Leader in value-adding services - Juha Silvennoinen

© Metso © Metso

The leader in value-adding services

Juha Silvennoinen President, Services business area

© Metso © Metso

1. Services today

2. Services market outlook

3. Services strategic priorities

4. Conclusions

Metso Capital Markets Day 2014: Services by Juha Silvennoinen 2 © Metso

Services today Global capabilities close to

customers

© Metso © Metso

Metso Services business area today

Metso Capital Markets Day 2014: Services by Juha Silvennoinen 4

A leading supplier of value-adding services to improve

productivity and reduce operational cost throughout the total life cycle of customer’s processes

• Cost-per-ton contracts and life-cycle services

• In-depth knowledge of customer technology and processes

• Solid operational ability to optimize the use of customers’ assets

• 36% of Services business area’s net sales

• 35% of Services business area’s net sales

• 29% of Services business

area’s net sales

Performance services Wear solutions Spare parts

Net sales 2013: EUR 1,386 million Personnel ~6,500

2,000 field service engineers working close to the customer operations improving customer productivity on a daily basis.

• Regional and local inventory ensures availability and fast delivery times

• Optimized wear parts throughout plant life cycle • The use of original equipment manufacturer (OEM) parts

assures optimal performance and equipment availability, resulting in a lower production cost per ton.

© Metso © Metso

Serving our customers close to their operations Services business area net sales rolling 10/2013-9/2014


28%

11%

27%

19%

15%

Europe North America South America Asia-Pacific Africa and Middle East

24%

19%

25%

22%

9%

Europe North America South America Asia-Pacific Africa and Middle East

27%

28% 19%

15%

11%

Aggregates Mining/Copper Mining/Iron Mining/Gold Mining/Other

Net sales by customer segment

Net sales by geographic area

Employees by geographic area

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Services orders continues to grow Services business area orders received, rolling 12 months

Metso Capital Markets Day 2014: Services by Juha Silvennoinen 6 With constant currencies

0

200

400

600

800

1,000

1,200

1,400

1,600

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2012 2013 2014

EUR million

• High utilization rates at customer mines create demand for services • Large installed base and strengthened service center network • Proactive sales approach and productization of services

© Metso © Metso Metso Capital Markets Day 2014: Services by Juha Silvennoinen

Services provides stable profitability Services business area net sales and GP-%*,rolling 12 months**

7 * Before non-recurring items ** Fixed currencies

• Leaner operating model

• Manufacturing footprint and sourcing improvements, especially in foundry operations

• Increased share of value-adding services

• Efficient pricing management

0

20

40

60

80

100

120

140

0

200

400

600

800

1 000

1 200

1 400

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q32012 2013 2014

EUR million

Services net sales, rolling 12 months GP -%, Indexed

Services market outlook Market potential is not limiting our

growth

© Metso © Metso 9

37 39

2008 2007

47 44

Latin America

50

2011 2012

38

42

63

2013

54

2016 2015

58

Europe

China

2017 2014

Africa & ME

Rest of APAC

2010

North America

4-6%

2009

36

2018

4%

63

Crushed stone production output value (USD bn)

-3% 7%

18% 10%

-4% 4%

1% 6%

25% 11%

5 % 7 %

Global aggregates production expected to grow ~5 % p.a. driven by emerging markets

2007-12 CAGR

2012-17 CAGR

Source: Construction Intelligence Center, Sep 2014 Metso Capital Markets Day 2014: Services by Juha Silvennoinen

© Metso © Metso 10 Source: Raw Materials Group, March 2014

8,5

2010

8,0

2012 2011

8,2

7,5

2009

7,0

2008

6,6

2007

6,0

2,8

Iron

Copper

Gold

2,4 3,2

2,8 2,9 3,0

3,4

3,0 2,9

2,9

2,9

1,3

2,4

1,6 1,7

8,8

2017 2016

8,7

2015

8,6

2014

8,4

2,4

1,6

5%

1,6

2%

2013

1,2

1,7 1,6

2,5

1,2

1,7

2,7

1,4

3,6 3,7 3,8 3,9 4,0 4,1 4,2

Global ore production by commodity (000 Mt)

5% -1%

7% 2%

3% 2%

Global mining production expected to grow ~2 % p.a. but dynamics are different by commodity

