Metso Oyj (METSO) Earnings Call Transcript & Summary

Good afternoon and good morning, everyone. This is Juha from Metso Outotec Investor Relations, and I want to welcome you all to this conference call, where we discuss Metso Outotec's fourth quarter and full year 2022 results, which were published earlier today. We will have the usual agenda with the presentation given by our President and CEO, Pekka Vauramo; and CFO, Eeva Sipila, after which we'll be taking your questions. And as you can see from our slide deck, we have the slide discussing forward-looking statements there in the beginning. With these words, I'll be handing over to Pekka to start the presentation. Please go ahead.

Thanks, Juha. Welcome to this call, our fourth quarter results call. We had a strong fourth quarter, strong finish of the year, which if I look back is somewhat exceptional because we normally have had a dip in the fourth quarter. But this year -- or last year, the execution was solid throughout the year until the last day of December. And therefore, the quarter was strong altogether. The market was very active. And if you remember our numerous press releases during the quarter, especially in December. So our order intake was strong, and it was mainly consisting of medium-sized and small orders, 3 orders exceeding EUR 50 million were also recorded during the quarter. But I think that's sort of a normal number of, let's say, bigger orders that we booked in the month, so solid activity in smaller orders. Also high sales growth. And I think it's also worthwhile, at this moment, to mention that growth both in orders and in sales were 99% organic. So M&A impact is very minor, M&A impact in the numbers. And also worthwhile to mention that all the comparison numbers include in 2021, also our Russian sales and orders, and we have not eliminated them away. And if we did that one, then, of course, the growth percentages would be even higher than what they were and what they are in these coming comparisons. But adjusted EBITA, 14.8%, 2 percentage points more than a year before, exactly the same margin as we delivered in the third quarter of the year. And if you recall, the second quarter where we had a major currency headwinds. So we've been solidly on this level the past 3 quarters of the year. We're making progress in sustainability in many areas internally. We're looking into our plants and operations and delivering good steps towards cleaner operations there. And then externally, our Planet Positive sales is growing very rapidly at this moment. During the year, the cash flow has been the weak point in our performance, but we turned the corner in the fourth quarter and delivered a cash flow, which was equal to our adjusted EBITA, at the end of the year. Then looking at the group numbers. As such, so orders received grew by nearly EUR 300 million to EUR 1.59 billion, a growth of 21%. And let's remember the Russia impact here, which will -- so without Russia, the growth would have been much bigger plus then the fact that it's all organic growth. Sales growth, we grew to EUR 1.43 million from EUR 1.3 million, growth of 12%. So solid growth there as well adjusted EBITA, EUR 212 million, 30% growth over last year. And the margins 14.8%. And last year comparison number for the same quarter, 12.8%, so very strong growth on that line as well. Operating profit, EUR 185 million, EUR 130 million in last year and 12.9% of the sales. Earnings per share, EUR 0.16 and last year, same quarter, EUR 0.11 and cash flow, EUR 212 million for the quarter. Then if we look at the full year numbers, orders just exceeded EUR 6 billion, so 11% growth. And here, especially, we see the impact of Russia here and organic asset. Sales growth of about EUR 1 billion, 25% altogether, adjusted EBITA, EUR 731 million. up 34% from a year before, representing 13.8%, nearly 1% higher than a year before. And operating profit, EUR 504 million. This is, of course, here the EUR 150 million provision that we made for Russia in last year in the second quarter is visible and reduces that number then accordingly. EPS for the full year for the continuing operations, EUR 0.40 and EUR 0.35 last year. And then here as well, the EUR 150 million, provision for Russia is clearly visible. Without that one, I think the EPS would have been somewhere in the ballpark of EUR 0.50 -- closer to EUR 0.60. And cash flow for the full year EUR 322 million, thanks to stronger cash flow -- cash conversion in the fourth quarter. And on a graph, we see the dividend history and proposal for this year. Now the proposal that we put forward for the AGM is EUR 0.30 payable in 2 parts as before, representing a clear growth from a year before. Then when we look at the segments, we only have the quarterly numbers here, but really strong performance on all lines from Aggregates. And when we look at orders, we've been flagging a little bit softness in European market earlier. European market has performed better than what we expected. It is not back to normal yet, but it's clearly better one than what we thought it would be. And then, of course, depending on the next few months' development in Europe, we see then this positive trend to either to continue or not to continue. But uncertainty is there. The war is still there and those reasons are in place. But so far, it has not affected as heavily as we thought. So we saw increase in orders, orders roughly 10% growth on order line. Markets in North America continued to be very strong. We've been actively managing the inflation through many means by being cost conscious and active in the pricing front and that is, of course, visible in all lines of our operation, and I'll continue with the same comment that we've been ahead of the inflation with our actions in cost and pricing side and that is visible in the aggregate results very clearly. Strong growth in the equipment order services declined slightly in the quarter. A quarter that 5% represents -- quickly calculated -- about EUR 5 million drop in sales. So we -- one should not read too much about that, that 5% negative development in service line. Sales, stronger growth than orders. This was really delivering the backlog and executing that part. It was done in a solid way. And services share now 30% as it was 32%. This was because of faster growth of equipment sales than the services. Adjusted EBITA nearly doubled from a year before and margin reached 16.2% for the segment in the quarter, and it was 10.6% last year. So very strong improvement. We had some onetime issues last year. So that depressed a little bit the numbers. But nevertheless, the performance improvement was really strong in the Aggregates, and it's really in a good phase of the development at this moment. Well-managed, well-executed business with very strong integration capabilities of the number of bigger and smaller companies that we have acquired over the past 3, 4 years into our Aggregates segment. In Minerals, the quarter, we saw an order growth, strong order growth. And here, especially, I mean, the Russia impact is in Minerals and to some extent, in Metals, but mostly so in our Minerals segment, and we need to read the numbers against that fact. So we were able to compensate both the order line and the sales line from other markets because our capabilities to deliver to Russia, were very limited and we only delivered those things after 24th of February that we were committed through our wind-down agreements. We did not book any new orders, as we have said. And of course, we have been very strict and careful that we haven't delivered anything that is restricted, and we have not dealt with any of the sanctioned customers in Russia. So good performance, very strong performance, and we took actively actions in other parts of the world in order to secure good compensation for the lost part of the business in other areas. Sales, we saw equipment sales declining slightly 7%, and that was because of the Russia wind down. At the same time, the services growth was strong in [ order ] services. Share was 62% of the sales in the Minerals segment during the quarter. And adjusted EBITA grew by almost EUR 40 million margin, 15.8%, which is almost 3 percentage points higher than a year before. We see really -- and see and feel all the final synergies that we did achieve through integration. And naturally, the volume development was positive despite of the fact that Russia was taken out of the equation early in the year. And here as well, we've been able successfully to mitigate the increase of our input costs, and that is, of course, visible in the results as well. Metals segment, good strong growth in the orders includes one bigger order there and then a solid flow of smaller orders. Healthy activity and that activity is continuing in the Metals side. Execution of the order book, EUR 125 million sales, almost EUR 20 million growth from last year. And services share increasing some good activities, and we've been able to initiate in the services side and now services represent 18% of the Metals sales and contributing, of course, to the successful turnaround of Metals. Adjusted EBITA EUR 15 million, last year, EUR 21 million. We did not have any sort of major provision releases as we had a year before. So that made up the number last year higher than what the fourth quarter number now was, but this was more sort of operational fully than the comparison a year before. 12.4% margin and thanks to good growth and also well-mitigated costs in the projects that we delivered in the Metals side. And with this one, I'll hand it over to Eeva for a more detailed number review, and then I'll come back with some other things after that.

