Hello, everybody. This is Juha from Metso Outotec's investor relations, and I want to welcome you all to this conference call where we discuss our second quarter 2020 results. Results will be presented by our President and CEO, Pekka Vauramo, and CFO, Eeva Sipilä. After the presentation, we'll be taking your questions. During the presentation, we'll be making forward-looking statements, and this is why we have the disclaimer in the presentation. We also try and wrap up this call in 60 minutes or so. With these introductory words, I'll be handing over to Pek. Please go ahead.
Okay. Thank you, Juha. Welcome to this call. I'll sort of start with the results, then Eeva will go through financials, and I will then finish off with the strategy, sustainability and outlook, followed by Q&A. Going into the second quarter results, really we see strong activity continuing in the mining market. This was the case in second quarter and right now we don't see a change in that regard, going forward as well. Aggregates market, aggregates is more of a local business therefore the markets are also behaving somewhat differently.
While North America is continuing very strong, we see softness in European market which started from the war and now of course all the consequential things including potential recession in Europe. That's why we are a little cautious on aggregates in Europe. Really strong order activity, solid sales growth also during the quarter and then the profitability which continues to improve. We do have a major currency impact on the results. Eeva will open those all together EUR 34 million on group level during the second quarter compared with last year and that of course colors the numbers somewhat.
Sustainability we are taking good steps forward in that one both booking orders for our Planet Positive products and establishing launching new products and technologies to that area. As we announced in last week, we have booked a non-recurring charge now, or provision, for Russian wind down and restructuring costs, and that's now booked in the second quarter results as well. Looking at numbers, orders really strong growth 18% on comparison which was already very strong comparison a year ago as well.
Solid sales growth as well, 28% altogether and Adjusted EBITDA EUR 155 million, 20%, 19% growth in that one as well. This naturally includes now all the currency related things, this 155 million. That takes the margin to EBITDA margin to 12%, and operating profit negative there, of course the impact of the EUR 150 million charge for Russian wind down and restructuring is visible in that figure.
Cash flow as we have communicated earlier, we are ramping up our deliveries at this moment and supply chain naturally requires capital at this moment and therefore the cash flow is not as it has been during the previous 10 or 12 quarters very strong but now we are returning to I would say seasonally typical numbers when the volumes are growing rapidly. Looking at the segments, aggregates delivered a strong segment. Altogether orders remained flat.
We have to remember that a year ago that was a rebound from the COVID lockdowns we saw really record level order bookings in last year and if we put that one against this year's number I would say that this is a very good performance also from orders viewpoint in the aggregates. Strong North America continued strong. We saw equipment orders declining 6% services growing by 17% which is a good result and continuation of positive trend in that regard.
Sales grew nicely to EUR 368 million and this was naturally coming from the backlog more than from the orders and services share now in aggregates altogether 35%. Adjusted EBITDA EUR 48 million, margin of 13.1% and this is also including the negative currency impact. Then another area which where we're not yet through all the adjustments that we need to do because of the inflation consumables that's contributing in a negative way to the margins. Well that's below the average margin levels in sort of aggregates and similar impact there is also in the minerals side.
Work continues there in consumables as well. Minerals, orders very strong growth, equipment orders growing 44%, services growing nearly 30%. Sales growth in equipment side 63%, services growing 14%, and this naturally does have a mixed impact there. Services share now was 59%, while a year ago it was 67%. Adjusted EBITDA EUR 103 million comes to a margin of 12.7%. Here again, a negative currency impact included in this one. And naturally the margin was impacted by the mix in this quarter. After all, it's positive that we can deliver equipment. That's the future potential for services anyways.
Similarly, the sort of low-performing area was really consumables. We have discussed already before many times what the reason behind and what the dynamics behind the consumables is. We're starting to get through all of that, still in this quarter we had that was sort of a low-performing area for us. Metals segment low orders compared with very strong orders last year. We on the other hand have a very strong backlog and pipeline is strong in metals as it is in minerals as well. We are not concerned about the sort of order levels in this quarter.
