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| Metso's Interim Review, January 1-March 31, 2009 |
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http://m.lylths.com
2009-04-29 |
|
Metso's Company Release on April 28, 2009 at 12.00 p.m. local time
Cash flow improved. Market outlook unchanged.
Highlights of the first quarter of 2009
* New orders worth EUR 942 million were received in January-March
(EUR 1,509 million in Q1/08), i.e. 38 percent less than in the
comparison period.
* At the end of March, the order backlog was 4 percent lower than
at the end of December 2008, amounting to EUR 3,934 million (EUR
4,088 million at December 31, 2008).
* Net sales decreased by 13 percent, standing at EUR 1,220 million
(EUR 1,400 million in Q1/08).
* Earnings before interest, tax and amortization (EBITA) were EUR
68.8 million, i.e. 5.6 percent of net sales (EUR 133.7 million
and 9.6% in Q1/08).
* Operating profit (EBIT) was EUR 58.6 million, i.e. 4.8 percent of
net sales (EUR 119.6 million and 8.5% in Q1/08).
* Earnings before interest, tax and amortization (EBITA) and
operating profit (EBIT) include EUR 22 million of non-recurring
expenses relating to capacity adjustment measures.
* Earnings per share were EUR 0.18 (EUR 0.55 in Q1/08).
* Free cash flow was EUR 120 million positive (EUR 99 million
negative in Q1/08).
* Return on capital employed (ROCE) before taxes was 9.0 percent
(20.9% in Q1/08).
"The overall market sentiment in our customer industries continues to be cautious. There have been some weak positive signals, but it is too early to say if this is enough to improve confidence levels and to start gradual recovery," says Jorma Eloranta, President and CEO of Metso Corporation. "In the continuing demanding market situation, it is important for Metso to be prepared should the situation change - for better or for worse. Our delivery capability is good and we are continuing several long-term initiatives to enhance our competitiveness. At the same time, we are prepared to launch additional capacity adjustment measures quickly should the situation demand it." Eloranta notes that the order intake in the first quarter was low, in line with the levels reached towards year end. "Our services business net sales were on par with the corresponding period last year, which I consider positive for Metso. I am also pleased that our efforts to improve cash flow and release net working capital are showing positive results," says Eloranta.
Metso's key figures
EUR million Q1/09 Q1/08 Change % 2008
Net sales 1,220 1,400 -13 6,400
Net sales of services business 506 501 1 2,343
% of net sales 42 36 37
EBITA before non-recurring capacity 90.8 133.7 -32 680.9
adjustment expenses
% of net sales 7.4 9.6 10.6
Earnings before interest, tax and
amortization (EBITA) 68.8 133.7 -49 680.9
% of net sales 5.6 9.6 10.6
Operating profit 58.6 119.6 -51 637.2
% of net sales 4.8 8.5 10.0
Earnings per share, EUR 0.18 0.55 -67 2.75
Orders received 942 1,509 -38 6,384
Order backlog at end of period 3,934 4,340 -9 4,088
Free cash flow 120 -99 n/a 29
Return on capital employed (ROCE) before
taxes, annualized, % 9.0 20.9 23.2
Equity to assets ratio at end of period, % 30.3 36.8 30.9
Gearing at end of period, % 72.6 39.1 75.7
Metso's first quarter 2009 review
Operating environment and demand for products
Due to the decline of the global economy and the uncertainty in the financial markets, our operating environment continued to be demanding during the first quarter. Our customers were cautious in their investment decisions, which kept the demand for our new equipment and project businesses weak. Even though our customers' capacity utilization rates were lower than a year ago, the demand for our services business remained satisfactory thanks to the strong growth in our installed equipment base in recent years.
We estimate that the economic stimulus packages launched by a large number of countries will at some point have a positive effect on the construction industry in particular, and on the demand for power plants utilizing renewable energy sources. However, these stimulus packages did not effect our orders received during the early part of the year.
Orders received and order backlog
Our orders received in the first quarter totaled EUR 942 million, down 38 percent on the comparison period. There were significantly fewer cancellations of orders received than in the last quarter of 2008. Cancellations in January-March amounted to some EUR 32 million. The majority of the cancellations, EUR 23 million, related to the Construction business line and the remaining EUR 9 million to the Recycling business line. The share of emerging markets in orders received, 43 percent, remained almost on par with the comparison period. All of our reporting segments' orders received decreased as our customers hesitated to make new investment decisions in the face of the continuing uncertainty in the global markets and poor availability of financing.
The orders received by the Mining and Construction Technology segment in January-March fell 44 percent on the corresponding period in 2008 and totaled EUR 385 million (EUR 687 million). Orders received were primarily smaller replacement and services orders, no larger project orders were received. The new orders received by the Mining business line fell over 30 percent on the comparison period. The decline in orders for the Construction business line was more than 50 percent.
The orders received by our Energy and Environmental Technology segment totaled EUR 265 million, down 31 percent on the comparison period. Orders received went down more than 20 percent in the Power business line and almost 30 percent in the Automation business line. Orders received by the Recycling business line decreased to half on the comparison period. Among the orders received for the first quarter of 2009 was the modernization of the chemical recovery line for Korsnäs in Sweden.
Orders received by the Paper and Fiber Technology segment in January-March fell by 36 percent from the comparison period and totaled EUR 279 million. Very few capital equipment orders were received by any of the business lines in the segment. Among the more significant orders received in the first quarter were a fine paper machine to be supplied to Sun Paper Group in China and the rebuild of a board machine line for a Stora Enso mill in Finland.
At the end of March, our order backlog was EUR 3,934 million, which is 4 percent less than at the end of 2008. Some 60 percent of the order backlog is expected to be delivered in 2009. The order backlog includes projects worth around EUR 900 million which have uncertain delivery times and are projected to be delivered after 2009. These orders include the pulp mill projects for Zhanjiang Chenming in China and Aracruz in Brazil. The situation of both projects remained virtually unchanged since the review presented in our annual financial statements.
