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| Metso's second-quarter 2009 review |
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http://www.paper.com.cn
2009-07-27 |
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Operating environment and demand for products in April-June
Due to the decline of the global economy and the uncertainty in the financial markets, our operating environment continued to be demanding. Our customers were still cautious in their investment decisions, which particularly affected our equipment and project businesses.
The majority of mining companies have significantly cut their investment plans compared with the peak investment levels of previous years and continued to limit their production during the second quarter of the year. The positive development in mineral and metal prices over the first half of 2009 has so far failed to improve the demand. Due to our strong product and services offering and the significant increase in our installed equipment base, demand for our mining equipment and related services continued on a satisfactory level. In the construction industry, demand for equipment relating to aggregates production continued on a weak level. Many countries have introduced economic stimulus packages relating to infrastructure development. According to our estimates, these measures will improve the demand for construction industry products only in the longer term as much of the new capacity installed during recent years is currently under-utilized. Demand for our construction industry services business was satisfactory.
Demand for power plants utilizing renewable energy sources was satisfactory in Europe and North America. The demand for power plants utilizing biomass and waste is expected to improve during the year due to measures to stimulate the use of renewable energy sources. However, limited availability of financing tends to delay the decision making in these projects. Demand for automation and flow control solutions decreased during the second quarter of the year. Demand for metals recycling equipment continued on a weak level due to the low price of scrap metal, customers' focus on inventory reduction and curtailments in steel production. The demand for the services business in our Energy and Environmental Technology segment was satisfactory.
Demand for paper and board lines picked up in China during the second quarter of the year. The recovery in the Chinese market was supported by the economic stimulus measures which have been implemented there. Fiber producers continue to postpone investment decisions due to low capacity utilization rates and uncertainty related to demand development. We have agreed to extend the schedules in a few additional smaller and medium size projects but in general the pressure to renegotiate the schedules has diminished. Demand for our services business in the pulp and paper industry continued to be weak particularly in North America and Europe due to low capacity utilization rates and capital spending restrictions.
Orders received in April-June
We received new orders worth EUR 1,020 million in April-June. The value of the orders was down by 41 percent from the comparison period. Orders received decreased in all of the reporting segments from the comparison period. Previously received orders equaling some EUR 228 million were cancelled from the order backlog, of which the majority is related to Zhanjiang Chenming pulp mill order cancellation. The agreements reported under the section "Events after the review period", are not included in the orders received nor in the order backlog at the end of June.
Orders received by Mining and Construction Technology in April-June equaled EUR 398 million, which was 57 percent less than the year before. The Mining business line's orders received decreased by over 60 percent on the exceptionally high comparison period. New orders consisted mainly of replacement, refurbishing and services business orders; no large orders for projects were received. Orders received by the Construction business line declined 50 percent from the comparison period.
Orders received by the Energy and Environmental Technology segment during the second quarter totaled EUR 278 million, down 24 percent on the comparison period. Orders received more than doubled in our Power business line from the weak second quarter order intake the year before. Orders received decreased by over one third in the Automation business line. This was mainly due to the heavy investment budget cuts in the paper and pulp and energy industries. Orders received by the Recycling business line decreased by over 75 percent due to customers' low capacity utilization rates. During the second quarter of the year, we received orders for a biofuel power boiler including an automation and information management system for PGE Zesp¨Žl Elektrowni Dolna Odra S.A.'s heat and electricity co-generation plant in Poland, a recovery boiler for Phoenix Pulp & Paper Public Company Ltd's pulp and paper mill in Thailand, as well as automation systems for two energy-from-waste plants in England.
Orders received by our Paper and Fiber Technology segment in April-June fell by 24 percent from the comparison period and totaled EUR 335 million. Paper business line was awarded a large coated fine paper production line order to Shandong Huatai Paper Co. Ltd in China. Fiber and Tissue business lines received very few new orders. Also orders for the services business remained at an exceptionally low level.
Financial performance in April-June
In April-June our net sales equaled EUR 1,247 million, which was 24 percent less than during the comparison period one year earlier (EUR 1,633 million in Q2/08). The services business net sales decreased by 14 percent on the comparison period, and accounted for 42 percent (38% in Q2/08) of Metso's second quarter net sales.
Earnings before interest, tax and amortization (EBITA) for the second quarter of the year were EUR 74.7 million, i.e. 6.0 percent of net sales (EUR 166.5 million and 10.2% in Q2/08). Metso's operating profit decreased and was EUR 65.9 million, or 5.3 percent of net sales (EUR 155.2 million and 9.5% in Q2/08). The result for the second quarter includes some EUR 4 million in non-recurring expenses resulting from capacity adjustment measures. The cancellation of the Zhanjiang Chenming pulp mill order resulted in one-time expenses of about EUR 10 million mainly deriving from the dissolving of the hedging arrangements we had entered into. The result also includes EUR 6 million in capital gains from reducing our holding in Talvivaara Mining Company Plc's shares. The weakening of the operating result on the comparison period resulted mainly from the notable 24 percent decrease in net sales and related underabsorption of fixed costs in a number of manufacturing and engineering units.
The profit attributable to shareholders was EUR 37 million (EUR 102 million in Q2/08) in the second quarter, corresponding to earnings per share (EPS) of EUR 0.26 (EUR 0.72 in Q2/08).
Free cash flow remained strong during the second quarter and was EUR 80 million. The positive cash flow development was supported by a continued strong EUR 108 million decrease of inventories in the Mining and Construction Technology segment which was partly offset by a strong decrease in advances received as well as in accounts payable due to lower procurement volumes. |
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