We really didn't have anything major that we booked any metals during the quarter. The biggest orders were sort of in range of twenty million or so. Sales 117 came from the order book. Mostly services share declining to 12% because of we're really so busy with the equipment side that service doesn't get now full attention as such. Adjusted EBITDA EUR 11 million, margin 9.3%. There's also a minor negative impact from the currencies. But since the EBITDA EUR 11 million is so small, we didn't calculate what the actual there is. But we are tracking very well with the turnaround target that we do have for metals.
In Russia we announced last week, Monday, the EUR 150 million non-recurring charge to cover the wind-down costs and restructuring of Russian organization. That restructuring is ongoing as we speak. We will complete it during this year, the rest of it as we wind down the businesses. Our deliveries to Russia in the second quarter were EUR 67 million. If you remember, we had end of first quarter EUR 215 million of order book left for non-sanctioned customers. Out of that 215, we delivered 67 in the second quarter.
It was a really slow start of deliveries because of sanctions coming in multiple waves within few days from each other. It was a very moving target before the situation sort of calmed down somewhat, and that gave us windows to continue some of the shipments to Russia. We of course wrote off the Russian backlog, which was the impact of that one in the order backlog was EUR 380 million at the end of June. At this moment I'll hand it over to Eeva and then I'll come back after a few slides.
Good morning, good afternoon on my behalf, and apologies, I have a slightly lower voice today. Regarding the income statement, our CEO already commented on the operative performance. As the negative currency impact in our Adjusted EBITA is so large in the quarter, I'll start with a few clarifying comments on it. Now, we are a global company operating with all possible currencies, so currency volatility is something we're used to. We don't usually bring it up too much as there are positives and negatives going from one quarter to another. We have for years had a proven policy of hedging the margin of all incoming orders. Only part of this is under IFRS hedge accounting. Most of the product business is non-hedge accounted, resulting in a different treatment as per IFRS. This hasn't changed.
What has changed is that our order backlog is significantly up, so any currency volatility in this current environment comes with a multiplier. We certainly had volatility in the quarter. U.S. dollar strengthening in as much as such is a medium-term positive for Metso Outotec, but with the euro falling to parity since 20 years in one quarter, it certainly creates a big mark-to-market loss in the books. The interest rates between Europe and U.S. jumping and diverging creates an additional negative impact. We had high depreciation in many key mining market currencies due to both geopolitics and their local political situation. South America leading this trend, which again hit the books.
While I'm sure no one on the line expects FX volatility to disappear, it's just perhaps good to appreciate that the impact in one given quarter was higher than we've ever seen it and by a big margin, which is why we wanted to be very explicit about it. Coming back to issues closer to our business. Pekka mentioned the pre-announced charge of EUR 150 million that was booked as an adjustment item under group items, so outside of our business segment re-reporting. This means it is visible in group EBIT and pulling basically the quarter to a loss of EUR 13 million. Just to remind everyone of the size of the Russian business for us earlier, it represented some 10% of sales in 2021.
Another illustration is perhaps that if our published order intake growth year-over-year was 18%, excluding Russia out of the Q2 of last year to get better comparability considering the zero figure in this Q2, so the quarter growth actually would have been 25%. It just does speak to the strength on the overall market and our ability to adapt to the new geopolitical situation and really sort of focus on business elsewhere. The tax rate shows a rather low ETR for the quarter. Please pay attention to the first half figure of 28%, which is more relevant and indicative of what we expect for the full year. The big charge made the underlying figures so small that very small items swing the tax rate in this quarter.
