Metso Outotec Corp

OTC:OUKPY

Earnings Call Analysis

Metso's Q3 2023 Earnings: Stability and Growth

In Q3 2023, Metso experienced stable mining activities with softness in Aggregates. Sales remained consistent, but margins improved from the previous year, with the adjusted EBITA margin at 16.1%. The company raised its financial target, aiming to exceed a 17% EBITA margin over the cycle. However, currency impacts caused a 10% decline in orders received. The Aggregates segment saw a significant reduction in orders, down 30% on equipment and 9% on services, yet enjoyed an improved adjusted EBITA margin of 17.3%. The Minerals segment had stable sales, exceeding EUR 1 billion, with services growing by 5%. Net financial expenses increased, but operating profit showed a significant year-on-year improvement, and net debt decreased to EUR 815 million, improving the gearing ratio to 32.6%.

Introduction to Metso's Q3 2023 Earnings Call

Juha from Metso's Investor Relations team welcomed participants to the company's third-quarter 2023 earnings conference call. CEO Pekka Vauramo and CFO Eeva Sipilä presented the company's financial results.

Financial Performance Overview

The quarter saw a stable mining sector, a soft aggregates market, and flat sales growth. However, Metso managed to improve the adjusted EBITA margin to 16.1%, a year-over-year increase from 15.5%. Despite currency headwinds with a negative 4% impact, the company's orders fell by 10%, but sales remained stable with a 1% increase. The adjusted EBITA stood at EUR 213 million, marking a 5% improvement compared to the previous year.

Operational Segment Analysis

In the Aggregates segment, there was a noticeable 30% decrease in equipment orders and a 9% drop in service orders. European markets continued to show weakness, while North America experienced further softening. However, improvements were noted in India and China, particularly in 'Super quarries'. Despite the challenging environment, Aggregates' adjusted EBITA margin increased to 17.3%. Similarly, the Minerals segment saw stable market conditions with high proposal activity but slowed order conversion due to economic uncertainties. Nevertheless, Minerals' sales exceeded last year's numbers, with a 60% service share and an improved adjusted EBITA margin of 17.2%.

Comprehensive Financials and Outlook

Eeva Sipilä, the CFO, highlighted the one-off items affecting the adjusted EBITA and an improved operating profit year-to-date, even after excluding a significant charge from the previous year's wind-down activities in Russia. A tax rate of 26% was projected for the full year, aligning with expectations. There was an increase in operational cash flow due to better management of net working capital and profitability, although net working capital remained higher than desired at 14%. The balance sheet saw an increase in total assets and a decrease in net debt, with gearing down to 32.6% and debt-to-capital just below 30%.

Strategic Shifts and Sustainability Goals

CEO Pekka Vauramo announced the upgradation of the adjusted EBITA target to 17%, reflecting the company's achievement in exceeding its previous goal over a 12-month rolling period. Dividend policy and investment-grade rating remains unchanged, emphasizing commitment to sustainability goals supporting a maximum global warming target of 1.5 degrees by 2030. Sales of planet-positive products grew by 34% reaching EUR 1.5 billion. Notably, half of Metso's current test work is focused on battery minerals, indicating a strong potential for growth in this segment.

Emphasis on Innovation and ESG Commitments

Metso's dedication to ESG initiatives is evident in its increased delivery of planet-positive products, engagement with suppliers on science-based targets, and significant reduction of emissions in operations—working towards a net-zero goal by 2030.

Order Backlog and Capital Management

Despite the realization of two significant orders during the quarter, the company's capital management remained disciplined. Revenue backlog translated into cash with more control, but management is striving for a more robust cash-conversion to support targets. The capital turnover at the end of the quarter was just above 12%.

Earnings Call Transcript 2023-Q3

[Juha Rouhiainen, executive]

Good afternoon, good morning, everyone. This is Juha from Metso's Investor Relations, and I want to welcome you all to this conference call, where we discuss our third quarter 2023 results, which were published earlier this morning.As always, we will start with a short presentation by our President and CEO, Pekka Vauramo; and CFO, Eeva Sipila. And after that, we'll be taking questions. And since it's a busy day for all of us, we try and limit this call to 60 minutes. And please help us out by only asking 2 questions, max each.With these words, I'll be handing over to Pekka to start the presentation. Please go ahead.

