Good morning and good afternoon, ladies and gentlemen. This is Juha from Metso Outotec Investor Relations. I want to welcome you all to this conference call where we discuss our first quarter 2023 results, which were published earlier this morning. Our agenda is the usual. The presentation will be given by our President and CEO Pekka Vauramo and CFO Eeva Sipilä. After the presentation, we'll be taking your questions. During this call, we'll be making forward-looking statements, and that's why we have the disclaimer at the start of the presentation. One more thing, we'll try and keep this call and limit it to 60 minutes because we have our annual general meeting of shareholders following this call. Let's be efficient.
Without further ado, I'll give it to Pekka to start the presentation. Please go ahead.
Okay. Thank you. Thank you, Juha, welcome on the line to this call. A few words about the quarter before we go into more into numbers and actual performance. It was a strong quarter. Strong demand, especially in minerals side, strong demand for both equipment and for services. Just like we said after the fourth quarter, when commenting on our service growth at that moment that we really didn't see any trend in that one, we still saw the services demand being on strong level. This proves it out that that was and is the case.
We also delivered high sales growth and record high profitability, first time exceeded 15% adjusted EBITDA during the quarter and that is of course a very good result and important milestone for ourselves as well and for the entire organization. We completed also the strategic review of the metals and out of 3 businesses inside the metals, we will keep the smelting business line, but the 2 other business lines we will divest, and we have already initiated the preparations for that one. We also concluded final settlement for the Saudi ilmenite project.
That's full and final settlement that we have done, and we believe that we will be able to complete the settlement within the existing provisioning that we have in our books. Those were the highlights of a strong quarter that we had in the beginning of the year. Our group figures, orders at EUR 1.533 billion, that's 8% growth. In fact, if we adjust that one with the some orders that we booked early in last year from Russia, the growth was 10%. 2 % difference would come from if we adjusted for Russia, those orders.
Sales growth 22% at EUR 1.418 billion. Good growth in EBITDA, 37% growth in EBITDA, and the actual number was EUR 215 million. That corresponds 15.2% of the sales. Operating profit EUR 197 million, corresponding 13.9%, and that translates then into earnings per share of 17 EUR and cash flow from the operations EUR 110 million. So that was on group level, the numbers. When we look at our segments, we really had an excellent quarter in our aggregates, record high profitability, which came from strong order backlog that we have in the aggregates.
Orders on lower level than last year, that was what we had also commented on our market outlook that we see North American market continuing to be strong but softer European demand, and those are the two main markets that we have. We are happy with these EUR 300 million and almost EUR 380 million order bookings that we had during the quarter. We have some signs in the rest of the world of activity picking up but not really yet contributing to the numbers, and here I mainly refer to China. Some activity in India as well.
Um, and I have to add also, also Brazil on, on the list, uh, where we have seen some, uh, interesting developments, uh, uh, end of last year, early, early this year. Um, sales, uh, uh, we delivered from the backlog EUR 363 million, good, good growth, uh, year, uh, year on year on, on that one. Uh, uh, services share being at 31% percent, and that is, that is clearly area, area where we in, in sort of medium term and long term need to, need to address and, and grow more forcefully our, our services in the, in the, in the aggregates. But then the, the real highlight is, is the profitability, eighty, 86... oh, sorry, EUR 66 million of, of adjusted EBITDA, um, translating to, to 18.1% percent margin.
It's really strength of the U.S. market and overall improved gross margin, good management of inflation during and after the pandemic, good management of the costs as well, and good execution of the acquisitions. That's the basis for very good and very strong performance in the aggregate side. Moving to the minerals side, very strong order bookings, strong order bookings both in equipment orders and services. Equipment orders grew by 11% and service orders by 29%.
Typical for this quarter was, by the way, that we didn't book any bigger project orders, and we are very happy with small orders because of the risk profile is much lower in them, but still a good growth year on year on that one. Sales, EUR 934. Strong growth in equipment, 21% even, and even stronger growth in services, 33% growth. Services share is now 61% in minerals. There as well, we have potential to go beyond this one in medium and longer term. Adjusted EBITA EUR 163, really growth from EUR 108 million last year.