As we get back to a more normal levels, this impact will disappear. Moving to our balance sheet. Total assets are up almost EUR 600 million from the beginning of the year or EUR 300 million from Q1. Now, inflation is actually a pretty big impactor here. A significant part of the higher inventory values or accounts payable is pricing effects. Volume growth impact is bigger due to work in progress increasing with the mentioned very high order backlog, but that alone would not explain this higher rise. Receivables are similarly reflecting higher sales and prices. Not surprising as such, and we have been cautious on this year's cash flow, but still I think seeing the impact on our net debt on the right-hand side is visually quite strong.
However, our balance sheet remains very strong, so with a tight focus and comfortable we can weather the market dynamics. Cash flow for the quarter is impacted by the big charge. Now, the final outcome of how much of the cash impact will be is still not clear. We would expect to be able, for example, to resell some of the inventory, but now we have not made any assumptions. We have treated it as cash neutral in the cash flow. So, it doesn't impact the EUR 50 million you see in this table as the outcome of cash flow from operating activities before financial items and taxes. Now that being neutral, it does mean that the quarterly cash flow obviously wasn't much to write home about.
Now, we do want to continue to grow in the current, active market, and growth does tie working capital in our business. Naturally, we do need to be very focused on ensuring our cash balance is not compromised. On the financial position, a few elements to highlight. We extended maturities of some, roughly EUR 100 million of debt by drawing on last year's signed Nordic Investment Bank loan and then repaying private placements which reached their maturity end. The first part of our dividend for 2021 was paid in May. Again, a similar almost EUR 100 million item there as well. Those are really the bigger building blocks. Here I'd actually leave it, hand it back to you, Pekka.
Okay. Thank you, Eeva. A few slides about our development regarding strategy, sustainability, and then finally the outlook. As you know, we do have the review of the metals business underway. We are expecting to complete the review part within this year, and then we'll move on in the implementation, which of course depends on the final outcome of the review. As you saw, I mean, business has developed favorably and outlook for metals is good as it is and strong as it is for minerals as well.
I think we have many options and alternatives how to move on with the metals, but we'll come back to that one when we ready with our review. Market is very active for M&A as well. For us, there's nothing major in the pipeline, but small M&A cases, we do have. We announced during the quarter acquisition of Tesab Engineering in Northern Ireland, and we acquired it at the end of April, and it's now, I think it closed at the same time when we signed it and the integration work is ongoing.
There's a great synergies within Northern Ireland with the earlier acquired McCloskey business out there and we'll continue to have those both plants in there. We do some product transfers between the plants both ways, and that will simplify and streamline the production and we'll get the cost synergies from that one. We also completed divestment of metals recycling during the quarter and that was a lengthy process but it's done now and now we continue with these three segments that we have left.
On sustainability, we continuously launch new things and promote our Planet Positive offering consisting of more than 100 different products or technologies. We also taking steps to reduce the CO2 footprint of our own operations. We are looking at our supply footprint as a part of our strategy work going forward and there are of course logistics and related CO2 is one of those things as well as availability of green energy in various regions and markets. We also published the sustainability-linked finance framework recently. The Planet Positive highlight really was a first full Planet Positive comminution order that we booked during the quarter.
This includes the high-pressure grinders and Vertimills and with this kind of technology the energy consumption in comminution is reduced dramatically from the traditional crusher and horizontal mill solution. We are also working actively to launch new products, new solutions in all of our areas and we are tracking our Planet Positive sales. They're on the right-hand side bottom of the slide. These are rolling 12 months numbers for last year for the situation at the end of February and situation at the end of May.
You can see that our Planet Positive sales is really growing at a rapid rate as we promote the products and as we launch new products to that area. We already discussed the elements of the market outlook. We expect market to remain at the current level with the minerals market and then aggregates market declining slightly and this mainly comes from Europe, this cautiousness on aggregates market. With this one, we're ready to Q&A.
Thank you. If you'd like to ask a question, please dial zero one on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find your question has been answered before it's your turn to speak, you can dial zero two to cancel. Now our first question comes from the line of Klas Bergelind of Citi. Please go ahead. Your line is open.
