New year, new focus for Metso

After nearly a full year of planning, Metso is set to split into two in a partial demerger which will see the automation, mining and construction elements separated from the pulp, paper and power divisions.

Metso’s CEO, Matti Kähkönen explained that the automation, mining and construction part of the business would continue under the Metso name, although at the moment they are referring to it as “new Metso” to differentiate it from the rest, which will go under the Valmet name.

From 2 January, 2014, Valmet will be listed on the Helsinki, Finland, stock exchange under the same ownership structure as Metso.

Kähkönen said, “The two companies will be totally independent – they will be independent listed companies. This partial demerger means that the person who today owns one Metso share will own one new Metso share and one Valmet share in early January.”

He said, “The split started in the early part of this year, when we started thinking about the current Metso’s future direction, and how to develop Metso to make sure it grows and is profitable.

“We came to the conclusion that it was an obvious, natural point in time, and that the company would be better off going ahead as two different companies.”

The current Metso was established in 1999, although its roots go back a lot further – to the 19^th century in some cases. In 1886, for example, Bruno Nordberg, who was originally from Finland, set up Nordberg Manufacturing Company in Milwaukee, US.

Kähkönen said that during Metso’s 14 years, its growth had been developed organically.

“But also a very important part of the development has been the acquisitions during those years, and early 2000, 2001 and 2002, an important part of the mining/construction development took place when we bought a company called Svedala Industri from Sweden. That was the platform for mining and construction, even though we already had a crushing and screening operation called Nordberg, and then we built on that.”

Approved

An Extraordinary General Meeting on 1 October this year approved the Metso demerger.

“The purpose of this demerger,” said Kähkönen, “is how to accelerate the growth and the development of both companies by having more focused management, starting with the board of directors. Now there will be two boards of directors, and they can focus on their respective industries.

“It will mean that we will go deeper into construction, mining and automation, and to look at the opportunities within those customer industries even more actively.”

He said, “In many cases, our customers need to see better production and better services, and more cost competitive solutions from their point of view – otherwise this type of deal doesn’t make any sense.

“The customer has got to see a better performing or faster developing company, and a better offering and better services for them.”

He said that the economic downturn of the past few years was not a reason for the decision to split the company. It had been noted that there were good businesses in the new Metso. “Basically we now have three separate customer industries – the mining industry, then the construction industry, and then we have oil and gas from the Valvet business point of view.

“In all these we see a good potential to go forward – regardless of the short-term downturn. This year, for mining or construction, has been flat compared to previous years, but that was not the key factor for the demerger.”

Long-term value creation

He described the demerger as being more a case of long-term value creation. While there may have been a few years that have seen “a little bit of downturn”, he said the company firmly believed that the global megatrend, as well as environmental and many other issues, were driving demand.

“Because infrastructure building will take place for years to come, we see good potential in all of those businesses to go forward. It was a fairly natural split in a way.”

Looking at new Metso, Kähkönen said, “Construction is an important part, though of course mining is a little more than half our revenues. Construction is about 30% – but construction and mining are related very strongly to each other in terms of technology.”

For construction customers, Metso offers mainly crushing and screening equipment. “If you have a big quarry, it’s almost like a small mine in how it operates.”

Kähkönen said, “We are everywhere in the world when it comes to mining and construction. For construction, Europe and North America have been, and still are, the main markets – if I remember correctly, 70 to 80% of our construction volume. Europe is a little bigger than North America.”

He said that while Europe and North America had been fairly flat since 2008/9, there had been bright spots elsewhere such as Brazil, which has been benefiting from the Olympics and the football World Cup.

“Infrastructure work in Brazil has been a good market from a construction point of view.”

Chinese market

He admitted that Metso had not been a big player in the Chinese construction market.

“It’s more like a sort of mid-market,” he said. “We are strong in the upper end of the market, but last year we made an acquisition, a company called Shaorui, which is only for the mid-market construction business in China – €30 to 40 million, that size of operation.”

Metso has also established a partnership with Liugong to produce mobile crushers for the Chinese market.

“This mobile market is very developed in Europe and North America,” said Kähkönen. “It’s not developed very much in China, but it is getting to the point where the mobile crusher market is beginning to develop in China as well. It is for that reason we established the relationship with Liugong.

Liugong itself has been increasing its footprint in Europe through the acquisition of Poland’s Huta Stalowa Wola (HSW) with the Dressta brand. Kähkönen said, however, that there were no immediate plans to link up outside China.

“Right now we are focusing purely on this joint venture for the Chinese market. It remains to see how it develops. We can see Liugong’s offering in the European market, and we are not competing with them so it would be a win-win situation.”

He added that there might come a time to consider a tie-up with Liugong in Europe, and that there could be other opportunities outside China too.

Indian factories

Elsewhere in the world, Metso claimed a strong position in the Indian market, having been developing its own factories there since the 1990s. Kähkönen said it was key to have its factories there. “If you have to pick up the one thing that is important to us, it’s service, service, service. To do that well, you need to be close to your customers. In the case of Indian construction, you cannot be successful delivering something from Europe or somewhere else.

“In construction, you need to be local because a big part of our business comes from local contractors, so it might be within one country or one region. This sales and service network is important from a construction point of view.

“It goes for Europe, as well,” he added. “We have a strong footfall traditionally in Europe, so we have main manufacturing units in Finland and in France. From those two locations we have been serving the whole of Europe.”

He said the factories in Finland and France were sufficient. “We can serve the European need and also some other areas. We are in China, have a strong foothold in India and manufacture in Brazil – our site close to Sao Paulo is Metso’s biggest. It’s for the Brazilian mining industry but also for construction.”

Service centres

Metso has 70 different service centres globally. “Our own service business is by far the biggest in the marketplace, so we have been developing that very aggressively. It’s about a €2 billion service business in new Metso.”

He stressed, “New Metso is a smaller company, but it is a small focused company. Service is one of the fundamental elements of our strategy. Of course, Metso is an engineering company so we want to continue to develop good equipment and production for our customers.

“But the third leg in this strategy is automation – the intelligent part of the business. We see there is more and more need for intelligent machines, embedding intelligence into the machines or then building up to intelligent services or processes to improve our customers’ productivity and their operating costs.

“This could be different types of measuring devices analysing what is happening, and then we have the control systems for the whole process.”

More focused

From the new year there will be new Metso. “The whole organisation should get more focused,” said Kähkönen. “It will lead to better services and products for our customers, and also mean that we are reacting more quickly when there is something happening in the marketplace, so that the flow of information will be fast within the company.

“This will be how we can truly help our customers do better business, improve their processes and increase their productivity.”