Thank you, Pekka. Good morning, good afternoon on my behalf as well to everybody. Pekka already presented our strong operative figures. So I'll focus my comments on the items after adjusted EBITA. As adjustments, we recorded a negative EUR 10 million in the quarter on the group level. However, you may have noted in the notes section that we had a sizable negative in Minerals and the sizable positive in the group. These both relate to the Russia wind down. Originally, the EUR 150 million provision was made on group level at the end of June. And by year-end, as we have progressed and settled customer by customer, we have transferred the provision for use into the segments, mainly Minerals, where the actual project-related inventories and AR have been booked and need to be written off, of course, there as well. We had EUR 65 million of the provision left at year-end, waiting for the final wind-down activities. This, we are confident, will suffice. Net financial expenses are slightly up quarter-on-quarter and more visibly year-over-year, reflecting somewhat higher gross debt and interest costs in today's market. Our effective tax rate for the year ended at the lower end of our target range at 25%, where the figure for 2021 was 24%. Our earnings per share for continuing operations was EUR 0.16 for the fourth quarter and EUR 0.40 for the full year. The full year figure, including a loss in discontinued operations. And then the number for -- including the discontinued operations was EUR 0.13 for the quarter. Moving to our balance sheet. Total assets are up some EUR 900 million from the beginning of the year but down EUR 70 million from the Q3 end. M&A in the year consisted of 2 small acquisitions, which had limited impact on our balance sheet. Net debt at the end of the year was EUR 684 million, so an inch down from the end of September. The story of 2022 was really the growth in net working capital from 29% of sales in 2021 to 36%. Supply chain challenges and inflation led to a significant, over EUR 0.5 billion, increase in our inventories. Accounts receivable and payables were both up as well, but in smaller proportion. Receivables actually grew much less than sales, representing 16% of sales in 2021, they were actually down to 15% of sales in 2022. However, importantly, as Pekka also already referred to, we were able to change course during Q4, and our inventories decreased by EUR 40 million during the quarter. As supply chain challenges have reduced, we have been able to take down buffer stocks. And whilst the impact in the quarter was rather small, it was nevertheless important to stabilize and improve -- had any direct impact, the positive impact on our cash flow. Also good to remember that the decrease in euros is reduced because of the price component continuing to increase until year-end. So the volume reduction in inventories was actually somewhat more. Looking back at the inventory growth during 2022, I would say it was more 50-50 volume and price, whereas earlier in the year, we communicated it was roughly in the 60% volume, 40% price split. Cash flow in the fourth quarter was a clear improvement from the earlier quarters was the net working capital change was still a slight EUR 36 million negative. However, our net cash from operations before financial items and taxes was EUR 212 million for the quarter, contributing nicely to bring the full year figure up to the EUR 322 million. Clearly, the full year number is only half of the 2021 level as the negative change in net working capital really consumed quite a bit of cash in '22. Then maybe a point just for the sake of clarity, the other items in this chart. So they mostly relate to the Russia wind down. The negative provision affects the profit for the year. However, when the vast majority is noncash write-downs, the negative impact is neutralized from a cash point of view and this other items role. Moving then to my final slide and the main points on the financial position. During the fourth quarter, we issued a new EUR 300 million bond, while also making a tender offer for the outstanding 2024 bond. And of that, EUR 103 million was purchased back. Now these transactions improved our maturity profile significantly. Additionally, during the fourth quarter, we signed a new EUR 100 million term loan and a EUR 50 million RDI loan, of which the former was drawn during the quarter. Liquidity at the end of the year was more than EUR 100 million higher than at the start of the year. Debt to capital stands at 33%. And finally, there were no updates on our ratings in the quarter. So with that, I would hand it back to our President and CEO, Pekka, please.