Orders received by reporting segments
Q1/2009 Q1/2008
EUR million % of orders EUR % of orders
received million received
Mining and Construction
Technology 385 41 687 45
Energy and Environmental
Technology 265 28 382 25
Paper and Fiber 279 29 433 28
Technology
Valmet Automotive 21 2 23 2
Intra-Metso orders
received -8 -16
Total 942 100 1,509 100
Orders received by market area
+-------------------------------------------------------------------+
| | Q1/2009 | Q1/2008 |
|----------------------+-----------------------+--------------------|
| | EUR | % of orders | EUR | % of |
| | million | received | million | orders |
| | | | | received |
|----------------------+---------+-------------+---------+----------|
| Europe | 386 | 41 | 608 | 40 |
|----------------------+---------+-------------+---------+----------|
| North America | 167 | 18 | 300 | 20 |
|----------------------+---------+-------------+---------+----------|
| South and Central | 134 | 14 | 150 | 10 |
| America | | | | |
|----------------------+---------+-------------+---------+----------|
| Asia-Pacific | 201 | 21 | 319 | 21 |
|----------------------+---------+-------------+---------+----------|
| Rest of the world | 54 | 6 | 132 | 9 |
|----------------------+---------+-------------+---------+----------|
| Total | 942 | 100 | 1,509 | 100 |
+-------------------------------------------------------------------+
Net sales
Our net sales for the first quarter declined 13 percent on the comparison period and totaled EUR 1,220 million. The net sales of Mining and Construction Technology remained at last year's level, the net sales of Energy and Environmental Technology grew by 6 percent and those of Paper and Fiber Technology declined by 41 percent. The net sales of our services business remained at the level of comparison period and its share of total net sales grew to 42 percent (36% in Q1/08).
Measured by net sales, the largest countries were the United States, China and Brazil, which together accounted for about 29 percent of our total net sales.
Net sales by reporting segments
Q1/2009 Q1/2008
EUR million % of net EUR million % of net
sales sales
Mining and Construction
Technology 528 43 534 38
Energy and Environmental
Technology 397 32 373 26
Paper and Fiber Technology 287 23 483 34
Valmet Automotive 21 2 23 2
Intra-Metso net sales -13 -13
Total 1,220 100 1,400 100
Net sales by market area
Q1/2009 Q1/2008
EUR million % of net EUR million % of net
sales sales
Europe 526 43 569 40
North America 197 16 213 15
South and Central 160 13 175 13
America
Asia-Pacific 234 19 365 26
Rest of the world 103 9 78 6
Total 1,220 100 1,400 100
Financial result
Our earnings before interest, tax and amortization (EBITA) for the first quarter declined substantially from the comparison period and were EUR 68.8 million, or 5.6 percent of net sales (EUR 133.7 million and 9.6% in Q1/08). Our financial results include non-recurring expenses of EUR 22 million related to capacity adjustment measures, out of which close to EUR 17 million relate to Paper and Fiber Technology segment. The EBITA of Paper and Fiber Technology weakened by more than EUR 40 million and was EUR 14.0 million negative. In addition to the significant one-time cost related to the capacity adjustment measures, the profitability of Paper and Fiber Technology segment was weakened by the low capacity utilization rates of several units. Also the financial result of Mining and Construction Technology segment was lower than that in the comparison period due to the markedly weakened profitability of the Construction business line. The Construction business line's profitability weakened due to a decline in market prices, the high average prices of inventories carried over from 2008 and the low capacity utilization rates of production facilities. The profitability of Energy and Environmental Technology was on par with the comparison period.
Our first-quarter operating profit (EBIT) was EUR 58.6 million, i.e. 4.8 percent of net sales (EUR 119.6 million and 8.5% in Q1/08).
Our net financing expenses in January-March were EUR 22 million (EUR 9 million). Due to the higher debt level compared to last year, our interest expenses increased by EUR 8 million. Other financial expenses include a EUR 4 million reversal of translation adjustments resulting from the liquidation of two subsidiaries.
Our profit before tax was EUR 37 million (EUR 111 million) and our tax rate for 2009 is estimated to be about 30 percent.
The profit attributable to shareholders was EUR 26 million (EUR 78 million in Q1/08) in the first quarter, corresponding to earnings per share (EPS) of EUR 0.18 (EUR 0.55 in Q1/08).
In January-March, the annualized return on capital employed (ROCE) before taxes was 9.0 percent (20.9%) and return on equity (ROE) was 7.1 percent (20.1%).
Cash flow and financing
The net cash generated by operating activities for January-March was EUR 136 million positive (EUR 69 million negative in Q1/08).
During the first quarter, EUR 94 million of net working capital was released. EUR 62 million of the release came from inventories and EUR 141 million from trade receivables. Simultaneously, trade payables decreased by EUR 117 million and advances received by EUR 26 million. Inventories in Mining and Construction Technology decreased by EUR 72 million, as a result of the ongoing special inventory reduction initiative.
Free cash flow was EUR 120 million positive in January-March (EUR 99 million negative in Q1/08).
Net interest-bearing liabilities totaled EUR 1,022 million at the end of March (EUR 1,099 million at December 31, 2008).
The total amount of short-term debt maturing within the next 12 months was EUR 399 million at the end of March. EUR 127 million of the short-term debt consists of commercial papers issued in the Finnish markets, EUR 189 million are current portions of long-term debt and the remainder is local working capital financing of certain subsidiaries, primarily in Brazil. About EUR 90 million of existing long-term debt will mature during the last three quarters of 2010.