At the same time, margin at 17.4% shows that we do have potential in our minerals to those levels that we have communicated to the market earlier as our target levels in long run. Of course, sales growth was important here both in equipment and services side, and also good management of course, and good management of the inflationary pressures throughout the past years and quarters are on the basis of this delivery. The metal segment, somewhat disappointing orders, but lack of bigger orders is the reason for this one.
Trading activity as such has been good in metal side as well. This is more about timing of the orders than anything else. We should not really translate this into that markets have turned down. It's just timing issue and metals dependence on relatively higher big and dependence on big orders. Sales EUR 120 million last year, EUR 104. We have a strong backlog still in metals, and that's where the sales then mainly came from.
Services share, very low, 12% as we have been in, you know, metals all along, and that's one of the reasons why we ended up in reviewing the businesses on strategic basis and have concluded the way how we have communicated. Adjusted EBITDA EUR 11 million translates to EBITDA margin of 9.1. Last year, we had 9.2, so no major difference in that one. Good volume growth from last year though for metals as well. I'll hand it over to Eeva, and I'll come back then for a couple of slides once Eeva finished.
Thank you. Good morning, good afternoon on my behalf as well. Our CEO Pekka presented already the strong operative figures. Perhaps a word on the group items in adjusted EBITA. We had EUR 24 million of group items related costs in the quarter. This is clearly higher than normal. Approximately half of this figure was a result of timing of system development and bonus costs. These costs came early in the year and into the same quarter while being unrelated to each other as such. We continue to estimate that the full year figure for group items included in adjusted EBITA will be around EUR 35 million. The pace of the costs in the coming quarters will be much lower. Adjustments were small in the quarter. We recorded minus EUR 2 million in the quarter from capacity-related adjustments.
Net financial expenses of EUR 12 million were down quarter-over-quarter and more so year-over-year. Our effective tax rate for the first quarter was at the lower end of our target range, standing at 25%. Our earnings per share for continuing operations were EUR 0.17 for the quarter. Moving to our balance sheet, total assets are up EUR 80 million from the beginning of the year. Net debt at the end of March was EUR 673 million, slightly down from the end of December. The next slide focuses on the element really that is behind the changes on our balance sheet, and namely working capital. Net working capital at the end of March was up to EUR 709 million. This is up some EUR 100 million from end of December.
The comparison to last year, end of March, visible on this slide is a very tough one, as that number is prior to a lot of inflation and materials, and material sales growth since. Sequentially comparing, we saw the trend of the second half of 2022 of supply chain and logistics pressures easing, continuing in the first quarter of 2023. This enables us to continue downsizing buffer stocks. With 22% sales growth year-over-year, it does clearly add to work in progress. The seasonality of our aggregates business is also such that the pipeline is full at this point of the year. As we have said earlier, during the course of the year, the slowing growth in the business will start to reduce working capital.
We have changed the calculation in the graph on the left-hand side, where the line now is calculated based on average of quarterly net working capital and revenues, rather than just calculating one balance sheet figure over earlier twelve-month sales. This way, hopefully, we better catch a similar timing window for both elements. Juha and I are naturally happy to take further feedback on this or any other material in this presentation. Cash flow in the first quarter was an improvement year-over-year, down from the very good final quarter of 2022. Net cash flow from operating activities was EUR 110 million, thanks to strong profitability, affected by a negative change in net working capital of EUR 127 million.
As mentioned, we do continue to expect, especially our aggregates business, to start contributing to a better cash flow going forward. Moving to my final slide and main points on our financial position. The main point to highlight happened actually in April after the end of the quarter, when S&P Global upgraded their rating. We now have a BBB rating with a stable outlook from them, in line with the Baa2 assigned by Moody's already two years ago and reconfirmed by them just this week. We made no funding transactions during the quarter, and our available credit lines are unchanged. Debt to capital is down from the year-end, and at the end of March was 30.5%. With that, I would hand it back to our President and CEO. Pekka, please.
Okay, thank you. Thank you, Eeva. Just a couple of slides here on update on where we are with our ESG development. We continue to grow our Planet Positive sales. The growth year-on-year was 45%, so very solid growth and shows that demand is very strong for more sustainable product solutions and technologies. We also continue to introduce new products, thickness, green steel DRI smelting pilot. Pilot is progressing. That is interesting new development in there. By the way, the smelting business that we retain as a part of Metso Outotec's offering is part of...
