individual [ph] customer, can you kind of on a general level of comment, is there a possibility for you to kind of have to pay something if a customer gets a delayed start-up because of something delivered by you?
Pekka Vauramo: This is a very recent event in that case. And we have -- we do not have really full details of the case. And therefore, I do not comment anything on the [Indiscernible] case. Future will show what the cause of this one was. And then, of course, we need to look at what consequences it has or hasn't on us. But at this moment, there's nothing been pointing that we would be responsible for what has happened there.
Panu Laitinmäki: Okay. Thank you.
Operator: The next question comes from Mikael Doepel. Please go ahead.
Mikael Doepel: Yes. Thank you very much. So, firstly, on the aftermarket business in Minerals, I remember you have previously said that you do target growth there, both in terms of orders and revenues this year. So, just wondering if this target still stands given what you have reported so far expectations going forward?
Pekka Vauramo: That's still what we have in our estimates as well.
Mikael Doepel: Okay, that's very clear. Thank you. And partly relating to that, I mean, you also mentioned the FX impact, which was quite negative actually in the third quarter, if you look at your numbers there on both, you could say, orders and revenues. Any ideas of -- what do you expect in terms of the FX impact on a year-over-year basis in Q4?
Eeva Sipilä: That's a tough one, Mikael. I wish I knew. I think many people in the world would want to know with all these geopolitics, it can go many ways. But yes, I mean, it is what it is, and then we'll just sort of report it separately so that you can sort of see the underlying trend.
Mikael Doepel: Okay. And then finally, I mean, you mentioned in the report as well, the still challenging mobile equipment market for Aggregates in the U.S. in particular. So, maybe just give some of the latest update there? Where do you see distributor inventories now? Have they changed in the past months when do you expect to see improvements there?
Pekka Vauramo: Yes, I would say that since we are in the low season now and considering that a lot of inventory sits with the dealers. So, it's inventory that we have sold to dealers and that mostly sits in the North America. So, the season, I'm sure that we will see uptick for the season. Is that going to be stronger than last year? I don't sort of comment on that one at all. But I would say that earliest we could see improvement in our sort of order bookings would be second quarter of next year, but that depends really on how strong the season is and if the destocking really clears the stocks -- dealer stocks during the first quarter or not.
Mikael Doepel: Okay, that’s very clear. Thank you very much.
Operator: The next question comes from David Farrell from Jefferies. Please go ahead.
David Farrell: Hi, thanks very much for squeezing my question in. I just had a quick one around discontinued operations. I noticed in the recent [Indiscernible] announcement, roughly about a third of those orders were going into the discontinued business. So, can you give us an update as to kind of what's left in discontinued and actually what the plan is for discontinued operations over the medium term? Thanks.
Eeva Sipilä: Now, post the termination of the waste to energy business, what's left in discontinued operations is the Metals businesses that we announced some time back to be divested. That's the ferrous and heat transfer business and then the more the chemical side, acid plant side of the business. And they are still working on divestments and finding new homes for those businesses. And then obviously, any sort of order intake we have in those business would then most likely move to the new owners.
David Farrell: Okay. Thanks very much.
Operator: The next question comes from [Indiscernible] from Bank of America (NYSE:BAC). Please go ahead.
Unidentified Analyst: I've got two questions, but they, I would say, go hand-in-hand. You mentioned a little bit earlier that you see improved greenfields, so I was just wondering, you said it's mostly focused on copper here. Could you please also explain a bit more in which regions do you see this a bit more about the trends here? And then this, in combination too, we have seen now improving OE order intake for the Minerals business? And would you say that this is something here to stay? Do you feel like we're here at an inflection point going forward? Thank you.
Pekka Vauramo: I think the inflection point, we still need to see truly happening, but we have the proposal pipeline, which is on clearly on a higher level, and it's now third quarter into that we see the proposal pipeline being on a higher level. Geographies, we will see things moving ahead in South America sometime next year. next year, both in Peru and in Chile, possibly in Argentina as well, these are all copper. And there's several companies that do have to have the properties that they can develop. We might see also something in Southwest U.S. happening and then a smaller gold mining projects in various countries that are gold-producing regions.
Unidentified Analyst: Thank you.
Juha Rouhiainen: All right. Ladies and gentlemen, we are now at the hour, and we need to conclude our conference call. Shortly before we go, Pekka, this is your last conference call. I'm sure everyone in this room and on the line can join us in thanking you for your contribution over these years and we wish you well. And Eeva, Sami, and the rest of us will be coming back in February, discussing our fourth quarter results. But I'm sure we'll be meeting many of you before that and looking forward to it. But now, thank you, and have a good day. Thank you.
Pekka Vauramo: Thank you.
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