The total amount of net funding we acquired in January-March was EUR 13 million, which included EUR 50 million new long-term debt. Metso's liquidity position continues to be satisfactory. Our cash and liquid assets totaled EUR 436 million at the end of the first quarter. The syndicated EUR 500 million revolving loan facility is available until late 2011, and it is currently undrawn.
At the end of March, our gearing was 72.6 percent (39.1%) and the equity-to-assets ratio was 30.3 percent (36.8%). In April, following the Annual General Meeting, we paid EUR 99 million in dividends for 2008.
Capital expenditure
Our gross capital expenditure for January-March decreased by 29 percent on the comparison period, and was EUR 30 million (EUR 42 million in Q1/08).
We estimate our capital expenditure, excluding business acquisitions, to be some EUR 150 million this year. Due to the changed global economic situation, we have decided to restrict the amount of new investments and will also consider extending the implementation schedules of ongoing investment projects when feasible.
In China, we are constructing new plant and office premises for our Automation business in Shanghai. The Metso Park industrial facility, designed especially to serve the mining and construction industry, is under construction in Rajasthan, India. In Finland, we are upgrading a pilot machine at the Paper Technology Center in Jyväskylä. We are establishing a third service center for the pulp and paper industry in China, to Zibo in Shandong province. Investment projects in enterprise resource planning systems are underway in Mining and Construction Technology and in the Automation business line. Due to the changed market conditions, we have extended the implementation schedules for the Metso Park and Zibo service center investments.
Acquisitions, divestments and joint ventures
In January, we sold our composites manufacturing business and related assets in Oulu, Finland, to xperion Oy. Annual net sales of the divested business have been less than EUR 5 million. The entire personnel of the business, 21 people, were transferred to xperion Oy. The divested business was part of our Paper business line.
Late 2008, we made an agreement with Wärtsilä to combine our Heat & Power business (a business unit within the Power business line) and Wärtsilä's Biopower business into a joint venture as of January 1, 2009. The joint venture was named MW Power Oy. We own 60 percent and Wärtsilä owns 40 percent of the joint venture. An order backlog of approximately EUR 116 million was transferred with Wärtsilä Biopower Oy to the joint venture. In 2008, the consolidated annual pro forma net sales of the company were approximately EUR 130 million and the number of employees about 200.
Adjusting capacity to demand
We began adjusting our capacity and cost structure immediately when the market situation started to weaken in September 2008 and have continued these measures in 2009. The aim is to ensure the competitiveness of our operations.
Our first steps were to reduce the number of temporary personnel and the use of subcontractors. In addition we have initiated temporary lay-offs and permanent reductions at several of our units. In most cases, the temporary lay-offs concern all employee groups, and their duration varies, depending on the work load, from few weeks to longer periods. The temporary lay-offs are mainly in use in Finland where local agreements allow for this type of flexibility. In other countries we have applied alternative options made possible by labor legislation, such as a shortened work week. Through the implementation of temporary lay-offs in Finland, we estimate that we will achieve some EUR 25-30 million in savings in personnel costs over the course of this year. Furthermore, during the first quarter we have concluded negotiations to make about 1,800 permanent employees redundant. During the first quarter, we recorded EUR 22 million in non-recurring expenses resulting from these personnel reductions and the closures of units connected with them. With these measures we estimate that we will achieve annual savings of about EUR 90 million, of which about EUR 40 million is estimated to be realized in 2009.
The table below details the most significant capacity adjustment measure decisions.
+-------------------------------------------------------------------+
| Segment | Business line | Measures | Implementation |
| | | | starting |
|-----------------+---------------+----------------+----------------|
| Mining and | Mining | Reduction of | December 2008 |
| Construction | | about 300 | |
| Technology | | people, | |
| | | temporary | |
| | | lay-offs | |
| | | according to | |
| | | work load, | |
| | | unit closures. | |
|-----------------+---------------+----------------+----------------|
| Mining and | Construction | Reduction of | December 2008 |
| Construction | | about 300 | |
| Technology | | people, | |
| | | temporary | |
| | | lay-offs, unit | |
| | | closures. | |
|-----------------+---------------+----------------+----------------|
| Energy and | Power | Reduction of | March 2009 |
| Environmental | | about 20 | |
| Technology | | people, | |
| | | temporary | |
| | | lay-offs. | |
|-----------------+---------------+----------------+----------------|
| Energy and | Automation | Reduction of | March 2009 |
| Environmental | | about 80 | |
| Technology | | people | |
| | | including | |
| | | closure of a | |
| | | unit and | |
| | | temporary | |
| | | lay-offs. | |
|-----------------+---------------+----------------+----------------|
| Energy and | Recycling | Reduction of | September 2008 |
| Environmental | | about 20 | |
| Technology | | people, | |
| | | temporary | |
| | | revoking of | |
| | | contracts, | |
| | | shortened | |
| | | working hours. | |
|-----------------+---------------+----------------+----------------|
| Paper and Fiber | Paper | Reduction of | December 2008 |
| Technology | | about 750 | |
| | | people, | |
| | | temporary | |
| | | lay-offs, unit | |
| | | closures, | |
| | | transfers of | |
| | | personnel to | |
| | | other units. | |
|-----------------+---------------+----------------+----------------|
| Paper and Fiber | Fiber | Reduction of | December 2008 |
| Technology | | about 250 | |
| | | people, | |
| | | temporary | |
| | | lay-offs, | |
| | | reduction of | |
| | | temporary | |
| | | personnel. | |
|-----------------+---------------+----------------+----------------|
| Paper and Fiber | Tissue | Reduction of | January 2009 |
| Technology | | about 80 | |
| | | persons. | |
+-------------------------------------------------------------------+
Personnel
At the end of March, Metso had 28,312 employees, which was 1,010 less than at the end of 2008. The number of employees fell especially in Finland and Sweden, as a result of the capacity adjustment measures in Paper and Fiber Technology. During the first quarter of the year, we had an average of 28,817 employees.