This development is taking place inside the smelting, meaning that there is potential for the future as well in this area. We are expanding our Planet Positive filter production. Filtration as a business is growing very fast at this moment. Many of our customers' mines are preparing to filtrate also their tailings, not only the concentrates. That has been the case in the past. Filtration is very attractive business both for equipment and for the aftermarket. Internally, we have taken also many actions in our own footprint. Our renewable energy production from our own solar panels is up 30% year-on-year.
We basically are equipping every plant. We are equipping also things like service containers that we are using at our service contracts or LCS contracts with customer sites. They are equipped, being equipped with solar panels. We are taking many actions in this area, big actions and small actions in order to improve our own CO2 footprint. We have been also very actively engaging our suppliers in getting the science-based targets approved. We're making great progress in that area. We're working also with our people and with our culture.
We are measuring the culture, and the engagement through our surveys on quarterly basis, and we are on all-time high level on our employee engagement. We benchmark ourselves to nearly 100 companies, international companies, that are industrial companies like we are, and we are amongst the top 10% of our benchmark and peer group at this moment with that one. It's a good position be when there's lots of uncertainty and movement in the labor market at this moment.
We have also introduced a sustainability-linked financing problem, program for our suppliers, and we have launched that one recently, and that's naturally for the suppliers who have committed themselves to science-based targets. Many things happening there, and here and the area of sustainability is clearly guiding our development into the future. The guidance where we say the market outlook that we expect the overall market activity to remain at the current level, including the normal seasonality in the aggregates market.
We have added the latter part into the guidance because it serves as a reminder that our aggregates business is cyclic business and where we have the most active part is really in the first half. Second half we normally see activity dropping. Our customers, they want to be ready for the summer season, and then when the winter is approaching, the investment levels are on lower level. This is our first quarter, good strong quarter. Many thanks to our people, everyone who has contributed. We are about 17,000 people now globally, and great contribution from the entire organization globally to these results.
Now operator, we can open the lines for questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Klas Bergelind from Citi. Please go ahead.
Thank you. Hi, Pekka and Eeva. Klas at Citi. My first one is on the service growth, looking at orders. We had this tough comp for on-site services last quarter. At the time, however, Pekka, you were pretty confident that service orders could grow in 2023, and here we are off to a very strong start. I'm just trying to understand what is driving this. Is this on-site services all of a sudden accelerating again? Is it new annual contracts? Is it spares and wears? Are we seeing certain commodities driving it? If you could help us with the drivers and to what extent the improvement here is sustainable next couple of quarters. I'll start there.
Well, we are at that good sort of speed in our services, I would say in all product lines. We might see some sort of renovation of annual contracts in the beginning of the year, that really doesn't explain the full peak. I think it's a strong, robust activity across the board, across the markets as well in our services. This is how I would put it. I don't have any sort of further insight. Eeva, anything that you would comment here?
Maybe of course, this is a very, very strong number indeed, and perhaps you can then sort of draw a bit the conclusion that some of these orders perhaps could have come in December. Came early this year and certainly We had a very, very strong March, which in my view, I think indicates that April being a shorter month with Easter, it partly probably taken some orders from that. Obviously I think the sort of Klas What's driving is the fact that metal prices are strong and customers are very focused on getting everything out what they can.
It is very much, of course, around copper, very much around the battery metals. Nothing really new from that point of view, but just a very broad focus on productivity and really getting every possible amount of material processed.
Great. Then my second one is on the margin. You're now going through the strategic review here ahead of the summer like you always do, and given the solid trading, you're probably thinking about the next level for your margin target. You obviously have peers in aggregates like Sandvik delivering margins of 16%-17%. You've done a higher margin this quarter. Your margin target in minerals are already pretty ambitious. They're at 20%. Can we talk about when, Pekka, you think that you will have an update here for the market on potential new targets, X metals, and if you would give us a little bit more of a horizon of these ambitions this time? Earlier you said for example that the margin target is more of the cycle.
Yeah, that would be helpful to get some clarity on that.
