Metso Oyj (METSO) Earnings Call Transcript & Summary

Good afternoon and good morning, ladies and gentlemen. It's Juha Rouhiainen from Metso Outotec's Investor Relations, and I want to welcome you all to this conference call where we discuss Metso Outotec's first quarter 2021 results, which were published a couple of hours ago. The results will be presented by our President and CEO, Pekka Vauramo; and CFO, Eeva Sipila. And after the presentation, we'll have time for Q&A. Please note that we'll try to limit the length of this event to 60 minutes because we have our Annual General Meeting of Shareholders beginning in 90 minutes from now. And the result presentation includes disclaimer discussing forward-looking statements as well as information relating to different numbers that you can find from our result and presentation. But with these remarks, I'll hand over to President and CEO, Pekka Vauramo. Pekka, please go ahead.

Thank you, Juha, and welcome to this call. Yes, we came up with our results a few hours ago. And when we look at the first quarter of the year, we guided the market of improving activity. And we truly saw the increased activity and improved activity throughout the quarter, though our segments behaved somewhat differently as the dynamics is different between the segments. So it's quite natural. We also saw improved profitability in our Aggregates and in Minerals when we compare the first quarter of last year. We've been working also on Metals' turnaround, and we've now completed the reorganizing part of the Metals business, it is now in 4 business lines. We still continue to work on turnaround, and we're really focused right now in completing the EUR 15 million cost out program from the operations. In our integration work, we reached EUR 83 million run rate in cost synergies, and that is well in line with our objective to achieve EUR 120 million by the end of this year of run rate of cost synergies. And we launched Planet Positive label and approach, which will be the encompassing umbrella for our sustainability approach, and I'll come back to that one a little bit later on. But this really shortly summarizes the first quarter of the year. The group numbers. First, orders, EUR 1.1 billion, slightly more than a year before. Sales, EUR 925 million, which is slightly below the sales figure in last year. Both of these numbers, there's 2 things: one, we still have COVID with us. And that's pressing our top line numbers; and then secondly, we continue to have on top line a negative currency impact of several percentage in this number. So it's important that we keep those ones in mind when we look at the numbers. Then improved profitability. Adjusted EBITDA reached EUR 115 million, which is 12.4% of sales, and a year ago, the comparable numbers being EUR 95 million and 10%. So clear improvement in margin level. Our EBIT, EUR 91 million or 9.8% of sales during the first quarter, and earnings per share, EUR 0.08. We continue to deliver solid cash flow during the quarter, and that amounted to EUR 165 million. As already said, I mean, COVID is still around us. And like we have said before in many of our businesses, especially in our services side, we continue to see restrictions on mobility as long as the vaccination program is so well advanced in our key markets that we can see restrictions being lifted, and companies will allow then external visitors accessing the sites. So this is still with us, even though step-by-step, to a lesser degree. But it's also affecting the decision-making, especially anything that's more complicated tends to get pushed forward. And this is also a consequence of -- which is positive -- business-wise, positive. It's because metal prices are so high and demand on aggregates is increasing and improving all the time. So customers do not want to shut down the operations for service and maintenance. They want to continue to operate and produce healthy cash flows. Our own operations until recently have been running without any major disruptions. We, of course, heard today that India will now, because of COVID, dedicate all the oxygen supplies for medical purposes and for relieving the situation and oxygen shortage in the hospitals. And extent of this one is not fully known to us -- for us in India, but it will mean some delays in our Indian -- in our supplies to our Indian market. Then vaccinations will definitely gradually open the domestic travel and shortly then also international travel. But only when the program has progressed to a level that we see restrictions being lifted in our everyday life, we can see fully the service business recovering from COVID. Very strong performance in our Aggregates segment, which already started end of last year. We had -- like we had communicated earlier in November, December time, we saw activity level increasing to pre-COVID levels and really hitting some record order levels at the end of the year. And this good order condition market environment continued into the first quarter, and we saw a strong organic growth mainly driven by equipment there, and Europe being really the strongest market, followed by North America. China was on high level, but flat market during the first quarter, but the pipeline is good in China as well. India continues to be depressed because of -- primarily because of the COVID at this point in time. Sales, we started to see increase in sales as well. Of course, these orders that we are now booking they will be delivered then during the coming next 2 quarters. But we already saw an increase in our sales level and organic growth being 13%, and this is also a good development. But a very strong improvement in our EBITDA level, margin clearly more than doubled from 6.6% to 14.1%. And this is, of course, partially come from the volume, but it also does come from internal actions. We do have stand-alone improvement programs that our Aggregates has implemented well and executed well during the past several months. So good improvement there, and the near term also looks very much encouraging in Aggregates side. In our Minerals, we saw a decline in orders. Here already, I mean, currency impact is a major one, 6%. That translates on that order level to about EUR 40 million alone. And our Minerals and Metals, both businesses are characterized by lumpiness of orders, and we did not have any large orders but had a steady flow of small- and medium-sized orders during the quarter, which, in fact, is better for us than really the lumpy big orders in many respects. Risk-wise, they are easier to handle for us, and there's many positives about the smaller orders. Sales, slight organic growth. I mean, currency impact there as well. There as well, services share being 68%, so mix somewhat improved in that one. Services, primarily suffering from logistical challenges, not only the Suez canal thing, but there's other things. Shortage of container continues and very slow handling of ships globally. But very delighted to see margin improved with the lower sales, and this is really coming mainly from synergies. So 2/3 of the margin improvement comes from synergies, and then 1/3 is the mix improvement as services grew to 68% of the sales. Metals segment, where we are working on turnaround, orders grew from last year to EUR 101 million. Sales declined by about EUR 10 million. This is more about timing of deliveries. If you recall, we booked several large orders end of last year. They were split orders, split between Minerals and Metals. But in both segments, in Metals and Minerals, it will take in the second half before we start really those projects getting into delivery phase and when we are able to recognize more top line volume out of these ones. At this moment, we are recognizing the engineering part and the volumes are lower ones. Metals, also, which was heavily at loss in the -- at the end of last year and in last year altogether, it's getting closer to breakeven situation. And if we expect to see the turnaround program to kick in during the second half of the year. And EUR 15 million is our target on cutting the cost. And then like I said, we've reorganized the business into 4 business lines that are as self-contained as they can be. And aim of this one is really for each business line to show and prove out that they can turn around the business and have a realistic plan to reach the targeted 10% EBITDA level, as we have communicated earlier on. And at this moment, I mean, I'll leave it for Eeva to go through the financials, and I will come back then later on with the strategy and other things.