Thank you. Hi, Pekka Vauramo and Eeva Sipilä, Klas Bergelind at Citi. First, I want to start on the FX impact. I get the part with the hedges that this will reverse as you invoice more out of the backlog. I want to zoom in on the operational part, the other EUR 17 million. I mean, lots of mining currencies came down sharply. This hit you by, I think, half of that EUR 34 million. It was a volatile quarter. I guess this part should normalize here into the third. Could you comment here about how you see things now? To what extent we should add back this total impact in Q2 or if we see any negatives also into the third? Thank you.
Sure, Klas. I think there are really many moving elements, but maybe it's good to understand that there is an operative loss element in those FX hedges coming from the forward points. Obviously, as we saw such a big jump in interest rates, that and that kind of element is what we were partially referring to. Of course the main point of the FX hedging is really that it does create a timing hedging when it's not hedge accounting as per IFRS and hence certainly we expect to see in the coming quarters when we're reversing.
Obviously the key mining markets currency volatility, when it is apparently really reflecting their own political environment and not only the sort of general risk aversion of investors from sort of more emerging market currencies, it's of course hard to predict which way it goes. But I think we've certainly seen changes and we've been operating in South America for decades, and we've certainly seen very big changes now in one quarter. In that sense, I'm perhaps a bit more optimistic that we don't see a similar quarter. But again, your guess is as good as mine, obviously on
Yeah, sure.
which route those currencies take.
Yeah. Just confirm, half of it was basically backlog hedges, so as you're invoicing that half should at least normalize with high deliveries.
Yeah. It's roughly 50/50, but just to sort of make it rather easy for you. Certainly sort of we're comfortable that half is absolutely timing and then just to indicate that there is a sort of real loss element obviously from those forward points that is we've lived in sort of zero interest rate environment, Klas, for so long that I think most of us have forgotten how things work when we have inflation and interest rates. Yeah.
All right. My second one is on aggregates and the outlook pick. Pretty clear that Europe construction is softening down. I think the messaging has been clear from you here at various investor conferences and at the pre-close calls. Could we talk about the forward guide in relation to other regions? Just wanna make sure that you're not seeing any weaker demand at the exit of the quarter, also in North America into the third and elsewhere.
Yeah. We had a very strong finish of the quarter in aggregates orders. No weakness in that regard. Out there, I mean, China has been slowish all along this year starting already last year. Last year, the super quarry segment active, but all the others less active in China. India has remained the same as it is, but North America continues probably stronger than ever before.
Okay. No, that's good. My final one is on the cash flow. You didn't have, if I understood it correctly, a big impact from the China lockdown. Despite this, the working cap, it is quite big. We know demand is strong, but we're also hearing of lead times easing. If you could comment here on how we should think about net working cap into the second half. What do you see bottlenecks easing, which should perhaps free up some cash flow?
Well, I wouldn't perhaps live to celebrate things getting better. I would agree with you that they're not getting worse, and hopefully we don't have any other sort of external shocks impacting the supply chain. Partly, the net working capital is this inflationary element in it. Of course, we do see some of that sort of settling down as well. We are more optimistic on the net working capital development, that it wouldn't play as much in the second half really as both from that sort of volume and price point of view.
We're still sort of cautious because you see our backlog there at the rate of orders that we took in. Obviously, there will be a lot of work in progress going and we do need to work around availability and ensuring our customers a decent lead times. That is unfortunately requiring some additional inventory just to make sure that we don't have a stoppage for a very small something missing. It's really a balance.
Thank you.
all the time on between these two.
Yeah. Our working capital is naturally also dependent on large orders and down payments relating to those. We in fact booked only one larger order during this quarter. It really depends then on timing of the future major orders as well.
Thank you.
Thank you. Our next question comes from the line of Magnus Kruber at UBS. Please go ahead. Your line is open.
