Metso Outotec: A new beginning from a strong growth platform
First publishedin Aggregates Business Europe & International
The signing ceremony for the Metso Outotec combination agreement. Pictured left to right are: Markku Teräsvirta, president and CEO of Outotec; Matti Alahuhta, chairman of the board of Outotec; Mikael Lilius, chairman of the board of Metso; and Pekka Vauramo, Metso president and CEO
Due to launch in Q2 2020, Metso Outotec is set to become a a leading global company in process technology, equipment and services for the aggregates, mining and metals industries. Metso chief executive officer Pekka Vauramo will head up the new business. He spoke to Aggregates Business editor Guy Woodford about the eye-catching venture’s significance and key goals
Metso’s growth trajectory has been impressive in recent years. The Finnish-headquartered global aggregates and mining equipment giant is used to posting rising annual sales and revenues while, simultaneously, launching innovative new plant and plant telematics solutions onto the market.
Given the company’s success and confident future trading outlook, it was initially a surprise when Metso announced in July this year that it was to combine with fellow Finnish firm Outotec, a major provider of process technologies and services for metals and mining, industrial water treatment, alternative energy, and chemical industries to create a new business, Metso Outotec.
However, an appraisal of Metso Outotec’s joint commercial strength, coupled with the synergies and pooling of expertise the new firm offers, generates a convincing business case. Combined Metso and Outotec sales stood at €3.9 billion in 2018 (rising to around €4.2 billion when adding the impact of Metso’s likely Q4 2019-completed acquisition of crushing and screening equipment manufacturer McCloskey International).
Notably, Metso’s Flow Control business will not be part of the new Metso Outotec venture. Looking to build on impressive 2018 sales of €593 million, it will become an independent entity trading under a familiar sector name, Neles. A well-recognised and respected brand in the flow control markets around the world, Neles was originally established in 1956 in Helsinki, Finland, to operate in the metal industry. The company became part of Metso in 1999 and has since lived and grown as a strategic product family name.
Speaking to Aggregates Business, Pekka Vauramo explains that the creation of Metso Outotec, which is currently subject to respective company board, shareholder, creditor and competition authorities’ approval, has been several years in the making.
“Our chairman [Mikael Lilius] recently did an interview with a Finnish business publication saying this deal had been his dream since he joined the company in 2013. This just happened to be the time when we could push it over the line and make it happen.
Metso's new MX3 cone crusher, with patented Multi-Action technology enabling higher uptime and crusher operating cost savings, was launched at the bauma 2019 exhibition in Munich, Germany
“The new business will consist of four major parts: aggregates, metals, recycling, and mining. The mining or minerals processing side of the business is where we both contribute. Metso is traditionally strong in the front end of the process, and Outotec is strong at the back end. This is what makes this combination unique: it covers the entire minerals processing chain. Outotec is also known for its technologies and unique research capabilities that starts from working very closely with the customer on ore types and ore bodies to define the best possible process flowsheet for the particular ore. Many of these studies have been made 10 to 20 years before they are applied on projects.
“Metso has strength in the mining services side and very strong product brands. This makes the combination compelling and brings a lot of advantages for customers.
“When we get into the merger phase, we will be able to merge our service network and its combined footprint. There will be no comparison within the industries we serve, in terms of our technical support availability, back-up expertise and availability of spare parts. We will truly be global.”
Vauramo is also excited about Metso Outotec’s capacity for innovation. “With our joint expertise, we will be uniquely positioned to produce new innovative products, software and process analytics.”
Metso Outotec will be headquartered in Helsinki, Finland, and Vauramo notes how the new business expects to achieve cost synergies of at least €100 million and revenue synergies of at least €150 million via the cross-selling opportunities created by highly complementary product and service portfolios and global footprints. The synergies are expected to be achieved in full within three years of the transaction’s completion.
“There are many synergies to be gained. For example, Outotec does not have any pumps in its range, unlike Metso. Metso can also offer traditional Outotec customers a lot on crushers, screeners and other plant. Achieving synergies will also allow Metso Outotec to be even more competitive in terms of the products and services it can offer to customers.”
Of the decision to exclude Metso Flow Control, soon to be known as Neles, from the new Metso Outotec business, Vauramo says: “Metso Minerals and Metso Flow Control are two separate businesses, with different products and customers groups. The Metso Flow Control (future-Neles) business, including valves, has grown twice as quick as the market, at about 6% annually. At the same time, it has increased its profit margin while growing. The business has earned its independence and it needs and deserves its own development strategy.”
