Metso Outotec Corp

All right, good morning, everyone. This is Juha from Metsos Investor Relations, and I want to welcome you all to this conference call where we discuss our first quarter 2024 results that were announced earlier this morning. As earlier announced, this presentation will be held by our CFO, Eeva Sipilä, and this is due to some scheduling conflicts, nothing more dramatic than that. Before we start, In the presentation, we have forward-looking statements that is good to remember, and also a reminder that we will have our annual general meeting of shareholders after this call, so that's why we try and limit the length of the call to 60 minutes. So please ask questions one or, let's say, max two at a time so we can accommodate all the questions during the duration of the call. Without further ado, I will hand over to you, Eva.

Thank you, Johan. Good morning, good afternoon to all of you on my behalf. I will start with the highlights of the first quarter. Market activity was in line with our expectations and with what we guided in our market outlook in February. We saw the pickup in aggregates activity. In minerals, the activity levels were unchanged, with equipment being somewhat muted, whereas aftermarket activity was healthy. Operationally, it was a solid quarter in the sense that we were able to grow after market sales on back of the healthy backlog. Our adjusted EBITDA margin shows resilience despite sales being lower year over year, and also cash flow development showed progress. Moving to the first quarter key figures. In orders, we had a tough comparison and ended 8% down year on year, although sequentially growing over 10%. In constant currencies, orders were down 5% year over year. Sales at 1.2 billion were down roughly 100 million, or 9%, in constant currencies, 7%. Adjusted EBITDA in euros was down only 5%, which meant that we delivered a 16.5% margin on our sales. This resilience is obviously something we have worked hard on, working with various structural business improvement topics over the past, but also supported by tight cost management in the past months. I will revert to the other key figures a bit later in the presentation. Moving then to our segments, I'll start with aggregates. We were very satisfied with our order intake of €365 million for the quarter. While down 6% year-over-year, this is a significant pickup from the second half of 23 levels. The market remains below the unit levels of a year ago, and whilst dealer inventories have come down, we expect to see dealers focusing on reducing them further in Q2. But this order intake will give us some operational support in the coming months. With the 300 million quarterly sales level our end-of-year backlog gave us, it is a very good achievement from the team to deliver 17% adjusted EBITDA margin. In our minerals segment, we saw similarly to aggregate orders being down year over year, but the 997 million order, a number for Q1, is growth on the previous year. We received one bigger copper project order that we announced in January. Otherwise, customer slowness on making decisions in equipment continued, and service orders were the key contributor for the order intake. Sales in this segment are largely a derivative of the order intake of mid-last year, and the 914 million level is 68% made of services sales. Whilst this mix supported margins, the overall sales remaining on the low side pulled in the other direction, resulting in the 17.5% adjusted EBITDA margin. Then a few slides on the group overall financials next. From our group income statement, I would comment a few additional lines. Net financial expenses are up year over year due to the higher amount of debt, but on similar levels as in the second half of 2023. We have a bond maturing in Q2, so the amount of debt will decrease by almost 200 million. in next month. Then again, relatively, that older debt has a lower interest cost compared to the more recent bonds. Regarding taxes, our effective tax rate for the quarter was 25%, which is in line with that of last year's levels. Earnings per share were 15 cents for the quarter, both for continued operations as well as for the overall, one including also discontinued Regarding our balance sheet, the total is slightly below that of the year, and the changes may lean lower receivables on the asset side and lower payables on the liability side. These both reflect slower sales, but also our actions to improve cash flow. Inventories remain flat. With the logistical challenges in the Red Sea and in Finland due to the strikes, we weren't exactly getting much support to improve, but we have actions in place and do expect them to yield results in lower inventories in the coming quarters. Net debt was down slightly to 825 million euros. Group cash flow from operations before financial items and taxes was 158 million euros, supported by the profitability. The net working capital change was still slightly negative, but less than in the previous quarter. So for seasonally, usually a bit of a challenging quarter where we are quite satisfied with the cash. Finally, on our net financial position, so no changes as such in the quarter. The second quarter, indeed, will be busier when we expect to pay out the first installment of the dividend, assuming our AGM later today approves the Board's proposal. And then as well, indeed, what I mentioned earlier, the final 197 million of our earlier bond maturing. Now, this we did refinance already in November when we launched the 300 million bond, and hence we have, as you see from the figure on liquid funds, we have more than normal liquid funds awaiting for this repayment. Moving then to sustainability and our outlook. good progress in delivering on our sustainability key performance indicators continued also in Q1. We are on target in three out of the four targets. In logistics, the CO2 emissions reduction is only 6%, which means that we have work to do to reach the 20% reduction target we have set for ourselves to reach by 2025. Even if the number of shipments is slightly lower, the longer routes on some of these shipments do increase the challenge from a CO2 point of view. And then to conclude with our market outlook. So we expect the market activity on both the minerals and aggregates to remain at the current level. Previously, we expected the aggregates market to improve. This did materialize, as you see from our numbers. So now we are expecting the market to continue on this level of activity. And with that, I think we are ready for your questions.