Hi, Pekka, Eva, Juha. Magnus here. A couple of questions from me. I mean, minerals saw a decent margin progression year-over-year, adjusting for the FX impact despite cost inflation and adverse mix. Could you add a little bit of color on what you saw specifically on price, cost, and mix respectively on a year-over-year basis? I mean, how does that sort of bridge look on the margin side and what you expect into the second half?
Yeah. Eeva, can you take that one as well?
Sure. Magnus, obviously the mix if one speaks of the sort of share of services versus equipment is going from a margin point of view into a negative direction still, in the share of services in minerals was only 59.9% in the quarter. Of course, now we're seeing good growth in the orders, so it will be better balanced going forward. What we've seen sort of so far. I would say that on the sort of price element certainly is significant.
That we've been working very hard on that also to sort of to really balance the increase in costs. I would say that overall, we're quite happy with where we are. When we have such a sort of quick spikes and certainly the war caused a lot of very sort of big sort of turbulence, then it is very hard to sort of be prepared for that type of volatility and you end up being a bit late in pricing and clearly in some of the areas where we have longer lead times, it has an impact.
We're certainly happy with how we've been able to push overall, I would say, you know, be it productivity or margin development on the equipment side, because some years back with this heavy equipment mix, I think the margin would have looked different, say. I think there's been a tremendous good amount of good work from the team really on that.
As it stands now, we shouldn't expect any broad base difference from what we're seeing in Q2 into the second half from this point of view?
Yeah, I think again, sort of your guess is as good as mine on sort of what happens on the inflationary front. I mean, we've seen some settling down, but of course it's still, I would say it's quite jittery, so it's difficult to sort of call it. That's kind of the sense and of course if that eases it, I would say that's the kind of base case we would assume. As said, somewhat sort of stronger growth coming through then in the aftermarket going forward.
Okay. Got it. Thank you. Then also with respect to outlook for mining, at the moment, of course you reiterated a solid activity in the market, but I mean typically you start to see a weakening in orders when raw material prices comes down. I mean, of course the past couple of years hasn't been normal either. Is there anything specific that you would like to call out that suggests that order activity will remain high in the face of weaker pricing?
No, not really yet in this price levels that we see currently. Currently, there's of course another side that we need to look at. This is also the inflation and that at one point in time might sort of take some of the projects or postpone some of the projects. Metal prices are still very supportive of investments and maybe if they remain roughly on this level where they are today, they are still, I mean, higher than pre-pandemic levels were.
Maybe the war in Ukraine will be seen as a sort of short-lived price peak in price, after which the price is returned roughly on the same, still relatively high level. This is currently how we look at the things and our proposal pipeline is very much supporting this one as well.
Got it. Thank you. Just one final bookkeeping question with respect to the geographic exposure of aggregates. Could you sort of give us some broad-based help on how that stands now?
North America number 1, Europe number 2, India, China, 3 and 4, in that one. Europe and North America, they represent some 70% of the business altogether.
Perfect. Thank you so much.
Thank you. Our next question comes from the line of Will Turner at Goldman Sachs. Please go ahead. Your line is open.
Hi everyone. I've got a handful of questions. My first one is on the aftermarket order intake. Obviously, it was another quarter of very strong growth. Yet this is despite obviously a period where most of the large listed miners have disappointed on their production growth. I was wondering what's been the driver behind the order intake growth in the aftermarket? Is it customers stocking still on spares and parts, or are they using this production downtime to do servicing? Could we expect a slow down at some point for the aftermarket business?
Yeah. I wouldn't sort of say that customers would be stocking. Of course, supply chain is an issue for everyone, but customers possibly would like to do more stocking, but the capabilities to deliver into customer stock are also limited. That's not the reason. I'm sure that we are seeing some demand coming from the pandemic lockdown times, so some pent-up demand coming from there. Very high brownfield activity in mining in general. In our cases, some of this brownfield activity is visible in our service numbers. We have the modifications and upgrades as a part of our service business.