Okay. Thanks. I'll sort of have a few notes on our strategy, sustainability and then finally, outlook before going to the Q&A. I already mentioned that we saw very strong growth of our planet positive offerings and it's clearly a sign that our efforts to launch more and more Planet Positive products & solutions is really a right direction to go, and we continue to launch new products, products altogether during the year-end. And there, of course, the digital part is even more strongly present now, and we see that there is much more further potential to improve the results through improving quality with digital solutions for our customers' processes. We've also signed several partnerships for developing mainly decarbonized steel production. Therefore, we also took a decision to invest in Circored pilot plant in order to make tests with hydrogen-based direct reduction of fine iron ore. And we do see activities around decarbonized and hydrogen-based direct reduction growing at this moment. These are, of course, very early phase developments, but clearly a direction where the iron and steel industry is headed. We also saw several orders with significant Planet Positive content battery Metals activities was high ordering activity, but we're doing a lot of research work in that area for our customers, a lot of pilot plant work as well for our customers. We see more and more inquiries for tailings management and dry stacking solutions, which are very positive for water consumption, they also very positive for biodiversity as the dry stacking allows higher storing of tailings and therefore, reducing the footprint that mining causes. And then in the smelting side, next-generation pelletizing, smelting and pelletizing are potentially merging to some extent at one point and then also sulfuric acid plants for decarbonizing many of our customers' industries, we see potential there and a lot of activity in those areas. Very important part and looks like that sustainability is really maturing in -- throughout the industry and decisions are more and more being made with the sustainability as a sort of leading thought and edge of the decisions. Some other sustainability highlights. We have internally completed several green transition projects in-house, our science-based targets, implementation of those targets and actions behind the targets is progressing. Now 20% of our spend is with suppliers that have committed to the science-based targets and nearly 100% of our R&D projects do have sustainability targets in them. Part of our ESG is naturally our progress in people and culture side, and we have very many actions driving diversity and inclusion. And like we have said earlier that we measure very frequently the engagement of our organization, and we have reached to a very high level in our engagement, and we are now on top 10% with our international reference group, benchmark group consisting of about 100 companies. So it is a good position to be at the times when there is a lot of movement in the labor market and people side in marketplace globally. Our market outlook has changed. I mean, we're saying that we continue on current level. And if you recall, our current level is a strong level. We are not anymore flagging the weakness in -- particular weakness in Aggregates in European market. Of course, the war is still there, war is not over. So we need to be aware of that one. But clearly, we see that markets are not as soft as we thought them to be earlier. So fairly confident on near-term outlook, metal prices are on a reasonably high level. They, of course, are bouncing a little bit up and down, but bouncing on high-level Aggregates. Customers' products are also enjoying very favorable pricing terms in many markets, and there seems to be continued demand, and this makes us to believe that the markets will continue to be active in that area, especially in North America. Then we see first signs also in China, rebound impact of Chinese market. It's currently on sort of proposal and activity pipeline level, which then remains to be seen if it turns into orders later on. But a fairly strong and solid outlook for you at this moment.