Yeah. We of course, it's a board's review after which we may update the guide or the sort of margin targets. We still don't know exactly what the timing of the metals carve-out as such or those businesses will be. At one point, yes, we will report them, start reporting them as a discontinued business and that is of course the natural point when we do the sort of mechanical upgrade of our targets.
If it then happens, sometime later in the year, we might combine that one then with the upgrade of the targets if the board so decide. We will be transparent in what is the impact of the businesses to be divested on the margin and then what is the actual and real increase of the targets. In what shape and form the targets will be, I mean, future will show us that. That then the current targets are over the cycle and we are of course reviewing that one as well that is that the right way of setting the targets.
Good. My, my quick final one is just on product mix. Because obviously there are some people out there that think that when you deliver out more equipment versus service that will start to eat into the mix and the margin. Obviously Planet Positive, at least historically has been higher OE margins and a higher share of orders relative to your sales. I'm just wondering whether that gap is now closing and whether product mix in minerals helped the margin this quarter and whether that will help the margin going forward as well as you invoice out more Planet Positive orders out of the backlog.
They do contribute to our profitability. It's a fact that over the past couple of years, despite of inflation, we have been able to improve our margins. We have taken actions both in sort of cost side. We continuously improve. We have this year cost reduction or productivity improvement plan, as we call it internally ongoing. We will have it next year. We had it year before. That contributes to our result. Naturally we have been taking actions in the pricing side as well in those areas where the market pricing has allowed us to make moves and end result is that we've been able to improve the margins across the board.
Thank you.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Hi, guys. It's Antti from SEB. A couple of questions regarding aggregates actually and follow up on the earlier discussion on margins. I mean, you've been above 15% for a couple of quarters now and now a very strong 18% at Q1. How should we think about... Is there anything extraordinary now behind this Q1 number kind of leading to deliveries out of backlog as the supply chain has been easing that there's been a kind of unfinished good sitting in there which you are now releasing? I mean, what I'm trying to get is that, is this as good as it gets, or have you kind of seen a structural improvement on the profitability profile of that business? What can it actually do longer term? Maybe a discussion around that, please.
If we take a longer term view on how the business in aggregates has developed, I mean, this is, of course this current jump seems like a high one, but it's a good continuation of good work that has been done over the years in aggregate. I would say starting from McCloskey acquisition, good integration of that one. Some other smaller acquisitions that we've done as well, and they are all performing well. The integration has gone really well into Metso Outotec's aggregates business. All together, I would say that that is the biggest contributor.
We felt and we sensed the inflation early on when that one started to sneak into business. That was in fact during the third quarter of 2020. We initiated right away the actions because we foresaw that we cannot anymore look at the rearview mirror where we come from when it comes to costs and we needed to go to the future costing model. We needed to take actions to control our costs, which we did well during the pandemics and then naturally pricing is the other side.
When activities picked up, in end of third quarter, end of fourth quarter of 2020, that was really good timing with all of these actions and effort and those good times have continued until very recent times. I would say if there's anything extraordinary is a good execution by our aggregates team, over the period of several past years. This is what the result is now there.
in terms of gross margin.
Nothing extraordinary. Nothing extraordinary during the quarter.
Good. In terms of gross margin, you feel that your pricing is now aligned with cost inflation, not that you're getting some type of a extra benefit for a quarter or 2?
Well, both actions, work on cost side and pricing side, are behind this development.
A couple of questions on demand. I mean, first if we can talk about Europe, obviously the comparison period still in January and February is a tough one. Sequentially, have you seen any trends in the European demand? The second is on the services which has been declining for a couple of quarters now. Is that more of a European business than the equipment side? Does that kind of exposure explain why the services is lagging behind a little bit now?
It is very much a European thing. Maybe in the services side there is to some extent the destocking that we see with our dealers. I mean, they feel that the stocks might be full of wear parts, for example. We've seen some of that one, but not to the level that it would be alarming.
on the equipment demand in Europe, are we just continuing with the same quarter trends?
Continuing on the same sort of sentiment, where we have been for the past several quarters now in Europe.
All right. Thank you. That's all from me.
Thanks.
The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.
