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Finland's Metso Eyes Growth In Africa
By Clara Ferreira-Marques
29/10/2013
LONDON (Reuters) - Africa, with its wealth of untapped natural resources, is the next frontier for Finland's Metso, as the engineering services and mining supplier searches for growth at a time of cost and spending cuts across the mining industry.
Metso - which is splitting from its pulp and paper business - has struggled along with machinery making rivals like Sweden's Sandvik, Atlas Copco and even U.S. giant Caterpillar, as large mine projects are scrapped and costs cut in the face of cooling prices.
But, according to Chief Executive Matti Kahkonen, Africa's growth over the long term will drive an appetite for the firm's mining equipment and services offering - as well as its operations in automation and construction - as the continent develops its infrastructure and manufacturing grows.
"I have been telling my people: let's pay a little bit more attention to Africa. In 10 or 15 years, it could be a good and growing business," he said in an interview in London, adding this would likely mean more presence on the ground - beyond existing offices in South Africa.
"We can't be visitors - we have to be permanent residents."
Metso does not break down the African proportion of its revenue, but Africa and the Middle East, the latter a growing region thanks to oil, together made up just 5 percent of 2012 net sales, excluding pulp, paper and power generation.
In Africa, Kahkonen recognises there would be competition from Chinese firms, many of whom have been present for decades and offer cheaper alternatives than their Western rivals.
But he said Metso's services offering and its presence in automation and intelligent machinery would be harder to replicate - and in any case more profitable - than its ability to supply grinders, crushers or other one-off mining equipment.
DOWN, NOT OUT
Mining was not cited as a factor in the company's profit warning earlier this month when it said 2013 net sales and core earnings would be "significantly lower" than 2012. That was blamed on soon to be spun off operations, renamed Valmet.
But Metso, whose single largest investor is activist fund Cevian, has felt the pain of a mining sector retracting after years of heady growth, and has announced plans to cut back jobs and its own spend.
Average quarterly orders in its mining business in 2013 are roughly a fifth lower than 2012.
Kahkonen, though, said that despite a pause as new chief executives took over across the major mining firms - five of the six top diversified miners have replaced their bosses since early 2011 - there had been no material order cancellations.
Rival Outotec last month reported delays in customer payments and at least one 30 million euro cancellation.
While Metso's mining pipeline will not grow into next year, it would remain stable, Kahkonen said, thanks to projects to sustain output, even as miners hold back from new operations.
"Looking at the list of projects, inquiries, it is stable, and we expect that will continue in 2014. The mining companies have to invest to maintain current production levels," he said, pointing to spending on existing mines - "brownfield" investment - or to resolve production bottlenecks.
Larger projects, he said, would return the year after.
"We believe that somewhere in 2015 and 2016 the supply/demand balance will require investment from the mining companies. We don't expect a return to growth rates seen in 2003 to 2008, or 2009 to 2011, but some growth (will be) needed."
The Finnish state holds just over 11 percent of Metso through investment arm Solidium. The government, seeking to boost its coffers, has sold down its stake in telecoms operator TeliaSonera and is expected to sell more, but Kahkonen said he was unaware of any plan to cut the stake in Metso.
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