Metso Outotec Corp

Good afternoon, good morning everyone. This is Juha from Metsos Investor Relations and it's my pleasure to welcome you to this conference call where we review our second quarter 26 results. We'll begin with the presentation given by our CEO Sami Takaluoma and CFO Pasi Kyckling, after which we'll be taking your questions. And as a reminder, the length of this call is 60 minutes. and we will be making some forward-looking statements and that's why we have the disclaimer in the presentation deck. But with these short remarks, let's kick off and I'll be handing over to Sami. Please go ahead.

Thank you, Juha. Good afternoon, good morning also from my behalf. The key message today is that the second quarter was a strong quarter for Metsa. Orders, sales, profitability all improved year on year. and our cash generation also strengthened. The strongest momentum was in minerals where customer activity remained healthy across both equipment and aftermarket. First, I will summarize the Q2 performance and the main business drivers. Then I will touch our strategy execution and market outlook. After that, CFO Pasi Kyckling will cover the financials, cash flow, balance sheet and the segments. Finally, we will then move to the Q&A. In this presentation, we will also address several topics that have been active in the sector recently, including the mining demand, aftermarket trends, aggregate development margins, and the gas conversation. Let's start with the Q2 performance. Overall, the quarter confirmed that the customer activity remains healthy, and particularly in the minerals segment. We saw strong order growth, continued aftermarket momentum, higher sales, and improved profitability. Importantly, the order growth in minerals was broad-based and driven by both equipment and aftermarket, not by one single large project. The key figures here summarize the quota quite well. Orders increased by 18%, corresponding 16 in constant currencies. Sales also increased by 6% and 5% of that organically. Adjusted EBITDA, 221 million and the adjusted EBITDA margin improved to 16.6%. Operating cash flow was 206 million and the rolling 12-month cash flow from operations was 915 million euros. corresponding 98% cash conversion rate. The main driver was minerals where both equipment and aftermarket orders grew at the double digit rates. And here on this slide, you can see the longer timeframe showing that the orders increased. Now the book and bill was 1.1. The order backlog was also increased by 13%. being now 3.7 billion, which gives us a good visibility for the future revenues. Sales grew by 6% and aftermarket represented now 57% of the group sales, 54% one year ago. And just the ETP day, as said, margin expanded to 16.6% with both segments improving year on year. I think the important message is also that the cycle is now translating to more clearly into our numbers. In Q1, the discussion we had was partly about the timing and conversion and now in the second quarter, we have seen the strong order growth, improved sales and also the higher margin and healthy cash flow. During the quarter, We have continued to execute our We Go Beyond strategy and to invest in capabilities that support our long-term strategic targets. Customers are a very important part of our strategy and proximity to customers remains as one key factor in the success. We have now expanded our presence in San Juan in Argentina the country that is developing in the future as one of the main mining countries. And we have also had the grand opening in our expanded service center and new training center, the largest in Metso in US, Mesa in Arizona. And we also strengthen our presence and footprint close to the customers in Western Canadian service center opening. and in Finland here we have also made a decision in the second quarter to strengthen further the aggregates technology center in Tampere and the second phase was kicked off during the second quarter. These are not as such isolated investments. They do support the same structural teams that we see across the market. Customers, they want Availability, they want productivity, they need lifecycle support, and they definitely need a fast local service response. We have also strengthened our technology portfolio with launches of the new product, and we have also been focusing for the lithium carbonate process development. These innovations support our role across the minerals downstream processing. And they will help our customers to improve their own productivity, resource efficiency and sustainability. And save the date here in the slide. It's a reminder for all of you that September 10th, we will have a Metso Summit where we will talk through a lot of these innovations in a very professional way. Recommendation is strong to book the date to your calendars and join the event. As it comes to outlook, our market outlook is unchanged. We expect the market activity in both minerals and aggregates to remain at the current level as it has been in the second quarter. It is important to note that our outlook is It describes what is expected for the next six months and it's adjusted for seasonality. And with this, I pass the microphone to CFO Pasi.

