OUKPY - Metso Oyj (OUKPF) Q2 2023 Earnings Call Transcript
2023-07-20 09:20:10 ET
Metso Oyj (OUKPF)
Q2 2023 Earnings Conference Call
July 20, 2023 6:00 a.m. ET
Company Participants
Juha Rouhiainen - Vice President, Investor Relations
Pekka Vauramo - President and Chief Executive Officer
Eeva Sipilä - Chief Financial Officer
Conference Call Participants
Christian Hinderaker - Goldman Sachs
Max Yates - Morgan Stanley
Antti Kansanen - SEB
Andreas Koski - BNP Paribas Exane
Elliott Robinson - Bank of America
William Mackie - Kepler Cheuvreux
Tomi Railo - DNB
Klas Bergelind - Citi
Presentation
Juha Rouhiainen
Hello, everyone. It's Juha from Metso's IR. And I want to welcome you to this conference call where we discuss our second quarter '23 results, which were out earlier this morning. Results will be presented by President and CEO Pekka Vauramo, and CFO Eeva Sipilä. And after the short presentation, we'll be having your questions.
And in the presentation slides, we also have the forward-looking statements that you need to take into account, and remind when listening in and following this presentation. And we intend to limit the length of this call to 60 minutes, so hopefully you can take that account as well.
But with these introductory words, I'll hand over to Pekka to start the presentation. Please go ahead.
Pekka Vauramo
Okay, thank you. Thank you, Juha. And welcome to this second quarter call. We enjoy, still, continued healthy market activity and environment around us. Of course, there are uncertainties because of macro, but when we drill down to our customers' businesses and to the segments, most of the segments are enjoying really strong and robust trading environment despite of this concern. I'll come back to that one a bit later.
We delivered a very high sales growth, and that's obviously from our backlog which has been on high level and still is on high level going forward. We delivered record high profitability, on group level, 16.6% EBITA, and that is well in line with our target to deliver 15% EBITA for the -- as we have said in our financial -- as set as our financial target. What is very specific for this time is that green transitioning is really driving our business now.
All metals that have a role in electrification, there is a lot of activity around them, including orders, and then a lot of research activity, a lot of work that we do -- front-end work that we do for our customers in sort of lithiums and many other metals, including also battery recycling, which is starting to be visible there in the front-end work that we do for our customers. But this work is not yet visible so much in the orders even though we have a few lithium programs that we have in our order book at this moment.
Then when we look at the group numbers, orders received, just couple of million short of €1.4 billion. We have a really tough comparison year from year-ago, we had bigger orders there, and that contributed to €1.6 billion a year ago. This time, we had very few orders that were larger than €20 million. For example, in June, we didn't have a single order that exceeded €10 million in our Minerals side. And that's very typical for this time. Bigger orders take longer time to decide, and they are as they always have been, very difficult to forecast. But those bigger orders, they are in our funnel as well. And, of course, remains -- tend to be seen when they come through.
Some of these are already signed contracts that are waiting for down payments to come. And in some orders that is a criteria which need to be fulfilled before we report it into orders received. So, we are not concerned about the sales funnel what we have ahead of us. But of course, understand that €1.4 billion is somewhat short of the expectation. The difference to the expectation is either two or three bigger orders, it's not more than that, that we were not able to move over the line during the quarter.
Sales, 15% increase from last year, and that, of course, is visible then in our profitability and in the margin. Adjusted EBITA, €246 million, that's nearly close to 60% more than a year ago, and 16.6% as a margin. Operating profit, good, healthy growth in there, of course the biggest part of the growth came from comparison since we booked, last year, a €150 million provision for Russian wind-down, which is still ongoing. We haven't consumed all the provision yet, but we feel that we will need that provision before the final settlements have been made and reached with our previous customers there, in Russia.
Earnings per share is the same drop-through, naturally, they are now €0.18. And cash flow, still on low side. We would like to see somewhat higher, but we do have inventory reduction programs ongoing in the company now, and we can expect that one to firm up as we move on through the second-half of the year.
Then looking into segments, Aggregates, we have said that, first of all, there is seasonality in aggregates, and seasonality is visible already in the second, and even more so in the third quarter of the year. So, therefore, we have slightly reduced our guidance for Aggregates' outlook, in general. And we are seeing a slightly slower second-half than what we had year-ago for aggregates. But orders, €330 million, about 10% below last year's order bookings, mainly because of the European softness. And North America continued stable. Equipment came down 8%, services down 11%. Good execution of the order book, nearly €380 million of sales.