The bauma 2019-launched Metso Truck Body is, says Metso CEO Pekka Vauramo, an example of how the Finnish company is investing in product innovation
In June 2019, Metso signed an agreement to acquire McCloskey International, a Canadian mobile crushing and screening equipment maker, for CAD 420 million (€279 million). Vauramo says the deal will leave the new Metso Outotec company better positioned to meet forecasted road construction-fuelled growth of 4-6% in the global mobile aggregates plant market during the 2019-2023 period.
“We wanted to grow in the mining side while maintaining a certain balance with the aggregates side of our business, and the McCloskey [International] acquisition supports this. The mining and aggregates businesses are different: mining is global, and aggregates is local; yet there are synergies in the crushing, screening and plant feeding side of both businesses.”
Vauramo says the McCloskey International name will be retained and McCloskey-branded plant will continue to be supplied through the North American company’s existing distribution network. “It will mostly be business as usual, but, over time, we will also take some of the McCloskey products and brand them as Metso products and offer them to customers through Metso distribution channels. Also, over time, there will be more and more Metso crushers going into McCloskey equipment.
“McCloskey has developed a very loyal customer base which is very different from Metso’s customer base. Therefore, we feel that McCloskey has a great future within Metso.”
Vauramo is also keen to highlight the great commercial success of Swedish mobile crushing and screening solution provider P.J. Jonsson & Söner, acquired by Metso in July 2018. “The company’s growth has been phenomenal. I think it is benefiting from the backing of a bigger organisation. There are more and more Metso crushers being offered by P.J. Jonsson & Söner to its customers. The company is also expanding into new sales markets.”
Outotec CEO Markku Teräsvasara
The new Metso Outotec business will, says Vauramo, have a strong focus on product research and development (R&D). “Our combined R&D expenditure will be somewhere in the region of 2.5% [of annual revenue]. We still need to continue to put more emphasis on this from the Metso side. Metso’s spending for this year is around 1.8%. Outotec is very much a technology company and, together, we will have a true platform to innovate.”
Vauramo notes that aggregates and mining customers are already seeing new innovative products from Metso. These include the MX3 cone crusher, with patented Multi-Action technology enabling higher uptime and crusher operating cost savings, and the Metso Truck Body, a ground-breaking innovation that combines the benefits of rubber and high-strength structural steel, enabling mines and quarries to haul more with less. Both were launched at the bauma
2019 exhibition in Munich, Germany, in April this year.
The announcement on the creation of the new Metso Outotec business was followed by publication of Metso’s encouraging first half of 2019 trading figures.
From April to June 2019, the value of orders received by Metso increased by 2% to €869 million from €855 million in April-June 2018. Sales grew by 16% to €903 million from €776 million in the corresponding period in 2018.
Operating profit in April-June improved to €114 million or 12.6% of sales (€86 million or 11.1% of sales the same period last year).
For the full first six months of 2019 orders received increased 10% to €1.883 billion (€1.714 billion in H1 2018). Sales grew 17%, totalling €1.739 billion (H1 2018: €1.490 billion). Operating profit was €214 million or 12.3% of sales (€167 million or 11.2%).
The new Metso Outotec company will be looking to build on the multi-year sales and operating revenue growth of both Metso and Outotec. Crucial to that, Vauramo believes, will be the new business’s ability to help customers meet their biggest operational challenges.
“The mining and aggregates industries have, for example, to deal with environmental challenges, such as climate change, how to use energy efficiently, and how best to recirculate water in the production process. There are also tailings management issues in mining. Having end-to-end expertise of the production process across our industries will enable us to be innovative in finding more efficient solutions.”
Outotec welcomes new business dawn
Outotec CEO Markku Teräsvasara believes the combination of Outotec and Metso marks an important milestone in each company’s history and Outotec’s strategic development.
Speaking during the July 2019 announcement of the major new global business venture, he said: “I am excited about the many benefits that the combination will deliver for customers, employees and ultimately shareholders, with the larger scale and combined strengths of both companies. Outotec has a highly compelling portfolio of technologies and capabilities that will be a key catalyst for unlocking many of these benefits. I look forward to building a great new company together with the Outotec and Metso Minerals employees, as part of Metso Outotec.”