Thank you Sami and good day everyone from my side. I will now go through the financials to more in detail. Let's start with orders and revenues. The order bridge shows clearly where the order growth came from. The strongest contribution was from minerals equipment, followed by minerals aftermarket. Aggregates order intake was stable. Overall group orders increased 18% to 1,462,000,000. In minerals, equipment orders increased by 50%, driven specifically by grinding and crushing solutions. North America performed strongly from market area point of view. The increase was driven by a broad flow of small and medium-sized orders up to 20 million across commodities and geographies. Aftermarket orders increased by 13%, reflecting healthy activity across our instant base. In the sales bridge, minerals aftermarket was the main positive driver of sales growth. The minerals equipment sales were lower year on year due to timing of customer projects. Mix improvement in minerals supported profitability as aftermarket share increased by 17% and represented 68% of segment sales. Aggregate sales increased 7% driven by equipment. Overall our order backlog increased 13% year on year or more than 400 million euros. Let's then move to our result bridge. As a state EBITDA increased from 183 million to 221 million, reflecting as a state EBITDA margin of 16.6%. The improvement was driven by higher volumes and improved cross margin partly offered by higher selling general administrative expenses and other items. The mix was supportive for the EBITDA development. Cross-margin improved by almost 200 basis points to 33.3, and it reflects combination of volume growth, favorable mix, and specifically the increase in minerals after market share, and overall solid operational execution. Both aggregates and minerals improved adjusted EBITDA margins year over year. EPS from continuing operations increased to 15 cents Operating profit was 185 million compared to 178 million a year ago with operating margin of 13.9%. I'd like to also remind all of us that year ago we had a positive larger one of 27 million from the revaluation of STM shares in our second quarter results. Let's then move forward and look at our cash flow generation. On rolling 12-month basis, Thank you very much. corresponding to gas conversion rate of 98%. As said earlier, we increased our order backlog year on year by 400 million and the book to bill during the second quarter was 1.1 and that is also reflecting our working capital needs. Let's then move and look at our balance sheet. Our balance sheet continues to be strong, net EBITDA at the end of second quarter was 1.3 times and that's below of the ceiling of 1.5 times that we have set as a target. Gas and gas equivalents at the end of the quarter were 383 million and we have 700 million revolving credit facility fully undrawn. During the quarter we exercised the first option to extend the RCF by one year and it is now maturing in 2031. We also maintain an investment grade credit profile and have the BAA2 rating from Moolies with positive outlook. Overall, our balance sheet continues to be strong and it gives us flexibility to execute our strategy. We can continue to invest in our service capability, technology, local presence and selective growth initiatives while at the same time maintaining disciplined capital allocation. Let's then look at our segments and start with aggregates. The aggregates orders were 333 million during the quarter, wholly stable year over year, corresponding to 1% organic gold in constant currencies. In aggregates, demand remained very strong in North America, while Europe was somewhat softer. In Europe, the Iran war and increased diesel costs specifically impacted negatively the aggregate demand. Equipment orders declined by 1%, while aftermarket orders increased by 6%. From sales point of view, we reported 8% organic growth in constant currencies. Equipment sales increased 12% and aftermarket sales declined 4%. The aftermarket comparison here is affected by the calculation chains we implemented in the beginning of the year and under that certain products were reclassified from aftermarket to equipment. The impact in second quarter was 8 million in orders and 9 million in sales. Profitability in aggregates improved clearly adjusted EBITDA increased by 11 million to 56 million and the margin improved more than 200 basis points to 16.3 supported by higher volumes, strong execution and overall cost discipline. Let's then look at our minerals segment and minerals delivered a strong quarter. Orders increased to 1 billion, 129 million Corresponding 21% organic growth. Equipment orders increased by 50%, driven particularly by crossing and grinding solutions, and aftermarket orders increased 13%. And this reflects healthy activity across the installed base in spares and wares, as well as in upgrades and modernizations. Book to bill was 1.14 and the backlog increased year-over-year 13% to more than 3.1 billion. Sales increased to 992 million, representing 4% organic growth. The sales growth was aftermarket-led, with aftermarket sales increasing 14% and representing 68% of mineral segment sales. FSDB also increased. and came in with 182 million representing 18.3% margin. Here also more close to 200 basis points improvement year over year. Higher volumes, improved mix and strong execution overall supported the profitability. With that, I'd like to hand back to you Sami for a summary.

