Finance and operations 2011

Transcription

1 Finance and operations 2011 This PDF has been exported from Metso s Online Annual Report Fit for the future

2 Contents 3 Finance and operations 3 Global presence 4 Emerging markets 8 Developed markets 10 Prosperity for our stakeholders 11 Purchases 12 Wages and salaries 13 Taxes 14 Net financial expenses 15 Dividends

3 Finance and operations Global presence Metso is a truly global company. We have sales, services, engineering, production, procurement and other activities in over 300 units in more than 50 countries on all continents. Our global presence allows us to meet our customers' needs in the best possible way and to leverage the growth potential our operating environment offers in different markets. We employ more than 30,000 professionals around the world, and we have customers in more than 150 countries. We focus on businesses in which we can achieve a strong, global market position and in which our services and our technology offer significant growth opportunities close to customers. Strong presence in emerging and developed markets Metso aspires to have a strong and active presence in emerging and developed markets; both markets have needs and demands that clearly differ from each other. The majority of new equipment and plant projects are sold to emerging markets, while the emphasis in developed markets is on the services business for the installed equipment base. Our main goal in emerging markets is to continue our rapid growth. In developed markets, we are focusing on reinforcing our strong position through the services business and by offering solutions to improve the energy efficiency and minimize the environmental impacts of our customers' operations. Emerging markets Developed markets Focus: Achieve significant growth Local presence Local innovations to mid market Know-how attraction Sourcing Click the map to explore more. Focus: Defend strong market positions through services Productivity of customer assets Energy efficiency and environment-focused Rebuilds Process optimization Division of countries into emerging and developed is based on Metso s own definition. 3

4 Emerging markets Today the demand for new equipment and processes is mainly in Asia, South and Central America, Eastern Europe, Africa and the Middle East. In 2011, all four BRIC countries (Brazil, Russia, India and China) were among the 12 biggest countries in terms of orders received. Economic growth in emerging markets is estimated to remain strong, and capacity in these markets will continue to grow in upcoming years in all the areas where Metso has a product offering. The young, growing middle-class is gaining affluence and purchasing more consumer goods; this translates to a strong increase in the consumption of various minerals, energy and packaging industry products. To create a platform for sustainable economic growth and a higher standard of living, emerging economies are actively investing in new transportation infrastructure. Rapid growth areas include especially India, China and Brazil, which are investing heavily in improvements and construction of traffic networks and other infrastructure. There is also a big need for infrastructure development in Eastern Europe and Southeast Asia. The focus of new mining as well as pulp industry investments has shifted to emerging markets that are rich in natural resources. The demand outlook for the energy industry using both fossil and renewable fuels is promising in these markets. Asia Metso's presence in Asia in 2011 Net sales EUR 1,236 million Net sales development 0% Number of personnel 4,552 Share of personnel 15% China As it has been for the last five years, in 2011 China was again among the three biggest countries for Metso, measured in terms of the value of orders received, which was EUR 642 million. We will continue to actively invest in our operations in China and to systematically develop our local presence there. Mining and Construction We delivered our first rock crusher to China back in the 1950s. China's mining and construction industry has grown briskly in recent years. Today we serve the mining and steel industry in China, and we supply equipment for the production of aggregates at quarries and directly to port, terminal, road and dam construction sites. Our modern crusher factory in Tianjin manufactures a comprehensive range of our crusher models and serves the Chinese and Asian markets, as well as our customers globally. Mining industry customers account for the majority of the Mining and Construction segment's business in China. Automation The markets for the Automation segment are growing in China. We are the country's leading automation supplier for the pulp and paper industry. We also have a good market position in other process industries, like the oil and gas industry. A sizable investment in the Automation business was the technology center opened in China in 2010; the technology center specializes in automation solutions and in valves, and it strengthens our customer service especially in China and the Asia-Pacific region. Pulp, Paper and Power Our paper machine deliveries to China started in the 1950s. The joint venture we established there in 1989 started the local manufacturing of our paper machines. Now China is our main market area for new paper and board lines. Our reliable references and our strong brand give 4