Personnel by area
March 31, % of total December % of total Change
2009 personnel 31, 2008 personnel %
Finland 8,906 32 9,252 32 -4
Other Nordic 3,167 11 3,332 11 -5
countries
Other Europe 3,729 13 3,842 13 -3
North America 3,747 13 3,964 14 -5
South and Central 2,931 10 2,991 10 -2
America
Asia-Pacific 4,390 16 4,469 15 -2
Rest of the world 1,442 5 1,472 5 -2
Total 28,312 100 29,322 100 -3
REPORTING SEGMENTS
Mining and Construction Technology
+-------------------------------------------------------------------+
| EUR million | Q1/09 | Q1/08 | Change % | 2008 |
|-------------------------+--------+--------+----------+------------|
| Net sales | 528 | 534 | -1 | 2,586 |
|-------------------------+--------+--------+----------+------------|
| Net sales of services | 243 | 238 | 2 | 1,078 |
| business | | | | |
|-------------------------+--------+--------+----------+------------|
| % of net sales | 46 | 45 | | 42 |
|-------------------------+--------+--------+----------+------------|
| Earnings before | | | | |
| interest, tax and | 55.6 | 78.9 | -30 | 361.2 |
| amortization (EBITA) | | | | |
|-------------------------+--------+--------+----------+------------|
| % of net sales | 10.5 | 14.8 | | 14.0 |
|-------------------------+--------+--------+----------+------------|
| Operating profit | 54.9 | 78.2 | -30 | 358.4 |
|-------------------------+--------+--------+----------+------------|
| % of net sales | 10.4 | 14.6 | | 13.9 |
|-------------------------+--------+--------+----------+------------|
| Orders received | 385 | 687 | -44 | 2,709 |
|-------------------------+--------+--------+----------+------------|
| Order backlog at end of | 1,347 | 1,562 | -14 | 1,492 |
| period | | | | |
|-------------------------+--------+--------+----------+------------|
| Personnel at end of | 10,826 | 10,063 | 8 | 11,259 |
| period | | | | |
+-------------------------------------------------------------------+
The net sales of our Mining and Construction Technology segment remained on par with the comparison period, equaling EUR 528 million. The Mining business line's net sales grew, while the net sales of the Construction business line decreased. The net sales of services business were on par with the comparison period and accounted for 46 percent of net sales (45% in Q1/08).
Mining and Construction Technology's operating profit for the first quarter was EUR 54.9 million, or 10.4 percent of net sales (EUR 78.2 million and 14.6%). The segment's operating profit was burdened by almost 4 million in non-recurring expenses relating to the capacity adjustment measures. Strong profitability was maintained in the Mining business line but profitability declined significantly in the Construction business line. The profitability of the Construction business line was weakened by the decline in market prices, the high average prices of inventories carried over from 2008 and the low capacity utilization rates of production facilities.
The value of orders received declined clearly from the comparison period and was EUR 385 million in January-March (EUR 687 million in Q1/08). The value of new orders decreased in both business lines in all geographical areas. Investment activity in the mining industry remained subdued due to the continuing low prices of metals and uncertainty in the financial markets. The demand for the Construction business line's products was depressed because of the major slowdown in the construction industry and general uncertainty about short-term outlook. The relative share of orders received from the emerging markets declined slightly, equaling 49 percent (51%). During the first quarter, earlier received orders worth EUR 23 million were canceled in the Construction business line.
The order backlog declined by 10 percent from the end of 2008 and totaled EUR 1,347 million at the end of March (EUR 1,492 million on December 31, 2008). Around EUR 300 million of the mining equipment orders in the order backlog have somewhat uncertain delivery schedules.
Energy and Environmental Technology
+-------------------------------------------------------------------+
| EUR million | Q1/09 | Q1/08 | Change % | 2008 |
|--------------------------------+-------+-------+----------+-------|
| Net sales | 397 | 373 | 6 | 1,775 |
|--------------------------------+-------+-------+----------+-------|
| Net sales of services business | 132 | 111 | 19 | 549 |
|--------------------------------+-------+-------+----------+-------|
| % of net sales | 34 | 30 | | 32 |
|--------------------------------+-------+-------+----------+-------|
| Earnings before interest, tax | | | | |
| and amortization (EBITA) | 32.3 | 32.4 | 0 | 198.3 |
|--------------------------------+-------+-------+----------+-------|
| % of net sales | 8.1 | 8.7 | | 11.2 |
|--------------------------------+-------+-------+----------+-------|
| Operating profit | 27.7 | 24.6 | 13 | 176.0 |
|--------------------------------+-------+-------+----------+-------|
| % of net sales | 7.0 | 6.6 | | 9.9 |
|--------------------------------+-------+-------+----------+-------|
| Orders received | 265 | 382 | -31 | 1,658 |
|--------------------------------+-------+-------+----------+-------|
| Order backlog at end of period | 1,182 | 1,331 | -11 | 1,204 |
|--------------------------------+-------+-------+----------+-------|
| Personnel at end of period | 6,387 | 5,957 | 7 | 6,357 |
+-------------------------------------------------------------------+
The net sales of our Energy and Environmental Technology grew by 6 percent on the comparison period and totaled EUR 397 million. Both Power and Automation business lines contributed to this growth while the net sales of the Recycling business line decreased from the comparison period. The services business grew by 19 percent, accounting for 34 percent of net sales (30% in Q1/08).
Energy and Environmental Technology's operating profit improved compared to the previous year and was EUR 27.7 million, which is 7.0 percent of net sales (EUR 24.6 million and 6.6% in Q1/08). The operating profit for January-March improved in the Power and Automation business lines but clearly weakened in the Recycling business line. Operating profit included close to EUR 2 million non-recurring expenses related to capacity adjustment measures.