[Pekka Vauramo, executive]

Thanks. Thanks, Juha, and welcome to this call. A few comments about the quarter itself, we saw stable activity in mining and as we communicated, soft in the Aggregates. The sales development as such was flat over the quarter, but the margins were holding reasonably well, and we continue to improve from third quarter last year and the adjusted EBITA margin was 16.1%. We also upgraded the financial target to the adjusted EBITA target to 17% or, in fact, exceeding 17% over the cycle.Then when we look at the numbers, numbers, I mean, both top line orders and sales, we have a minor -- minor currency -- negative currency impact on them, about 4%, as you see in the tables attached with the report. But nevertheless, orders received declined with actual currencies, minus 10% sales being flat or 1% growth.Adjusted EBITA came to EUR 213 million, which is EUR 11 million above last year and 5% improvement from last year and 16.1% versus 15.5% in terms of the margin. And Eeva will soon go through the numbers below that one more in detail.When we look at our segments, Aggregates orders came down to EUR 269 million, so quite a drop from a year before, altogether in terms of equipment, 30% decline and while services declined 9%. So mix improved to some extent here. And Europe continued to be softened, and we saw further softness in North America. And we also need to remember that, there's seasonality here, which is right at this moment the highest throughout the year, this time of the year.Also worthwhile to note that, we see some improvement both in India and in China. In China, particularly the Super quarries. Super quarries continue to be active, and we are getting nice orders -- orders from that segment. Sales came down by about EUR 50-something million to EUR 308 million, and this was because of lower backlog and was quite expected. Services share improved slightly because of a smaller decline in services side.Good execution, adjusted EBITA EUR 53 million compared with the previous with much higher volume, EUR 57 million, and margin performance 17.3% versus 15.7%. And good execution with much lower volumes is the conclusion out of Aggregates performance in a quarter.Then on Mineral side, we saw orders decline, though the market was stable, and we have very high proposal activity, but the proposals are not converting at the pace we would like them to see converting into orders, and it's obvious reasons for that one. It's the funding, interest rates, and other uncertainties that we have, again, around us affecting the decision making.Services continues to hold better, in particular modifications and upgrades that activities back in that area. We see some decline in consumable side, but altogether services holding better than the equipment side.Sales altogether exceeded 11% last year, exceeding slightly EUR 1 billion. Services 5% growth and minor decline in the mixed services share being 60% from the last year's third quarter.Adjusted EBITA margin, we saw an increase to 17.2% versus 16.8%, and EUR 174 million was the adjusted EBITA for Minerals segment. And that is mainly from the deliveries and higher margin, gross margin as such. But these are the quarters in short, and Eeva, if you open-up the financials more in detail.

[Eeva Sipilä, executive]

Thank you, Pekka, and good morning, good afternoon to everyone on my behalf as well. Indeed, continuing on what Arsi already mentioned, maybe a comment regarding adjusted EBITA on the group items. So whilst the sort of operative run rate in that row should be some EUR 5 million to EUR 10 million costs in a quarter, we this year have indeed had some one-off related items. So now in this quarter, we were at EUR 15 million, and that's obviously visible in the numbers.Then regarding the year-to-date operating profit comparison, I would like to remind everyone that '22 figure of EUR 306 million includes the EUR 150 million charge to wind down our business in Russia. Nevertheless, even excluding that, our operating profit exceeding EUR 600 million year-to-date, this year is a significant improvement.Net financial expenses continue a few million up sequentially at EUR 23 million. Our effective tax rate for the 9 months rounded up to 26%. As such, at the level we would expect for the full year as well in this sort of '25, '26 bracket.Our earnings per share for continuing operations were EUR 0.14 for the third quarter, and year-to-date we are at EUR 0.49. Following the move of the 2 previous metals businesses into discontinued operations, we now have a slightly positive result there leading to earnings per share including discontinued operations to be EUR 0.1 higher, i.e. EUR 0.15 cents for the quarter.Then moving on to our balance sheet, total assets are up some EUR 50 million from the end of June and roughly EUR 200 million from the beginning of the year. From June, so sequentially, we did see a further small decrease in intangibles combined with some further increase in plant and equipment following ongoing CapEx projects. But otherwise, the changes are in working capital items and liquid funds, and I'll say a few words on them in the next slides. But before that, just noting that the net debt at the end of September stood at EUR 815 million, and also turning down as expected.And indeed, looking at cash flow from operations, it did improve in the third quarter both sequentially as well as year-over-year, amounting to EUR 161 million. The improvement now comes from clearly less cash being tied in net working capital and hence our profitability becoming more visible, whilst we didn't quite get to our target of net working capital to turn into a release. We did turn the tide as expected.The next slide provides a bit more detail on our working capital items. So at the end of September, net working capital was EUR 926 million. At the start of the year, it was some EUR 600 million, while at the end of June, it was on a rather similar level at slightly below EUR 900 million then, and lower than the September number only due to higher payables deducting on the total.Now, this rather flat sequential development obviously supported the quarterly cash flow as you saw from the previous slide. However, with the sales growth slowing down, the percentage calculated over 12-month quarterly averages rose to 14%, which is clearly on the high side. And we do expect this to come down.The right-hand chart shows the items in absolute euros, and there compared to end of June, we are down on all items. This comparison to the beginning of the year still shows a growth in inventories. But we will continue working to improve our cash flow generation by releasing capital tied in working capital as discussed previously. And the market environment will expect to enable us to continue on that path.Moving then to my final slide, just a few points on our financial position, very little change from our last quarterly call. We did agree on an extension of 1 year on an existing term loan with one of our banks to improve our maturity structure. Otherwise, really no changes, our committed facilities are ample.And then looking at the table, liquid funds are stable compared to the previous quarter while the net debt is down, which then brings our gearing at the end of September down to 32.6% and debt to capital to just below 30%.And with that, handing back over to you, Pekka.