5 us a good position in these markets where the customer expects their partner to offer advanced technology solutions at a competitive price. China's paper and board industry has made substantial investments over the past ten years. We have been a partner in many of these projects and we are currently the leading technology supplier in the sector. In addition to factories serving the pulp and paper industry, we have three service centers in China. The growing markets for paper machine fabrics are served by our factory for wet and dry filtration applications in Tianjin and our filter factory in Shanghai. Economic growth continued in China in Among the biggest orders we received in 2011 were the coated board production line for International Paper & Sun Cartonboard as well as two containerboard machines, automation systems and a wide range of process systems for Anhui Shanying Paper Industry. We also established a joint venture with the Chinese SAC, Guodian Nanjing Automation to develop a digital power plant concept. The joint venture strengthens our position in China's power plant automation markets. China's rapid urbanization and industrialization will create a high demand for energy, base metals, paper and packaging, and construction materials. This offers excellent growth opportunities for all of our segments. We aim to further strengthen our presence in China in order to serve our customers in the best possible way. India In 2011, India was the 12th biggest country for Metso, measured in terms of the value of orders received which was EUR 212 million. All our segments have operations in India; the Mining and Construction business has a particularly strong local presence. This gives us a good foundation for success and growth in the country's rapidly developing markets. Mining and Construction Metso has had exports to India for decades and its own local operations since We are the leading supplier of mobile crushers and screens in India. Mining and Construction has a crusher factory in Bawal, a foundry in Ahmedabad, and regional sales and service units in New Delhi, Bangalore, Kolkata, Thane, Hyderabad and Chennai. In 2010, our single largest industrial investment so far, Metso Park, was completed in Alwar. The investment significantly strengthens our presence and supports the rapid growth in demand for mining and construction products and services in India and other quickly growing markets in the Asia-Pacific region. At the facility, we also manufacture components for our assembly units operating in emerging markets as well as some products for global markets. The second phase of the project is currently under way. Automation Our automation business in India was launched in 2000, and the local company was established in Today the Automation business has several sites in India. In 2011, a research and product development center was established in Mumbai, and a new valve delivery center will open in Vadodara in 2012 to serve the local oil, gas and petrochemical industry. Power plants are our Process Automation Systems' biggest customer group, which we serve in collaboration with India's energy-sector equipment manufacturer Bharat Heavy Electricals. Together, we have more than 50 percent of the market share in power plant automation systems in India. India s pulp and paper industry is also an important customer industry for us. Pulp, Paper and Power Our local resources in India also serve the pulp and paper industry. Our joint venture with our Indian partner focuses on power industry solutions and provides engineering services for our other power industry units globally. The unit, operating in Chennai, has also designed a recovery boiler solution particularly for the Southeast Asian markets; we have already received two orders. India, the world's second most populated country and quickly gaining in affluence, will be an increasingly significant market for us. 5