All right. That concludes our presentation. And Operator, we can now open the conference call lines for questions.

[Operator Instructions] The next question comes from Klas Bergelind from Citi.

So the first one I had is on the services. You say that demand is still healthy, but order growth slowed to low single digits ex currency in Minerals. I'm trying to understand if this was softness post perhaps earlier preordering, whether you perhaps lacked any larger service orders that will come through now at the start of the year, i.e., if this is just a timing issue, why we saw this sharp slowdown? And also, obviously, quarter-on-quarter down 9% to 10%. I'll start there.

Yes. I think what we saw, when I look back, we saw a peak in demand in services, which probably was the pent-up of the COVID times. And it looks like that pent-up demand is over, but we see still a very healthy demand in services altogether. So I really don't -- when I sort of look at current trading and things like that. I really don't see that services is turning down. But clearly, there was some sort of peak because of the pent-up demand.

Do you think -- I know it's tricky maybe to gauge this. But do you think service orders will stay at the current level into the first quarter? Or can we be up on some sort of seasonality into the first?

We are not really guiding it as such, but like I said, I mean, our activities are on a high level in services. So I really don't see that there would be a downturn in that regard that demand for services would drop. I mean we have been very busy delivering equipment in all areas, and therefore, we can expect also the services to follow.

My second one is on the margin and your 15% target. When do you think -- when you think of the positives and negative, Pekka, your thought for 2023, we have increased wage inflation, component costs, i.e., value-added still not leveling off out there. You still carry good pricing through the backlog at least in the first half. And you -- but at the same time, your synergies is no longer a big tailwind in the bridge. So with, let's say, high single-digit revenue growth supported by a solid backlog. Do you think you can reach your 15% margin for the year, just to understand the moving parts. And I know you don't guide the margins, but just to understand the moving parts of potentially how to get there.

Yes. Of course, we -- same wish that I had last year a bit more normality that we wouldn't have big-big swings that we need to take and make in the business. I'm referring to Russia now in last year and that sort of thing. I think we have all the pieces in -- of the puzzle in place, it's a question about execution. And let's remember that we work continuously also on our cost side, even though we don't announce major campaigns, but we have roughly what we have said before that in the past, we used to say that it's about salary inflation that we work on improvement actions. Now the salary inflation might be somewhat higher, and we necessarily don't reach that level in our improvement actions, but it's still a sizable number of millions that we work on that side.

My very final one is on further margin upside and thinking about Minerals, obviously. You said earlier you're working on standardizing the equipment, going into projects, more modularization and so forth to get that gross margin up, improving, obviously, margin in this way at the gross level is more sustainable, but it can take quite a long time. Is that still a 3- to 4-year journey, Pekka, from here? Or do you think you can do that 20% quicker than that?

We need other actions for that 20%. We need to grow faster in services. And that is an area that we are currently looking into and obviously in our annual strategy update, we will address that one then a bit later on in this year. We're just putting our thoughts together, but that's an area that we want to speed up and increase the services share, especially in Minerals on a higher level.

The next question comes from Antti Kansanen from SEB.

It's Antti from SEB. A couple of questions. Firstly, on Aggregates. And if we think about the demand outlook, sequentially stable. So if we go back to last year, I guess, the market in Europe was still fairly active in start of the year. So would you say that the demand is probably slightly below last year's level still when we are entering the year as we are kind of stabilizing on a bit lower level?

Yes, we are now, of course, almost at the end of February, and we all know what happened end of February last year. And if I comment from more or less from this day on, I wouldn't say that we are necessarily down from last year's activity level at this moment. But if we look at from beginning of the year, maybe that is the case.