Thank you, Pekka, and good morning, good afternoon to everyone on my behalf as well. We're still starting the first 2 quarters of 2021 with some complexity in our numbers due to the closing of Metso Outotec transaction taking place midyear on June 30 of 2020. The actual Q1 figures are obviously straightforward, as is any sequential comparison or comparison to year-end in the case of, for example, balance sheet numbers. But you need to be careful on the comparison to the 2020 first quarter. Under IFRS, that year-over-year comparison is only to the Metso Minerals numbers. So for operationally better comparison, I recommend using still the illustrative combined figures of the '20 -- of the first quarter of 2020. Earlier words of caution still apply, namely that they do combine the history of 2 separate companies. So they are, as their name says, illustrative. I'll start with the operational performance and have here our Q1 actuals as well as the illustrative combined quarter last year. And we have a cleared recycling out of the comparison period post its move into discontinued operations late last year. Pekka already raised the key numbers from here. So I would just note that when comparing, really, the sales of EUR 925 million to last year, exchange rates more than explain the 2% drop as their impact was negative 4%. So organically, sales were up by 2%. Sales in the quarter are really impacted by the COVID-19 effect on, really, on order intake during last year's Q2, Q3. We have sort of lower -- less -- timing-wise, less of the backlog coming in the first month of this year. And then obviously, as Pekka already noted, the challenges on mobility affecting our service crews on site continues. The other figure I would raise to your attention is gross profit margin, and in the quarter, it was EUR 28.4 million. Now the second half of last year was impacted quite a bit by PPA adjustments. The order backlog-related PPA affects gross profit. So that does explain the big improvement from the 26.6% that we recorded for the full of last year. However, as such, this level of 28.4% is a healthy one and does also demonstrate that we have progressed in the many business improvement actions we have been working on and discussing with you previously. Moving forward then to a few comments on the rest of the P&L., so on one slide further. Net financial expenses were EUR 7 million for the quarter. We have lowered as planned the cost of debt, and we're -- at the end of the quarter, we were at 1.16% of average interest rate for our overall debt. Then regarding taxes, we have also progressed well on the synergy front, consolidating our legal structure to optimize in this area. And the ETR is at 25% for the quarter. And whilst we are early in the year, I am expecting the full year to be around the same level. Earnings per share for continued operations were EUR 0.08, and then including discontinued operations, EPS was EUR 0.07. Moving to the balance sheet. So overall, a slight increase in total assets from the beginning of the year to EUR 5.6 billion. But nothing really specific to highlight. I have the networking capital components as well as a few details on our cash and debt position on further slides, so I'll actually revert to them then. Cash flow from operations was healthy in the quarter, totaling EUR 165 million. We had good contribution from the profitability and also then to note that the change in net working capital was EUR 30 million positive. Now considering we are ramping up our supply chain for the growth that is visible in our order intake, and hence, building on that work in progress, so I really would say that this was a positive and good achievement really from the organization. Then looking at the net working capital a bit more in detail at the end of the first quarter. The net working capital totaled EUR 353 million. And sort of big elements here, really EUR 1.1 billion of inventories, slightly up from the year-end; while then both AR and AP being just short of EUR 600 million; and advances received stood at EUR 177 million. My final slide captures a few highlights on our financial position. Liquid funds at the end of March totaled EUR 516 million, and this is despite that we made an early payment on EUR 100 million term loan from liquid assets in the quarter. The repayment brought our net debt down to EUR 675 million. We have, at the end of the quarter, EUR 790 million of committed and undrawn facilities. But as we are now approaching end of April, it is worthwhile mentioning that EUR 100 million of that mature in a few days. So we will be moving forward with EUR 690 million of committed and undrawn facilities. We raised extra facilities last spring amidst early COVID-19 times, but currently see no reason to renew the expiring portion. We have more than sufficient facilities for our operations with what remains. And with that, I would hand it back over to you, Pekka.