Thanks, everyone. Operator, we can now open lines for questions.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Elliot Robinson from Bank of America. Please go ahead.

It's Elliot from Bank of America here. I've got two questions. If I just start with the first one, a quick one on the guidance. Can you just confirm the guidance is talking? Is it talking about activity levels on an absolute level in aggregates of mining? So it ignores any degree of seasonality, for example. Thank you.

Yes, indeed, Eliott. So we try to sort of focus on the market outlook, on the commentary that adds value to you to judge on the sort of underlying healthiness or activity levels. And obviously we may occasionally comment on seasonality if that is something specifically relevant, but indeed hoping that this outlook sort of adds value. adds a bit more flavor than just the seasonal pattern. Obviously, we have the seasonal pattern mainly in aggregates in first half versus second half, much less so in minerals.

Okay, that's great. Thank you for that. And the second question is actually just to do with the comments that you made within aggregates and dealers. Could you just give us a bit more information on, did you say that you were still seeing a bit of destocking? Does that vary by geography at all?

Well, indeed, we've seen the dealer inventories having a sort of dampening effect on demand since last summer, as you may remember, and the dealers have been focused on taking their inventories down. Obviously, that inventory has come with a clearly higher cost from a working capital point of view due to the higher financing costs. And clearly, we've seen progress, i.e. reduced inventories, and otherwise, obviously, I doubt we would have seen such healthy activity in the Q1 as we saw. But what I did mention is that it's not sort of all gone, so we do expect the dealers to focus still on... own their inventories and be a bit hesitant to add inventory as such, because the financing cost, of course, the interest rates, as we all well know, haven't yet come down, so the cost remains something for them to to be focused on. But these type of digestation issues usually take a few quarters, and clearly there's been progress. Obviously, there's always an exception to the rule, and things vary. Some are in better shape than others. But overall, it has been moving as expected in the right direction.

That's perfect. Thank you very much. I'll get back in the queue. Thank you.

The next question comes from Chitrita Sinha from JP Morgan. Please go ahead.

Good morning. Thank you for taking my questions. I have two, please. So firstly, on sales, peers have also seen some weakness this quarter. So I just wanted to ask, how much of your Q1 sales performance was due to your own seasonality or broader industry trends that you're seeing? And how confident are you in the run rate improving for the rest of the year?

Well, indeed, I think our sales really are a reflection of the backlog. I mean, we started the year with a lower backlog and hence then unexpectedly sales in both segments are reflecting that. In minerals, obviously, as I as I referred to in my comments. So, of course, it's not just the previous quarter, but it's really the order intake of Q2 and Q3 last year that is visible. And I wouldn't say there's seasonality. It's really a derivative of that. I wouldn't sort of be able to see any industry pattern. I think these are company specific. And as we As we work with customers, obviously, we work with their time schedules on the deliveries. There is a certain difference now when we have clearly less bigger projects and less POCs, so more sort of complete projects. but they would be in the course of the very ordinary variation. Now, with the improved activity in aggregates, I think we are comfortable on seeing sales pick up. Then again, in minerals, we have seen a very significant increase in sales. very stable market, clearly sort of health in the services and then that sort of services order intake usually obviously comes through quicker and that gives us visibility on this year quite well.

Thank you, Eva. So then next question just on inventories. So you mentioned some challenges to unwind inventories this quarter and they seem to be higher than what we saw in December. What do you see as the cadence of this unwind through this year and next year?