[Pekka Vauramo, executive]

Okay. Thank you. Thank you, Eeva. Yes, we upgraded the financial target, as I already said, to 17%. And the upgrade is based on the other hand to the fact that over the rolling 12-month period, we have exceeded the previous target, 15%. And we feel that, there is room for further improvement of the margin. With the divestments progressing, we will have a very focused portfolio having 2 segments, Aggregates and Minerals, going forward, 2 segments that are very synergistic and the business model in both segments, which is more de-risked comparing with the previous full portfolio that we had in Metso.Further growth opportunities in service, which we are tackling both through organic and inorganic growth. And then the third thing, we continuously see opportunities for further performance improvements. And also when looking back, I mean, by no means we had perfect execution in any of the preceding quarters quarter. So we see further potential there. There now through the focused portfolio, plus also sort of a more cautious view on projects than what we have had in the past.The other targets that we have remain unchanged, i.e. the dividend policy remains the same. Our aim is to maintain investment-grade rating and then on sustainability, which they committed to our action plan to support the 1.5 degree max global warming target by 2030. So those are the targets, new targets. We are going forward and we feel that the potential out there is, and that's why the upgrade was made.On ESG side, in the third quarter, we continue to deliver planet-positive products increasingly to our customers. The sales grew by 34%. This is the rolling 12-month period and reached EUR 1.5 billion in that period. And you can see that the growth has been fairly steady over the previous quarters. And we feel that there is further potential to grow in that one. And naturally, all our R&D and new product development goes in practice to developing new planet-positive offerings.We work also with our suppliers. We have committed to sort of increase engagement with the science-based targets with our suppliers. And currently, we have 24% of our supplier spend committed to science-based targets. And we continue to grow that rate as we move on.We also do a very good work in cutting the emissions in our own operations. And the baseline year comparison is minus 65% now as we speak. And we are on track to meet the 2030 net zero goal. It's noteworthy also that the battery metals, Minerals are really playing a major role now in our test work, which is some sort of proxy of what do we have ahead of us. Ahead of us, we are really busy. Busy about half of our test work currently goes into battery -- battery minerals. And then if we add another metal relevant for electrification, copper, onto that one that covers almost all of the test work, then what we do in our labs at this moment.And we also feel that employee engagement is important for our business and success of our business. And we are at all time high in our survey, which we repeat quarterly basis, quarterly basis and we are with our benchmark group, international benchmark group, within the top 5% of the companies in terms of the employee engagement. Then the market outlook, we expect market activity to remain at the current level in both Minerals and Aggregates.And with these ones, we can move on to the Q&A.

[Operator]

[Operator Instructions] The next question comes from Klas Bergelind from Citi.

[Klas Bergelind, analyst]

Pekka and Eeva, so my first one is on aggregates. You're not changing your guide further down. And it's a 6-month guide, and it was a big sharp drop in equipment orders. And so should we read this as when you go through the year, Pekka, and you think about North America, infra stimulus, you talked a bit about India there in terms of structural growth. Does it mean that this is implicitly saying against 6-months behind us being weak, are we bottoming and maybe improving 6-months out, according to you, on the aggregate side? I'll start there.

[Pekka Vauramo, executive]

Yes. As I said, we are seasonally at the low point right now. And we're still expecting the season to be next spring, which means that we should see ordering activity increasing towards end of fourth quarter and specifically in early first quarter. So before that, we really cannot say which way we're going. But at this moment, we see that the season will be there next spring. And that would mean that at least seasonally, we are bottoming ground now.