They very often include major labor component in addition to engineering component and sort of a supply part and it's been always part of our service and that's partially driving the demand as well. Of course, pricing does have an impact in service top line growth as well. Mostly through our consumables because their price pressures have been the highest, but also in the rest of the services.
Great. Is it possible to kind of quantify how much of it is the pricing? Is it-
Yeah.
High single digits, low double digits?
Yeah, great variety between the different business lines, and it's rather complicated to come up with an average for the entire scope of services that we have. We have not published that number.
Okay. You mentioned only one large order in 2Q, but the pipeline is still supportive of good activity. How are you seeing the outlook for large orders? Are there many on the pipeline for the second half? Like where do you see those orders coming from?
We have, I would say, typically for this type of cycle, typical amount of larger packages, but I would be very cautious with timing because some of these orders we forecast every quarter to come in and.
They just happen to come when they come. Yeah, there's a lot of guesswork relating to that one. We are in final negotiations in several bigger ones.
Okay, great.
Maybe just to add on that. I think it's maybe to underline that the strength of the minerals order intake is really from the sort of small and medium size. I mean, because it was just that one and it is a very strong number indeed, especially if you sort of take into account the comparison I mentioned that one would take sort of without Russia also the sort of last year's number. I think that's kind of the type of business we're seeing and maybe something that's also good for you to sort of assume continuing, as well.
Understood. Great. Just my final question. When we read through the risks in the interim report, you highlight uncertainty around suppliers' ability to deliver, and, you know, that obviously under the scenario you may have, some contractual penalties if obviously this impacts your ability to deliver. You know, obviously within inventories, a lot of the inventory buildup is from price increases, as mentioned earlier on in the call. Is there a risk at all with your order backlog, especially the ones where you have a fixed price that you struggle to deliver in the second half, because of a supplier or because of suppliers having to push through extraordinary prices which you weren't originally agreed to when you first won an order?
Well, I think we're more highlighting the risks from an availability point of view. I mean, basically, we do have contractual agreements with suppliers. I mean, it's not a one-way street on starting them sort of mid-delivery to raise prices. I think everybody is just so tight that, you know, that you're sort of hoping every morning that you don't wake up to somebody having a fire or another sort of COVID stoppage of transportation, because that's the type of things which are obviously difficult to prepare for. That's maybe more where we really talk about ability to deliver. Obviously, when we talk about big packages, everything is needed for final assembly.
While, in this type of environment, one does try to put some sort of leeway and buffer time in a way to get things on site, obviously there is. Things can happen. That's something really to sort of, on a very continuous monitoring from our delivery teams on a day-by-day basis that everybody is up to speed and there is no sort of external sort of shocks.
Okay, great. There isn't anything that's particularly concerning at the moment or a deterioration versus the first quarter?
No, I think we've sort of survived the sort of immediate impacts of the war and then obviously China's recent lockdowns. I think, you know, things do look a bit better now, but obviously, as we all know, there's no certainty that there wouldn't be new lockdowns in China, for example. I think it's just a sort of very continuous monitoring required.
Great. Thank you both.
Thanks.
Thank you. Our next question comes from the line of Andreas Koski of BNP Paribas Exane. Please go ahead, your line is open.
Thank you. Hi, Pekka and Eva. First on your Adjusted EBITDA growth from EUR 131 million to EUR 155 million year-over-year, despite you have this FX loss of EUR 34 million, that implies that your organic EBITA contribution is EUR 58 million, which corresponds to an organic operating leverage of 27%, which I think is quite good given supply chain issues and cost inflation. Does this mean that you're now able to more than offset cost inflation with cost savings, sales growth, and synergies? And is there any reason why your organic drop-through should not stay strong also in the coming quarters? Obviously, I think, the what comes to my mind first is the mix development. A mix development that is something we need to pay attention to.
Our service volumes are growing nicely, and it's almost like a progressive growth as we have seen. Maybe they are leveling off now on a level where we currently are and stand. Depends very much on mix where we end up with that one. Any other views, Eeva?