Yeah, I think we're pretty flat on our beat in comparison to year-end or actually 12 months back. And obviously there is a bit of an inflation in these euro numbers if we compare to the levels of 12 months ago. So volume-wise, we've actually made already some progress. It is a sort of balance that we're taking to ensure availability in times where clearly supply chains are impacted by geopolitical events, and then in a way of balancing that with clearly a desire to deliver better cash flow this year. And the actions are in place. And as I said, we do expect to see results in the coming quarters. And even if Q1 wasn't as good a start as we originally perhaps planned. But in line, more important, of course, that the actions are moving.

Thank you. Very clear. Thanks.

The next question comes from Klaas Berglind from Citi. Please go ahead.

My first question is on the aggregates outlook. Obviously, the improvement came through as you expected for one quarter, and now you think the bond will stay at the current level. On the order trends here in the near term, am I right to assume that you can see a similar sort of decline in orders and aggregates year-over-year in the second quarter, down mid-single? You talk about continued destocking among dealers. You're obviously meeting very easy comps thereafter, but just on the second quarter. And then around different geographies, last time we talked about China, India, and Brazil improving. on top of what I think was the normal seasonality we get in developed markets. How are the different geographies developing now as part of your forward thinking? I'll start here. Thank you.

Oh, okay. Well, yeah, I would want to sort of go to sort of a very specific quarterly guidance. There's always a bit of ups and downs. Obviously, sort of as we, you know, this first quarter comparisons were tougher in both segments for that matter, and the comparisons do get easier then as the year moves forward. moves forward, then again our outlook is we base it on a sequential view going forward because we think that's more helpful for you and your colleagues rather than sort of comparing to year over years. I think our message in aggregates is that indeed we saw the pickup and that's important. We are in that sense on a healthier level, but it is important to understand that we are below last year levels when one looks at the sort of market and we don't expect that to change in the coming weeks, which is basically what we're talking about in reference to a question of Q2. And here we would need sort of clearly a bit more strength on the macro and perhaps sort of the interest cost and funding cost of our customers or dealers turning the corner. Then to your question on did I get it right on the sort of more from a global point of view and how this varies. So clearly the North American market is relatively strongest in a sense that the underlying demand there on infrastructure is very visible and now as we enter the the construction season, we've clearly seen dealers stock for that. We have seen the rest of the world improve. I think Europe is the weak link. I'm sure you know as well as I do on all the challenges we have with the European economy, and obviously that's something that I think we've said already for a few quarters, that we don't really expect Europe to improve in 2024, and unfortunately nothing has happened that would change our mind on that. But then we're really focused on the sort of opportunities we have in Asia and South America, As an example, India right now is entering election season, so Q2 probably will be a bit sluggish there because the country is very focused on running the election process, but that's then more a quarterly sort of issue, and then we'd expect the economy as such to deliver opportunities in the second half of the year.

Thank you, Eva. My second one is on the service orders in minerals. X currency, they're not far from the very strong level of last year, and they're obviously always seasonally stronger in the first quarter because of these maintenance contracts. Also, something else, your life cycle penetration coming in better than expected and so forth. Did we see any early signs of restocking? That might be too optimistic. I'm just curious about what drove that sort of, again, very strong minerals for order intake on the service side. Thank you.

Yeah, sure. So I think the main driver is really the production focus of our customers. And as you've seen, metal prices have actually improved, especially copper, which is important for us. And hence, there is indeed a lot of focus on making sure operations are running well. And that obviously builds for a healthy environment for our customers. for our aftermarket business. We had very tough comparison indeed because last year we had a couple of bigger, more one could say sort of capex-like orders in the mix. And now when the slowness on all the bigger decisions is there, that obviously was not there. So this really comes from a lot of smaller deals and then really speaks for the underlying activity levels.

Thank you. Very quick final one on the margin performance and aggregates. Don't get me wrong, 17% is a very good level and bed rat peers. And I appreciate that the level of equipment sales is very low, which is seeing under absorption. But was there any normalization of price cost in the quarter where costs were perhaps high still against slower pricing in the P&O?

I think we have done a very good job on balancing and really focusing on our margins so that we are balancing our cost development with the with the prices that we drive in the markets and really that is visible in our margin. Indeed, like you say, so obviously we do have a bit of, we lack some operational leverage in the business because of the volumes and equipment side being lower, but then I think we've really well compensated by sort of being very very hungry on the margin side to protect that.

Thank you.

Thanks.