[Klas Bergelind, analyst]

That's good to hear. Then on the margin in aggregates, solid given the sales decline. And obviously, you have the temporary workforce reduction. You have moved the business from supplying a lot of or delivering a lot of solution to more product. You've sort of streamlined this business. McCloskey have been a good integration. So let's say that sales next year, when we just push through the current order weakness, maybe falls at least 10%, which looks to be the case now. Like, how should we think about the trough margin versus history? This is a business that typically trough that low double-digit. Is it more of a mid-teens margin we should think of, Pekka, as we look into 2024?

[Pekka Vauramo, executive]

Yes. We, of course, have many actions in place. And further actions will be initiated in order to protect the margins. And as such, I mean, we don't guide the margins, as you know well, Klas. And I don't want to get into that part now either. But for sure, I mean, we need volume in order to keep the margins improving. And current order intake is not supporting that one. So that's where I would like to leave it.

[Operator]

The next question comes from Max from Morgan Stanley.

[Max Yates, analyst]

I just wanted to ask about the new margin target of above 17%. I think when you had the 15% target, you sort of quite helpfully gave us how you were thinking about the individual divisions. I think it was kind of around 20% for minerals, mid-teens for Aggregates. Could you just sort of help us understand a little bit how you're thinking about those divisions? And I guess, maybe as an extension to that, this is a sort of above 17% through cycle margin target. So I guess, this isn't you saying this is kind of where we think the peak is. This is just across the cycle. So maybe if you could just clarify sort of some of those points that would be helpful.

[Eeva Sipilä, executive]

Sure, Max. So indeed, we haven't really changed our view on the Minerals potential. So that towards 20% direction is still, we think, a very good indication. And hence, we didn't indeed specifically note on it. I think also referring to what Pekka just mentioned on Aggregates. So indeed, we have a -- we believe structurally made a step change in that business. And whilst currently, obviously, it's challenged by lower volumes, we think the sort of potential is clearly in the teens areas as well.And then the sort of combination of these 2 will result in that group target of 17% over the cycle. And quite rightly so, this is not the sort of peak margin. This is as guidance for you on our ambition to sort of further move the business. Despite the sort of short-term challenges we see in the external market environment, we do fundamentally believe that this business over the cycle can deliver better margins. And hence, that's how the board's thinking behind the target setting.

[Max Yates, analyst]

Okay. I realize I've only got one more question. So I'll stick to cash. Could you, when we look at that working capital chart that you showed of sort of working capital to sales gone from 9% at the end of last year up to about 14%, I mean, could you help us with kind of how you think about that evolving kind of by the end of 2024? Where could realistically that number come down to based on the actions you're taking? It looks like you've had some sort of early progress, but that would really be helpful to understand kind of at least roughly how to frame working capital in next year's cash assumptions.

[Eeva Sipilä, executive]

Sure. So I think the sort of more sort of correct level for us would be sort of 10%, 11%, something in that region. I think the 9% is a tough mark perhaps, but clearly this is on the high side. What we've seen, not necessarily fully surprisingly, as we've started to address working capital and reduce buffer stocks, the first impact you see is actually in payables. And of course, on the calculation of that working capital, it is actually negative when the minus gets smaller. But that's kind of where it comes through into sort of before it then impacts inventories. I think we've done excellent work on the collection, despite sort of having strong growth in the earlier quarters on sales. And now the focus really on inventory payables direction will help, obviously, we're seeing less inflationary pressure. So things coming in are also supporting on that.So, of course, your question on '24 would require sort of crystal ball on inflation and many other things that I think there's different views out there still, but definitely sort of our activities on the inventory side continue. And then it will depend a bit on also on the sort of growth projections in '24, where the absolute numbers end. But again, if we get sales growth, obviously then the sort of percentage is helped as well. So that's maybe what I can help you with, Max, today.

[Operator]

The next question comes from Antti Kansanen from SEB.

[Antti Kansanen, analyst]

It's Antti from SEB. 2 questions for me as well. I'll start with Minerals and a question on pricing, because I guess, we saw some negative impacts on the consumable side and perhaps in some equipment as well from past through costs or kind of metal prices. So, did you see growth on volume terms in consumables? And also, is this kind of pressuring also the businesses that you have more dynamic prices in the sense that if we look forward, will pricing be a headwind for your orders in totality?