Thank you Pasi. So to summarize, Strong minerals demand drove the orders growth in the second quarter. Healthy pipeline in minerals also continues. We delivered margin improvement in both of our segments and remained strong in the cash conversation at 98%. And we have continued to invest for our future growth. So To summarize all that, I think the second quarter demonstrates that the positive market drivers, in the minerals especially, are now translating into stronger orders and higher aftermarket business, resulting in fruit margins and also healthier gas generation for Metsala. And with that, back to you, Juha.

Yes, thank you. Sami, thank you, Pasi. We are done with the presentation and can open lines for Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Edward Hussey from UBS. Please go ahead.

Hi, Sami and Pasi. Thanks for taking my questions. Just a couple from me. So the first one is you talked about the new service center in Argentina and an expansion of the service center in Arizona. Obviously there are some big copper projects expected to FID in these two regions fairly soon. So should we see these investments in service centers as a potential lead indicator that you might be winning some of these orders?

Thank you. Excellent question and excellent logic answer. Obviously, we wouldn't be doing investments in this scale if we wouldn't be knowing that there's going to be a good usage of those resources and facilities in the future. So this is in line with our expectation of the future orders when it comes to the new projects.

Okay, that's very helpful. Thank you. And then maybe just one other. So, you know, obviously very strong underlying growth rates in equipment orders. Do you still have a number that we should think about as the sort of underlying run race of equipment orders going forward? I mean, for example, should we now think that 400 million excluding any large orders is the sort of number we should pencil into our models going forward?

Yeah, thanks for that. And I mean, if we first look at second quarter a little bit more in detail. So indeed, we have very strong sort of what we call the base business. So orders... in value below 5 million and we had also very strong in the basket from 5 to 15 million and if I look at 25 and first quarter this year, this was the strongest quarter in these baskets. I wouldn't directly draw a conclusion that we continue quarter after quarter at this level. Even in the smaller ones, it will be somewhat lumpy. However, what we take internally from this is that the underlying demand is there. Like I said, it's broad-based. We also this time highlighted our stronghold, I mean, crossing and grinding. Many of these orders came from that. but again, you know, just penciling the same going forward wouldn't be the right logic. Market activities there, et cetera, but we expect to see some volatility also in these smaller orders going forward.

Okay, great. Thanks very much.

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

Morning, Sami. Good morning, Pasi and Juha. Thanks for the time. I want to start on the crushing and grinding orders in Minerals OE. When we think about those as base orders or small or mid-size, is that replacement? Is that expansion? It's obviously brownfield. And then when we think about the scope, i.e. the broader comminution circuit and sort of downstream equipment classes, should we read this as being customers upgrading specific pockets of their process or are they upgrading... Saso Kitanoski

majority of them and both replacement and then capacity increasement by de-bottlenecking. Typically flow sheet starts from the crushing and screening and that's the first place that certain investments start to happen when there is a need to Stabilize the production levels to the new levels or making sure that the future production is trouble free. So in that sense, I don't draw that kind of conclusion as you suggested that we have been winning this part and somebody else has been winning the rest because those discussions continue with some of them with the same customers.

Okay, understood. Can I ask then what we should think about in terms of the aggregates business? We had a pre-buy effect that you flagged in the context of the Section 232 tariffs in Q1. You're suggesting that growth in North America was actually coming through in the second quarter still, but the weakness was on Europe, which I presume is a negative. What's happening in the US, I guess, in particular? How should we think about that through the back half?