2007-14 CAGR

2014-17 CAGR

3-4%

1%

2%

Grade erosion

Metso Capital Markets Day 2014: Services by Juha Silvennoinen

© Metso © Metso

High or low market – Good services are always in demand


Infrastructure spending Commodity prices

Minerals consumption

New business models and installed base

Demand LOWER than production capacity LOWER capacity utilization

Demand HIGHER than production capacity HIGHER capacity utilization

CAPEX impact Green field projects Brown field projects More exploration Plant modernization

OPEX impact Maximize capacity Delivery Availability Utilization More people

CAPEX impact − No green field − Minimal brown field − Reduced exploration Maintenance capex

OPEX impact Operational efficiency Cost reduction Repair and rebuild Improved planning − Less capital spares

Services strategic priorities

Aiming at aggressive organic growth and improved profitability

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Key principles

Global services approach

Delivered efficiently

Global sourcing

Efficient utilization of global production footprint

World-class availability

Close to customers

Strategic partnership with selected customers

Local sales & technical support for all markets

Local service delivery capabilities

Global offering

Installed base mgmt

Easy-to-sell productized service offerings

Expand offering to meet customers’ process needs

13

Common enablers

People, processes and tools Dedicated service product development

Investments and acquisitions


Value-adding services to improve productivity and reduce operational cost throughout the total life cycle of customer’s processes

© Metso © Metso

Key principles

Global services approach

Delivered efficiently

Global sourcing

Efficient utilization of global production footprint

World-class availability

Close to customers

Strategic partnership with selected customers

Local sales & technical support for all markets

Local service delivery capabilities

Global offering

Installed base mgmt

Easy-to-sell productized service offerings

Expand offering to meet customers’ process needs

14

Common enablers

People, processes and tools Dedicated service product development

Investments and acquisitions


Value-adding services to improve productivity and reduce operational cost throughout the total life cycle of customer’s processes

© Metso © Metso

Peñoles lead-zinc mine in Mexico A life-cycle of improved results


Today Metso supplies all mill linings and spare parts to this site. We also replaced two crushers to improve their production.

We started with mill inspection contracts. Cooperation was later expanded to crushers. Customer was very satisfied very little spare & wear business in the first years

2007

2 years ago we focused on one of their seven sites Process Optimization and Integration project to help improve their operations

2012 2014

We are now in their second

plant and there is potential for 3

more.

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• Detailed analysis of historical plant data to define bottlenecks in the plant • Ore characterisation testing based on samples from blast audits • Development of blast fragmentation and comminution models • Simulations to evaluate performance improvement opportunities


Metso’s PTI Group offers a unique way to offer value-adding services to our customers

100

110

120

130

140

150

160

170

180

190

1000

1200

1400

1600

1800

2000

2200

2400

0.25 kg/m3135 mm

30%65 mm

0.41 kg/m3135 mm

30%65 mm

0.41 kg/m3110 mm

30%65 mm

0.41 kg/m3110 mm

0%65 mm

0.41 kg/m3110 mm

0%75 mm

Ove

rall

P80,

µm

Thro

ughp

ut, t

ph

Medium Coarse OreSPI:125 mins, Axb:33.9, BBMWi:19.3 kWh/t,

ThroughputOverall P80

3.6 % 6.2 % 10.8 % 13.3 %

Powder FactorPrimary Crusher GapPebble Crusher BypassSAG Mill Grates

Case example:

• Potential benefit >13% increase in comminution circuit throughtput

• Further opportunity with more aggressive operational mode

• Additional benefit from optimised control


Targeting increased market share Proactive installed base management

• Use existing installed base information to define “as-is” share of customer’s OPEX spending

• Set customer specific targets for increased share of wallet

• Develop and package service offerings to match more aggressive sales approach

• Define and follow-up KPI’s to support sales growth

17

Installed base data available for sales and services professionals

Knowing customer’s process and current production levels

Targeted service suggestions through understanding customers needs

Increased services sales: sale at every customer visit

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Targeting increased market share Huge untapped potential in installed base

Metso Capital Markets Day 2014: Services by Juha Silvennoinen 18 * Figures 1,000 USD

• Metso has delivered thousands of crushers over the years • Market share of own installed

base ~ 30% •With optimized service packages

Metso can provide increased throughput, improved energy efficiency and guaranteed up-time

39%

15% 7%

30%

1% 8%

Wears Spares Direct manpower Energy Lubrication & hydraulic fluids Straight-line depreciation cost

Example: Annual operating cost estimate for a large mining crusher ~ USD 1 million

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Productized services: Full comminution offering Wear solutions have direct impact to productivity