So thank you. Thank you, Eeva. And I'll move on to the integration at this moment. So we reached, on synergy cost side, run rate of EUR 83 million at the end of the quarter. And the year-end target for us is EUR 120 million, and we are well on track reaching that EUR 120 million. At this moment, the synergies that we've been able to realize, 3/4 of them are really coming from the organization, restructuring it, reducing the overlaps and reorganizing our market area network and business support functions altogether. The rest, they come from facilities, IT and procurement. And IT and procurement are items that will continue, and there are still some tail ends of the organization that we are working with. But like I said, we are well on track to reach EUR 120 million by the end of the year. And clearly, when you look at our results, this is now visible. And like I commented earlier also, 2/3 of the Minerals margin improvement really came from synergies. And at this moment, they are cost synergies rather than revenue synergies. Then first time we are opening our revenue synergies, which, by nature, come in slower in pace because the first joint bids, we were able to start to prepare only on a merger date or after that, and then they go into our order books and come through order books into invoiced sales or recognized revenue later on. At this moment, we have EUR 11 million of revenue synergies that we have realized, but there's about EUR 60 million in our order backlog. And this is a number that we will continue then to follow and communicate back to the market. We also need to understand the EUR 60 million, how it reads is that at this moment, for example, big part of the revenue synergies, they are not really additional sales. But they are products that have been, in fact, replaced by in-house supplies, take, for example, pumps, which previously Outotec had acquired from external suppliers. But now since we have pumps in-house -- are being sourced from in-house. So they're not really adding to the top line, but full margin is internalized of those such products. Then we estimate that the costs relating to the merger will be EUR 70 million pretax, and this is down from EUR 100 million that we originally estimated. And at this moment, we stand at about EUR 40 million on this line. So this work continues well. In the cost side, revenue synergies, our target is to reach EUR 150 million by the end of next year. And there, of course, the market environment does affect on speed, how we can clock the revenue synergies. But many interesting sort of businesses there ahead of us also in that regard. Then during the quarter, we were also listed as #8 on 100 world's most sustainable companies, so it is a great achievement from the organization. This is recognition of the past when being listed on and placed high on such list, but we want to stay high on all ratings when it comes to sustainability. And sustainability, it is one of the top priorities in our strategy as well. We did launch a Planet Positive label just recently a few weeks ago, and that is the label that sort of highlights our commitment to limiting the global warming with our actions to 1.5 degrees, so our 1.5 degree journey, as we call it in-house. We do have science-based targets defined and approved for that journey, and we are tracking those and we'll start to also communicate those in the market once we have all the measurement in such a shape that we can communicate them on a quarterly basis. Already now, our ecological handprint is significantly bigger than footprint. But this doesn't mean that we wouldn't work on our footprint. We have taken already actions. For example, we have changed our electricity into renewable energy in all places where we can, and this alone has reduced our CO2 footprint by 60% already. But we continue to work further on that one. We are making changes in our logistics, which cuts our footprint in logistics by about 30%. So these are major steps that we are taking in order to reduce even the footprint from where we are today. But far bigger potential we have on our handprint, that means, what we can do together with our customers through our offering, through our technologies. And this is what the Planet Positive is. And we will give the Planet Positive label to these products and technologies that truly are contributing to 1.5 degree journey. And we all know sustainability is really a value to our customers. And with sustainability, it's not only about emissions. It's about energy use, as such, depending -- almost regardless of what the source of energy is. It's about emissions. It's about water efficiency, very relevant for mining industry. It's about safety and circular business models. And we are putting more emphasis on this area, and we have just recently published the first TCFD, Task Force on Climate-related Financial Disclosures. And that is now available there. So Planet Positive is our label for our products, and we want to make it easy for our customers as well to select the most sustainable offerings from our range. Our market outlook, we repeat the same outlook what we had for this one. When we do see further continued improvement in market activity. And of course, the COVID situation, we'll add some color into this one as we move on. We know the third wave is on its way, maybe fourth wave will hit some of the countries. But we, of course, continue to monitor the situation. And so far, we see the environment improving as we move on. Thank you. I think we are ready for the for the questions now.