And then secondly, on kind of the profitability numbers in Aggregates. I mean in second quarter, you had that kind of FX-related was in the numbers. And since then, we have seen a really strong margin improvement. So is this kind of fully operational on your pricing and execution? Or is there something FX-related reversal that is in the figures?

Eeva?

Yes. I mean, obviously, sort of the Q2 was the pain point when we saw a sort of such a rapid sort of change, then thereafter, it has stabilized. The full-year impact of FX was still negative for all businesses, including Aggregates, but of course, to a much -- it's soft and we started to see a much more of the positives also from this sort of accounting losses, correcting themselves in Q3, Q3 and Q4. So I think you could consider this sort of very much sort of operational result there, really no one-offs. I think the team has just done an excellent job in -- with price management, addressing sort of fighting inflation proactively. And then obviously, being able to also execute well. So we had good sort of steady sort of volumes in all the plants. So that helps as well.

And then secondly, there -- or lastly, I have a follow-up on the previous question regarding mining services. And when you're talking about this kind of a pent-up demand being over, are you referring to this kind of a longer lead time modernization refurbishment projects? Or has there been kind of an inventory adjustment as well regarding spares and consumables demand that your clients perhaps have been filling up inventories and now kind of adjusting them to a more normal levels.

It's mostly relating to modifications. Really like you said yourself less to -- or not at all to destocking or anything like that, no. There is still great demand for spare parts, wear parts and that kind of items in the marketplace. And also these modifications, but we are getting to more like a normalized level when it comes to orders. These modifications there, the cycle is much longer than in any of the other service activities. So the orders might be a bit lumpy there, but the actual deliveries will be much more even on that side.

Yes. And should one assume that perhaps your services sales development will be a bit stronger than the orders given that you have these longer lead time items that you have taken but not yet fully kind of converted to sales or…

Yes. Well, I wouldn't necessarily draw that conclusion. I think both lines are still solidly developing some lumpiness on order line, the services sales side is more of a sort of a steady development on that side.

The next question comes from participants from Goldman Sachs.

It's Christian Hinderaker here from Goldman. I've got 3 questions, if I may, perhaps we'll take them in turn. Firstly, I just wanted to come up on margins, it's obviously, better than consensus or expected across each of the businesses. Can you provide a little granularity perhaps on the contributions to that to date? I guess there were some mixed tailwinds within Minerals, for example, but you've also talked about mitigation of cost by pricing as well as more perhaps structural cost savings. And I just wonder if you can help us a little bit with how to think about, in particular, the cost actions in the year ahead.

Sure. So obviously, sort of mix varies from quarter to quarter to quarter, and it's not just the sort of capital versus aftermarket mix that we also sort of can have different mixes within capital or within services impacting and -- but of course, that's -- over time, it's not that relevant. I would say that clearly, the overall, I mean, service aftermarket share improved towards the year-end, we had a slower start, but then we had good sales volumes in aftermarket, and that obviously was a positive. Then again, in Aggregates, the margin improvement is really much coming from equipment as the growth there was just so much stronger. And then on per se cost actions. I think the main focus in -- as we continue to see inflationary pressure, is really around price and being sort of head on that and proactive on that is most important. And then second is solid execution. And then obviously, the cost savings then come on average -- also the average efficiency improvements. But as we are growing. So I would still say that the focus needs to be on that, on the price and inflation management. And I think we sort of did well in '22 on that front, and that certainly was one of the main success factors in our '22 earnings definitely. And of course, sort of the idea is to continue sort of with those learnings into '23.

Maybe I can come back then on the aggregate side, I guess that's where you had a positive surprise in terms of demand. Just interested in the developments that you've seen there. You mentioned a pickup in seasonality in Europe, for example, and I wonder whether that factors into the increase in the guidance for the outlook at least for the quarter ahead, how we should think as well about the sort of price versus volume? And then finally, on Tesab, I think you've been shifting there to a dealer-led model. Wondering how that's going? And also, how revenues for that business has developed versus the, I think, EUR 30 million that you reported for 2021?