And services share declined because of more rapid decline in services, to 28%. There we see some destocking of consumables, mostly, and spares by our dealers at this moment. Adjusted EBITA, €66 million for the segment margin of 17%, good healthy improvement from a year ago because of the natural volume and strong execution, as we have seen from Aggregates over the past several months.
In the Minerals side, orders, 980 million, short of what we would like to have seen. But like I said, there are bigger things in the pipeline which we are not able to move over the line. Activity, as such, is very healthy. And what I said earlier about the electrification and related metals, that's where the activity is at this moment. We see somewhat slower activity in iron ore, not in the services, but in the equipment side. And then metals, like zinc, that play a smaller role in electrification, there we see some slowness, but that is then compensated with the very high activity in copper, and nickel, and the other battery metals.
Sales, €978 million, equipment growth 9%, services growth 29%, so a very healthy services growth, and mix absolutely contributed also to the margin of the segment, but services share 63%, which is growth of about 4% from year-ago. Adjusted EBITA, on record level, €178 million, that corresponds to 18.1%, and is clearly a sign that we do have potential, what we have said, that our target is to deliver towards 20% EBITA margin in Minerals, and I think signs are there that the potential is out there. Good execution altogether from good price and cost management also from Minerals, as it was in the Aggregates segment as well.
Metals segment suffered a little bit in orders the same way as Minerals. There are bigger things in the funnel, but we were not able to report those in the orders yet. They are there to come. Sales more or less on the same level as year before. Services share very stable, just above 10%, and adjusted EBITDA €14 million translating to 12.2% margin. So, good execution there as well from the metals team.
And then, I'll hand it over to Eeva for more details in financials.
Eeva Sipilä
Good morning, good afternoon on my behalf to everyone. Pekka already presented our strong operative figures. I would only add a comment on the group items in adjusted EBITDA. We had €11 million group items related costs in the quarter, which is on the high end of the typical €5 million to €10 million per quarter. And whilst we expect that quarterly range to hold in the second-half of the year, our full-year estimate is slightly up from previous guidance.
Net financial expenses were also slightly up sequentially to €20 million, as our debt and interest rates are slightly higher. Effective tax rate for the first-half was at 25%, a level we expect to be a good proxy for the full-year rate as well. Our earnings per share for continuing operations were $0.18 for the second quarter, and year-to-date we are at $0.35.
Moving to our balance sheet, total assets are up some €150 million from the beginning of the year. A small decrease in intangibles was matched by a similar increase in plant and equipment following ongoing CapEx projects, but otherwise the changes are in working capital items and liquid funds, a few words on them in the next slides.
Before moving on, noting that net debt at the end of June was €840 million up from the start of the year. This next slide gives a few figures on the working capital items. So, net working capital at the end of June was €874 million.
At the start of the year, it was some €600 million, at the end of March around €700 million. So, the trend in the second quarter was still up on all items, as you can see from the graph on the right. Still, due to our strong sales growth, this results in an okay-ish working capital percentages over sales of 11% visible on the left hand side.
We have continued to see global logistics improving and hence we have continued to slowly reduce buffer levels, but the progress admitted is a bit slow. Reflecting the strong sales growth, we continue to focus on the turn rates of the working capital items rather than the absolute values. Nevertheless, we do want to see progress in reducing working capital going forward to support a better cash generation in the second-half of the year. Cash flow in the second quarter was an improvement year-over-year and also looking at the six months, we are making progress compared to a year-ago, thanks to strong profitability, net cash flow from operating activities was €62 million for the quarter and €173 million year-to-date. The year-to-date cash impact from increased net working capital was €344 million.
Moving on to my final slide and main points on our financial position, there is not really much change on this from our last quarterly call when it was already public that in April Standard & Poor's Global upgraded their rating on Metso to BBB with a stable outlook.
Looking at the table, liquid funds are down from the year end as we paid the first part of the '22 dividend in May. Net debt being up, as mentioned a few slides earlier, moves gearing at the end of June to 35.5%. However, debt-to-capital is down to 31.7%.
And with that, handing back to you, Pekka.
Pekka Vauramo
Okay. Thanks, Eeva. I will say a few words about sustainability and then finally outlook before going to the Q&A. Like I said earlier on in the beginning, that electrification or sustainability is really driving our business as we speak.
Planet Positive sales, which we have followed up for now for quite some time already, this is a rolling 12 month follow-up that we do provide year-on-year growth with that measure is now at 43%, and that translates to nearly €1.5 billion of Planet Positive sales. And we have seen very steady roughly 40% to 50% growth throughout the time that we have provided this KPI. It's really guiding -- it's also guiding our activities. And it's a clear sign that our product development efforts for planet-positive products have been rightly sort of sized and allocated to sustainable products.