Yeah. No, I think, Andreas Koski, as such, I think your analysis is correct that I think the challenge in really what we've seen in the past sort of, you know, three quarters, I would say, is really on kind of being quick enough with pricing to react to the sort of changes in the cost environment and the cost environment really having sort of had more volatility than in a long time for these very many exogenous shocks. I think as such, we're quite happy with our ability to sort of run behind and sort of behind or be at the speed of that moving train.
I would think it would get a bit easier. I think we're in certain areas at the limits where, not in all industries, the customer demand will continue and maybe will ease some of the inflationary pressure then for those of us working in environments where we're still sort of obviously the environment is sort of more benign.
Yeah. Okay. Thank you.
Of course, the business that we need to clearly improve is our consumables business. We've spoken about it so many times in this one as well. If you remember end of last year, the fourth quarter performance, we were hit by really surprisingly high and rapid cost increases, freight charges, energy, raw materials, all came in like a major tsunami at that moment. Then if we look at our sort of supply chain throughput time, we should be now through those most difficult times. Current costing and pricing is based on new normal levels. We worked at the same time with our life cycle contracts where there's always a delay with the.
Even though there's price review points negotiated and more frequent ones negotiated, but there is always a slight delay. We should be through the most difficult time in that one. That of course, I think translates into organic drop-through as well.
Sounds good. As you canceled your Russian order book, could you please help us to better understand how sales will develop in the second half of this year? Maybe give us a number on how much of your backlog is expected to be delivered in H2 this year compared to the corresponding number last year, or how will the cancellation of the Russian backlog impact your sales level in H2?
Well, Andreas, at this point in the year when there's only six months to go, of course, most of the backlog is well into 2023 and 2024. I think the best indication perhaps is by looking at the sequential development we've been able to demonstrate now between Q1 and Q2. Excuse me. Obviously, as our service and aftermarket order intake has improved for the past couple of quarters, that's slightly shorter lead time. That kind of helps. I would expect us to be able to show some growth, but really partly limited by the availability of components. Not expecting sort of dramatic changes in the sequential development.
Yeah. Okay. Thanks. Lastly, straightforward question on FX. Based on today's spot rates, what should we expect the FX impact to be on EBITA in Q3?
Now I haven't looked at what they are today, so sorry, I've been a bit busy with other things. I think as if things kind of, you know, hold and we don't see sort of further appreciation of the dollar or further depreciation, then obviously things should be kind of net zero. Any sort of. Of course, again, some reversal i.e. positive if they would move back. That's kind of sort of by and large. As said, now I will compare the sort of yesterday's rates with the quarter and close directly.
Yes. The net zero comment, that includes the operational losses that we saw in.
Well, yeah.
It was not just on the hedging side, it's including just operational.
Well, yeah. Yeah. I think that's maybe the trickier part. As I said, you know, for a couple of years, we didn't really have to worry so much about interest rates and forward points and hence the modeling obviously needs some brushing up. We have now seen obviously ECB move on the interest rates as well. I guess that is, you know, that helps if everything moves in the same direction. It's a divergence that makes it, and that makes those losses typically sort of become bigger. That divergence obviously was there in Q2 when different central banks taking different type of action at different times.
Okay. That's great. Thank you very much. Have a good summer.
Thanks.
Thank you. Thank you. Our next question comes from the line of Vladimir Sergievskiy of Bank of America. Please go ahead. Your line is open.
Yes. Good afternoon, and thank you for taking my several questions. I'll start with the one on one of the working capital components. I mean, a pretty sizable EUR 100 million increase in contract assets or unbilled receivables. Would you be able to comment on the nature of this increase? Is it specifically linked to some Russian projects where you book revenues, but basically can't invoice the clients? That's the first one.