Yes. Thank you, Pekka and Eeva. Operator, we can open the lines, please.

[Operator Instructions] Our first question comes from Magnus Kruber from UBS.

Magnus here from UBS. A couple of questions from me. First, another solid quarter in Aggregates, obviously notably on the margin side. Just wondering how we should think about the seasonality there for the rest of the year given the strong start, and obviously, a very strong print on 14%. If you can -- I mean, given your additional aspirations and growth on the aftermarket side, I believe you can have -- add another maybe 200 to 300 basis points, perhaps from a higher mix of aftermarket. So is it possible that we can see even better margins in this business long term than the 15%?

Yes. Our Aggregates does have a seasonality. The strongest seasons are first, second and parts of third quarter. Fourth quarter is the slowest quarter normally. Normally when it comes to sales line, biggest market is -- for Aggregates is in the Northern Hemisphere, and then therefore, the summertime, spring time, early fall, that is the most active time in that market. We saw increase in sales, I think it was 13% from last year in the first quarter. Though comparison is somewhat difficult because we already saw reduction -- strong reduction in the month of March last year in Aggregates. Then we do have a very strong order intake months now behind us in -- and I'm sure also a few one of them ahead of us. And the increase in sales really hasn't realized yet from the increased order backlog. So we will see healthy sales numbers during the coming months. And of course, that does have potential to improve the results as well. We have taken also quite a strong action to manage our dealer network with our distribution management organization. And we are really paying attention to managing the performance of dealers and managing the performance so that they are actively promoting all our product lines, not only capital equipment, but also services and spare parts and wear parts. And there, we can expect to see improvement during the coming quarters.

Got it. And should we see this as a normalized margin for the first quarter? It sounds quite strong in the context of your 15% target.

Yes, we are working towards the 15% target for the Aggregates segment. And like I said, I mean, we really haven't seen all the orders coming in through the -- on the top line yet. And we have actions in place -- still improvement actions in-house, and then more active approach towards our dealers and distributors on the aftermarket side. So the potential is there.

Perfect. That's very good. Also similarly, on Metals, obviously, a very good margin print there in the context of the lower volumes. Is there anything specific you can highlight there on the profitability side? What drove the step-up since Q4, if its engineering hours, utilization or so? And should we expect this profitability to gradually move up also in this business year?

Was that on Minerals? Or...

Metals, Metals.

Metals side. Yes, we had good strong order intake for -- in Metals at the end of the year. We do have interesting things in the pipeline that did not materialize in the first quarter, but I'm sure we will see something happening in the second quarter and third quarter of the year. Those orders that we booked at the end of the year, we -- they will hit the sales line in the second half of the year and we'll see the volume increasing. And then at the same time, we see also the cost impact or the impact of saving actions in our SG&A side. So we will see our numbers firming up in our Metals business.

Okay. But nothing particular to highlight on the sequential step-up in profitability there, what happened?

No, Nothing in particular.

Okay. Got it, got it. And then just finally, you mentioned some logistic issues in the quarter. Did you see any inbound supply chain bottlenecks as well? And where did you see those in that case?

Yes. Some of them were inbound, some of them were really internal issues. We are making changes in our supply footprint. We are making also changes in our warehouse footprint. And these are causing some sort of bottlenecks and shortages. These are normally short-lived shortages and regional, but we have several moving parts at this moment. So therefore, we are slightly suffering from it but the future will look much better in that regard. Then global logistics shortage of containers, containers being in wrong part of the world, that is an unfortunate thing that is happening. We are using more airfreight than we would like to use. Some of the costs, we are carrying already today. We have also converted some of the freight into -- between Asia and Europe to railways rather than ships, and that tends to be more expensive than ship, but it's more reliable at this moment. And the container shortage is not affecting that one so heavily.