Yes, that's right. We are not really basing our outlook as such on seasonality. It's a fact of life. A well-known fact. We are, of course, comparing it to the season at any given time that where we should be going. So it's not about seasonality this one. In our Aggregates side, yes, the volumes are also comparing previous seasons. We are on lower levels when it comes to volumes, but we have done -- taken many actions because of inflation, the pricing levels are different from what they used to be, and that's evening a little bit the output, where our sort of guidance or the outlook change really refers to is that we don't see that sort of softness right now, what we saw during the previous quarter or 2 quarters, in fact, when we move, change the Aggregates guidance. So not about that one. Then the other part of the question, it was about the margin and that side of it. Of course, the inflation is still there, even though it's on a reduced level. Some of the freight charges have normalized to pre-COVID levels, not all of them, but some of them. So there are some positive signs, but the inflation is still there. It is something that we need to manage. And even though we don't guide how we plan to do that one. But our track record has been, especially in our Aggregates side, very good in managing that inflation. And I think we are well alerted of the fact and have actions in place to place to work under these conditions.

And maybe just a final note on Tesab, Christian. So yes, a good start integration proceeding very well. And yes, obviously, we're sort of integrating also to optimize our reach, the customers sort of planning the sales channel work on that, but going very well, and we certainly see also clear profitability improvement areas with the synergies then that the Metso Outotec platform can offer the products.

And then finally, maybe just on the cash flow, interested in how we should think about working capital developments in particular into 2023, in particular around inventories. I know the EUR 40 million reduction in Q4, I guess, curious in broad terms, '23, how we should think about it? And also on a quarterly basis, what might one consider sort of the best case inventory improvement to think about?

Yes, obviously, sort of was we've turned the corner, which was important and a clear target for us in Q4, then obviously, there's ways -- room to improve. So the inventory is still in absolute terms are on a high level. And it -- from the sort of very, very challenging supply chain situation, it does take sort of several quarters to balance. And of course, we're sort of -- we're still a bit sort of cautious. Let's see what the year ahead has for us stored so that we don't want the risk availability. That's our main customer promise, and we need to be very focused on that. But certainly, sort of the target for this year is much better cash flow generation and really the -- that must come from net working capital, releasing cash unlike it did in 2022. The -- usually sort of the early part of the year is -- does tie some capital we are especially in the aggregate side, building kind of for the upcoming construction season in the Northern Hemisphere. So not necessarily sort of the best and then we're sort of going forward, hope to improve on that. But there's certainly potential and we don't have an explicit target on rather than sort of it being a clear focus just based on the sort of levels where we are -- all businesses have an opportunity to improve.

The next question comes from Vlad Sergievskii from BofA.

I'll start with services, if I may, but focus on sales. Obviously, record sales in Q4 and services, at the same time, orders declined sequentially for 2 quarters now for the reasons you explained. Book-to-bill in services was, I would say, materially below 1x in Q4, which actually rarely happens to you guys. So under this backdrop, can service sales grow versus a record Q4 level in the coming quarters or they may moderate.

Yes. And like I said earlier, we don't see any particular decline in activity in services. So -- and don't feel any softness in that market either. Maybe the only point is that really the pent-up demand for some of these activities within services is maybe over now, but we are still on clearly higher level than pre-COVID with our services as we speak right now.

And if I can ask 2 quick questions on the P&L, please. Firstly, on gross margin, it's down a bit sequentially in Q4. While the mix between equipment and aftermarket was broadly stable on my calculation. Any particular reason for that? And secondly here, there was a pretty meaningful positive contribution from other operating income and expenses line in Q4. It was about EUR 20 million, if I'm not mistaken, while this line is mostly negative historically. Would you be able to comment also what drove this positive contribution in this other income line?

Sure. So on the gross margin side, so nothing in particular as such. It is obviously a question of the mix of the different businesses and then the sort of excess execution in those and also a bit between the segments as it does vary, but nothing really to sort of point out on that. And on the other operating income, indeed, it was a plus. I don't have anything specific in my mind. But why don't we have a look at that with Juha. We can sort of come back if there was anything worth highlighting.

and maybe the very last one, I was keeping from my side. Your balance sheet provisions in Q4 has moderated quite materially, which is obviously a good thing. Could you comment on the key drivers? Have you utilized most of them, have you released? Any color would be really helpful.

Yes. There's a couple of factors. The Russia wind-down, obviously, affects the overall provision level that was very significant provision. And as I said, we had from the EUR 150 million, EUR 65 million we left at the year-end. So that obviously impacts the numbers. And generally, the provisions tend to move with as the sort of projects evolve. Again, I think there have been quarters when you've noted that it's been up and so the project portfolio moves it somewhat and now sort of towards the better, we had pretty good sort of sales deliveries and then on that. But again, sort of that part will flow sometimes a bit up, sometimes a bit down. But really the wind down, obviously, is a specific topic.

The next question comes from William Mackie from Kepler Cheuvreux.