We are also progressing with our suppliers. As part of our science-based targets, we have committed to increase the share of suppliers having a similar program either science-based target or similar. And now we have 23% of the spent with suppliers that are committed to these programs. There is more than 400 suppliers that have rolled into science-based or similar programs.
We continue with our implementation of our top priorities. One of those is our performance culture. And, we do measure that one on quarterly basis. Amongst the employees, we have a very high response rate. The latest one just few weeks ago -- that ended a few weeks ago. We had 87% of all our employees responding to that one. And our employee NPS -- eNPS score continues to grow.
And, we are firmly now in top 10% of our benchmark group of companies. International companies in similar business where we are, there is nearly 100 companies that we are benchmarking our sort of ratings. And it's clearly a sign and a good tool to see what shape and form the organization is and how well they perceive the efforts that company is doing in all areas of business. The market outlook, we sort of retained the same outlook for minerals. So, strong activity there and healthy activity in that market, but then in the aggregates market, we see slight decline comparing with the second-half of year before.
So, with this guidance, we can move now on to the Q&A side and start that one. Thanks.
Juha Rouhiainen
Thank you. So, Operator, we can now open the conference call lines.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.
Christian Hinderaker
Hi, Pekka, Eeva, Juha. I would like to start with the aggregates business please. I recall from your CMT regional split [share] (ph) for the top market is around 37% North America, 34% Europe, 7% India, and 6% China. Just wonder how we should think about your revised outlook statement as it relates to those regions, given Europe has been weak for some time, and might view China as potentially approaching some form of recovery? And then, you mentioned destocking here. Is that region-specific or global? And how should we view the sell-in versus sell-out dynamic?
Pekka Vauramo
Yes, the destocking was mainly referring to the aftermarket that we see, but to some extent, there are some new dynamics that we saw specifically in North America. Our dealers, they also run the rental fleets, and the rental fleets are very busy at this moment. But the machines are not moving or changing ownership. Very often the rental agreements lead to the sale of the machine, and when dealers when they sell a rental machine, then they normally place an order for a new piece of equipment. And these rental fleets are not typically moving at this moment. So, this is what we see.
In North America, market has been stable there, but we are very little bit cautious about really the next quarter or so. And then, it of course remains to be seen how the seasonality kicks in. The high season kicks in, normally it does -- it is visible in our December orders, but for that we need to wait, wait of course until the end of the year before we know that one.
European market has really been the slow and particularly Northern Europe. Central Europe has been, in a few countries, on quite normal level. And then again, Southern Europe has been very, very slow in Europe. Some signs in China, but like well-known from the macro, China seems to be returning slower than expected from the pandemics.
Christian Hinderaker
That's very helpful, thank you. And then I think you mentioned, last quarter, that European customers in Aggregates is becoming a bit more price sensitive. Wonder if that's still the case? And if so, whether you would intend to hold price and forfeit volume or look to be more competitive, maybe with some discounts in the commercial? And then also, just given the subassembly model for this business, how should we think about fixed cost absorption as volumes decline, and the potential impact on margins?
Pekka Vauramo
We are, of course, following the developments, and we have taken already actions in order to balance with the current level of order bookings, and expect it near-term order bookings. So, that's the way how we balance with our, both, fixed and variable costs, especially in places where we can have temporary layoffs, as for example, in Finland; we can do it rather flexibly.
Then when it comes to pricing, of course, we were very active in managing our prices both ways. Of course, we do see cost reductions in the supply side at this moment as well, so it's not only that there is a price pressure. There are clear cost reductions as well, specifically in logistics and some other parts and components. So, it gives us a little bit of headroom to protect our margins.
Christian Hinderaker
Understood. And then maybe on the mineral sites, I think if we adjust for large orders, at sort of €150 million ago, and mid-size orders of €20 million-plus, looks like order intake down more like 23% year-on-year; book-to-bill for the division overall, closer to 1. Just wonder if that's reflecting a more slow pace of equipment demand given, effectively, a brownfield-focused market. Can you comment on the trends in minerals as it relates to some underlying activity?
Pekka Vauramo
Yes, I would say that it's a particular issue with bigger orders that -- and it has obviously something to do with the discussion on interest rates, and things like that uncertainty relating to that one. That's how I would rather see it, than being anything more, say, macro-related thing. We really talk about one or two orders in Minerals that would have made a big difference here in this debate. And then individuals orders, like I said so many times before, we know what we're going to win, but we don't know when the day is exactly.