6 The mining and construction industries are our fastest growing customer segments in India. With the rapid population growth and urbanization, environmental issues, a higher demand for energy and the transportation infrastructure pose increasingly bigger challenges for India and offer new business opportunities for us. Our leading technology know-how, our strong market position and our good references in India make us well positioned to tap into these opportunities. Rest of Asia Rapid urbanization is creating sizable infrastructure development needs in Southeast Asia, where Indonesia is our most significant country in terms of operations. Indonesia is Asia's third-largest economy after China and India, and it has a major pulp and mining industry. Indonesia is also the world's second-biggest producer country of tin, the third biggest of copper, and the fourth biggest of nickel. Various construction and infrastructure development projects are driving the demand for our equipment and services in places like Thailand, Vietnam, the Philippines, South Korea and Malaysia. There is good regional demand for Mining and Construction's products, particularly mobile crushers and stationary crushing plants, as well as various pumps used in the mining industry. In 2011, we received an order from Phoenix Pulp & Paper for a cooking plant and a fiber line upgrade at its Khon Kaen mill in Thailand. South and Central America Metso's presence in South and Central America in 2011 Net sales EUR 1,116 million Net sales development 40% Number of personnel 3,164 Share of personnel 10% Brazil is by far our biggest market in South and Central America. It accounted for 16 percent of all our orders received in 2011 and, measured in terms of the value of orders received (EUR 1,292 million), Brazil was the most significant country for us. We have been operating in Brazil for nearly 100 years. We have an extensive local business network in the country and our customers operate in several different industries. In recent years, Brazil, Chile, Peru and Mexico have become leading mining industry countries in the world, and our deliveries to the mining industry have grown rapidly in these countries. We have increased our presence, particularly in the services business, close to the big mines, and have won several major service agreements for mines. The construction of the transportation infrastructure, particularly roads, has been very active in Brazil, and that has created demand for our construction equipment. Sizable investments by the Brazilian oil industry have offered significant opportunities for our automation solutions. South America, and particularly Brazil, is on its way to becoming the world's leading supplier of pulp, and there are several pulp mill projects planned for launching in the region in the upcoming years. We also serve paper and tissue industries in Brazil. Economic growth continued in South and Central America in Among the most significant orders we received from the region during the year included Metso's biggest order ever, and the world's largest pulp mill, for Suzano Papel e Celulose in Brazil, and the delivery of ball mills and crushers to Grupo Mexico in Mexico. Additionally, we signed a service contract covering 11 refineries for the Brazilian oil company Petrobras and a service contract covering approximately 2,000 valves for the Brazilian Arcelor Mittal Tubarão. The contract expands the existing contract and is Metso s biggest valverelated agreement in South America. Construction of our new facility serving the pulp and power generation industries is under way in Araucaria, Brazil. Africa and the Middle East 6

7 Africa and the Middle East Metso's presence in Africa and the Middle East in 2011 Net sales EUR 344 million Net sales development 18% Number of personnel 1,415 Share of personnel 5% In 2011, 6 percent of the orders we received were from Africa and the Middle East. Our strongest customer industries in this region are mining and construction, but there has been strong growth also in our valve deliveries, particularly to oil, gas and petrochemical plants in the Middle East. The African continent holds a significant share of the world's known mineral resources, such as gold, platinum, chromium and diamonds. A substantial share of the world's bauxite, cobalt, phosphate and uranium deposits is also found in Africa. In South Africa, we have sales and services units serving our mining and construction customers; we also have a factory manufacturing rubber-based wear parts, a factory manufacturing crushing and screening equipment and pumps, and a manganese foundry producing wear parts for crushers. Additionally, our sales and services units in Algeria, Ghana, Zambia and Zimbabwe serve the mining industry. Our Automation business has sales and maintenance units in South Africa and the Middle East. A sales unit and a joint venture specializing in maintenance services serve the paper and pulp industries in South Africa. Orders received from Africa in 2011 included a complete tissue production line for Moroccan Jeesr Industries' mill in Berrechid, near Casablanca, and a new fiber line for chemical cellulose for Sappi s Ngodwana mill in South Africa. Eastern Europe Metso's presence in Eastern Europe in 2011 Net sales EUR 551 million Net sale development 23% Number of personnel 1,188 Share of personnel 4% Russia is the most significant of the Eastern European markets for us. Orders received from Russia in 2011 accounted for 4 percent of our total order intake. We have operated in the Russian markets for about 50 years and serve the pulp, paper and board, mining, construction and power industries. Russian pulp and paper markets are clearly picking up after years of being flat. In 2010, we signed an agreement for the delivery of a complete fiber line, the first in Russia in a long time. The fiber line was ordered by Ilim Group, a leading pulp and paper manufacturer in Russia. When commissioned, it will be one of the world's biggest and most modern softwood pulp mills. In 2011, orders for mining and construction technology grew strongly in Russia. Significant orders received included minerals processing equipment and a multi-year services agreement for the Russian Copper Company's copper operation. We also received an order for a biomass power plant, including an automation system, for SIA Graanul Invest in Latvia and an order for the conversion of coal-fired boilers to biomass-fired boilers for EC Tychy and Elektrocieplownia Bialystok in Poland. The companies aim to increase the share of renewable energy in their production and to adapt to the new, strict emissions requirements that take effect in the EU in Eastern Europe will become increasingly significant for our operations. In particular, infrastructure development in transportation and energy, local utilization of natural resources in the mining and pulp industries, and various projects supporting sustainability will increase the demand for our products. 7