I think that item is now impacted by the EUR 150 million charge. Basically in order to make it net neutral, it's visible in the net working capital number and specifically in that element. I think I would have nothing more to state on Russian business today other than we're sort of winding it down as much as we can. Net working capital has made the charge on what we assume is the final outcome. Obviously we'll be a bit wiser in the coming months.
That's great. Yeah. If I could clarify then though with regards to the bridge between your unadjusted and adjusted earnings. Would it be fair to say then if unbilled receivables related to Russia going up, that you're booking some of the Russian revenues in your recurring earnings, and then effectively taking out the provision and treating it as non-recurring? Would it be a fair kind of statement or am I missing something here?
Well, with the charge, we have basically sort of written down operating assets and that really was the impact that we wouldn't have them sort of. We are looking at the total outcome. Obviously there is in each project there's different elements, but that's been the approach. A more gross level at this point. We will be wiser in the coming months on where we exactly land.
Understood. Two very quick housekeeping ones if I may. One is on FX. I mean the net hedging liability I think increased a little bit by about EUR 50 million over the quarter. Is it an indication that there is some more unrealized hedging loss, which we'll cash out later on? If you can provide a quick update on where you are on the Saudi project ramp up. Thank you so much.
If I take the first one and, Pekka, you comment on Saudi. I mean, I think the answer is that, I mean, the hedge accounting obviously or a project business is mainly hedge accounted, and that volatility doesn't go through the P&L. This is really the product side of business where we're not able to fulfill the hedge accounting requirements by IFRS, and that is then marked to market. As by definition, they are mark to market as of the rates at end of June. There is no additional sort of losses anywhere.
It is mark-to-market and then just sort of a very sort of clear sort of math as such. Pekka for the on the Saudis.
Yes. The ramp up continues there. Customer needed to change the feed material, the ilmenite concentrate and also the anthracite that they feed into the furnace. We've stalled the increase of power supply to the same constant level for several weeks in order to learn the parameters, operating parameters for the new quality feed. This is really something which is not dependent on us at all. It's clearly an issue that customer needed to do 'cause they run out of the material that we originally used. No major issues during the ramp up.
Lots of learnings and I would say that relatively good teamwork at the site between customers, operating personnel and our experts there. So far, everything looks good with the ramp up.
That's great. Thank you so much.
Thank you. We have one further person in the queue at this time, that's, Antti Kansanen of SEB. Please go ahead, your line is open.
Yeah, good afternoon, Pekka and Eeva. Just two questions from my side regarding minerals services. Firstly, on the consumable side, could you comment what has been size of the business during the first half, and how much do you think your margins have been held back by the negative impact from input costs and pricing?
Yeah. Our volume is slightly below EUR 1 billion in consumables all together. That's for the volume wise. Then if I do look at the margin side, we are several percentage points below our sort of last two years' performance in consumables at this moment.
Antti, the EUR 1 billion is an annual figure, so.
Yeah, sure.
Yeah.
Sure. The second one was kind of on the discrepancy between order growth and sales growth in mineral services. Is this kind of a difference being driven by pricing, but that has a different impact on orders and sales? Is it delivery bottlenecks or has the kind of the order growth came from longer lead time items regarding modernizations or upgrades? How should we think about the backlog build in services if you may?
I think it's mix of all of that, what you said. We have five or six business lines within our services that behave in this regard differently. There's very short cycle business. Those really book-to-bill business. There is business which does have a lead time of even more than a year. It is mixed bag in that regard.
Would it be fair to assume that those kind of the longer lead time types of businesses have led the growth in the past couple of quarters as we've seen some of the lockdowns fading and so forth?
That is true, yes.
All right. That's all from me. Thank you.
Thank you. As there are no further questions at this time, I'll hand back to our speakers for the closing comments.
All right. Perfect. Thanks everybody for joining us. This is it for the second quarter results. Just a reminder that we'll be having our capital markets day on fifteenth of September fifteenth. More information and registration will be sent in due course, after we have had a bit of a break now in early August. We'll come back to that. In the meantime, thanks again, and goodbye.