Eeva Sipilä
Maybe if I can add, Christian, on that, that actually we see this brownfield-focus cycle is nothing new, we've had that for the past couple of years. And we really see a very good, healthy activity on the smaller end of deals coming from, geographically, all areas from all metals, so actually in very many ways a very strong and broad health of the market activity in Q2. But as said, you obviously need very many small ones to compensate for not having any bigger ones, and hence the discrepancy.
Christian Hinderaker
Very good. Thanks, Pekka. Thanks, Eeva.
Operator
The next question comes from Max Yates from Morgan Stanley. Please go ahead.
Max Yates
Good afternoon or good morning. Could I just pick up on the large order point? I think we've seen this kind of across a couple of other companies as well, where maybe customers have become a little bit more hesitant on large orders. When you speak to your customers and you look at the pipeline and discussions that you're having, and I guess acknowledging that commodity prices in some areas are 20%-25% lower than where they were this time last year. Is [nothing] (ph) changing, or do you really put this down to just these are lumpy orders? But is there anything in customer conversations where you're seeing a slightly different approach to maybe the way they were thinking in terms of timing of these orders?
Pekka Vauramo
Well, your comment on metals prices, that might be true for iron ore, but we haven't seen too much iron ore activity for quite some time in any new equipment or bigger orders. Zinc is another metal, but everything else that we see are still -- metal prices are still on such a high level that it's not question of metal prices being high enough. I mean copper went, in the beginning of second quarter, down to very close to 8,000. I think it was 8,100 or something like that at the lowest, but it recovered to, current, 8,400 quite rapidly. Nickel is holding above 20,000. It has come down from 26,000-28,000, where it was right after the pandemic. So, there is some drop.
But then the nickel volume for us is quite low, and most nickel activity is, in fact, in battery-grade nickel which, on the other hand, is very active business us. So, I wouldn't say that it's a concern on metal prices, other than in these two areas. But they haven't been really the main drivers for us before either. So, permitting, once again, is an issue there, even in battery metals and electrification that seems to be an issue. And I would say that the rest is, of course, uncertainty. I mean, funding is an issue for everyone who needs financing in these days, and especially interest rates. And maybe people are waiting for interest rates to come down or at least waiting for a message that they will not anymore go higher. But those are the kind of environment, the sentiment that we work within.
Max Yates
That's helpful. Maybe just a quick follow-up on Minerals services, so the growth kind of slowed to, it looks like, sort of 3% organically, but in absolute order levels above €600 million is an incredibly good level. Do you, when you think about how that business has performed coming out of COVID, do you see that division having benefited from any pent-up demand, any root pent-up demand around rebuilds, any restock that means maybe that number is not sustainable or there's anything else official in that level or do you just see that as a reflection of a very strong underlying environment?
Pekka Vauramo
I think it's this emphasis to sweat all the assets that customers have today is visible in services. We saw some lumpiness, of course, after the pandemics. And the lumpiness was particularly in an area which is currently in order bookings somewhat slow, and that's more the case as an upgrade. So, people didn't want to do that one during the pandemics, but there was a sort of backlog of work that needed to be done. We booked those orders. We are currently delivering those under relatively low activity currently in that area, but all the other areas of services and consumables are going strong.
Max Yates
Okay. And maybe just very quick final one for Eeva, just on the working capital, where you show that chart of how it's evolved since 2021. When would you expect to see a normalization back to historic levels of working capital to sales? And would you expect that ever happen or do you think you will run the business structurally with more safety stock? Or should we be thinking actually about some pretty considerable working capital inflows over the next 12 to 18 months?
Eeva Sipilä
Yes, I think, Max, the strong growth combined with the sort of situation we've had in logistics and supply chain, of course, has been a sort of multiple of events that clearly is taking quite long to unwind out of, especially when the growth continues high. And when we look at the turns, we're very happy on both the receivables and payable side, that it's good healthy progress. And obviously, like Pekka mentioned earlier, customers are doing well. So, it's in that sense a good environment. It is really this inventory buffering that we're gradually working to reduce. And I absolutely think that we have to sort of gain back some of the efficiency to the levels where we were. This is not something where we are happy with. At the same time, it is -- one doesn't want to sort of take drastic actions when we really have a full backlog.
And obviously, as you see from the results we are -- also customers are willing to pay for the availability. So, it's a fine line. And obviously one can then sort of answer in a very long way your question when you can highlight that -- I think this when have less of a global environment, unfortunately we are seeing more politically driven regional environment around us. I think that obviously does require certain regional strategies. And, I do think over time that does imply also a higher working capital. I mean the whole point of globalization was that it was a very efficient just on time type of a world. And, we haven't seen that for now for a few years already. But what exactly is that impact, I think that's early to comment on and something we are obviously working in our strategy work as well. But right now I think the focus is on that we have absolutely need to improve. And, that's something we are focused on and also incentivizing our teams to deliver a better cash flow.