8 Developed markets Our traditional markets are the developed markets, i.e. Western and Northern Europe, North America, Japan, Australia and New Zealand. The focus of our operations in these markets is on the services business and on modernization of the existing equipment base. Western and Northern Europe Metso's presence in Western and Northern Europe in 2011 Net sales EUR 1,762 million Net sales development 16% Number of personnel 15,403 Share of personnel 51% In 2011, 49 percent of the orders we received came from Western and Northern Europe. Metso has production facilities in Finland and Sweden, which is where its roots are, as well as in France, Germany, Italy, Portugal, Poland and Czech Republic. Our focus in this region is on the services business and on modernization of the existing equipment base, which is supported by our strong market position, extensive installed equipment base and comprehensive services organization. In 2011, the demand for equipment related to aggregates production in the construction industry continued to be satisfactory, even though economic uncertainty delayed projects. The demand for the services business in the construction industry also remained satisfactory. The demand for power plants using renewable energy sources increased. Several European countries have set targets to grow the use of renewable energy, and we expect this to support the demand for our biomass- and waste-fired power plant solutions. Uncertainties related to support mechanisms for renewable energy play a critical role in the realization of final decisions for orders. The demand for the services business in the power generation industry remained good. In 2011, our most significant orders included crushing and minerals processing equipment, the designing of two process lines, and project services related to the building of them for Northland Resources' Kaunisvaara iron ore project in Sweden. We also signed agreements for an extensive electrification and automation delivery to Outokumpu's plant in Tornio, Finland, the delivery of the world's biggest bio-gasification plant to Vaskiluodon Voima in Vaasa, Finland, deliveries of two combined heat and power plants to Fortum in Finland and Latvia, the delivery of a biomass-fired boiler plant to the Dutch utility company, Eneco, in the Netherlands, and a major board machine rebuild for DS Smith Paper's Kemsley mill in England. North America Metso's presence in North America in 2011 Net sales EUR 1,208 million Net sales development 31% Number of personnel 3,845 Share of personnel 13% In 2011, 18 percent of the orders we received came from North America. The USA was our 2nd biggest country, measured in terms of orders received. Our focus in North America is on the services business and on modernization of the existing equipment base, and we have adjusted our resources and cost structure accordingly. Over the past ten years, the net sales of our services business have tripled and its share of our business in the region has grown clearly. 8