Our next question comes from Klas Bergelind from Citi.

It's Klas of Citi. The first question I had was on cash flow. So this is the second quarter it looks like underlying capital turns are improving. We don't have any major large orders in there. So it looks like an underlying improvement to cash flow. Eeva, can you talk a little bit about the self-help program, looking at the supply chain? Are we now seeing early signs of this regional setup starting to impact cash flow positively? And what can we expect ahead? That's my first one.

Sure, Klas. So Well, I think we had a smooth quarter in many ways, and -- but perhaps -- so in a way, to your question, I think that's sort of the setup work that we -- plants running all over the world. But I would perhaps caution a bit that as we see now the aggregates growth ramping up, so that is a business that does high capital in a growth phase. And of course, now with some of the logistics bottlenecks that we need to sort of assume will unfortunately be with us a bit longer than hoped. So we are, of course, balancing kind of availability in inventories and where to have what. And now really, the recent news on India is unfortunately also negative in the sense that we do need to sort of look at alternative sources. And again, that will cause some -- so I think a very strong start, but I would perhaps caution a bit that we will sort of see more work in progress, and then really dependent on the global logistics flows, that how quickly these sort of post-COVID unbalances will ease out, that are we able to kind of rely on sort of tighter turnover or not. But obviously, sort of the -- whilst they're causing some headache in the short term when we are reducing the number of distribution centers, reducing the number of sites, it all is in the long term sort of builds for a better, more efficient working capital management. And that, of course, will sort of come through in the sort of medium term and is visible already.

Yes. No, that's very clear. I think when we compare it with Sandvik, they started their supply chain program in 2013, and then it took 2 to 3 years until they started to see an improvement in inventory turns, even under stronger growth. I guess it's a medium-term ambition rather than anything short-term. Then on the -- my second one is on the guidance. Given that Aggregates will likely flat line into the second quarter of a seasonally strong first quarter, Pekka, that would suggest that you see stronger sequential demand on the mining side to push the overall guide higher. I know you don't guide on orders, you guide on market. But is that how we should interpret the outlook, stronger mining from here than Aggregates into the second quarter?

We have a solid, good, strong and strengthening proposal pipeline. And then, of course, it depends how successful we are in turning that to orders, and then, of course, also timing of the actual orders and decisions that customers will take. But this improving market environment, our guidance, it applies to all our businesses equally to Minerals, as Aggregates and Metals.

Okay. Good. My final one is on the green agenda and your handprint and how we can drive quicker replacement. So it's pretty clear underground with battery electric, but it's less clear mid- and downstream. And I know that aggregates have several dual-powered products of different sizes and some even fully electric. But can we also see conversions to electric on the mining side? I get the water efficiency, the safety aspect of ESG for you. But I'm trying to think if electric equipment can play a role for Metso Outotec on a broader scale.

Well, electric equipment is not really what -- where we see the potential. Most of our equipment -- I mean, you pinpointed aggregates. aggregates, that's an exception. But most of it's already electric and has been electric for tens of years already. We have other areas. We have technologies that can contribute to lower emissions with our customers. We are working on things like separating the nonvaluable part early on in the process, that we don't have to push the nonvaluable part of the ore through the entire process. And that means reduction in energy usage, reduction in water usage. We are looking into ways to have separate water flows for different parts of the process so that we can recirculate the water better, and those are the type of activities. And just one example, which we have a new product line within our consumables. And it's not connected with the rest of Metso, other than synergistically as it's a rubber truck body. What this does is that it reduces the empty weight of a vehicle by 9% average, it depends a little bit on size of dump trucks. And this 9% translates either 9% lower fuel reduction because of the lower weight or 9% higher productivity, which means, again, that fuel cost per moved tonne is 9% lower. And if fuel -- if 9% less fuel is burned, it means that 9% less emissions are produced. So these are the type of things that we are offering and launching into the market as we speak. And those are more of the things that we do develop rather than electrification, as such.

Our next question comes from Artem Tokarenko from Crédit Suisse.

It's Artem from Crédit Suisse. My first one is around services in Minerals business. It's great to see them coming back to some growth. But still, there is -- it seems like a lot of miners have been postponing a lot services. So I guess, do you expect that at some point this year, there should be a considerable catch-up in postponed services considering the very high level of production which mines are running at the moment?