[Pekka Vauramo, executive]

Yes, consumables, yes, we have introduced, as we have earlier told that we have introduced indexes. And of course, we see these indexes going up and down as the inputs do change. And we are seeing some of that one happening now. But the indexes are there to protect our margin mostly. So yes, a headwind in terms of pricing, but should protect our margins at the same time. But other than that, I mean, I don't see yet any pricing pressure or impact in our Minerals business at this moment.

[Antti Kansanen, analyst]

And did the demand for consumables grow on volume terms? Was the negative growth only by pricing?

[Pekka Vauramo, executive]

They did not grow. They, in fact, declined.

[Antti Kansanen, analyst]

Okay. Good. And then the second question was more on the aggregate side and the U.S. business. And I guess this has been a distributor-driven market. So now that we move into late Q4, early Q1 for the summer season ordering, how do you see the inventory levels among the dealers? Is it a clean slate after the week second half? Or is there kind of a threat that even if it's an active market, the ordering might be a bit compromised because of inventory levels?

[Pekka Vauramo, executive]

Yes, the inventories are still high, maybe marginally down, if one takes a really positive view on that one, but still on high level. That includes also the rental fleet, which is fully in use, I would say, and rental fleet, which is owned by the dealer. So we are expecting this rental fleet starting to convert to owned machines. And should that happen, then it would also then initiate more active ordering at the same time. But let's say, I mean, it's always difficult to say what's going to happen in today's world.

[Operator]

The next question comes from Christian Hinderaker from Goldman Sachs.

[Christian Hinderaker, analyst]

Yes, Pekka, Eva, Juha. My first is on Aggregates and just coming back on the revised outlook and some of the comments, I guess, around inventory levels. I just want to understand, because at the second quarter, you talked about a slower pace of rental fleet conversion purchasing as a result of high cost of capital and financing costs, which I think you've mentioned continue to be high and a sort of headwind to growth more broadly in the statements. I just want to understand what gives you then confidence that early next year that that can change, as I think you've just commented to in terms of fleet conversion and the sale of used equipment?

[Eeva Sipilä, executive]

Yes, Christian, I think the main thinking for us is really the underlying activity, construction activity on the infrastructure side continues active, and we haven't really seen the end customer activity slow. And I think projections for 2024 are also reasonably positive. So as that then sort of rental fleet gets older and less efficient, there tends to be a natural interest then to move that forward and then buy new ones in. But of course, at this point, like Pekka mentioned, is based on assumptions as the season really starts warming up then sort of in November, early December to sort of be there then for the next building season. But that's, as I said, the sort of underlying sort of dynamics would support a more positive view.

[Christian Hinderaker, analyst]

Maybe just my second question then. Interested to understand, I think the guidance on central costs was around EUR 5 million to EUR 10 million at the last quarter, and I think we came out at EUR 15 million. I just wonder what dynamics were at play there?

[Eeva Sipilä, executive]

Yes, indeed, we sort of had some fortunate one-offs, the type of things that we weren't able to fully properly predict that sort of EUR 5 million to EUR 10 million is still a good proxy for the sort of underlying operative level that items that we see repeating from quarter to a quarter and then items sort of falling on top of that then obviously kind of raise the bar. I would still continue to be a bit more positive going forward, but obviously -- we've sort of year has been a challenging one.

[Operator]

The next question comes from Andrew Wilson from JPMorgan.

[Andrew Wilson, analyst]

I think they're on the same subject, so maybe we'll ask them together. Just the commentary around, I guess, slower customer decision-making on the vendor side. Can I just ask, is that all types of customers or is it specifically either the makers or the juniors? Do you think this relates to financing challenges or is it just broad uncertainty? I appreciate that that might be quite a varied answer.I guess, secondly, on the same subject, what, if anything, you've seen changing in terms of the pricing environment around some of those projects? Are they sufficiently well advanced that there isn't really a pricing discussion or there isn't really a tender discussion at this stage? And also in terms of where we think about if they are sufficiently advanced, does that lock you in on the previous increased prices or do you see customers come back and try to improve yet? That would be really helpful.

[Pekka Vauramo, executive]

I would say that, yes, financing is an issue and more so for the juniors. While, I mean, the recent discussions, discussions and communications with the major ones, they are fairly confident that they will increase their CapEx spending in '24. So quite an opposite view from sort of major mining companies comparing with the juniors.Then with regards to discussions, quite many feasibility studies are being redone at this moment. So that's something that we see. And that's also very often these feasibilities are run by EPCM companies and our communication with them confirms this fact. Many sort of projects are being sort of re-scoped. Some people are looking at different kind of execution of the project. Some higher capacity, some lower capacity or various options are being studied. I think that's the name of the game rather than sort of pricing discussion.