The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Good morning, Eva. I just want to ask a question on the minerals margins. you've done a good job this quarter keeping them flat despite sales declining. If I think about where sales will probably end up for the full year, I think they'll be around flattish. Do you think in that environment you can continue to keep the margins of the minerals business flat? And I guess the reason I'm asking this is obviously one of the things you're going to try and do during the year is reduce your inventories. And I'm just wondering whether we should expect any impact to come through on the margins that would be of any size or substantial that we should keep in mind. Or is that not really a concern for you and you think you can continue delivering these kind of flattish or even slightly higher margins in minerals if sales kind of flatten out or even return to growth in the second half? Thank you.

Thanks, Max. Indeed, we have worked for our margin targets, and hence we are definitely sort of driving for improved margins in minerals. And this year, we will be supported by the aftermarket heavy mix. So it really is then a question of driving sort of optimal cost actions on the equipment side. Obviously, project execution matters. We've made good progress in improving the gross margins and in our execution and those elements of course are very important for this year as well and we have in the mineral side the sort of benefit of having pretty good visibility on the sales so in that sense we can obviously plan our actions on that so Indeed, we're comfortable that we are moving in the right direction in the minerals, and we realize that there's a lot of focus on us being able to demonstrate a margin improvement there, and that's what we're very focused on. Then, of course, the external market may make it easier or more difficult for us, but it's really around the self-help that we're focused on.

Okay. And maybe if you can just, as a follow-up to that, give us a bit of a feel for kind of the self-help that is going on in the background, because I think we've obviously, it's been some time since we had kind of formal cost savings targets with the synergies plan after RutaTech. And I know there's kind of ongoing work that's happening behind the scenes, but is there any way you can give us a feel for what the kind of one or two things are that you're doing kind of behind the scenes structurally on the cost base in minerals. And I'm thinking kind of what helps us get that kind of step up from these margins towards that 20% level. And any way you can sort of quantify what kind of benefits that may generate either this year or in the next two to three years. Thank you.

Sure. So on the aftermarket side, it's not even behind the scenes because we've sort of sent out press releases. You've seen several actions taken on our aftermarket footprints. We have decided to close our foundry operations in the Czech. We have closed the decided to close a rubber factory in Sweden and both of these have been announced and are going and basically in the next couple of months will sort of cease and that obviously gives us then certain benefits on what we have been working on with the sort of more optimized footprint cost and also sort of improve the utilization rate of what we have ongoing. Then we've been focused on expanding our service networks. We just opened a service center in Australia last month and obviously have made that investment with a very focused business case and focused actions on to be able to grow our presence in a very key mining market. And there's a few other ones in the in the pipeline still under works. So that, I think, they are certainly sort of very concrete things as part of this. And then on the equipment side, it's really this sort of gross margin focus, so focused on procurement, procurement savings efficiency, and overall project execution and delivery execution and those things. those actions continue.

And just to try and push you on any kind of quantification and any way we could sort of frame the size of the impact or is that difficult to do at this stage?

Yeah, well, we haven't commented on individual actions. Obviously, as I said, on some of the press releases, you get an idea on the magnitude based on the number of personnel affected and these type of things. But overall, it's all done to improve the margin. And I think the ultimate measurement is and should be the mineral segment margin going forward.

Okay, very clear. I'll get back in the queue. Thank you.

The next question comes from Anders Eidborg from ABG. Please go ahead.

Yeah, hello. Just a question on the sales in the deliveries in minerals. I mean, obviously quite a low number, down about 25%, and well below where orders have run, for the past year. So what was behind this? Was it customers deferring delivery? Was this a surprise to you? Or was it, you know, how deliveries were scheduled?

Not a surprise, I think, and I obviously appreciate you only see the sort of backlog number as such, and we obviously kind of see how it time-wise sort of is distributed over the years. over the months and the years, bearing in mind that of course part of the minerals backlog is also for the next years, for the 25 and 26. A few days less in March, I wouldn't write big stories. Easter comes every year and it just depends a bit on if it's Q1, Q2. So, of course, a few days of aftermarket business lost, but again, nothing really on that in a big way. So I think it's really just the sort of what we have in the mix. And as I said, we have less POC, which obviously POC would usually be a bit more sort of stable. And when we have more complete cost savings, a billing that of course means that we need to be fully ready and then the sort of timing in this sort of small and medium-sized business does vary on it sometimes and just sort of goes between the quarters.