The value of orders received fell by 31 percent from the comparison period and totaled EUR 265 million. Orders received declined across all of the business lines. EUR 9 million of orders earlier received by the Recycling business line were cancelled.
The order backlog at the end of March, EUR 1,182 million, was 2 percent lower than at the end of 2008. Projects accounting for almost EUR 200 million included in the order backlog are subject to uncertainties relating to delivery schedules. These uncertain orders include the delivery of power boiler and automation technology for the pulp mill projects of Zhanjiang Chenming in China and Aracruz in Brazil.
Paper and Fiber Technology
+-------------------------------------------------------------------+
| EUR million | Q1/09 | Q1/08 | Change % | 2008 |
|------------------------------+--------+-------+----------+--------|
| Net sales | 287 | 483 | -41 | 2,044 |
|------------------------------+--------+-------+----------+--------|
| Net sales of services | 132 | 151 | -13 | 716 |
| business | | | | |
|------------------------------+--------+-------+----------+--------|
| % of net sales | 46 | 31 | | 35 |
|------------------------------+--------+-------+----------+--------|
| Earnings before interest, | | | | |
| tax and amortization (EBITA) | -14.0 | 29.9 | n/a | 146.1 |
|------------------------------+--------+-------+----------+--------|
| % of net sales | -4.9 | 6.2 | | 7.1 |
|------------------------------+--------+-------+----------+--------|
| Operating profit | -18.2 | 24.9 | n/a | 130.1 |
|------------------------------+--------+-------+----------+--------|
| % of net sales | -6.3 | 5.2 | | 6.4 |
|------------------------------+--------+-------+----------+--------|
| Orders received | 279 | 433 | -36 | 2,021 |
|------------------------------+--------+-------+----------+--------|
| Order backlog at end of | 1,438 | 1,494 | -4 | 1,434 |
| period | | | | |
|------------------------------+--------+-------+----------+--------|
| Personnel at end of period | 10,090 | 9,892 | 2 | 10,544 |
+-------------------------------------------------------------------+
Net sales of our Paper and Fiber Technology were EUR 287 million, a decrease of 41 percent in the first quarter. The decrease was primarily due to timing of revenue recognition of some larger projects in the backlog. Net sales decreased clearly across all three business lines. The net sales of the services business declined by 13 percent in January-March and its share of the segment's net sales was 46 percent (31% in Q1/08).
Paper and Fiber Technology's EBITA was EUR 14.0 million negative in January-March (EUR 29.9 million positive and 6.2% of net sales in Q1/08). Profitability was negative across all business lines.
The operating loss was EUR 18.2 million (operating profit of EUR 24.9 million and 5.2% of net sales). The financial result for Paper and Fiber Technology includes about EUR 17 million in non-recurring expenses resulting from capacity adjustment measures. The profitability of the first quarter was also weakened by the low capacity utilization rates in several units.
The weak demand for pulp and paper industry machinery and equipment continued during the beginning of the year. The value of orders received decreased by 36 percent from the comparison period and was EUR 279 million. The order backlog at the end of March, EUR 1,438 million, was at the same level as at the end of 2008. Around one-third of the projects in the order backlog are subject to uncertainties relating to delivery schedules. These include the large Zhanjiang Chenming and Aracruz pulping equipment deliveries.
In the fourth quarter of 2008, we initiated strong measures in our Paper and Fiber Technology to adjust our capacity to the decreased demand. The target is to secure our competitiveness by streamlining the cost structure of operations. We are continuing a strong transformation to services business in our Paper and Fiber Technology segment.
Smurfit-Stone Container Corporation, one of our North American customers, announced on January 26, 2009 that it has filed a voluntary petition for reorganization under Chapter 11. For the first quarter, we have recognized a EUR 1 million credit loss reserve to cover the risks related to this reorganization.
Valmet Automotive
Valmet Automotive's net sales in January-March totaled EUR 21 million (EUR 23 million). The operating loss was EUR 0.3 million (operating profit EUR 1.0 million). In January-March, Valmet Automotive produced an average of 87 vehicles (113 vehicles in Q1/08) per day. At the end of March, Valmet Automotive employed 618 people (783 people on December 31, 2008).
In January, Valmet Automotive signed an agreement with the Danish company Garia A/S for the engineering and manufacturing of an electric vehicle, Garia golf car. Production is planned to start during the third quarter of this year. The agreement spans several years and involves the production of a few thousand Garia golf cars annually. At the end of 2008, Valmet Automotive and the U.S. company Fisker Automotive signed a cooperation agreement on the manufacture of Fisker Karma hybrid cars in Finland. Production is planned to start during the last quarter of this year. The agreement spans several years and annual production is projected to be 15,000 cars. Valmet Automotive's current assembly contract with Porsche will continue until 2012.
Decisions of our Annual General Meeting
Our Annual General Meeting on March 31, 2009 approved the accounts for 2008 and decided to discharge the members of the Board of Directors and the President and CEO from liability for the financial year 2008. In addition, the Annual General Meeting approved the proposals of the Board of Directors to authorize the Board of Directors to resolve of a repurchase of Metso's own shares, to issue new shares and to grant special rights.
The Annual General Meeting decided that a dividend of EUR 0.70 per share will be paid for the financial year which ended on December 31, 2008. The dividend was paid on April 15, 2009. In addition, the Annual General Meeting authorized the Board of Directors to decide, at its discretion and when the economic situation of Metso favors it, on the payment of a dividend of no more than EUR 0.68 per share in addition to the above mentioned dividend.