I guess the first question is a follow-up on the positive price initiatives that you've achieved during the year across the business. I recall during '22, you had to manage very sharp inflation within your consumables business, which affected margins in a number of quarters. Could you actually scale or quantify, please, the level of price impact in Q4 or for the full year across the business and how you were able to net improve when you compare that to the inflationary pressures?

We really don't have a sort of a chart that would break down that one. But I think we commented on a headwind in our consumables that it was on an annual level of about EUR 40 million and it looks like that we have recovered that now with our actions, going forward. So good result in that field. But pricing management has been an issue, and I feel that we've done it successfully through the year. And that management, of course, includes all kinds of actions, actions in the cost side, actions in pricing side and other things like that. We also have to remember that what effects on actual prices is also the currency development. And we have seen the positives and negatives in that area. Net impact still is negative in the currencies on a full-year level. But of course, we were expecting that one to level now, going forward.

My second question relates to your current assessment of the market trends, particularly within the Minerals segment, you mentioned that the group and the company was successful to compensate for the loss of volumes from Russia. Could you perhaps provide a little color of how you see or how the sales teams are seeing the prospects in particular, verticals like copper, gold or cobalt and lithium and other battery Metals?

The battery Metals is clearly that activity is high currently. And we booked several orders end of last year. from that area, our sort of research labs are busy with tens of samples. We're doing a lot of lab tests. We're doing a lot of pilot plant testing in that area, and it's mostly greenfield activity, and it's lithium, it's nickel when it comes to battery Metals, some other rare earths as well. We see activity in many so-called critical Metals and Minerals activity, which is starting up, but it's probably one very practical sample of deglobalization in our customer industry because all bigger countries have their own critical Metals program, all regions like EU have in the same way. And clearly, the purpose is there to secure either domestic supply of these critical Metals or at least supply from the nearby countries and regions where the relationships are friendly. So clearly, a sign of deglobalization in that part.

And were there any particular countries or regions that were able to specifically compensate for the loss of Russian opportunity?

I think that activity was in all regions, I would say. Of course, the initial reaction, what we saw in the Metals market was that the prices went up and they went up from a very high level. And that, as such, initiated many, many actions and activities. And when we -- for example, when we first looked at that, how should we react on activity in Russia going down. And the initial thought was that, okay, we need to reduce costs very quickly because overall volumes will come down. But within a few weeks, it was evident that the activity in the rest of the world will compensate. And instead of entering the cost cutting, we did all kinds of actions in order to boost our sales capabilities and motivation in our organization to win and bring more orders in -- from those areas where the activity increased, and it was really, really global, the increase that we saw happening.

And my final area of question was relating -- follows on from that relates to one of your comments during the presentation about China. Perhaps you could just refresh us on your current footprint in China and how Metso Outotec is positioned to benefit from the potential reopening and the various stimulus measures that are being discussed.

We do have several factories in China. Most of them are really focused and geared up to deliver and serve Chinese market. The Chinese market, of course, for us includes China itself, but it includes also what we call Silk Road. Silk Road business that is business where Chinese are -- either companies are either directly investing or Chinese government is funding the construction of -- or development of a mine in other countries outside China. And we have been particularly successful in growing that business for us. And combined, the Silk Road business and business inside China is not the biggest market area as such, but it's growing rapidly to become one of the biggest market areas for us.

The next question comes from Max Yates from Morgan Stanley.

Could I just start on my first question to ask about the strategic review in Minerals. Could you just give us an update -- sorry, strategic review in Metals. Could you just give us an update on where you are with that? Are you kind of entering into negotiations about a possible disposal. Just any thinking with time line and when that is likely to have results and how it's evolved so far?

Yes. We said in the Q&A part of our CM, Capital Markets Day in last year that we see that we would come to conclusion during the first quarter of the year, time line as such, it's not fixed. And last year, when I look at it back, was not really stable enough to conclude that part, the M&A market in particular, turned rather difficult for known reasons, including the interest rate and availability of funding and the valuation disparity between sellers and buyers that opened up. And I would say that if we see a bit more stability in that one, then, of course, that will help us to conclude, but that's all I have to say about the strategic review in that part.

But we should have an update in some form within the first quarter. Is that correct? Is that the right way to interpret it?

That's what we look, but I mean there's no guarantees for that one because things will have to fall in the right places before we can conclude that.

And just a housekeeping question around the central cost line. That's obviously been quite a bit higher this year. So could you maybe talk a little bit about sort of what was driving that and what you feel sort of sustainable level or a normalized level for this line would be going forward?