The US has remained a good market. There are also... Good positive signals in the air for US in the future as well. There is a highway bill moving as we speak in the house and that typically has been then creating in a mid-term future also activity in the aggregate side. So some amount of work for US-based customers has been also coming from the data center work. so in that sense the activity level remains good in the US side. And then the Europe as you reflected has okay level but it was impacted mostly for the increased fuel prices as contractor type of customers in Europe. started to struggle with the profitability with the higher levels. So that was slowing down the investment decisions then in this quarter.

Thank you. And then maybe just finally, pumped, did that grow double-digit?

Sorry, Christian, say it again. I didn't hear you well.

Wait. If we think outside of the demand on crushing and grinding to areas like pumps, did they see double-digit growth as well, or it was really all from crushing and grinding?

No, it's not absolutely all from crushing and grinding. Also, for example, pumps, where you referred to, we continue to see a good growth, and that continues to be a focus area, so it's not only crushing and grinding, but but crushing and grinding was specifically strong compared to some of the earlier periods here. But it's certainly Palm Sea. It's also other parts of the Wall Street where the orders came in.

Very clear. Thank you.

The next question comes from Klaus Berglin from Citi. Please go ahead.

Yes, hi. My first question is on the sales outlook in minerals. And this is the second quarter now where we have weaker equipment revenues versus expectations. And if we do the diff in orders and revenues over six months, then we should have 300 more backlog. But the backlog moved up by less than 100 million since end of December. I'm trying to understand if there are any cancellations versus delivery delays, if this is very deep or any other projects. because I'm not sure how we can be linked to your divestments as your numbers have been restated. And then moving over to the service growth and the deliveries of the modernization orders, to what extent should we see a sales acceleration here from current level? I'm trying to sort of see into the second half, with weaker equipment versus accelerating service. And sorry, one more on the equipment side. These equipment orders that are small and mid-sized, can these improve the equipment revenue run rate Thank you.

Yes, so thanks, Klaas. That was three good questions. If I may start from the last one. So, I mean, there we see the typical turnaround times, but indeed, you know, some of those we expect will result to revenue already, you know, late this year. Not so much maybe third quarter, but fourth quarter, some of those returns. orders that we got now will start to generate revenue. And then there is some longer lead items as well where it's really close to 2027. Then your question on backlog is excellent and I heard you also discussed this with Juha earlier. We are looking at that. What I can say to you right now is that we haven't had any larger cancellations. So that's not the factor. Obviously in business orders get cancelled but during first half of this year we haven't had any larger ones there. I mean we have had one customer bankruptcy case where also backlog has been impacted but there we talk about couple of tens of millions and the delta that you are highlighting is larger than that. Specific case where we have the customer bankruptcy, the order is not received any time recently, it is closer to the merger than today, so it has been in the backlog already for a good period of time, and now we cleaned it when the customer went through the bankruptcy process. Then we need to get back to you on this backlog development because there is clearly a discontinuation. The basic logic has a relatively big gap. Obviously part of that is effects, etc. But we need to look at that and we'll come back to you. Then finally you had a question on upgrades and modernizations. There, I mean, we continue to see a good amount of orders coming in. Those orders are typically in service portfolio or aftermarket portfolio, the ones which take a bit longer to translate to revenue. But if we think from activity and order intake level, they continue sort of a similar healthy level a couple of previous quarters and then the orders that we started to receive basically a year ago they start to contribute to our revenue now and then even more second half of this year.

Very quick final one on inventories. Inventory days continue to increase, happen in the first quarter and now again in the second quarter. Did the margin benefit from any overproduction and how should we think about the days as we go through into the second half? Thank you.

No, I mean, margins did not benefit from the overproduction. However, you know, where we benefited from the margin is good capacity utilization. So the absorption that we have from our own operation was well managed and some of our own manufacturing is running flat out, which is, of course, good from the overall cost performance point of view. and then your right inventories continue to trend up and that is very much in line with the backlog that we have and working with future deliveries and when we zoom into different inventory categories, the work in progress inventories is the one where we see most of the increase. and then, you know, when it comes to DIO, our intention is not to sort of increase the inventory and increase the DIO going forward, but it will fluctuate based on the delivery needs that we have for different customer projects.