Jukka Viinanen was elected Chairman of the Board and Jaakko Rauramo was elected Vice Chairman of the Board. Pia Rudengren was elected a new member of the Board. The Board members re-elected were Maija-Liisa Friman, Christer Gardell, Arto Honkaniemi and Yrjö Neuvo. Our long-term chairman of the board, Matti Kavetvuo informed that he is not available for re-election. The term of office of Board members lasts until the end of the next Annual General Meeting.
The Annual General Meeting decided that the annual remunerations for Board members be EUR 92,000 for the Chairman, EUR 56,000 for the Vice Chairman and EUR 45,000 for the members and that the meeting fee including committee meetings be EUR 600 for each meeting they attend.
The auditing company, Authorized Public Accountant PricewaterhouseCoopers Oy was re-elected to act as the Auditor of Metso until the end of the next Annual General Meeting.
The Annual General Meeting decided to establish a Nomination Committee of the Annual General Meeting to prepare proposals for the following Annual General Meeting regarding the composition of the Board of Directors and director remuneration. Representatives of the four biggest shareholders are elected to the Nomination Committee; the Committee additionally comprises as expert members the Chairman of the Board of Directors as well as one member who is appointed by the Board of Directors from among its members who is independent of significant shareholders.
Members of Metso board committees and personnel representative
Our Board of Directors elected members from among the Board for the Audit Committee and Remuneration and HR Committee at its assembly meeting on March 31, 2009. The Board's Audit Committee consists of Maija-Liisa Friman (Chairman), Arto Honkaniemi and Pia Rudengren. The Board's Remuneration and HR Committee consists of Jukka Viinanen (Chairman), Christer Gardell, Yrjö Neuvo and Jaakko Rauramo.
Metso's personnel groups in Finland have elected Jukka Leppänen as the personnel representative. He participates in the meetings of our Board of Directors as an invited expert, and his term of office is the same as the Board members' term.
Events after the review period
AbitibiBowater Inc. files for Chapter 11 bankruptcy
AbitibiBowater Inc., one of our North American paper industry customers, announced on April 16, 2009 that it has filed a voluntary petition for reorganization under Chapter 11. We estimate that the maximum credit risk related to receivables resulting from the reorganization of AbitibiBowater will be EUR 4 million, which has been recognized on March 31, 2009.
Short-term risks of business operations
Based on the uncertainty in the global economy and financial markets, our business environment for 2009 is continuing to be demanding.
The global economic recession and the financial crisis may have adverse effects on projects in our order backlog. Some projects may be postponed or they may be suspended or canceled. We estimate that slightly over 20 percent of the projects currently in our order backlog are subject to uncertainties relating to delivery schedules. We apply the percentage of completion method to long-term delivery agreements. The customer advance payment is typically 10-30 percent, in addition to which the customer makes progress payments based on the milestones during the project execution. We assess our customers' creditworthiness and ability to fulfill their obligations. If a customer faces liquidity problems, we will discuss the possibility of changing project delivery schedules and the resulting cost escalation effects or any other measures needed. As a rule, we do not finance customer projects.
We have launched many measures to adjust to the rapidly changing operating environment. We are adjusting our capacity as well as cost and operational structure to correspond with the demand, in order to maintain our competitiveness. As a result of the global recession, the markets for our products will decrease, leading to tightening cost competition.
Securing the continuity of our operations requires that sufficient funding is available under all circumstances. The financial crisis may have adverse effects on the availability of our debt financing and increase the costs relating to it. We estimate that our financial assets and available credit facilities are sufficient to secure short-term liquidity. At the end of March, cash and cash equivalents totaled EUR 436 million and credit facilities available for withdrawal amounted to EUR 500 million. The average repayment period for our long-term loan capital is 3.7 years. More than half of our long-term debt will mature after 2011. There are no prepayment covenants in our debt facilities that would be triggered by changes in credit ratings. Some of our debt facilities include financial covenants related to capital structure. Currently we fully meet the covenants and other terms related to our financing agreements. We consider our flexibility in relation to the covenants to be adequate.
The levels of net working capital and the level of capital expenditure have a fundamental effect on the adequacy of financing. Our aim is to decrease the level of our net working capital, and this could be difficult to achieve if the economic downturn is prolonged. We have not any particularly large-scale investment projects underway, and we estimate that we are well positioned to keep our capital expenditure at a moderate level in the coming years.
We have EUR 789 million of goodwill on our balance sheet related to corporate acquisitions made over the last 10 years. We monitor our goodwill quarterly and regularly carry out comprehensive impairment testing annually in September. Following the significant changes in our business environment, we conducted additional impairment testing in December 2008 and did not find any impairments necessary. Around EUR 350 million of the goodwill on our balance sheet arises from the acquisition of Svedala in 2001 and thereby is related to Mining and Construction Technology and Recycling business line. EUR 260 million derive from the Aker Kvaerner's Pulping and Power operations acquired at the end of 2006, being allocated on our Power and Fiber business lines. EUR 50 million is related to the Beloit paper machine maintenance operations acquired in 2000 and is allocated on Paper and Fiber Technology. The rest stems from several smaller acquisitions. Our Power business line has the largest share of goodwill in proportion to net sales and profitability. The demand for power production solutions based on renewable energy sources is expected to develop favorably, and consequently the outlook for the Power business continues to be satisfactory.
Changes in the prices of raw materials and components could affect our profitability. On one hand, the risk of increases in procurement costs typically diminishes during economic downturn. On the other hand, some of our customers are raw material producers, whose ability to operate and invest may be hampered by declining raw material prices. Changes in raw material and component prices also affect the value of our inventories. Over the past few months, we have sold finished construction equipment from the inventory with a lower contribution margin than during the past few years.
Of the financial risks that affect our profit, currency exchange rate risks are among the most substantial ones. Exchange rate changes can affect our business, although the geographical scope of our operations decreases the significance of any individual currency. The prevailing uncertainty in the markets is likely to increase exchange rate fluctuations.