Max Yates
Okay. Thank you very much.
Operator
The next question comes from Antti Kansanen from SEB. Please go ahead.
Antti Kansanen
Hi, it's Antti from SEB. Thanks for taking my questions. Bit of follow-up on the mineral services side. And, I mean from absolute levels and from year-over-year growth perspective, it's been a bit of lumpy ride past three quarters. So, is this kind of only reflection of the lumpiness of the modernization and project business has kind of progress on the spare parts and consumables being more steady? And perhaps, Pekka, you mentioned that the [merchant] (ph) demand is a bit slow right now, or you just referring to the similar timing issues as on the OE side?
Pekka Vauramo
Yes, more of a timing issue, but there is an impact of the pent up demand that we saw in merchant upgrades area right after the pandemic. So, there is a comparison within that one. We haven't opened it and we don't go to that sort of breakdowns. But internally I mean when I look at those things, yes, we did enjoy a very strong order bookings in that area after the pandemic. And now, it's sort of normalizing that one. There is some seasonality in that one because it's always linked with the shutdowns. And shutdowns are normally timed with the vacation period and so forth. So, delivery takes place during the vacations or right after the vacations and order bookings between the sort of vacation. We are, of course, in northern and southern hemisphere, and there is a timing difference. There is like two seasonality in that area.
Antti Kansanen
Okay. Maybe I wanted to clarify a bit on the timing issues on the OE side. I mean you talked a little bit more kind of a slow decision making. But were you also pointing out that there were some specific deals that actually slipped from quarter to another, like it's typical in the business, or how should we think about that?
Pekka Vauramo
Yes. Maybe it is a reflection of slowness in decision making since they slipped. There are some things that we expect to come through, but they didn't come through in this timeframe so…
Antti Kansanen
Okay, okay. And the last one is on the aggregates margin. And I mean if I understand correctly, the weaker outlook on second-half mainly relates to U.S. coming off from a very high level. So, how should we think about the impact on margins? I mean we have been discussing that the U.S. business has been a mixed positive for you and has been supporting the strong margin profile in aggregates in the past couple of quarter. So, is this a notable change that we should kind of factor in?
Eeva Sipilä
I don't think we see any sort of big changes. But we clearly wanted to highlight with the outlook that the market will -- we don't expect the market to grow, just also referring to the relatively high order intake assumptions that the market had also for this quarter. And so that people don't just assume that it's seasonality, that is a sequential issue only. But really looking at year-over-year, we expect Q3 orders and activity to be slower and guiding on that. But it's not I mean like Pekka mentioned, the activity also in North America is super high.
I mean, customers and rental fleets are super busy. So, it's a question more on sort of the willingness then to make equipment orders. And that's what we wanted to highlight. I think overall still the backlog is on a good level. We're quite comfortable that we can manage the fixed cost portion in a way that will still be generating solid margins in aggregates, even if obviously not necessarily on the level that we saw in Q1, like you already saw now in Q2, that were slightly down, but still on a very good level.
Antti Kansanen
Okay. And last housekeeping question regarding the group costs, did I understand correctly that we should think about the €5 million to €10 million quarterly for the second-half?
Eeva Sipilä
Correct, I mean that is if you also look at the past, that's where we typically been. Obviously then influenced by many valuation and currency type of issues that are really hard to predict. And hence now clearly we were a bit on higher than we originally expected in Q2, but don't really see a reason now to expect that we wouldn't be in that range in the third and fourth quarter.
Antti Kansanen
All right, thanks so much.
Operator
The next question comes from Andreas Koski from BNP Paribas Exane. Please go ahead.
Andreas Koski
Thank you and good day. I have two questions. First on input cost and pricing. I think we've seen raw material prices coming down over the past six to 12 months. I would guess that have given you some support on your input cost. Do you think there is a risk that you will have to lower your selling prices in the coming quarters as a consequence of that?
Pekka Vauramo
It's a long answer which I would repeat from sort of previous calls. We have so many different pricing models, three basic pricing models. One is in our projects where we work mostly with the cost plus model and that of course is protecting the margins in input cost fluctuations both ways and that's sort of automatic that we do. Then we have products where we have price lists and these are typically products that are pre-engineered and we know build the product structure and so forth. We also know the cost structure and we then use of course the market information.
We try to price our products into the market depending on the competitiveness of our product. And then one reference point is of course the cost base that is sometimes going up, sometimes going down and down and depending on then the market conditions, we either increase prices or lower the prices, and then we have our contracts. That's the third model where we have introduced the index clauses for raw materials. And of course, if input costs are coming down, then over time, also the prices are coming down, but they protect margins quite effectively.