19

Full comminution offering

Services

• Equipment installation • Maintenance and upgrades • Process optimization

Wear parts • Grinding media • Crusher wears • Metallic mill linings • Rubber/polymet mill linings

Spare parts

• Mill heads and shells • Suspension bearings • Other spare parts

Capital equipment

• Grinding mills • Crushers • Other equipment


• Integrated performance

• Total cost of operation

reduced

• Simpler package, approval

by mid-management

• No price/Kg discussion

• Single point of

responsibility

• Multi-product, integrated

margin

• Simpler procurement

Benefits

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Increasing customer value and share-of-wallet

Performance Services evolution Development journey with our offering, market areas & customers


Services in alpha phase

Services 1.0

Services 2.0

Services 3.0

Optimize customers operations (solution business) • Performance based Life

Cycle Services • Process performance

agreements • Long-term consultancy

services

Optimize equipment total cost of ownership • Preventive maintenance

agreements • Remote support

agreement • Extended warranty

services • Upgrades and

modernizations • On-off consulting

projects • Device management

services

Break-Fix Support • Spares and wear parts

agreements • Repair services • Maintenance services • Software license sales • Service enter or spare

and wear parts distributor

No local presence • Spare and wear parts

on-demand • Agent or no local Metso

presence


Targeting increased market share Easy-to-sell productized service offerings

• Pre-defined inspection programs, upgrade kits, installation work and maintenance programs

• Simplify LCS sales approach with step-by-step training programs, argumentation kits and sales tools backed up by real-life examples

• Launch productized service offerings to sales teams

- Predefined launch schedules in all MA - Specs, sales tools and training programs - Sales ramp-up plans for each sales unit - Follow-up growth success with KPIs

• Engage front-end sales teams in the development work of new productized offerings

• Share best practices between MAs

Bronze bushing inspection • Metso Service engineer inspection of

the HP500 crushers at maintenance interval

• Recommendation to ensure safe and reliable use of the crushers

Bronze package options • Option 1: Eccentric –package • Option 2: Head –package • Option 3: Countershaft –package • Option 4: Socket liner –package

Proposal of comprehensive service including • Part package option • Installation service • Competitive package pricing

21

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Service center expansion close to customers continues • Metso has the industry-leading services

center network with more than 50 service centers globally. • The expansion of the network continues: 5

new service centers inaugurated in 2013-2014 or currently under construction:

- Antofagasta, Chile, 2013 - Arequipa, Peru, 2014 - Cananea, Mexico, 2014 - Arizona, USA, 2015 - Labrador City, Canada, 2015

• Constant evaluation of footprint and local customer needs as the basis for further network expansion.


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Improved availability with less inventories Creating a global virtual inventory


• Improved availability and service capability with increased inventory turns and lower capital cost

• Global distribution center network managed as one entity with full visibility to all local inventories

- Right location and close to customers - Ensured availability for high volume items - Visibility to lower volume items for capital gains,

inventory transfers instead of new purchase orders

• Healthy inventory is an essential element to meet our ROCE targets

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• Intensified focus to commodity management will drive substantial savings • Presently only <20% of external materials sourced from low cost countries


Improved sourcing through global supply base

Savings target for 2014 1.1% of total spend

Achieved so far:

1.0% of total spend

Savings target for 2015: 3.2% of total spend

Savings achieved through: • Global sourcing from lower cost base countries • Significant reduction of single source supplier situations • Stronger interaction between Product lines and Category management

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Continuous improvement of our own global manufacturing base


• Better utilization of lowered cost base in our global foundry footprint

- Fast ramp-up of Quzhou (China) and Ahmedabad (India) 2014 impact > EUR 5 million

- Decision on Tampere foundry in 2015

• Continuous operational improvements in all foundries and rubber plants

- Strong day-to-day operational management - Operational savings in 2014 > EUR 10 million

• Medium to long term development of lower cost internal supply base

- Expansion in China & India

• Long-term development of rubber supply chain

Conclusions

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Conclusions Capital Markets Day 2014


• Metso’s services business in minerals market is a steadily growing EUR ~1.4 billion business

• Strong demand for good services even during low investment cycles

• Customer value creation through performance services and solutions

• Proactive approach to grasp the untapped potential in the installed base

• Strong push for easy-to-sell productized services offerings

• Continuous improvement of cost base through global sourcing and better use of our own global footprint

• Significant improvement in inventory turns

Engineering

Leader in value-adding services - Juha Silvennoinen