Thank you.

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

Hi, thank you. Just my question is around margins in the minerals division. You've obviously had a kind of nice step up year over year, but against an easy comp. Some of that is obviously mix, which is, you know, favorable in the quarter. I guess my fundamental question is, you know, when you look at the margin improvements and kind of around that 18% level, Is that a fair reflection of the improvements that you've made in the business, the journey to 20% margins, or is this really just a sort of very strong mixed quarter and we shouldn't kind of extrapolate that too much? So maybe I'll just start there. How much of this sort of margin improvement being kind of in that 18 plus range is the structural improvements versus just mix?

Yeah. First of all, you are right that it's a soft comparison. Of course, we had a weaker quarter a year ago, and then we absolutely wanted and needed to show a strong improvement from there. And you remember that we had a couple of extraordinary items there last year, which are obviously not repeating. And one item that has been corrected to sort of a more normal level is the mix. And we are not thinking that this mix was Extraordinarily Good, but rather sort of a normal and you may remember that in our strategy overall objective is to grow off the market. Many reasons behind that. And then the other thing that impacted is simply volumes. Volumes help and like we discussed just with Klaas, the absorption in this quarter was lower, our facilities are running full, and that is good for our cost performance. So that's the way how we think about it, and again, more normalization rather than anything else, and when we look forward, the order book is there, we expect that we can run flat out also during the coming period, thanks to the order book, and that should support margin development also going forward.

Okay, and maybe just a quick follow-up on the minerals aftermarket piece, so another quarter of 10% order growth. I mean, clearly for most players in the industry, you know, Sandvik as well, we're seeing kind of outsized aftermarket growth rates versus what we would maybe consider normal, you know, whether that's a kind of high single-digit number. I guess could you maybe just walk us through what you think is happening now In the industry that's allowing this, is it that you're getting a bit more price? Is it the rebuilds? Or maybe to what extent, you know, is it some of your own initiatives, whether that's kind of penetration, attachment rates or, you know, higher value of service per machine? You know, just trying to trade off, you know, how much are we relying on the market? Can that continue versus, you know, some of your own initiatives around aftermarket? Thank you.

Yeah, thank you. Maybe I can shed some light for that question. So first of all, this one as well, it's a combination, of course. Pricing is one element, and we have been doing good pricing strategy and execution as well, so it has a certain impact. But I would highlight in our aftermarket growth journey and story that it's – very much the centerpiece of the strategy that we launched third quarter last year, meaning that we have also done inside METSO certain changes in the focus areas. We have put the investments in and the customer base, of course, is also in a good position meaning the market is positive for our customers, they want to invest for the aftermarket and this is also one element that is creating this growth. In our thinking, we are targeting for those strong single digit growths but I don't complain that we have been going a little bit beyond that one now in the last three quarters.

That was great. Thank you very much.

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

Thank you very much and good afternoon. A few questions, please, and starting with new equipment orders. How should we think about this very big number of underlying orders this quarter? There is about 400 million. It's twice what it's historically been for some time. What triggered this base to actually all double all of a sudden in Q2? Is it like a significant part of your pipeline that Kripping converted? And why we shouldn't consider this 400 million as perhaps a new level, at least for a few quotes?

Thank you, Vlad. It's reflecting the good, strong pipeline that has been there and which we have been working very actively with the customers. and we are very happy that this work that we are doing all over the world in different countries for these cases is yielding the results and especially now in the second quarter it was very successful to close those deals. As Pasi was already in an earlier question outlining, we do see very healthy pipeline also for the future Capital equipment business is always having certain elements that the decision making is sometimes very fast for this replacement and sometimes when everything is clear, it can still take some time. So I think a good way of thinking is that there is a good pipeline. Metso is doing good work with the customers and it's definitely seen as quality supplier for these needs and we continue our work on our side with the customers.