Good morning, Pekka, Eeva, Juha. Thanks for the time to take the questions. I want to start about pricing maybe. I wondered if you can quantify or at least comment on how much of the top line progression has come from pricing. Then also you talked about successful price and cost management as providing that boost to growth margins. I just wonder whether we should think about now a structural step up in incremental margins, and begin modeling higher drop-throughs in terms of the price cost dynamic for the rest of the year. That's my first question. I'll come back to the other two.
Yeah, Christian, I think pricing really there is no one number as Pekka was answering the previous question. In fact, it's really been a process of a couple of years where we've been sort of moving, I think, well ahead of the curve, of the inflationary pressures and that's then sort of being very visible in the margin development. Obviously we sort of continue on that. Clearly, it's, there is less inflationary pressure in the materials, still continues on the labor side if we look at the sort of, just the more recent experience.
And then of course, as, as you can imagine in, in Europe in aggregate, obviously we are in a situation where, customers starts to be much more price sensitive, due to the overall, business situation. You have to sort of move in, in all directions, all the, all the time. I think the best success is really around being ahead of the curve and then compensating. The backlog quality is such good, but I think the sort of, as said, the biggest spikes are in a way behind us.
That was really sort of pretty much at this time the previous year when things were very much going through the roof when the war started. That really sort of added a lot of volatility in the market. Don't necessarily quite sure what you mean with the step up, but I don't see any additional step up per se right now. I think this is really a lot of hard work over a lengthier time that's demonstrated. Obviously we have all intention to keep delivering on now that we're starting to enjoy the exceeding 15%.
Well, that's, we kind of like being here and intend to be on this side.
Thank you, Eeva. You mentioned, I guess wage inflation. You had an 8% increase in headcount year-on-year. Obviously, the 22% growth in revenue implies some productivity growth. I guess thinking back to a few months ago, you were talking about wage inflation, running at much higher rates than was historically the case. I think labor's around 21%-22% of your cost base. I just wondered if you can talk about the cost changes you're seeing, both as it relates to inflation, I guess per head, as well as some of the efficiencies and cost actions that you've mentioned in the call. Thank you.
Yeah. We have dimensioned our continuous improvement or product productivity improvement plan that we do annually, which should correspond to roughly the labor inflation. That labor inflation including this year, it's roughly EUR 50 million that we see at this moment. Of course, there's a lot of movement in the labor market, and it's not guaranteed that it will stop at that amount. We have actions already in place for this year to reduce our cost base for that amount. That's the way how we want to look into the future and we want to install that culture of continuous improvement.
We already planning areas for 2024 at this moment, where we're gonna take some of these actions. It is a multitude of actions. Entire organization is involved. All our businesses, all our market areas are involved. It mainly consists of small streams of really different things. It's a mixed bag. We are applying same methodology that we used when integrating Metso and Outotec. It's a gate model where we start from idea. We verify the idea or we establish action plan. We follow implementation of the actions and then we verify the results.
Gate model, very simple model, but requires a certain culture that it can be applied. We have that one and thanks to integration process that we went through and we don't want to lose that culture and those capabilities from the company.
Thank you both. Maybe then to finish, I guess just to follow up on Klas' earlier comment with regard to order intake, in particular in minerals aftermarket. In the first 9 months of last year, you were averaging 20% organic growth. That declined to around 10% in Q4, and you at that stage were talking about a normalization in refurbishment and large scale activity as possible driver. You've then had more than 30% growth in Q1, and you're effectively guiding that current run rate, which bear in mind is 26% higher in EUR terms than the average of the last 12 months, is sort of the outlook for the coming quarters.
Just interested to understand what you think was behind the softness in Q4 and then, you know, whether Q1 is now the new normal. Thank you.
Well, I think, first to be very clear, our outlook guidance is on market activity, not our orders per se. Clearly we see sort of market activity continuing strong, as has been that in mining for quite some time. We really don't, with the visibility we have ahead, we don't see any change on that. Orders of course, can always be a bit timing dependent and like you rightly say, comparisons obviously vary as well. The percentages are always a bit tricky to comment on.