9 Our key strengths in the North American markets include our good market position and reputation in selected business segments, our extensive installed equipment base, and our strong, full-scope services organization. In 2011, the demand for aggregate production equipment and the services business in the construction industry remained satisfactory. The demand for power plants using renewable energy sources increased and was brisk. The United States has also set targets to increase the use of renewable energy sources; we believe this will further support the demand for our biomass- and waste-based power plant solutions. Among the orders we received during the year included a biomass boiler plant (one of the biggest in the world) and automation system for the Gainesville Renewable Energy Center in Florida, and a containerboard production line for Greenpac Mill s new mill site in Niagara Falls, New York. The new production line is scheduled for start-up in the second quarter of In August, we acquired the services business of Copperstate Industrial Services in Arizona. The acquisition strengthens our leading position as a supplier of services and technology for the mining sector in North America and Mexico. We also started the expansion of the valve production plant in Shrewsbury, Massachusetts. This investment supports our strategy to strengthen our valve operations globally. Upon completion of the expansion, we will have a new state-of-the-art valve production facility near every major market area. Pacific region (Australia, Japan and New Zealand) Metso's presence in the Pacific region in 2011 Net sales EUR 429 million Net sales development 26% Number of personnel 757 Share of the personnel 2% In 2011, 6 percent of the orders we received came from the Pacific region. Our most significant customer sector in the region is the mining industry, in which the Australian mining companies in particular have made significant investments in recent years. Japan has been a market for Metso's pulp and paper machines and for its equipment and automation for many years. The reconstruction efforts after Japan's major earthquake and devastating tsunami have also generated orders for us. Orders from the region in 2011 included a crushing equipment delivery to Fortescue Metals Group in Australia and a fiber line rebuild for the Daio Paper Corporation's Mishima mill on Shikoku Island in Japan. We also received an order for a new specialty paper machine for Nippon Kodoshi in Japan, and significant additional orders, including a multi-year mill maintenance agreement for new production line supplied by Metso, from Amcor in Australia. Our comprehensive services network enabled us to serve our customers also in the midst of the demanding challenges created by the 2011 earthquake, tsunami and floods. Our services business in the region grew significantly compared to the previous year. With economic growth predicted to continue in the Pacific region, the prerequisites for Metso's continued operational growth are good. 9

10 Prosperity for our stakeholders Monetary flows by stakeholder group Generation of value added: 2009 EUR million % of net sales 2010 EUR million % of net sales 2011 EUR million % of net sales Customers Net sales 5,016 5,552 6,646 Suppliers Purchases 3, , , Value added 1,768 2,082 2,327 Distribution of value added: Employees Wages and salaries , , Public sector Creditors Taxes and other indirect employee costs Net financial expenses Shareholders Dividends Distributed to stakeholders 1,537 1,717 2,044 Retained in business

11 Purchases Procurement at the 2008 peak year level The value of Metso's purchases in 2011 was EUR 4,319 million (EUR 3,470 million in 2010). Approximately 75 percent of our purchases were directly related to products, such as raw materials and components, and the remaining 25 percent were indirect purchases, i.e. goods and services necessary to maintain operations. The growth in production volumes kept pace with the growing procurement volumes in all market areas. The strong shifting of main markets to emerging countries, particularly the BRIC countries (Brazil, Russia, India and China), was also reflected in purchases. Purchases in the BRIC countries continued to multiply compared to the traditional main procurement areas. Metso's strategy of aiming to move services close to the customer affected also purchases. In order to gain cost benefits from the global supply chain, we have aimed to increase the volume of purchases from countries with a lower cost level. While we have succeeded in doing this, the Nordic countries remained our biggest procurement area with an approximately 40% share. The share of the Nordic countries decreased somewhat, although the biggest increases per factory came from the large Finnish and Swedish units. The growth was strongest in the Mining and Construction segment. Purchases by area (10 largest countries), EUR million Finland 1,040 1,309 USA Brazil Sweden Germany China Canada France South Africa India

12 Wages and salaries Personnel increased as the business developed favorably In 2011, we paid wages and salaries, excluding indirect employee expenses, of EUR 1,229 million, or 18 percent of net sales (EUR 1,106 million and 20% in 2010). The number of employees and the performance-based bonuses and incentives have an impact on the total amount of wages and salaries. The wages and salaries on the income statement are the gross amount, a portion of which is paid by the employees as taxes to society. The wages and salaries also include holiday pay. The amount of bonuses paid remained at the level of the comparison period. Within the framework of collective agreements, we apply profit- and performance-based incentive systems when it justifiably supports management. In 2011, EUR 45 million (EUR 45 million) was paid in bonuses. Additionally, certain key persons at Metso were paid a share incentive, the value of which at the time of payment was about EUR 3 million. Indirect employee costs include payments related to pension insurance, social security, and unemployment and disability insurance based on the wages and salaries paid. Indirect employee costs depend on the scope of operations and the number of employees. In 2011, our indirect employee costs were EUR 347 million (EUR 319 million). We monitor trends in base salary levels in comparable industries in each country. Our personnel increased 6% from December The personnel increased both in the developed as well as emerging countries, and the share of emerging countries of our personnel remained at 34%. Of our personnel, 52 percent (54%) work in EU countries and 29 percent (27%) in non-oecd countries. Total wages and salaries (10 largest countries), EUR million Finland USA Sweden Brazil Germany Australia Canada China France South Africa