[Operator]

The next question comes from Mikael Doepel from Nordea.

[Mikael Doepel, analyst]

Firstly on Minerals, when I look at your order intake in Q3 and compared to Q2 for the new equipment business, I can see that it's actually done sequentially. Even though I think you actually didn't have any big orders booked in Q2, but you did have in Q3. So the underlying business of smaller to mid-sized projects seems to have clearly become smaller. So I'm just wondering, have you seen any change in the market there overall? Has this kind of hesitation become more broad-based and spreading to the smaller projects as well? Or how do you see that market currently?

[Pekka Vauramo, executive]

Well, of course, there is softness in the market. And even though 2 bigger ones came through during the quarter, but I think we were also commenting earlier in the second quarter that the small activity around small orders was on all-time high level. High level sometimes spring earlier this year. So maybe this is more of a return of those small orders to normal level.Then on the other hand, we do see increasing activity in our services side, in modifications and upgrades. And sometimes it's a very fine line whether this is a new equipment order or whether it's a modification as such. And we sort of account it as a modification if it requires engineering changes in the existing process and related modifications on the standard equipment that we deliver, plus work then relating to overseeing the assembly.

[Mikael Doepel, analyst]

Right, right. So you wouldn't say that you have seen any kind of increased levels of cancellations or anything like that? The pipeline still looks good overall.

[Pekka Vauramo, executive]

We really don't see cancellations happening.

[Mikael Doepel, analyst]

Then secondly, coming back to the question about cash flow and working capital. So maybe a question to Eeva. So just wondering into Q4, what is your base assumption there? I mean, you have tied up still quite a lot of cash. Would you expect to be able to release something already in Q4 of this year, or shouldn't we expect that to happen yet, but rather than into perhaps next year?

[Eeva Sipilä, executive]

Yes, well, I would say that, and I commented earlier, they were kind of targeting so not to have further capital tied in the business. Then we were perhaps sort of a bit lower in sales and -- i.e. deliveries than planned. And that's sort of, obviously, then if it doesn't go out, it stays in inventory. Then you could, of course, argue it would have moved to AR, but that was really a bit of sort of the area where we need to work. And as such, the actions are in place. And I think the focus really for on our side is on moving -- is sort of moving the backlog, moving things from inventory in -- through sales out. And certainly, we hope to have somewhat better deliveries, because the order backlog we have in the business. And then that would enable us to sort of further improve on the cash flow. That's the sort of focus now for Q4.

[Operator]

The next question comes from Tomi Railo from DNB.

[Tomi Railo, analyst]

It's Tomi from DNB. I would appreciate if you could share some, say, high-level thoughts into '24. We have seen order intake coming down now a couple of quarters, including services. Order backlog is down year-on-year. How do you feel going into next year? And is there a possible need for capacity adjustments?

[Pekka Vauramo, executive]

Yes, of course, there is a lot of uncertainty out there and very much confirms the recent events. Events in the global scene, that world is going from crisis to another, and in between there's great uncertainty. And this seems to be repeating itself.The same pattern and forecasting is difficult.But we, of course, internally, we see the high proposals activity. We see high activity of the test work that we do in our labs. We do hear majors increasing capital expenditure in next year. Juniors, that activity is currently down. But these are the sort of factors that we see right now ahead of us. And of course, when it gets closer to the end of the year, we'll start to see some and have some more visibility that how firm these things are and what shape the world is at that moment.But certainly, I mean, it will take into next year before we would see improvement of the situation. I think that's overall fair to say at this moment. And then how strongly it then happens, or if it happens at all, then remains to be seen.

[Eeva Sipilä, executive]

Hey, Tomi, we are more positive on the order intake based on really on what we see in the pipeline. But of course, for your modeling, it's good to appreciate that now we've had 2 quarters of somewhat lower orders. So that does, of course, impact next year's sales. And that may be good to take into account. And then we'll see how, as I said, sort of what we come out with in Q4 and how sort of short-lived that is. But of course, orders next year will not help sort of first half sales in the same way as you can appreciate that orders that would have come now.

[Operator]

The next question comes from Vlad Sergievsky from Barclays.

[Vladimir Sergievsky, analyst]

Can I start with double checking with you on 2 numbers? First of all, in the P&L, other operating expense line was quite negative EUR 29 million. Presumably put pressure on your margin. What was behind that line?And second would be on cash flow statement, and other item line, which was like negative EUR 47 million. And that's probably put quite a bit of pressure on your cash conversion in the quarter. And again, trying to understand what's behind that line as well.