That's great, Sami. I really appreciate the call. Can I follow up on this and just say if you think about the very niche on pipeline, something which you think is very realistic and comes through quickly, is the pipeline reduced after this quarter? Or is it still as good as it was when you were entering Q2?

Well, of course, from the pipeline, we have converted the orders, those ones that you also mentioned. At the same time, every week, every month, there is new opportunities starting to develop in different stages. So in that sense, pipeline remains important. very good looking and healthy good looking for going forward as well despite that we converted very nice amount from the pipeline to the orders in the second quarter.

That's great, I really appreciate it. And final one from me. There was a sizeable capacity adjustment cost in minerals. Could you give us some color what it would lead to?

Yes, thank you Vlad, so indeed as assessment items we reported some costs and it basically links to two items. The first one is that we are doing some efficiency work internally that resulted to one of type implementation costs that is reported there. And then the second one is that we have in our backlog still A couple of legacy projects in solutions that we have disposed and there was some cost related to those. So that is basically what we had in minerals and that represents also the group level adjustments in the second quarter.

That's very helpful, Kala. Thank you very much.

The next question comes from Tor Fangman from Bank of America. Please go ahead.

Good afternoon. Thank you for taking my question, Sami and Pasi. Two questions from my side. One on the orders again. I appreciate 400 million is a decent level underlying, but I was wondering how do you think from here about the large orders coming through? Is there still the expectation for this that towards the end of this year, early 2017, we should see larger projects coming through for you as well? And then I'll take a second afterwards. Thank you.

Yes, thank you for that question. The large projects are developing all the time. There is some news also in the public domains available all the time, so there is no fundamental change in that picture. We also know that these large orders, they are kind of lumpy ones and they they come when they come and what we do in Metso is to focus of this small medium size because that's kind of like how the business model is built up and then we work at the same time for the large ones. Timing of those looks okay. Second half of 26 is definitely seeing Seeing something from that area as well and then the strong pipeline that is building there. So it creates the good looking opportunities from the order perspective for the several quotas ongoing here.

Okay, thank you. I mean second half is any day now. It sounds good. So second question on revenues. It sounded a little bit like we should not see too much acceleration of the OE revenues already in the second half, maybe sticking to roundabout the level where we are at right now, and then we should see a larger OE revenue growth from 27 onwards. But on the other side, we should see some aftermarket acceleration to the second half, given the strong minimization that was like step-up orders we've seen first half and end of last year. Is this the right perception? or am I getting something mixed up here?

Thanks, Tuuran. I think, you know, directionally you are getting it right. And if I provide a little bit more color on the OE side of things, so some of the larger orders that we have gotten during the previous, more distant previous periods, they are coming, they have come to the sort of end of those project deliveries and then the new larger orders that we recorded very late last year, first quarter this year, they start to gradually ramp up to revenue and I'm referring to Birla and Arjun and then the Tia Maria order that we got in Q1. and with that dynamic, the way how you were sort of thinking is logical. And then when it comes to aftermarket, so indeed there we have been constantly growing the backlog, most of the backlog growth is in the aftermarket side of things and that is gradually turning to revenue, helping us to sort of work with our overall mix and then obviously we all know that aftermarket is the better part of the business from profitability point of view. Then when it comes to aggregates and I think your question was mainly minerals focused but in aggregates the order intake first half of this year in the equipment side has been really solid and we obviously will deliver a significant part of that during the second half of the year.

Okay, and just following up on the minerals part, and then, sorry, one follow-up on aggregates as well, but briefly on the minerals part, the follow-up. We did second half of last year on the revenue side. We saw very strong revenue growth here. So this creates somewhat of a tougher comp. Second half is what you see in the first half. Any thoughts from you about this?

Well, it's a factual comment that it is... it is indeed like you said tougher concern and we'll be against that then when we have a discussion in late October when it comes to third quarter and then in January or early February when we talk about fourth quarter but I don't know if I have any other thoughts on that.