Short-term outlook
Based on the global economic recession and uncertain financial markets, we estimate that our business environment will be demanding this year. Our customers are being cautious in their investment decisions, which affects our new equipment sales and project business in particular.
Several mining companies are making substantial cuts in their investment plans compared with the peak investment levels of recent years and limit their production during the year. Due to our strong product and service offering, as well as our large installed equipment base which has further grown significantly over the last few years, the demand for our mining equipment and services are expected to be satisfactory in 2009. In the construction industry, we estimate that the demand for equipment relating to aggregates production will be weak. Many countries have introduced stimulus measures relating to infrastructure development, which we expect to have a positive effect on the demand for our construction industry products on longer term. We estimate that the demand for our services offering in the construction industry will be satisfactory.
We estimate that the demand for power plants utilizing renewable energy sources will be satisfactory in Europe and North America in 2009. Many countries have initiated plans to increase the use of renewable energy sources. This is expected to support the demand for power plants based on biomass and waste utilization. We estimate that the demand for our automation products will be satisfactory in 2009. The demand for metals recycling equipment is expected to be weak, owing to the low price of scrap metal and decline in steel production. We expect that the demand for the services offering of Energy and Environmental Technology will be satisfactory.
We estimate that the demand for paper, pulp and fiber lines will be weak in 2009. The delivery schedules of some of the major paper and board machine and fiber line projects in our order backlog have been prolonged. We estimate that the low capacity utilization rates in the pulp and paper industry will have a negative impact on the demand for our services business, particularly in North America and Europe.
We estimate that our net sales in 2009 will exceed EUR 5 billion in 2009. Our order backlog stands at EUR 3.9 billion, of which EUR 2.3 billion consists of deliveries for 2009. We excpect our services business to remain satisfactory in 2009.
We expect our profitability level to be satisfactory in 2009. We also expect our free cash flow to improve considerably in 2008 owing to the measures aimed at releasing net working capital.
The net sales and profitability estimates are based on our current market outlook and business scope.
Helsinki, April 28, 2009
Metso Corporation's Board of Directors
The Interim Review is unaudited
CONSOLIDATED STATEMENT OF INCOME
EUR million 1-3/2009 1-3/2008 1-12/2008
Net sales 1,220 1,400 6,400
Cost of goods sold -925 -1,038 -4,733
Gross profit 295 362 1,667
Selling, general and administrative
expenses -239 -249 -1,043
Other operating income and expenses,
net 3 6 11
Share in profits of associated
companies 0 1 2
Operating profit 59 120 637
% of net sales 4.8% 8.5% 10.0%
Financial income and expenses, net -22 -9 -89
Profit before taxes 37 111 548
Income taxes -11 -33 -158
Profit 26 78 390
Attributable to:
Shareholders of the company 26 78 389
Minority interests 0 0 1
Profit 26 78 390
Earnings per share, EUR 0.18 0.55 2.75
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
EUR million 1-3/2009 1-3/2008 1-12/2008
Profit 26 78 390
Cash flow hedges, net of tax -5 4 -33
Available-for-sale equity investments,
net of tax 6 - -19
Currency translation on subsidiary net
investments 38 -65 -49
Net investment hedge gains (losses),
net of tax -9 13 -11
Defined benefit plan actuarial gains
(losses), net of tax 0 - -22
Other comprehensive income (expense) 30 -48 -134
Total comprehensive income (expense) 56 30 256
Attributable to:
Shareholders of the company 56 30 255
Minority interests 0 0 1
Total comprehensive income (expense) 56 30 256
CONSOLIDATED BALANCE SHEET
ASSETS
Mar 31, Dec 31,
EUR million Mar 31, 2009 2008 2008
Non-current assets
Intangible assets
Goodwill 789 764 778
Other intangible assets 254 241 254
1,043 1,005 1,032
Property, plant and equipment
Land and water areas 59 54 58
Buildings and structures 245 211 239
Machinery and equipment 372 309 366
Assets under construction 55 62 63
731 636 726
Financial and other assets
Investments in associated companies 14 19 14
Available-for-sale equity investments 26 44 18
Loan and other interest bearing
receivables 8 11 8
Available-for-sale financial investments 5 5 5
Derivative financial instruments 0 1 0
Deferred tax asset 173 126 174
Other non-current assets 23 14 26
249 220 245
Total non-current assets 2,023 1,861 2,003
Current assets
Inventories 1,591 1,510 1,606
Receivables
Trade and other receivables 1,035 1,350 1,146
Cost and earnings of projects under
construction in excess of advance
billings 334 357 362
Loan and other interest bearing
receivables 8 2 9
Available-for-sale financial assets - - -
Derivative financial instruments 27 44 48
Income tax receivables 22 23 23
1,426 1,776 1,588
Cash and cash equivalents 436 389 314
Total current assets 3,453 3,675 3,508
TOTAL ASSETS 5,476 5,536 5,511
SHAREHOLDERS' EQUITY AND
LIABILITIES
EUR million Mar 31, 2009 Mar 31, 2008 Dec 31, 2008
Equity
Share capital 241 241 241
Share premium reserve - 77 -
Cumulative translation
adjustments -107 -128 -136
Fair value and other reserves 489 465 490
Retained earnings 775 989 849