I think that we are already seeing first signs of that one. We have -- where we saw the reduction because of COVID was in shutdown services, it was in upgrades and modifications. And those are the businesses where currently, the proposals have increased recently by more than 100%, so a double amount of proposals out there. And it takes some time before they turn into orders and sales. But that is something that we believe is to come.

Great. My second question is about Minerals EBIT and revenue. I think in the report, you mentioned that you see some order backlog -- some postponements in delivery of your order backlog. Can you maybe help us quantify how much impacts on revenue and EBIT it had? And also, do you expect some catch-up of those deliveries later this year?

Well, it's actually not any delays or postponement. It's how originally the sort of order intake was built. So I think it's just kind of that they -- they kind of start creating revenue perhaps a bit later than sometimes you and your colleagues consider. And hence, really, sort of if you look at the sort of the COVID-impacted order intake of Q2, Q3 last year, then it obviously is kind of what we see now in Q1 and Q2 coming through. So in that sense, not sort -- sort of the only area where we have sort of some challenges is really what -- at the sort of end of some of the projects that we're well into execution before COVID, but then some final tails would require some sort of final sort of work at the sites with rather large crews. And of course, those have been postponed. But really, it's -- this is just the sort of how the backlog is built and that timing.

Understood. That's very clear. And my last question is around cost synergies. I think you've already achieved 70% of your targeted range. And in the past, you mentioned that after the 2 companies are merged, you will have a much better visibility on what other inefficiencies you could tackle, like, let's say, Outotec having an overly heavy Europe and developed market headcount. So I guess, have you done any more work on this? And do you think potentially there could be more savings to be generated -- sorry, synergies to be generated?

We have not really revisited the total yet at this moment. We still have some work to do to get to EUR 120 million by the end of the year. And we know that, for example, procurement side will be challenged because of the inflationary environment that we see, and we needed to divert some of the procurement actions to such areas where there's no raw material component in costing side. But we are well off when it comes to reaching this EUR 120 million. And then, of course, anything beyond that one will have to be later on. We are generating new items all the time, but also some of the older items do prove out to be not as quite effective as we thought in the beginning. So this is where we are at this moment.

Our next question comes from Antti Kansanen from SEB.

It's Anti from SEB. A few questions from my side. First, coming back to the Planet Positive portfolio, and Pekka, you mentioned a few examples. But where do you think where you are seeing the most differentiation to your mining equipment competitors there? And where do you also see the biggest interest from clients today? And are your clients today realizing the value of it, which would be reflected on, let's say, pricing and margins you can receive from that offering today?

Yes. I think this is a developing scenario with the sustainability. I mean, there's no company who wouldn't talk about sustainability in today's world, yet we truly need to see companies taking actions. This requires investments from -- it requires investments from us in product development. It does require additional investments from our customers truly to get serious about the sustainability. So that's why it is a sort of developing scenario, what we have ahead of us. But we do have several technologies where we are ahead of competition. We have them in our Minerals side. We have -- do have them in our Metals side specifically, has several of them starting from flash melting and the later development of that one to many other areas where we can already today highlight clear energy cost and emission savings to our customers. And then the new products that I explained that we are developing, we have -- almost in all our R&D projects, we do have sustainability targets that we need to do as part of the project when we develop the products, I mean, be it then through productivity, be it then through better use of energy or fuel. It has so many different dimensions in this regard. And I just would like to remind that we do invest about EUR 100 million annually on R&D., and it is in this part of the value chain where we are the biggest number then in this business.

Okay. And how would you expect this demand to kind of develop? Does it need a kind of a greenfield cycle to get the solutions out there? Or is there a kind of a strong retrofit or modernization demand already placed for existing mines today?

It is both ends. When we develop things, we are, of course, very much focusing on something which is faster cycle business than just the greenfields that are several years out there. We want to turn them into products and aftermarket products and services very fast.

Okay. Very clear. And the second question would be on the Minerals services side, and you mentioned that the proposals or different types of field service activities has doubled. But at the same time, kind of the downtime is currently very costly for your mining clients due to the high prices. So how do you think that they will sort of balance out between more demand for field services, but at the same time, not wanting to shut down production or curtail it in any way?

Yes. Of course, the longer mines operate without certain maintenance, the more sort of uncertainty they have in their planning. And at one point, you just have to take the shutdown. So it will come to an end at one point. And then, of course, many operations, they plan on having shutdowns seasonally whenever it is a -- be it then a holiday break or whatever, they normally extend those shutdowns then and perform these things. We will see some rebound of those things coming.