[Eeva Sipilä, executive]

All right. Well, let me just pick the numbers you're looking at. So I can see sort of the -- I think the sort of, the other operating income, of course, is a combo in a way that what doesn't go and enters a sales and marketing admin or R&D ends up in other. So it's by nature a bit of a lumpy item. We're actually sort of down on that year-over-year. So I don't see it as a sort of adding pressure per se. It was a few millions up in versus the third quarter last year. But year-to-date, it's actually significantly below. So I wouldn't perhaps read too much into that.And then your other number was on the cash flow EUR 47 million. The other items indeed on -- and it comes to the sort of what relates and under what we have under adjustments. And these are basically then items when we start from the profit row that we sort of deduct or add back into way to get to sort of the operative result there.I can check if there was anything special lag on that. But again, these -- unfortunately,these others tend to be the sort of what doesn't ideally fit in what is outlined specifically, then they end up in other, and it's then a mixed bag.

[Vladimir Sergievsky, analyst]

And very quick one on your service orders. Obviously, you're reporting down 6% year-over-year in minerals versus a very high level last year. What happened to average prices year-over-year on service, if we can come up with an average price? Was it flat? Was it still up? Trying to understand what happened to service volumes again, if we can try to kind of pinpoint that?

[Eeva Sipilä, executive]

Yes, I think partly it depends a bit on what part of the service. There was areas of service where volumes continued to grow. Then we had areas where volumes were down. And Pekka mentioned earlier in the call that in the consumables area, we did see some destocking activity from customers on be it aggregates or minerals. And then, of course, we had a sort of impact on -- negative impact from volume. Very hard to give an average price on from sort of -- for everything we do. Overall, I think sort of pricing has held quite well apart from the areas where, again, as mentioned earlier in the call, where there's clear indexes tied to certain raw materials.And as you well know, the prices of steel and steel scrap, for instance, have been coming down, which, of course, I think is inherently good. But it affects the top line, not as such the margin.

[Operator]

The next question comes from Elliott Robinson from Bank of America.

[Elliott Robinson, analyst]

First question for me is quite quick. So the EUR 150 million charge taken from Russia in Q2 last year, you still got EUR 64 million of that left. We had a similar amount in Q2. How should we think about the utilization of that going forward? Or is there a chance that you're going to have to reassess that charge at one point? And then I'll come back with the second one.

[Eeva Sipilä, executive]

Yes, it's certainly something we have evaluated. But due to the uncertainty with the -- before we sort of have legally sort of firm settlement agreements in place for all deals, obviously, we prefer to keep the provision untouched. But as time evolves, those things will obviously mature and move forward. And then -- so in every quarter, we do need to take a look on that. And certainly at the year end also together with our auditors. So that will be reassessed.But it's obviously a flux situation. And it's somewhat difficult to exactly predict the sort of outcome. And hence, we prefer to sort of keep it intact until we sort of have real concrete evidence that things will move forward. There are certain settlements are also tied to activities that will only evolve over time. That was we have exited. We have to sort of wait what -- how the customer operations evolve.

[Elliott Robinson, analyst]

Okay. And then the other bit would just be on the pipeline of large orders, although, I appreciate it's kind of been touched on a little bit. Do you expect to see a sort of catch-up effect on these orders where you've seen slow decision making? Or do you think there needs to be a catalyst for that to be this catch-up in large orders? And is it the case where you think this is going to be all pushed out to the right? Or yes, I mean, certainly, will we see a catch up?

[Pekka Vauramo, executive]

Yes. The big orders make this -- make our order intake always lumpy. And these lumps, they tend to come not evenly. That's why it is lumpy, I think.But the most difficult thing really is to forecast timing of them. We know that certain things will move ahead at one point, but always difficult to say when that happens.I believe same will happen as before, that then everyone wants to go ahead at the same time at one point with these bigger ones. But that's all I can say at this moment. They haven't disappeared anywhere.

[Elliott Robinson, analyst]

Okay. So that's -- so do you expect that catch up to be around the time where you see interest rates coming down? Do you reckon that's going to be a factor? Or do you think it will just be the fact that a lot of miners will just decide to get a move on?

[Pekka Vauramo, executive]

Well, of course, I do hope that they would move on. We all know that the world needs more metals, and this is the sort of positive driver that we do have. But the financial frame and uncertainty in the world is so great at this moment that interest rates stabilizing or starting to go down would definitely help making these decisions.I mean, mining as such, I mean, it's a cash flow wise starting a new mine. It's a very, very heavy exercise. And interest rates is adding always to the difficulties.

