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Metso Outotec to sell recycling business as it focuses on ‘core’ synergies

Metso Outotec has spelt out a three-pillar focus in a new strategy and financial targets update, saying it is looking to divest its Recycling business and concentrate its attention on the aggregates, minerals processing and metals refining industries.

The new strategy, focused on growth and improving profitability, was published on the same day as the company’s January-September 2020 interim review was released.

This showed orders received were 28% lower in the September quarter of 2020 than the same period a year ago, at €2.9 billion ($3.4 billion), while the company’s adjusted EBITA and operating profit were down 29% and 63% year-on-year at €109 million and €47 million, respectively. President and CEO, Pekka Vauramo, said the COVID-19 pandemic continued to have an impact on the company’s end markets during the quarter, with the most significant impacts resulting from limited access to customer sites and slow decision making related to new project and modernisation orders and non-critical services.

With the merger of Metso and Outotec having completed on June 30, Metso Outotec has now had the chance to evaluate the opportunities within the enlarged group, which it spelt out in this update.

The company said it aims to become a “top-tier supplier of products, technologies and services in the aggregates and minerals industries and a top financial performer”, adding that its defined purpose is: “enabling sustainable modern life”.

Against this remit, the company said its foundation for implementing its new strategy and achieving its goals are based on the following factors:

  • Comprehensive product and service offering as well as process expertise throughout the customers’ value chain;
  • Extensive installed base and a strong brand;
  • Strong aftermarket presence and know-how close to customers; and
  • Industry-leading, sustainability-focused technology, research and product development expertise.

When it comes to growth, the company said its key customer segments are aggregates, minerals processing, and certain areas of metals refining.

“The company’s target markets offer attractive growth prospects and have significant potential for further growth and development of the aftermarket business,” it said. “Several recognised global megatrends, like urbanisation, infrastructure projects, electrification of societies, and climate change mitigation, will support market growth.”

Metso Outotec’s primary target in the selected segments is to develop its product and service business by leveraging its process expertise. “In order to reduce business risks and to improve profitability, extensive project deliveries will be limited when they include other than the company’s own technology and expertise,” it said.

The company laid out four priority areas of strategy implementation including: integration and financial performance; customer centricity; sustainability; and performance culture.

These priority areas are visible in each business area’s action plans and their realisation is measured and managed with several performance indicators, it added.

Vauramo, who has also agreed to lead the company until the end of 2023, said: “Metso Outotec’s new strategy is coherent and clear, and it will help us to become an industry-leading company in customer satisfaction, sustainability and financial performance. Based on a careful assessment of our businesses and the opportunities they offer, we have selected the areas we will focus on.

“The aggregates and minerals industries have clear roles at the core of our strategy. Global megatrends are driving their development, and we are well positioned to offer products, solutions and services that satisfy customer demands.

“In the Metals business, we will initiate a restructuring and turnaround program to improve financial performance and ensure more granular management of the various businesses and resources. This work will lead us to scope our offering and resources in a more efficient way.”

As a result of this strategy work, Metso Outotec has decided to divest its recycling business. While the circular economy and other market drivers offer attractive opportunities for developing this business, Vauramo said it has limited synergies with the core of the new Metso Outotec.

“This being the case, we have started preparations to divest the business,” he said. “I am confident that we will reach a solution that is good for Metso Outotec as well as for the Recycling business and its personnel.”

The Recycling business sells products and services for metal and waste recycling. Its sales in 2019 were €156 million, and it reported an adjusted EBITA margin of around 6%.

Speaking of synergies, Vauramo updated investors on its plan to generate total cost synergies of €120 million by the end of 2021 through the merger process.

At the end of the September quarter, it had reached an annual run rate of €31 million in cost synergies, it said. This compares with the year-end estimate of €50 million.

“In addition, we were able to realise the first revenue synergies during the quarter by capitalising on cross-selling opportunities in the services business,” Vauramo said.

As part of the strategy work, Metso Outotec’s Board of Directors has approved the following financial targets:

  • Adjusted EBITA margin of >15% over the cycle;
  • Maintaining an ‘investment-grade’ credit rating;
  • Dividend payout of at least 50% of earnings per share; and
  • Progress in sustainability in alignment with the 1.5°C commitment.

“The financial targets underline our intention to improve the company’s profitability and drive sustainable solutions in our industry,” Vauramo said. “The most significant factors in this development are the benefits related to integration and synergies, the businesses’ own profitability improvement actions, increasing market shares, and developing our business portfolio. At the same time, we will strengthen the company’s balance sheet by using cash from operations to reduce indebtedness.

“For shareholders, Metso Outotec’s ambition is to be a good payer of dividends.”

With Metso Outotec already outlining its “1.5°C journey”, with targets validated by the Science Based Targets initiative, the company is well on its way to making progress on this front.

In the strategy update, the company said this will be implemented through a focus on sustainable offerings and innovations, and by being a responsible and trusted partner.

Metso Outotec has set targets to reduce the emissions of its own operations by 50% by 2030, compared with the 2019 baseline, and to reduce the emissions of logistics by 20% by 2025. It is also targeting that 30% of the supplier spend by the end of 2025 is with partners who have set a CO2 target.

“Metso Outotec will continuously develop sustainable solutions for its customers, with a focus on energy and emission efficiency, water efficiency, circular solutions and safety,” it said. “Over 90% of the company’s R&D projects are targeted to have energy, emissions or water targets.”