Metso Oyj (MXCYY.PK)
Q2 2010 Earnings Call Transcript
July 29, 2010 8:00 am ET
Johanna Henttonen – VP, IR
Jorma Eloranta – President and CEO
Olli Vaartimo – EVP and CFO
Erkki Vesola – Swedbank Markets
Jan Kaijala – Nordea Markets
Tomi Railo – Enskilda Securities
Ben Maslen – Merrill Lynch
Irene Bermont – UBS
Johan Eliason – CA Cheuvreux
Andreas Willi – JP Morgan
Sasu Ristimaki – Carnegie Investment Bank
Kenneth Leiling – Danske Markets
Good afternoon ladies and gentlemen, and welcome to Metso Corporation’s second quarter report web cast. My name is Johanna Henttonen. I am heading Metso’s Investor Relations. Today we will start with a short presentation by our CEO and President, Jorma Eloranta, and after that we will continue with Q&A session together with our CFO, Olli Vaartimo, also present.
But before we start, I would like to remind you that certain information we will be discussing today is forward-looking, and thus include uncertainties that may cause our actual results to differ from our current expectations as of today. But Jorma, please, the floor is yours.
Thank you Johanna, and very good afternoon to everybody. Second-quarter key takeaways at least for me was the very strong order intake, secondly also the whole key financial figures improved, and thirdly, based on the positive mood in the market in the first half of this year’s development, we have given a bit more precise guidance on net sales for this year.
So let us take a bit more closer look at those figures and performance during the second quarter. So during the second quarter this year, overall positive tone in the global economy continued despite certain concerns over the budget deficit in some European countries, including my own country Finland. The recovery of demand remained in most of our customer industries, especially in the emerging markets. We all are at Metso naturally very happy for our key financial figures improved, not only when comparing the second quarter last year, but also from the first quarter this year.
For me, this is clear evidence that the recovery continued in our customer industries. As I said, our order intake during the first quarter was strong €1.7 billion. All businesses did well, but especially want to highlight the strong order intake in paper and fiber technology.
Our net sales were about €1.4 billion, up by 10% from second quarter last year. Net sales also picked up from €1.2 billion in the first quarter with strong contribution from mining and paper businesses. Before moving to profitability analysis, I want to mention that we have introduced EBITDA before nonrecurring items as a new financial indicator, additional information for those interested in that kind of information. Our idea is to give better view on underlying operational performance and to improve comparability.
EBITDA before nonrecurring items was €125 million or 9.1% of net sales in the second quarter. Our gross profit margins were up because increased capacity utilization rates. On the other hand, earnings were somewhat negatively affected as the SG&A expenses have increased, reflecting the increased demand and strengthening of our sales, marketing and other resources.
We expect this SGAs on net sales to start to decrease in coming quarters as the net sales are estimated to grow. In addition, we will continue naturally by control of our costs. I also want to highlight our strong free cash flow during the second quarter, €164 million, as you can see from this slide. So if we now take a look at second quarter development by business segment, first mining and construction technology, net sales in the second quarter were €541 million, up by 2% from the comparison period, and EBITDA before nonrecurring items has been positive this time for second quarter, or €64.8 million and margin improved to 12%.
We have solid evidence of improving trading environment and positive volume leverage. In the second quarter, we had about €32 million, one of gains from intellectual property right settlements, which together with some smaller non-recurring items improved the reported EBITDA margin to 18%. Intellectual property rights are important as one can see from this figure, they are important to us, and we definitely will continue to be active in protecting our intellectual property rights globally also in the future.
If you then take a look at the business lines in mining and construction technology, you can say that the underlying operational profitability during the first-half of this year was roughly in par with the comparison period both in services business, as well as in equipment and systems business. In energy and environmental technology, net sales were €334 million, down by 6%. EBITDA before nonrecurring items was €29.3 million and margin 8.8%.
EBITDA in the first half of this year improved in the comparison period, clearly on power business due to successful project execution, and weakened in automation and recycling businesses, mainly as a result of our significantly lower delivery volumes. For paper and fiber technology, net sales grew by 38% and were €494 million, a bit more than €70 million that came from our Fabrics, or Tamfelt business, out of that figure.
The growth in general came from all business lines. EBITDA before non-recurring items was €36 million and margin 7.3%. Clear improvement in the profitability was due to strong volume growth and more streamlined structure. I must say, I’m especially pleased with the significant profitability improvement in our paper on fiber technology since our people have been really working hard, extremely hard to improve profitability in the demanding environment of paper and pulp.