Well, it's a combination, of course, Max, of many things. I would say the one specific item affecting this year has been Russia-related items, which are kind of a the sort of -- there's other costs than sort of pure wind down or restructuring related just from a quick exit. So that are not business specific. So that's been one abnormal impact. I mean, typically, of course, we have variety. It was the year-end. We have all kinds of year-end valuation be it pensions, in insurances and these type of things, so it would typically tend to have a bit of a bigger number in Q4, they're just difficult to plan and time sort of better than during the year. So in that sense, not necessarily the full year, of course. The full year, of course, was on the high side, Q4, perhaps not so much. And then there's still some sort of remaining group sort of IT-related issues from the final tails of the integration, these type of things. So I would guide for sort of a lower number in '23. These are really is quite a chunk of one-off. But at the same time, it's not to sort of -- there will be cost going also going forward in this role that kind of don't fit naturally in any of the segments.

And just my final question is around pricing in the aftermarket. And I guess one thing I wanted to understand, now that some of the input costs around steel, freight, energy are coming down, I would imagine some of your aftermarkets or your consumable contracts have indexation clauses in them that protect you on the way up. So I just wanted to understand kind of how these typically work as some of the costs moderate. So if you could give us a feel for, do you think that kind of a small proportion, medium proportion of your aftermarket contracts will be affected or will be impacted by these. And just how we should think about that in terms of indexation clauses now some of those costs are coming down.

The indexes, they are there to protect our margin. And that's how they work. It's not a continuous adjustment, it takes place at certain frequencies, quarterly frequencies. And of course, with an extraordinary cost increases or reductions there is a possibility to see a faster react on that one. But like I said, they are there to protect our margin. And as such, it's a positive development that we see. So far, the activity is not very high. I don't hear our customers turning to us. But of course, there are some automatic index adjustments happening, which I necessarily wouldn't be aware. But like I said, I mean, it's protecting our margins.

And I mean, just so I understand, would you say this is kind of industry standard on a kind of if there is such thing as a normal aftermarket consumables contract? Would you say they're on the majority of contracts? Or would you say it's on a less than 50%. I'd just love to understand kind of how normal this is in terms of just your kind of -- your typical aftermarket contract with the customer.

Yes. Of course, it is a contract detail, but we have spoken about it when it relates to our contracts, and I would say that it's a standard term in our contracts.

The next question comes from Panu Laitinmaki from Danske Bank.

I just had one final question about the outlook. So how should we kind of really understand it? If you say that you expect the market activity to remain at the current level. So does it mean like flat on year-on-year comparison for the orders for the next 6 months or the same pace of improvement? Or what do you mean if we think about it kind of literally?

Yes. The guidance, it is a 6-month guidance, and it's not really reflecting previous year. If I understand it correctly, from our side, it is really sequential development a development based on recent quarters or in comparison with recent quarters.

So basically, it's like EUR 1.6 billion orders for the next 2 quarters?

We don't guide the orders.

The next question comes from Erkki Vesola from Inderes.

Continuing on China, could you compare your current tendering activity in China to the one prior to, call it, closed doors? And where do you expect this activity to materialize as orders?

Yes. I would say that the domestic demand in China, we see some early rebound from restrictions and restrictions were lifted like just 1.5 months ago. So it's a very recent thing and a big part of the past 1.5 months was in Chinese New Year and related traveling. So it's not really actions that would be visible in our order bookings or numbers. But we know that activity level has increased there. Our dealers in Aggregates market are busy in China, their activity level is on a totally different level where it used to be. And if things continue smoothly, we can expect to see things turning into orders during the coming months. In the mineral side the activity has been strong throughout both in China. Same applies to Metals. If you recall, we booked several pelletizing orders in China in last year. And that side has been almost like unaffected. And then I commented earlier, the Silk Road part of the business that has been active and growing all the time.

And then regarding the Aggregates market in the U.S. how important will the IRA projects be for you in the coming years? And when do you foresee Aggregates demand materializing linked to these projects?

Yes, I'm not sure how the -- how much the IRA relates to our Aggregates demand, as such, directly, maybe indirectly to some extent. But what is the fact is that there's tens of billions of still unallocated highway reconstruction, maintenance funds that wait for award. And that is what I think will be the main driver in -- for Aggregates in U.S. that will keep the sort of infrastructure segment of construction on very active for months to come.

All right. I guess those were the questions. At this time, we thank you for participating. We thank you for taking part in Q&A. This concludes our fourth quarter and full year 2022 results conference call. We'll be back with the first quarter results on May 3, and hope to see you at that time at the latest. So thank you, and goodbye for now.