Andreas Koski
Okay, it sounds like there is some risk to price decreases in the coming quarters. And then my second question is on the free cash flow and also on the working capital side. Do I read you correctly? And that we should expect a working capital release in H2 '23 and also in 2024, and if that's the case, what do you consider a normalized working capital to sales ratio going forward?
Eeva Sipilä
Well, I'd be a bit cautious on guiding on what's normal in a sort of less normal world. As said, this needs a bit more reflection, but yes I do expect that obviously AR will go up as long as sales go up sales growth in that sense. But then again, of course it turns so it's less of a concern. AP, I expect to slow because we are, as said, reducing on the inventory buffers. So, that should impact AP but of course it is also partly linked to sort of the sales growth.
And then, on the inventory side, we would expect that we don't need to see that grow apart from the sort of project work in progress, which of course again is a reflection of the sales growth. But if we're able to and the target is really to sort of impact the other areas where it's more on what we have on stock, for instance, and through that, then at least see that the working capital is not a drag on the cash flow, if not necessarily a positive.
Andreas Koski
Okay, and if you look at your different businesses, is this mainly related to any specific business? I mean, is it metals, minerals or aggregates mainly driving this working capital tie up?
Eeva Sipilä
The supply challenges have been in all businesses, and hence it is really throughout the group. Of course, in the aftermarket side, the aggregate side, we're more operating on sort of a standard offering, which then is where we sell availability whereas on the metals and minerals side, part of the business is project work. So, the working capital side is very much based on the backlog and hence kind of turns quite naturally as those projects evolve. But as said, the challenges that we've seen in the past three years obviously have been both. And now it's a question of slowly unwinding the unnecessary safety buffers going forward.
Andreas Koski
Understood. And then on CapEx, what should we expect in terms of CapEx in 2023 and in 2024? Because I was surprised about the CapEx level that we saw in this quarter?
Eeva Sipilä
Okay. Were you surprised up or down? I think it's quite reflective of the fact that we obviously sort of have quite a bit of growth CapEx ongoing. That not necessarily sort of single big ones, but we've mentioned our sort of growth and building a new factory in Mexico. We're setting up a new service center in Australia, adding to capacity in India. So, in that sense, we have had quite a lot of growth related CapEx ongoing. And I would say that the first-half is a pretty good proxy for the second-half as well. Some of those projects obviously are closer to completion, but some are more in the sort of still in a very active phase. And so it's a relatively good number with this sales growth and really to support better availability for our customers, we do want to continue with those regional investments.
Andreas Koski
And will you have completed those investments this year or should we expect €140 million, €150 million also in 2024?
Eeva Sipilä
Well, these tales I think there's some tales going into early next year, but they're not very long-term massive projects. So, they will be then completed and then we have some further ideas. But of course they will be balanced and kind of '24 sort of decisions yet to come then also as how we see the market environment moving forward. So, wouldn't yet want to really comment on that. We haven't done the homework. But as I said, this is a rather good balance of clearly sort of various smaller growth investments on top, certainly much higher than just the maintenance CapEx. That's absolutely true, but something that we've seen also in '22.
Andreas Koski
Understood. Thank you very much.
Operator
The next question comes from Elliott Robinson from Bank of America. Please go ahead.
Elliott Robinson
Hi, thanks for taking my question. My first question is actually on the minerals adjusted EBITDA. So, obviously there are a few currency reversals last year, but it's still after taking that out, it still looks like the drop through is very good. I was just wondering if you could quantify any sort of operational improvement or anything on the pricing cost impact that might also have pushed that up, or should we just be looking at this at pure drop through?
Pekka Vauramo
I think it is a drop through, but I think we've taken a sort of much more thorough view on our projects since the merger. And now we are, of course delivering mostly those ones that have been booked during Metso Outotec. We still may have some tail ends of the older ones in the pipeline, but these are healthy projects that we are delivering. And there was nothing extraordinary that would have boosted the margins. Yes, comparison was weak because we had a huge negative currency impact a year ago, but to my understanding there wasn't anything major positive on this one or Eeva, do you have anything on minerals or any other business?
Eeva Sipilä
No. I think maybe just to add what you already said earlier, but just to make sure, Elliott took note that the mix was obviously very positive in this quarter. We had a high share of services and that was maybe something just to add.
Elliott Robinson
Great, of course. Thank you for that. One other question is just to do with lithium. I was just wondering if you could quantify how much of the battery metals is lithium and what sort of like growth rates are you seeing here? Just trying to work out how material this will be in the longer term for the group?