Okay, that's good. Just to verify in terms of your backlog and what you deliver now in minerals, Does that now fully reflect sort of a favorable price versus cost situation where you had been able to sort of price those contracts? I mean, even a few quarters ago, we talked about some legacy contracts still flowing out. Would you say that what we have now is representative basically going forward?

Yeah, I would say what we demonstrate is representative. Obviously, execution is like safety. You need to excel on it every day in a way. But I think overall, really, the legacy coming from dating back to prior to merger time in that way that starts to be pretty much done. And then obviously what we have is something in the discontinued operation, some of those legacies there. But when we think about the mineral segments, So I think rather representative. But as I said, it's really about sort of building also the sort of processes and ways of working so that we ensure that we do continuously improve. And there we have work ongoing, but moving in the right direction.

Okay, sounds good. Thank you.

The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.

I want to start maybe on the margin in minerals. I think the service mix was up from 59% to 68% year-on-year, but the margin flat at 17.5%. I just want to understand, I presume the comps now are comparing like-for-like in terms of the central costs that have been absorbed into the business. I guess mindful of what's driving that margin gap. resilient, but clearly the service mix improvement, one might assume that margins were up on an annual basis. I'll start there.

Yeah, as I mentioned in my starting remarks, so the balance in a way of that sort of higher service mix than vis-a-vis the fact that that indeed sales were a bit low, so that does create a certain sort of pressure from the more fixed costs when you think about R&D type of costs that get distributed on a sales number that's not growing. Other than that, there's really nothing one-off or that type of thing, and a bit of a slower start for the year.

Thank you. Maybe just thinking about capital allocation, I think in your AGM release, you've confirmed scope for potential Buyback, if I've read it correctly, 82 million shares. I just wonder, how do we think about that in terms of your capital allocation framework? What would be the balance sheet position or sort of market environment that we might see something like that? And also happy to discuss M&A within this context. Thank you.

Sure. So indeed, the board is requesting from the shareholders the approval for a certain buyback capacity. That request is not a new one. It has been in the previous AGMs as well and then sort of used to varying degrees. What we're seeing now in the market is actually quite attractive growth opportunities whilst we see that there is this short-term impact from the macro and a bit of hesitancy. The medium-term outlook on, for instance, copper is very attractive and the pressure in a way to extract more minerals to support the energy transition. or the data centers, or what have you, from a big copper consumption point of view, give us opportunities to grow Metso. And hence, for instance, these service center investments, expanding our footprint in key mining areas is something that we... We believe that will provide better returns to shareholders and hence we're quite eager to drive them forward. There's also certain insourcing ongoing. I didn't yet mention the... Mexican filter factory construction that's ongoing as an example of that. And then indeed M&A. We did three smaller deals last year. We have a pipeline with several opportunities also as we speak, and certainly I'm hopeful that we will be able to to close a few of them this year as well, because they're quite nice adjacencies that we're looking at fitting well to our business. Mostly, of course, rather small businesses, but a few sort of ones where it also matters. And this sort of new risk environment and new geopolitical reality, of course, has led us to also think about our supply chain, what we insource, what we outsource, and this type of thinking may also be visible in our M&A, assuming things move forward. Of course, it's it's not the easiest market for the buyers and sellers to agree. And we have our requirements and our criteria that we stick to. So we'll see how successful we are. But certainly sort of be it, as I said, on the organic or non-organic, where we are as management working very actively. And then ultimately, of course, it's for the board then to have their view and their say on that. Are these more attractive from a shareholder point of view than buybacks? Or can we do both?

Thank you.

Thanks.

The next question comes from Nick Husden from RBC. Please go ahead.

Hi, thanks for taking my questions. My first one is on the cash flow. Obviously, a nice improvement here year over year. I was just hoping you could give us an indication of how you expect this to develop as we move through the year and maybe what some of the main moving pieces are in terms of backlog deliveries and networking capital movements.

