The most frequently discussed topics regarding Metso's current state and future outlook.
2016 in short
Our financial result in 2016 was good, despite the challenging market environment. Orders received exceeded sales and our profitability remained on a satisfactory level even though sales decreased. A strong cash flow and balance sheet create a solid foundation for the future. I believe that we are well positioned, because we have worked with determination to improve Metso's structure and operational efficiency.
During 2016 commodity prices have recovered gradually and many miners have announced that they will increase their capital expenditure in 2017. Will new investments be seen as an increased demand for Metso’s mining equipment and can growth be expected in the coming years?
Increasing commodity prices and investments benefit the industry in the long run, but it is still too early to talk about re- covery for Metso’s mining equipment business. Customer capital expenditure increases are not necessarily related to investments in the equipment that Metso offers, and, in some cases invest- ments might be directed to parts of the value chain where Metso has no offering, like exploration and drilling. Commodity prices have an effect on our customers’ decision making but are not the single decisive factor, especially in large projects with long delivery times. Large projects in mining, like those Metso an- nounced in 2015 and 2016, are rare opportunities and there are very few of them on offer at the moment. The demand for smaller equipment has increased somewhat, but is
still at a low level. We expect the overall demand to be largely unchanged in 2017; however, following a few larger orders in 2015 and 2016, Metso’s mining equipment sales can be expected to grow slightly. Declining commodity prices reduced our customers’ investments and the number of new projects is low. Replacement equipment was still delivered but also maintenance investments tended to be postponed in the depressed market environment. Metso was able to adjust its operations to the current market environment through a renewal of the operating model, cost awareness and restructuring measures. These actions helped us to remain competitive and hold our share in a very challenging market. The restructuring measures have been made with a long term perspective – a leaner and adaptive operating model enables a stronger performance when markets turn more favorable.
Has there been any significant change in the demand for engineered services? How is the demand for wears and spares?
The activity in the mining services market has been largely unchanged since the second half of 2015. In 2016, weak demand for engineered services, especially in rebuilds and refurbishments, continued. These services projects are partly related to our customers’ capital expenditure decisions and hence impacted by their cost saving initiatives. Production rates in existing mines remained high throughout the year, which is why the demand for wear and spare parts was relatively stable. We expect challenges in the mining services market to continue in 2017 but Metso has several initiatives to increase its own market share. Digitalization and the offering of services that increase uptime are of the essence going forward, and Metso is constantly developing its offering in this field.
How did the customer industries in Flow Control develop and what the expectations going forward?
Customers in the oil & gas industry continued to cut costs in 2016, which had a negative effect on Metso’s valve project busi- ness. The industry remained cautious on new investments, and the demand for replacement valves was also lower as a result of cost cutting across the sector. Metso expects 2017 to be equally challenging although a turnaround in the sector could happen fast. The demand for pulp & paper valve projects was also low in 2016, but we expect activity to improve as new investments within the industry are foreseen for 2017.
Can we continue to see a positive development in the aggregates business in 2017?
The aggregates business is highly dependent on local economies. Investments and government spending are the main drivers for aggregates equipment demand, which is why we have seen large regional differences within the business. Last year, the aggregates business grew slightly on the back of growing economies in India, Northern Europe and the United States. A weak performance continued in emerging markets and especially the markets in Brazil and China impacted our ag- gregates business negatively. We expect some of these markets to recover gradually from the historically low levels seen in 2015 and 2016, but we do not expect
giant growth leaps as there are uncertainties related to many market areas in the sector.
Financial targets and strategy?
Metso’s financial targets are unchanged and we still see the adjusted EBITA of 15 percent, ROCE of 30 percent and growth exceeding the market to be achievable targets. Currently, the market is not providing any help and even though Metso has kept its market share, it is hard to achieve the profitability targets (EBITA and ROCE) without growth. There were no major changes in Metso’s overall strategy as we continue to target growth in our core businesses as the leading technology and services provider for our chosen industries. M&A remains a priority and Metso continues to explore different growth opportunities for our businesses.