Metso Corp., a major global supplier of process equipment, is relying on three product areas, among them flow control equipment, in a strategic realignment that is aimed at maximizing sales in high-margin businesses.
The objective of the realignment, whose business model and organization become official on Oct. 1, is to drive growth in core markets and strengthen financial performance. Metso's core markets include mining, oil and gas, and aggregates. As part of its new strategy, the company intends to become a leader in flow control products and technologies for the oil and gas and mining industries, and strengthen its position in minerals processing.
Among the executive changes that also become effective on Oct. 1 is the appointment of Perttu Louhiluoto as president of the Flow Control business. Louhiluoto, who joined Metso in 2008 from consultant McKinsey & Co., has served as president of energy and environmental technology since 2011.
Metso, which is based in Vantaa, Finland, and has offices around the world (including a dozen in the United States), maintains a strong position in valves through its GM Series, Jamesbury, Mapag, and Neles product lines that include on/off valves, rotary control valves, and globe valves, as well as ND9000 intelligent valve controllers. Valves are designed with a range of seat, seal, trim, and actuation options for diverse application needs. Many, especially in the Neles line, are engineered for harsh operating conditions - which is an important feature considering that oil and gas and mining will continue to offer opportunities for high-value growth in flow control product lines.
The company backs up its valve supply and parts and support capabilities with more than 30 service centers in key markets such as the North America, Brazil, Finland, Germany, India, China, and South Korea.
Eventually, the business model will be one in which hardware accounts for a sizeable proportion of Metso's net sales, and more than 50 percent of operations will represent services (e.g., new products and parts) and system deliveries that incorporate proprietary technologies.
As a result of its focus on high-value business, the company expects to achieve net sales increases that outperform overall market growth, an EBITA (earnings before interest, taxes, and amortization) margin within three years that exceeds 15 percent (before non-recurring items), and a pre-tax return on capital of at least 30 percent.
These goals seem achievable since flow control equipment, services, and aggregates already account for 80 percent of business.
Metso, moreover, is looking at leaner operations to maximize product margins, improve cost savings, and optimize capital efficiency. This effort will include the development of common global platforms, processes, and sales and support operations.
The company is also evaluating the divestment of some units, notably its Process Automation Systems (PAS) business. PAS is primarily involved in the supply of products and services to the pulp, paper, and power industries, which are not viewed as high-growth or high-value markets.
Metso's flow control valve products include the GM Series globe valve, shown here with a multistage design.
Metso posted net sales of Euros3.8 billion ($5.06 billion) in 2013. In a statement earlier this year, the company predicted that net sales in 2014 would be "somewhat below" 2013, and the EBITA margin would be about 12 percent of net sales.
Nevertheless, executives are optimistic about the future and the impact that the strategic realignment will have on sales and earnings. As President and CEO Matti Kähkönen remarked in a recent statement, the new business model "will translate into higher profitability and better returns..." for the company, while creating "better access to our full-scope services ... delivery ... and process and application know-how" for customers.
In related news, Metso announced on Aug. 11 that it has delivered more than 70 Neles globe valves to the Longyu Coal Project in Shanqiu, Henan Province, China, the country's largest coal gasification plant. The valves, which are for Phase II operations at the site, are equipped with Neles ND9000 intelligent valve controllers and installed in a production line with rated annual capacity of 400,000 tons of acetic acid and 200,000 tons of ethylene glycol.
Perttu Louhiluoto will be the president of Metso's Flow Control business.