Equity attributable to
shareholders 1,398 1,644 1,444
Minority interests 9 7 9
Total equity 1,407 1,651 1,453
Liabilities
Non-current liabilities
Long-term debt 1,080 860 1,089
Post employment benefit
obligations 192 168 191
Provisions 41 32 36
Derivative financial
instruments 11 - 8
Deferred tax liability 47 37 45
Other long-term liabilities 3 2 4
Total non-current liabilities 1,374 1,099 1,373
Current liabilities
Current portion of long-term
debt 189 9 101
Short-term debt 210 183 245
Trade and other payables 1,150 1,240 1,189
Provisions 245 224 218
Advances received 484 653 479
Billings in excess of cost and
earnings
of projects under
construction 350 401 323
Derivative financial
instruments 59 25 82
Income tax liabilities 8 51 48
Total current liabilities 2,695 2,786 2,685
Total liabilities 4,069 3,885 4,058
TOTAL SHAREHOLDERS' EQUITY AND
LIABILITIES 5,476 5,536 5,511
NET INTEREST BEARING
LIABILITIES
EUR million Mar 31, 2009 Mar 31, 2008 Dec 31, 2008
Long-term interest bearing
debt 1,080 860 1,089
Short-term interest bearing
debt 399 192 346
Cash and cash equivalents -436 -389 -314
Other interest bearing assets -21 -18 -22
Total 1,022 645 1,099
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
1-3/ 1-3/ 1-12/
EUR million 2009 2008 2008
Cash flows from operating activities:
Profit 26 78 390
Adjustments to reconcile profit to net cash provided
by operating activities
Depreciation and amortization 36 37 138
Interests and dividend income 16 9 57
Income taxes 11 33 158
Other 9 0 34
Change in net working capital 94 -187 -437
Cash flows from operations 192 -30 340
Interest paid and dividends received -11 -4 -49
Income taxes paid -45 -35 -154
Net cash provided by (used in) operating
activities 136 -69 137
Cash flows from investing activities:
Capital expenditures on fixed assets -30 -42 -255
Proceeds from sale of fixed assets 2 1 10
Business acquisitions, net of cash acquired -3 - -44
Proceeds from sale of businesses, net of cash
sold 2 2 12
(Investments in) proceeds from sale of
financial assets - 7 7
Other 0 -6 -7
Net cash provided by (used in) investing
activities -29 -38 -277
Cash flows from financing activities:
Redemption of own shares -2 - -
Dividends paid - - -425
Net funding 13 240 621
Other - 2 15
Net cash provided by (used in) financing
activities 11 242 211
Net increase (decrease) in cash and cash
equivalents 118 135 71
Effect from changes in exchange rates 4 -13 -24
Cash and cash equivalents at beginning of
period 314 267 267
Cash and cash equivalents at end of period 436 389 314
FREE CASH FLOW
1-3/ 1-3/ 1-12/
EUR million 2009 2008 2008
Net cash provided by operating activities 136 -69 137
Capital expenditures on maintenance investments -18 -31 -118
Proceeds from sale of fixed assets 2 1 10
Free cash flow 120 -99 29
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Cu- Eq-
mu- uity
la- at-
tive tri-
Share trans- Fair but- Mi-
pre- la- value Re- able nor-
mi- tion and tain- to ity To-
Share um ad- other ed share in- tal
capi- re- just- re- earn- hold- ter- eq-
EUR million tal serve ments serves ings ers ests uity
Balance at Jan 1,
2008 241 77 -76 456 910 1,608 7 1,615
Other comprehensive
income (expense) - - -52 4 - -48 - -48
Profit - - - - 78 78 0 78
Total comprehensive
income (expense) - - -52 4 78 30 0 30
Dividends - - - - - - - -
Share options
exercised - - - - - - - -
Redemption of own
shares - - - - - - - -
Share-based
payments, net of tax - - - 3 - 3 - 3
Decrease and
transfer of share
premium and legal
reserve - - - - - - - -
Other - - - 2 1 3 - 3
Balance at Mar 31,
2008 241 77 -128 465 989 1,644 7 1,651
Balance at Jan 1,
2009 241 - -136 490 849 1,444 9 1,453
Other comprehensive
income (expense) - - 29 1 - 30 - 30
Profit - - - - 26 26 0 26
Total comprehensive
income (expense) - - 29 1 26 56 0 56
Dividends - - - - -99 -99 - -99
Share options
exercised - - - - - - - -
Redemption of own
shares - - - -3 - -3 - -3
Share-based
payments, net of tax - - - 1 - 1 - 1
Decrease and
transfer of share
premium and legal
reserve - - - - - - - -
Other - - - 0 -1 -1 - -1
Balance at Mar 31,
2009 241 - -107 489 775 1,398 9 1,407
ACQUISITIONS
Acquisitions in 2009
In January Metso and Wärtsilä finalized the combination of Metso's Heat & Power business with Wärtsilä's Biopower business into a new joint venture MW Power Oy. Metso owns 60% and Wärtsilä 40% of the new company. In this non-cash transaction Wärtsilä contributed its business into MW Power Oy in exchange of the shares in the company. In accordance with IFRS, the company is fully consolidated into Metso's Power business line.
In January Metso also acquired Oktokon Oy, a Finnish engineering company, into its Power business line.
The acquired businesses contributed net sales of EUR 24 million and net profit of EUR 1 million for the period from their acquisition to March 31, 2009.
Summary information on acquisitions made in January-March 2009 is as follows:
Carrying Fair value Fair
EUR million amount allocations value
Intangible assets 0 2 2
Property, plant and equipment 2 - 2
Inventories 19 - 19
Trade and other receivables 17 - 17
Deferred tax liabilities 0 -1 -1
Minority interest - - -
Other liabilities assumed -32 - -32
Non-interest bearing net assets 6 1 7
Cash and cash equivalents acquired 7
Debt assumed -17
Purchase price -5
Goodwill 8
Purchase price settled in cash -5
Deferred payments on prior year
acquisitions -5
Cash and cash equivalents acquired 7
Net cash outflow on acquisitions -3
ASSETS PLEDGED AND CONTINGENT
LIABILITIES
Dec 31,
EUR million Mar 31, 2009 Mar 31, 2008 2008
Mortgages on corporate debt 4 9 4
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