Appreciate it. And then just lastly you mentioned of the aggregates you had very strong orders in Q1 partially maybe driven by pre-buying. Do you see a risk of H2 somewhat activity coming down further than in usual years but we should see like sequentially the decreased nature that is even like more pronounced this year given some of the demand might have been pulled forward already.

Aggregate has much faster cycles than the minerals in typical way and also aggregate has this seasonality. How it looks that and 2026 is looking solid from the seasonality point of view. Typically there is good high activity in the orders in the first quarter and then declining to the second and third and then picking up again for the Q4 when the year-end decisions are made. So kind of expecting a similar kind of performance of the market now in this year as we have been used to in the past.

Perfect.

Thank you.

The next question comes from William Mackey from Kepler Shoebrew. Please go ahead.

Good afternoon, Sami, Pasi. A few questions from my side. Minerals, please, first. Can we just dive into the order intake one last time and to review perhaps in a bit more detail how you would describe the regional development of the 400 million and perhaps alongside that, the technologies beyond crushing that you've called out. When you look at the pipeline, are you seeing a similar sort of technology development in terms of the demand profile? I'll take them one by one. I have a couple more.

Thank you, Will, for that. I think during my presentation, I already, from a regional point of view, called out Thank you very much. Thank you. I don't know if there is anything specific to call out from regional point of view. Then you had a question and we discussed it a bit earlier in the call also when it comes to different business lines or products. And yes indeed, crushing and grinding we have highlighted here. We already discussed that our pump growth Thank you very much. Thank you. Thank you, that's very helpful. Across your business, you've seen developments of input cost or cost changes.

and also tariff changes. So can you then comment with regard to the backlog and the order intake bookings, how pricing is evolving and how you would describe the evolution of backlog or project margins over the last quarter in comparison to the prior year?

Yeah, thank you, Will. Again, a very good question. If I start on just discussing how we see cost inflation generally, so Obviously the TTIP crisis in the Middle East have created cost inflation. The way it is visible for us is via the TTIP fossil materials and it is impacting our logistics, it is impacting energy costs at our foundries. That being said, Those sort of energy related cost items are not a big cost bucket for us. Logistics is of course important. Then, I mean, early on when the crisis broke out, when we started to see those inflationary elements, we've been very actively managing our pricing with our customers. Let's see how it plays out. It's of course a long game, but so far we are quite happy where we are. And then when it comes to backlog, obviously we have certain open exposures there, but I would say that relatively limited. And the way how we work with, for example, the larger minerals capital deals, We basically do back-to-back deals. When we nail a deal with our customer, then we do the same with our supplier. The main inflammatory risk is mitigated. During the second quarter, I would say that we didn't see anything specific from the backlog margin conversion point of view. That tells that in this inflammatory environment, So far we have managed the situation relatively well as a company. But obviously, you know, this continues. I think today we see again oil prices above, you know, $100 per barrel and so forth. So this is every day bread and butter for our teams, procurement teams, quotation teams and others. And this is not the first time we do it. We have learned quite a bit during the COVID times when there was a broad-based inflation.

and maybe to continue one more element is that in the quotations the price validity so that is of course with the current environment of the whole world so they are quite short and then we re-quote based on when the project starts to be alive and when that first validation has been expired.

Thank you. If I could just move on to aggregates briefly. When I look at at least the way I was modeling Q2, your contribution margin was very strong. And I guess the Q2 25 had a number of costs in there, including your ERP implementation. Is it possible to just sort of frame how you would describe Contribution Margins, or what was in aggregates that led to such a solid profit performance in Q2 compared to the prior year?

Yeah, thanks Will. In aggregates, we also had, you know, part of those extra costs that we called out a year ago. Then an other factor in aggregates is this factory utilization, so, you know, thanks to obviously very strong order intake first quarter this year, decent order intake late last year. We are busy and that is a good situation from the capacity utilization and then cost performance and via that cross margin or contribution margin point of view. And last year also, this time of the year, we were ramping up the operations again. You may remember that we had you know laid off some of our people because lack of work and so forth and they were back in business and that also caused some extra costs during the comparison period but now we are in full swing with good order backlog and you know full execution and that helps with margins and cost performance.