[Operator]

The next question comes from Tomas Skogman from Carnegie.

[Tomas Skogman, analyst]

I'd like to zoom in on your consumables business, as I remember that it has historically been quite cyclical, especially at times when input costs like steel prices come down. What do you see at the moment? Have you already seen a down cycle in consumables? Or should we kind of factor in a sharp decline in consumables orders the next 2 quarters?

[Pekka Vauramo, executive]

Yes. I think consumables -- consumers will continue to buy consumables as long as they continue producing it. And there's very few mine shutdowns. In fact, only one major one that I'm aware of at this moment. So the consumption will be there. And I'm quite sure that we continue to be competitive and serve customers well in future as well.So I don't see a decline coming unless there is a dramatic drop in metal prices. Prices -- some of the metal prices have come down recently, but it's not a dramatic drop. As such, I think operating mines mostly continue still very profitable at this level.

[Tomas Skogman, analyst]

My second question is on your new margin target. You're climbing the quality ladder and profitability has improved a lot. But given that you have come up from like a level of an 11% EBITA margin in 2020, I think there are still investors and analysts that are scared that in a really weak scenario, the margin level could come down a lot. But in your view, given the big changes to the company and the divestment, what could be like in a really negative scenario, like a margin level that you would feel comfortable that you would always reach?

[Pekka Vauramo, executive]

Yes, that is a good question. But I mean, if I just -- and I don't give you a definite answer to that one. But if you think about the past with a lot of EPC projects being executed, and when a downturn hits, what companies with projects and project profile at the downturn, what do they report on their actuals on running rate basis? It's in fact projects that are delayed or projects that do have difficulties.And then, of course, the financial numbers during that period, when everything else is down, they are very sad to read and sad history as such. And by derisking our business model, what we have now done, yes, some legacies left, but we will deal with them very soon now. Now the last pieces, so we don't foresee that kind of situation at all for us right now with the current 2 segments that we understand well, and we understand well what's in the order books now. So I would leave it there. We are different now, so also the future should be different for us in that regard.

[Operator]

The next question comes from Antti Kansanen from SEB.

[Antti Kansanen, analyst]

It's kind of regarding how do you see the aggregates profitability and the financial targets, because if we take kind of a more normalized group costs, I think about the 20% would be reachable on mineral side. It doesn't kind of lead much upside to aggregates, if any. And now if you look at your Q3 numbers, you defended your margins quite well. There's quite sales profiting. So how should we think about where we are now in the cycle regarding aggregates margins? And what's kind of a realistic in a more muted market development than, let's say, a weaker U.S. market? So could you talk a little bit more about that one?

[Pekka Vauramo, executive]

Yes, of course, we are executing currently the order book, which we still have there. The new order intake, you have seen the numbers, but what they are, we are expecting the seasonality on minimum level, the seasonality to boost the order intake. But of course, we need to see European market to come back in order to continue improving the margin. And should that not happen, I mean, then of course, we see some erosion of the margin. But there as well, I mean, we are quite a different structurally in our aggregates business, what we used to be.We used to serve more of a one segment of customers, more of the high-end customers. Now we have offering more widely spread to different segments of the market. We have different types of order of offerings in place and our sort of coverage of the market with multiple distribution channels is different.And we've been able to do it without too heavy additional costs in the aggregate side. So I think we should see much better performance in aggregates as well, even during the low during this sort of a downturn going forward. We are more recession proof there as well.

[Antti Kansanen, analyst]

Okay. And then a second more short-term question. I mean, on the mineral seasonality, we've seen a couple of Q4s where you have got the nail kind of a suddenly a lot of this equipment deals booked and there's been kind of a peak in order intakes. Are these kind of like one-offs? Or do you think that there's a certain seasonality that clients get a bit more active on the last weeks of the year?And then on the other hand, on the services side, we saw an extremely active Q1 this year. So is there some type of early year seasonality, if you could remind us?

[Pekka Vauramo, executive]

Yes. I don't believe in year-end seasonality on bigger orders as such. Of course, year-end can be a deadline for executing something, but I think it's more of a random than anything else.Services side, same way, maybe some of the life cycle contracts that we have, they may have their anniversary in the beginning of the year. So that might be a reason why we could see some boost in the first quarter, but also that one shouldn't be so strong that it would make it stand out too much.

[Juha Rouhiainen, executive]

All right. Thanks everybody for your questions and thanks for being efficient today. This concludes our third quarter results conference call. Next results announcement will only be in February next year. But before that, we're looking forward to meet many of you in person and in particular, have a good weekend when you get there. Thanks and goodbye.