Okay. And then last from me is the ordering level in aggregates, what you've seen since the market started to recover late last year. If you reflect on kind of historical levels in Metso and McCloskey, are we -- where are right now? Is the market clearly overshooting after a very poor 2020? Or are we in levels that can be sustained over the cycle? How should we think about this?

Yes. Now, of course, what we see now is there's a little bit of rebound from things that customers didn't do in last year because of COVID. Then we do see a reaction on current market environment, which is boosted by the stimulus packages. And the stimulus packages, I don't think they are really yet available physically, but there are promises and forecasts out there. And when these funds truly become available, then we do see what the real impact of them is and will be. But the GDP growth figures and forecasts, they are very strong and robust globally now, and that normally tends to support investments in aggregates.

Our next question comes from Maddy Singh from Bank of America.

Just one question on the Minerals order trends. Again, I know that you don't look at Sandvik and Epiroc orders and then compare it to yours. But just in terms of understanding, if we have to think about the value chain, how long would it take for you to have a similar drop-through to your books in terms of order received compared to Sandvik and Epiroc? Because Sandvik actually had a very strong quarter again in first quarter. So I'm just wondering around that, when we expect to see such a strong order growth for Minerals?

Yes Well, I would say we had a strong growth in the fourth quarter. Our order line has much more lumpiness than some of our other peers do have. And that, of course, means that there are ups and downs on our order line. Order line, by nature, if I recall reading Sandvik's numbers through, they specifically said that they had 3 orders exceeding SEK 200 million, which is EUR 20 million -- EUR 20 million in rough terms. And I think we had -- our order backlog consists primarily on, say 15 -- EUR 10 million to EUR 20 million orders normally, and say, up to EUR 25 million. Those are the normal orders. And then when we have the lumpy orders, they are then sort of EUR 40-plus million orders. So the profile is different. A smaller number of order is a bit more lumpy.

But typically, in terms of the time lag, if you were to, say, think on that side, I remember in the previous quarter, you said it should be around a couple of quarters' lag. But generally, when do you see the similar trends appearing? Is it longer than 2 quarters? Could it be 3, 4 quarters? Or it's just really this quarter which is soft? Maybe we get more...

I think when we look at the cyclicality, we come a little later. And I think, still, it holds that we are 2 to 3 quarters late. But whether it translates then to order activity, it really depends on timing, timing of single bigger orders more or less than anything else.

Okay. And then one question on the synergy side, revenue synergies especially. You mentioned that, so far, the synergies we have seen have only come from in-sourcing. So I just want to understand your guidance of EUR 150 million revenue synergy, whether that is based on only in-sourcing, or if that also includes potential new revenue as well.

Yes. I mean, for us, in order to get to EUR 150 million level, we would have to see some orders where we truly -- some bigger orders, some potentially greenfields or major brownfields where we really can start to fill in the complete offering what we have now available from Metso Outotec. And we will definitely see that happening.

Our next question comes from William Mackie from Kepler Cheuvreux.

The first question would really be perhaps standing back against this upswing in your end markets in mining. Can we go back to your ambitions for the 20% operating profitability? And just talk around some of the levers that need to fall into place to reach the 20% margin goal, so within the framework of our thinking when that is a realistic possibility. And then also, I guess, more conceptually, but you've talked about the lag between sort of early cycle orders and late in the mining industry. But we're looking at your service business in mining. From your experience of past cycles, could you share what sort of lag that typically is between an upturn in the mining segment and an upturn in your service growth? And the last question is relating specifically to the synergies and cost savings in Minerals. Could you perhaps just frame or split out, when we look at the step-up in profitability, how much is volume-related or mix-related and how much specifically is the benefits of the integration?

Yes, broad question. Maybe I'll start with one, and Eeva will sort of then continue from that one. I think what we need to remember, that we are still suffering from COVID and the pandemic. And our top line is not really what we were sort of seeing when we looked at the merger in the first place. So we would have to see us coming out of these restrictions. I think that is truly one sort of a requirement that we do have. And then, of course, the integration and the synergy cost part of it, that is something that we are working with and confident that we will get there. But Eeva, can you continue from that one?