Pekka Vauramo
Of course, lithium plays a sort of very small role at this moment on our sales, somewhat higher in order bookings, but the whole lithium capacity needs to be built and we talk about I mean depending on what year we take as a comparison. But let's say from 2020 to 2030, 10 times more lithium is needed. From 2020 to 2050, 50 times more lithium is needed. Just for e-mobility, I mean that's electric vehicles, so normal passenger cars, but that includes then also heavier vehicles like trucks and buses and so forth.
So, it will have to play relatively bigger role, but so will also copper play important role because drivers are exactly the same. I mean, one will happen, won't happen without the other one here. Nickel as well will have to grow. Then when we go into other metals, it starts to depend a little bit how the battery composition evolves over time. And then, of course, at one point the hydrogen will start to play a role, which will then of course reduce at one point the usage of batteries in EVs in particular. But it's a very much a moving field at this moment.
Elliott Robinson
Perfect. Well, thank you for that. That's all from me.
Operator
The next question comes from William Mackie from Kepler Cheuvreux. Please go ahead.
William Mackie
Hello. Good morning, Pekka and Eeva. Thank you for taking the time. I guess my first question is general, but we continue to see a lot of political effort towards focusing on the localization of critical mineral supply chains. And given the permitting time frames, normally that would be a long time before realization. But in general, my question would be to that subject. Do you see any shorter-term pickup of investments to support the localization of critical supply chains in your mineral customer base? And then specifically, when we look at South America, what would you say are the prospects in South America? I'm thinking that perhaps some of these orders are delayed currently, and as the political or commercial environment stabilizes, your booking potential could improve.
Pekka Vauramo
Of course, permitting is an issue, and then the politics and the more local we talk about, the more power, of course, there is with the local politicians always in this one. But somehow we need to solve the problem of getting these critical minerals and more of these critical minerals. Otherwise we will fail in delivering the electrification which starts to be so critical for us, everyone on earth. Yes, Latin America will play important role, at least in lithium. I think like 60% of lithium reserves are in South America altogether.
And you asked about, if there's anything short-term. Yes, some governments are pushing more forcefully their own projects, mostly for lithium. At this moment, we see things happening or activities taking place in Argentina, for example. Chile is a well-known source for lithium and some other countries also in Southern part of South America.
William Mackie
Thank you. That's helpful. You mentioned in your statements that there were a number of large orders which you signed, but which came without prepayments and hence not recorded in backlog. Could you give at least a size or scope of the large orders which are over the line and awaiting the PDPs?
Pekka Vauramo
Well, we normally don't disclose those orders because we don't count them as firm orders, orders before the payments are in place. But let's say that we have orders like that in minerals and in metals.
William Mackie
Thank you. And my next question would be more generally within minerals, the performance, the operating performance driven as you've highlighted by drop through has been exceptionally strong and your trajectory towards the 20% goal is coming up fast. So, what factors remain need to happen to drive you towards the 20% goal and what sort of time frame do you think that goal is now a realistic target?
Pekka Vauramo
Yes, of course when we talk about target, we don't necessarily mean one single quarter. It needs to be a sort of sustained performance over several quarters, but I think this proves, like you said, the trajectory towards that we have the potential, we have a solid execution currently in our minerals both in equipment side and in services side.
We still have improvement potential in our consumables as we speak several actions there and we need to go through, like earlier discussed here, we need to go through the regionalization from a global supply to more regional supply. And that might take some time before we are there, but I mean, it will make our consumables more efficient, of course, if we do so and reduce then our CO2 footprint quite a bit from the logistics once we fully in that sort of operating model over there.
But we do continuous improvement in all our businesses that will contribute to that fact and about a year-ago I said that I wish a little bit more normality to show that what can we achieve with Metso or Metso Outotec at that time as we were and we have seen a little bit of that normality now in this year. And this in my opinion is a good reflection where we are as a company right at this moment.
William Mackie
Super. Thank you. Maybe last question would be can you please provide an update on where you are with the sale process of the remaining metals businesses and when you should be able to book them into discontinued operations?
Eeva Sipilä
We're moving forward during this quarter, hopefully to a more formal process and ideally we would still have something to report on before the year end. I don't think we're going to close anything, the processes with the ADDs and such are we will go into '24 and then it's really a sort of evaluation that we need to do quarterly as per IFRS on whether we are sort of well enough in the process to realistically argue that we will be in conclusion.
So, hopefully we move forward faster or fast in the sense that obviously it's better for the business and the people involved as well as just the clarity of the Metso portfolio. But of course we'll need to see how the M&A market develops and activities on that. But we'll definitely be updating you and the market on our progress then on reasonable intervals as we have something to report on.