Sure. So obviously sort of the backbone is the profitability and our focus to sort of be resilient on that, even if the outlook is a bit more challenging as discussed. I still think that we're being focused on the aftermarket businesses is good. It's sort of also a very sort of cash flow generative business. And that's the mix is supportive with the sort of lack of bigger projects. Obviously, there's no really bigger advances, so the operative cash flow is very much then relying on our actions. really on the inventory side. As said, we've seen the sort of payables and accounts receivable trend sort of quite logically, and I think we're sort of on a pretty okay level, so they do trend with volumes, whereas in the inventory, as said, we do think without sort of affecting availability, without sort of sacrificing on growth, we actually have some some sort of extra opportunity and that would that would be the focus then on but doing it in a balanced way and I remember was it Max or who was kind of referring to the sort of inventory being sort of at risk risking sort of profitability and certainly we don't see sort of write down issues that we would have the wrong type of inventory we just feel we have a bit of bit too much of it and hence we're absolutely sort of focused on sort of dealing it within a sort of in a balanced way and one that's sort of also sort of from a sort of shareholder value point of view a meaningful way.

Okay great and then turning to the aggregates margins I mean 17 percent in a fairly significant downturn is quite an impressive performance. So I'm just wondering how much operating leverage is still in that business as the cycle hopefully improves in the coming quarters. I appreciate you've taken quite a lot of cost out of the business and you're expanding the footprint in India, but it just feels like unless there's just no operating leverage in the business, then as the cycle does improve, then that margin should be moving much more into the upper teens.

Well, indeed, if you look back at relatively recent history, when we had a bit more operational leverage, we did deliver 18% margins. So, obviously, we are down, even if I think we've sort of been running faster than anything else. But still, the lack of the volume obviously has an impact. Of course, this is not sort of unexpected. As I said, I think we've sort of had a pretty clear view on the market and we've sort of taken action early, very early and now with the sort of Q1 going very much as expected. Of course, that gives us, that visibility helps us plan and really manage the operational leverage. But indeed, the task would be slightly easier if there was a bit of a pickup in the European economy. But as said, we're not sort of assuming it this year, so it's not something we're sort of counting on.

Great, thank you.

The next question comes from Vlad Sergevski from Barclays. Please go ahead.

Yes, good morning. Thank you very much for taking my two questions. Both of them will be on gross margin. And let me start with highlighting that, obviously, gross margin was, I think, record high this quarter, which is a very good result, despite the material decline in sales. What do you think was behind such a big drop in cost of goods sold to make it happen?

Well, I would say, Vlad, it is that sort of work that I referred to earlier, really managing our sort of margins in a way and balancing the sort of cost of goods coming in versus price. Then also this sort of focus on procurement, specifically in the mineral segment. There's been a lot of lot of activity on that side and really sort of improving how we work with the supply chain and in a focused way and because at the end of the day in a way we sort of want to continue growing R&D and in that sense we sort of want to have opportunity to also invest in SG&A and that if putting that together with a with the target of improving margins, it does mean that the gross margin really needs to be the focus and that there needs to be improvement there to show the sort of improvement also on the adjusted EBITDA line.

That's clear. Thanks very much. Can I also ask about the potential impact of the planned inventory reduction on gross margins going forward? Because when I look at your inventory composition, it looks like the biggest opportunity to reduce is on finished goods. If you start selling more finished goods, wouldn't it mechanically potentially have a less favorable impact on the absorption of cost of goods sold?

Well, I think it's sort of the, indeed, the sort of absorption is related to sort of how we're able to run operations. And then inventory, of course, is out of operations already. So if we're able to sort of move that further, then it can potentially add on, obviously, then if it sort of means that we need to sort of reduce activity in our operations to sort of push a bit more inventory through rather than sort of fresher deliveries, then of course your question is... what you are referring to could materialize. As I said, that is really a balance that we are working on. As such, we believe and feel that we have a strong balance sheet. There is no urgency. The market is certainly relatively healthy. And that we're sort of taking the inventory actions in a very balanced way, in a way. But it is, in some cases, it's also a sort of balance between those two. And then it's just a question, okay, how do you plan it? How do you then take cost out so that that sort of under-absorption doesn't impact the margins?

Thank you very much. That's very clear. Thanks a lot.

The next question comes from Mikael Dopel from Nordea. Please go ahead.

Thank you. Firstly, coming back to the question on aggregates and the margins there. You said you did 17 here with a weaker leverage compared to last year when you did 18. I'm just wondering, based on commentary, it seems as if this should more or less look move upward rather than downwards. But just wondering, you know, should we see 17% margin as a kind of a sustained floor level, or is there any reason to assume, you know, weaker margins in the second half of this year, maybe driven by mix or something else? I could give some comments on that.