Yes, sure. Yes, so William, maybe just to sort of kind of answer in a brief way on what does it take to get to 20% on -- obviously, synergies play an important part of that. We're well on our way. But as Pekka mentioned, so of course, there's a way to go. Then obviously, we need to progress also on the business-specific improvement measures, which when it comes to Minerals, are very much around the sort of consumables footprint and the logistical footprint. And as you heard earlier, so they're moving forward, but of course, we're still in a sort of phase where there is also some sort of a headache coming from the sort of many, many changes. And then maybe on top of those ones, and clearly, whilst if you just look at the sort of sales mix in the quarter, you might sort of miss a bit of the challenge. But reality, of course, is that our sort of this -- the COVID pandemic has -- this is the first cycle where we see sort of, relatively speaking, aftermarket more hit. And really, sort of we would need to see sort of a recovery to sort of more normal operating conditions in our aftermarket business where we really can access sites freely, we can really sort of leverage the overall sort of wide offering that we have to our customers. And that really is tied to sort of overall sort of pandemic situation improving. And then maybe a final point that's worthwhile always reminding is around productization, standardization. We talked a lot about sort of derisking and also sort of making our products more -- easier to produce and also sort of easier to use, easier to sell. So in all those 4 areas, we need to move forward. And I think the challenge, answering also your question on the cycle, is that I don't think any of us have seen a cycle like this which is not a normal economic recovery. In any traditional mining cycle, you would see the aftermarket side jump up first, and that would be kind of driving the recovery and then only later on CapEx. And here we are. So the recovery from pandemic is actually very much capital-driven, be it -- even on the Aggregates side, it's really driven by capital. And hence, maybe the earlier laws sort of apply, maybe they don't. And I think, at least, we're a bit hesitant to sort of give very clear indications that it's 1 quarter, 2 quarter, 3 quarters. I think this is just -- we have to sort of accept that there is a bit more uncertainty around than due to the fact that this is not a traditional GDP sort of drop cycle.

There's one other follow-up also which relates to the materiality of the disposal of aluminum. How should we treat that? Is that material within the Q2 figures?

Well, we will see a positive cash flow impact from it, I would say that then on the sort of, as such, of course, relatively small business. So the bigger chunk in the discontinued operations from an asset point of view is around the recycling business. And then from the sort of from of business performance point of view, the weakest business is the energy business. So aluminum kind of doesn't rank out very material in either of those. But of course, it was a good divestment. We hope that both the buyer and us are happy and that business will sort of develop better in the new hands.

Our next question comes from Robert Davies from Morgan Stanley.

Most of them have been answered, to be honest. There's only one left, which was just around the Aggregates business. And you mentioned India, some of the disruptions related to COVID. Just be interested to -- if you could give us any more color in terms of the order cadence as you went through the sort of first, second and third months of the year. What was the -- have you started to see any drop-off in the order rates already out of India on the Aggregates side? And could you just remind us the exposure to Indian aggregates?

Yes. India is one of our fourth -- 4 big markets for aggregates equipment. We do not open up the market-specific figures as such. But if I say that Europe has performed very well, the best-performing market at this moment; North America, close to it; China has been on high level since China exited the COVID last year already. And India, we're yet to see -- have to see the recovery.

[Operator Instructions] Our next question comes from Nick Housden from RBC.

Again, most of them have been answered. But something I would be curious to hear your thoughts on is the order pipeline in Minerals. And specifically, if you could give us any sense of how big this pipeline is, maybe if not with specific figures, then relative to what you've seen historically. And then If you could give us any context on maybe the typical conversion rates that you've seen historically, that would also be very helpful.

Of course, difficult to give such insight on our pipeline and then also the pipeline dynamics at a time when there's still uncertainty on COVID. It's also difficult to assess, primarily because this -- it's difficult to forecast how long the projects are in the pipeline before they are either -- orders are placed or they are removed from the pipeline. So it is -- we are living, like Eeva explained, a little bit different cycle than what we normally would be with the COVID. But anything, Eeva, to add?

Yes. Maybe just to say that it is brownfield-driven, definitely, kind of what the sort of -- what I would sort of expect to -- and so sort of be feasible in the next sort of couple of quarters, and more really on the small, medium-sized end. So that's -- and then as said, the sort of regional differences are very much related to the sort of COVID situation. So again, we have big differences on -- in between some of the mining countries currently. And that impact is difficult just to know exactly how long that will be with us.

There appears to be no further questions registered. So I will now hand over back to the speakers.

All right. Ladies and gentlemen, it is 34 minutes past the hour and we need to wrap up here. It seems all questions have been answered, so that's good. Our AGM will start momentarily. And our second quarter results will be published on August 4. So thanks for this session, and looking forward to speaking with all of you very soon. Goodbye.