William Mackie
Super, thank you very much.
Operator
The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.
Christian Hinderaker
Yes, thank you for squeezing in my follow-up. I just wanted to come back on Max's question on the discussions of the pipeline with customers. We've seen Shelly confirm their tax royalty rates now and obviously cost of capital and permitting steel headwinds, as you mentioned, but that's a bit of an improvement in terms of the certainty for CapEx decisions. I wonder if you've seen any movement in decision making in Chile specifically. And also you said that you know what orders you're going to win, but not when. Just wonder how you rate your competitive chances to win in Chile versus your competitors and how that stacks up to other regions? Thank you.
Pekka Vauramo
Of course, I mean it's never safe and secure before signed and sealed, and in most cases also before the advanced payments have come in. But our sales in South America, that's the biggest region for us of our eight regions and we are, I would say, the leading supplier, I mean, by size at least. And if that is the biggest region that we have, and Chile is the most important mining country in that region, so it tells how competitive we are there. But on individual deals orders, I will not comment anything on them.
Christian Hinderaker
Thank you.
Operator
The next question comes from Tomi Railo from DNB. Please go ahead.
Tomi Railo
Hi, Pekka, hi Eeva. Tomi here from DNB. Can you give an update on the temporary layoffs in Tampere aggregate and then maybe whether you see or plan for any capacity adjustments or cost cutting exercises?
Pekka Vauramo
We have this annual, what we call productivity improvement plan; plan that we do, regardless of the market conditions. The temporary layoffs in Tampere are ongoing. Most of the personnel is involved in that one and we will continue that one until the order intake level remains on this level and the inventory levels remain on too high level. So, we have negotiated them. I cannot remember when would they end, but I think was it end of September or something like that at this moment. But then of course, if need be, then we prepare to negotiate an extension into it.
Tomi Railo
Just as a follow-up but you can't see any other needs or preparations for capacity adjustments?
Pekka Vauramo
Not at this moment, and of course we use extensively suppliers and adjustments are not 100% visible. We are not sort of taking full impact in sort of Metso's books on those capacity adjustments.
Tomi Railo
Thank you.
Operator
The next question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind
Thank you. Hi, Pekka, Eva. Klas at Citi. Sorry, I was late here on the call. Maybe you touched on this. I just want to ask briefly on services and mineral, Pekka. Growth here showed sharply. But it seems like spares and wears still grew nicely, some 10%. And I guess that's the majority of the business which suggests a big decline in modernization orders. Is this also slower decision making on modernization as you see in equipment or is lumpiness? I'll stop there.
Pekka Vauramo
Yes, not really slow decision-making, unless we sort of take the fact that customers ask as it's right now. There was lumpiness earlier on that was with the pent up demand from the pandemic days. Those orders have come in. And, we are delivering some ends of that one now in the services. And then, there is like we discussed earlier on the call, there is some seasonality in this activity always; two seasons or may be four seasons as we see in this activity. There is the vacation time of southern hemisphere and vacation time of the northern hemisphere because customers tend to time these shutdowns that normally require the delivery and assembly of these things. So, some seasonality in there, but I think we are seeing normalizing level of that activity. We have also -- which we have not discussed earlier today in the call, we have also taken a critical view on some of the service activities that we do. And we have discontinued services that are not fulfilling our profitability criteria. So, that activity is there. But I don't think it's visible so much in the top line -- top line numbers maybe and bottom line margin more so.
Klas Bergelind
Okay, perfect. My quick final one is on the U.S. aggregates outlook, everything, but here out of the U.S. on the construction infra side, not commercial and [pure SC] (ph) is still quite solid. So, are you taking into account into seasonality here, or are you actually seeing weakness on infra U.S.?
Pekka Vauramo
Not really weakness on infra. This is more about how fleets are being deployed at this moment. The rental fleets are -- I mean our dealers don't have rental units currently available. They are all busy working, but these rental units they end up very often being bought by customers. But now, this activity is not happening for some reason. And therefore, customers -- the dealers are not replenishing their new equipment because the rental fleet is not sort of moving to customers' ownership.
Klas Bergelind
Okay. Okay, thank you.
Pekka Vauramo
All right. Ladies and gentlemen, we are couple of minutes past the hour, and we need to stop here discussion about our second quarter results. We thank you for listening. We thank you for participating asking question. Q3 will be reported on October 27th. And, we look forward to seeing you soon. And, enjoy your summer. Thank you. Bye-bye.
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Metso Oyj (OUKPF) Q2 2023 Earnings Call Transcript