Yeah, obviously sort of in aggregates we have that sort of three to four month visibility, which is clearly shorter than in minerals, so in that sense sort of predicting what the outcome of second quarter from a sort of volume and hence operational leverage point of view will be is somewhat challenging. I mean, we will sort of be wiser on, because as I said, it is partly now a reflection also on the macro and the financing cost and the dealer inventories on that. But I think the sort of structural issues we've done obviously help support indeed sort of the... the seasonality of the business means that there can be relatively speaking slightly less volumes in the second half versus first half, depending then on really on the sort of market activity and the order intake in the coming months. So we certainly have a lot of work ahead of us to sort of run on this level. I think this is truly a truly a sort of very good achievement from the team. But of course, you know, success brings a build success. So it's also sort of seeing the sort of what we can do and how we can act and trying to manage in that, but without sort of giving any exact promises on how the quarters will look like. But I think we've come a come a long way in building that resilience and then but there is always an element of mix and then I said the sort of market can of course still take turns that we don't see today.

Right, okay, that's fair. Then my second question is on your selling pricing in general, if you could talk a bit about that, you know, what kind of actions you took in the first quarter, if there are any other actions you need to take now based on inflation. I mean, you talked about some index pricing on parts of the consumables business, maybe in minerals and maybe also on the project business. Are there any, you know, hikes that you're doing in the service business? Are you lowering pricing on some of the equipment business? Just to give some flavor on, you know, How do you see the overall pricing picture out there right now and what kind of things you are doing?

Sure. So obviously entering into this year, we saw a head in inflation in the area of labor, and that has sort of happened. Maybe the overall economy slowing has meant that in some areas there's a bit – less pressure on salary and wage inflation but still sort of obviously in many countries the salary levels were kind of lagging the inflation in the previous couple of years so there's a bit of that catch up and that's something we were very focused on making sure that we do ensure that that is visible in our pricing when it comes to areas where that labour component is heavier. And again, I think this has gone as planned. It's obviously no surprise to our customers either. Everybody sees the same in the areas where there is a talent shortage. that it's just important to kind of be ahead of the curve in a way and be alert on it. And then obviously there's clearly less inflationary pressure in certain other areas, specifically in China. I would say it's a rather deflationary environment. And of course, then balancing sort of our procurement to areas where we sort of can sort of find opportunities at the same time, and then as making sure that we also are able to price the value we provide to our customers. And I think that's just a sort of rather requires a lot of tight discipline and daily management.

Okay. Thank you very much.

Thank you.

The next question comes from Erki Vesela from Indias. Please go ahead.

Can you hear me?

Yes, I can.

Yes, still, thank you. Continuing on aggregates, and just for modeling purposes, could you provide us at least a verbal description of the aggregates European sales division between different parts of Europe? I mean, say, between North, South, and Eastern Europe, and What kind of demand outlook differences do you see between these regions, if any?

Well, Europe has been a rather sort of heterogenic basket for the past couple of years. So indeed, we do see differences in different parts of Europe. Overall, Nordics continue to be the weaker area. The construction market here, also on the infrastructure side, is muted. It's perhaps slightly better coming from very low levels, but still on weak levels. There was a lot of activity last year in France related also to the Olympics, obviously now everything for that is built and in that sense ready, so there's been a bit of a slower demand there, then again it's still on a healthy level, but I would say that it was on a very high level. last year. And then overall, I would say that less changes in the other parts, be it central or eastern or southern Europe as such. But indeed, there is a sort of clear link to the overall economy. And as we know, the European economies are slightly in different stages. So there's some difference there.

Thank you. And then could you provide a little bit of info where your exposure is the biggest in the Central European countries?

Well, I think we're relatively well present in all of the main markets. One could, of course, assume that relatively our home market is well covered by METSO, but as that home market has been has been on low levels for a couple of years already, obviously. We have focused on other areas. We have, I would say, a generally good footprint in the Eastern European countries. Obviously, there's still opportunity for us to grow and strengthen our network.

Okay. Sounds very good. Thank you so much.

Thank you.

All right. Thanks, everybody, for participating and asking questions. This conference call concludes now, and we are getting ready to welcome our shareholders to the annual general meeting. For everybody, we wish a good day and speak soon. Thanks. Bye.