Super, thanks. One strategic question. Capital allocation, balance sheet strength is there, good cash flow. You called out opportunities to allocate to service technology and local presence. How would you describe your thinking around M&A, bolt-on acquisition or larger acquisition opportunities to expand and further your current strategy, please?

Yeah, as explained when we launched the strategy as well, so... One part of the growth is planned to be inorganic and we have a very clear M&A strategy that we are executing so that means that several interesting discussions are ongoing with the potential targets and we are executing that part of the strategy all the time as well.

Thank you very much.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Andreas Koski from BNP Paribas. Please go ahead.

Thank you. Thank you for taking my questions. It will be a couple of follow-up questions, starting with service orders in minerals, which grew strongly year over year, and the sequential development was better than I had expected. I mean, in recent years, Q2 service orders have been down quite meaningfully from Q1, but that was not the case this year. So I wonder, did you have any larger service orders in Q2, and how to think about the sequential development going into Q3?

Hi Anders, thanks for the question. I mean, no, we did not have any sort of larger signal orders this quarter. What we had was a very solid sort of a parts order intake and then also a continuous good order intake when it comes to our upgrades and modernizations. But again, that was sort of a similar level as some of the previous quarters. Those are typically a bit bigger ticket items could be, you know, double digit millions, etc. But that's not really, that hasn't changed from Q1, from Q4. and would not explain the positive development. Our own read on this, Andreas, is that no, it's really the demand given increase and our customers, they want to operate their gold assets, their copper assets with high utilization and that requires then the services, the aftermarket support that we provide and it's reflection of that healthy market activity.

Yeah, and I would also maybe add one more thing once again. Aftermarket is a centerpiece in our strategy. We have a lot of execution around this, meaning that the focus inside the company is different than in the past. Not saying that it was not in the agenda also in the previous years being one that led those businesses, but now it's kind of... Thank you very much.

Only this quarter now we highlighted a couple of service centers, etc. But if you look at past 12-18 months, there is number of, I mean, not very large individual, but number of smaller investments that we have done. And that, of course, is helping to grow as well.

Understood. Thank you. And then coming back to the backlog facing. So your total backlog is up by 13% year-over-year. Do you see that the backlog for delivery within the next six months in H2 is also up by around 13% year-over-year or has the backlog become larger along their sources?

A good question but also a difficult one. I would say that there are certain elements that have Given the execution time of backlog a bit longer, and here I refer for example in the aftermarket size for the upgrades and modernizations, they take longer time to deliver, they are good business for us, but the turnaround time is a bit longer, and you know that backlog compared to a year ago has grown more than our backlog in average. But overall I wouldn't say that there is sort of a significant change. One aspect also is that we are busy in part of our aftermarket system and then in some limited areas that results to somewhat extended delivery times but again not a big item as such.

We should expect quite nice revenue growth year-over-year based on the course of the backlog expansion that we have seen.

Let's see how the execution goes forward, but I mean the backlog growth certainly helps us to deliver future revenues. Understood.

And then the last question. You are talking about a possible market cycle. and that is now leading to a better order conversion. I'm just a bit curious why you decided to continue to drive for stable market activity over the next six months. Are you now seeing that the cycle is stagnating or why did you decide to not make your output a bit more optimistic? Thank you.

Yeah, I think, thank you for that question. Thank you very much. from the good level that we are kind of like already been seeing.

Understood. Thank you very much.

All right. We are coming up to the hour and I need to wrap up this call. Thanks for listening. Thanks for participating. Before we go, just a reminder of the Metso Summit event on September 10th. It's a fully virtual event showcasing a lot of new technologies, new solutions, that we have invented for our customers and I'm sure will be worthwhile everybody's time. Next time we'll talk about our numbers will be October 22nd, but I'm sure we'll see many of you before that. So thanks for this and bye-bye.