Business News
Metso Corporation Interim Review on October 28, 2008: Good profitability in third quarter, measures to adjust to changing operating environment started
Tuesday 04. November 2008 - ighlights of the third quarter New orders worth EUR 2,246 million were received in July-September (EUR 1,440 million in Q3/07). At the end of September 2008, the order backlog was 21 percent higher than at the end of December 2007, standing at EUR 5,244 million (EUR 4,341 million at December 31, 2007). Net sales grew 5 percent on the comparison period and totaled EUR 1,528 million (EUR 1,452 million in Q3/07). Earnings before interest, tax and amortization (EBITA) were EUR 180.7 million, i.e. 11.8 percent of net sales (EUR 157.3 million and 10.8% in Q3/07). Operating profit (EBIT) was EUR 172.3 million, i.e. 11.3 percent of net sales (EUR 143.4 million and 9.9% in Q3/07). Earnings per share were EUR 0.69 (EUR 0.66 in Q3/07). Free cash flow was EUR 91 million (EUR 144 million in Q3/07). Return on capital employed (ROCE) before taxes was 23.3 percent (24.7% in Q3/07).
Highlights of the third quarter
New orders worth EUR 2,246 million were received in July-September (EUR 1,440 million in Q3/07). At the end of September 2008, the order backlog was 21 percent higher than at the end of December 2007, standing at EUR 5,244 million (EUR 4,341 million at December 31, 2007).
Net sales grew 5 percent on the comparison period and totaled EUR 1,528 million (EUR 1,452 million in Q3/07).
Earnings before interest, tax and amortization (EBITA) were EUR 180.7 million, i.e. 11.8 percent of net sales (EUR 157.3 million and 10.8% in Q3/07).
Operating profit (EBIT) was EUR 172.3 million, i.e. 11.3 percent of net sales (EUR 143.4 million and 9.9% in Q3/07).
Earnings per share were EUR 0.69 (EUR 0.66 in Q3/07).
Free cash flow was EUR 91 million (EUR 144 million in Q3/07).
Return on capital employed (ROCE) before taxes was 23.3 percent (24.7% in Q3/07).
“In the third quarter, we made good progress towards our guided 2008 performance. Actually, the operating profit for the quarter – EUR 172 million or 11.3 percent – was the best ever third-quarter in Metsos history,” says Jorma Eloranta, President and CEO of Metso Corporation. “Steadily improving financial performance is a strong evidence that we are developing Metso into the right direction, and we believe that Metso is today more balanced, responsive and flexible when it comes to weathering storms in the global economy.”
“In the current global economic environment, we are putting more emphasis on profitability and cash flows than growth. This means, that acquisition and investment plans are now reviewed very carefully. We are convinced that the positive cash flow impact from the ongoing programs to manage net working capital more efficiently continue to pay off in the coming months. We are also implementing tight cost control measures throughout Metso. What comes to capacity adjustments, we are prepared to move quickly when needed. At the same time, we are continuing to pursue growth especially in the emerging markets and in our services business.”
Metsos key figures
EUR million
Q3/08
Q3/07
Change %
Q1-Q3 /08
Q1-Q3 /07
Change %
2007
Net sales
1,528
1,452
5
4,561
4,354
5
6,250
Net sales of services business
548
516
6
1,583
1,465
8
2,024
% of net sales
36
36
35
34
33
Earnings before interest, tax and amortization (EBITA)
180.7
157.3
15
480.9
441.5
9
635.4
% of net sales
11.8
10.8
10.5
10.1
10.2
Operating profit
172.3
143.4
20
447.1
400.1
12
579.8
% of net sales
11.3
9.9
9.8
9.2
9.3
Earnings per share, EUR
0.69
0.66
5
1.96
1.84
7
2.69
Orders received
2,246
1,440
56
5,495
5,194
6
6,965
Order backlog at end of period
5,244
4,519
16
4,341
Free cash flow
91
144
(37)
51
198
(74)
198
Return on capital employed (ROCE) before taxes, annualized, %
23.3
24.7
26.1
Equity to assets ratio at end of period, %
31.5
36.0
37.7
Gearing at end of period, %
72.2
34.3
33.4
Short-term outlook
Metsos profit estimate for 2008 remains unchanged on the basis of the order backlog and profit development during January-September. At comparable exchange rates, Metsos net sales in 2008 are expected to grow by 5-10 percent compared with 2007, and the operating profit margin is estimated to be about 10 percent.
The uncertainty regarding the financial markets and the development of the global economy is expected to affect the demand for Metsos products and services during the coming months.
Mining companies are expected to continue with capacity expansion projects despite the growing concern about the global economy, but demand is expected to level off. In the construction industry, the demand for equipment relating to aggregates production is estimated to be good in the emerging markets but to slow down in the developed markets. In the mining and construction industry, the demand for the services business is expected to remain good owing to the rapid growth of the equipment base installed over the past few years.
The demand for paper and board lines is expected to be weak in 2009. The demand for fiber lines is also expected to slow down. The delivery schedules of large paper and board machine and fiber line projects in the order backlog may be prolonged. In the pulp and paper industry, lower capacity utilization rates are expected to weaken the demand for Metsos services business in North America and Europe.
The demand for power plants using renewable energy sources is expected to be satisfactory in Europe and North America. The demand for Metsos automation products is expected to be satisfactory in the pulp and paper industry and good in the power, oil and gas industry. The demand for metals recycling equipment is expected to be good.
Metsos customers operate in different industrial sectors. Metsos operations have a wide geographical spread, and Metso has a strong market position in many products. The services business, subcontracting and emerging markets have rapidly become more important for Metso over the past few years. Metsos management estimates that the measures carried out in recent years have placed Metso in a better position to weather storms in the global economy. In the past few weeks Metso has launched new measures to adapt to its rapidly-changing operating environment. Metsos priorities are to secure new orders, continue strict cost control and to secure healthy cash flows. All potential investments and M&A activities will be critically evaluated. The company is quickly adjusting its capacity to meet demand.
As there is a lot of uncertainty associated with the development of the global economy and Metsos operating environment, Metso will, before publishing 2008 financial statements, refrain from establishing a guidance for its net sales and profitability in 2009.