13 Taxes Profit improved and taxes increased We paid EUR 122 million in corporate income taxes in 2011 (EUR 98 million in 2010). In addition to income taxes, we paid real estate and waste disposal taxes, among others, related to our operations. The income tax cost on the income statement was EUR 149 million and our tax rate was 29 percent (EUR 112 million and 30%). The taxes we paid were once again lower than the income tax cost on our income statement because some of the increased cost attributed to the improved result will be deferred to later years. Considering the scope of their operations, the Finnish companies still paid low income taxes. However, the combined taxable profit of all the Finnish companies was clearly positive, and about EUR 15 million of the income taxes were related to the Finnish companies. As a result, the amount of losses and other credits was significantly reduced. In emerging markets, we paid the most income taxes in Brazil, China and South Africa. Earnings from our Brazilian and Chinese operations continued to markedly improve, and some of the tax effect will be deferred to later years. Income taxes paid, 10 largest countries, EUR million USA Brazil Australia 9 14 China 9 14 France 5 10 South Africa 10 5 Chile 2 5 Sweden 2 3 Italy 0 2 Thailand

14 Net financial expenses Net interest-bearing liabilities continued to decrease As net interest-bearing liabilities continued to decrease, also our net financial expenses in 2011 decreased on the comparison period and were EUR 65 million (EUR 75 million in 2010), or 1 percent of net sales (1%). Our net interest expenses totaled EUR 49 million in 2011 (EUR 51 million). Our net financial expenses included EUR 3 million (EUR 13 million) in foreign exchange losses. In 2011, EUR 123 million in net working capital was tied up and our free cash flow was good, at EUR 375 million (EUR 435 million). Interest-bearing liabilities mainly consisted of bonds and fixed and variable interest loans from international financial institutions. Our net interest-bearing liabilities at the end of 2011 totaled EUR 260 million (EUR 310 million). Gearing was 12.2 percent (15.0%). Interestbearing receivables and cash and equivalents stood at EUR 767 million (EUR 1,063 million) at year-end. In December 2010, we renewed the five-year EUR 500 million revolving credit facility, which was concluded with a syndicate of 14 banks. The credit facility remained undrawn in both 2010 and by the end of In December 2011, Moody s Investors Service affirmed Metso s Baa2 long-term credit rating and raised the outlook from stable to positive. In August 2010, Standard and Poor s Rating Services affirmed Metso s BBB long-term credit rating and changed the outlook from negative to stable. At the same time, the short-term corporate credit rating was raised to A-2 from A-3. 14

15 Dividends The uncertainty of the world economy was reflected in the Metso share value development The trading price on the NASDAQ OMX Helsinki in 2011 for Metso's share fell 31 percent, and the closing price at the end of the year was EUR At the same time, the NASDAQ OMX Helsinki portfolio index, OMX Helsinki CAP, decreased 28 percent. Our market capitalization at year-end, excluding the shares held by the Parent company, was EUR 4,287 million (EUR 6,255 million in 2010). When the dividends paid and the change in share price are taken into consideration, Metso's total shareholder return (TSR) in 2011 was 27.8 percent negative (72.6% positive). Metso's target, in line with its dividend policy, is to distribute at least 50 percent of annual earnings per share as dividends or in other forms of repatriation of capital. Our profitability improved in 2011 and our earnings per share were EUR 2.38 (EUR 1.71 in 2010). The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.70 per share be distributed for This would be a total of EUR 254 million, representing 71 percent of the earnings per share. Metso paid dividends totaling EUR 232 million, i.e. EUR 1.55 per share, for 2010 (EUR 105 million and EUR 0.70 per share for 2009). 15