I think as such, we have no reason to change our earlier comments that really there was a post COVID very high degree of refurbishment and bigger retrofits and, and right now we are busy delivering those and customers ramping them up. Quite naturally that that slowed down a bit late last year. The opportunity on productivity is still great. We sort of, we don't expect any long-term issue with that, but it's just a bit sort of how also customers are able to digest certain investments. Perhaps as said, certainly a sort of a very strong growth number now in orders in in this first quarter.
I was, as I was indicated, not necessarily sort of, expecting something similar as a percentage, but again, as said, activity to continue good, and on this very strong level.
Understood. Thank you.
Thanks.
The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Yes, thank you. I have three questions. Firstly, on the minerals equipment orders, outlook, you already commented on the aftermarket, but what about the equipment? Can you describe like what you are seeing in the pipeline? Is it more small orders or big ones? Any comments on what you are seeing?
Yeah. The small orders, order inflow is very sort of convincing currently in minerals. There are bigger orders also in the pipeline or bigger potential orders in the pipeline. Like we always said, timing of these ones, it's always difficult to forecast when they come in. For sure we will see some of those coming in this year. Same talking, the inflow of small and medium sized orders is really robust at this moment. We like that profile of orders because the risk profile is totally different.
It's mostly product sales and the sort of project specific tailoring is minimum in these smaller orders normally.
Thank you. Secondly, just on the kind of mix of orders in terms of metals, I think you previously gave us a chart showing the exposure to copper, battery metals, and so on. Has this changed a lot from 2021, which is the last year when you gave this chart? Just kind of thinking how has the share of copper increased and the battery metals.
Yeah. Yeah. I wouldn't say that from last year the change hasn't been that big. We, we see and same comment what I remember commenting after the fourth quarter was that we do see more and more lithiums and these really the battery metals, battery-grade nickel projects coming up. That is, that is something where we at least see a number of projects growing, and lot of interest and lot of activity in them. Copper as such is a major item currently. Is gold as well. What is in the equipment side and project side, almost nonexistent is iron ore at this moment. Very little activity there.
In pelletizing, there is activity and we've announced several orders lately or lately on pelletizing. Pelletizing, but not in sort of a mining site referring to grinding and crushing and grinding and that part of the combination part of the process.
Thank you.
... copper, gold, battery metals.
All right. Thanks. My final question is on the margins. Can you comment on the kind of profitability of services and equipment in minerals and aggregates? I mean, without going into numbers, can you comment on the levels? Reason for asking this is that you actually achieved this very good margin in aggregate while the services share in that business came down to 31%, and then in minerals it was about double that, but it had lower margin as a whole. Just wondering kind of how does this split between the equipment and service profitability in these divisions?
Sure, sure, Panu. Like we've commented early on, we've been able in aggregates to really do a very good work for uninterrupted good work on the modularization and really on the product profitability. Also a lot of footprint changes on what we produce where and that really is a major lever in the profitability improvement because we, like you rightly point out, the services, it is not service growth is not behind because we really haven't seen a service growth in that business.
Hence, I think it's fair to say that we believe we are really at the sort of top end of the top end of the companies when thinking of this type of a productized business. Again, on minerals, we've said that we've obviously been much more busier with the integration and whilst there's sort of, there's a lot of good work ongoing on the modularizing and productization of the offering, we have still much more work to be done. Hence there, the difference between aftermarket profitability and equipment profitability is still material. We're working on both.
It's really on improving on both elements rather than sort of necessarily been chasing one or the other, so to say.
Okay, thanks. Can I just have a follow-up? Clearly aggregates like equipment profitability is higher than minerals at the moment, but is the service profitability similar?
In typically, in a business where customers are more 24/7 focused, obviously the downtime cost is much higher in mining than aggregates, and does, that does impact customers' willingness to pay for avoiding downtime. That, and then of course it puts tougher requirements on also us to deliver. That explains why the aftermarket tends to be more profitable in mining.
They are structurally different businesses. Aggregates, most of the go to market, the most common is via distributors. We do sell spare parts and wear parts to distributors, naturally with a discount, which means that upfront margin is lower. At the same time, we don't engage ourselves to professional services. Labor component, it's much lower with our dealer business. Therefore it's quite difficult to compare them. We participate the aftermarket with the most profitable part of our service offerings, spare parts, the Aggregates business, while we have a full offering in the Mineral side, but the volume is much greater and percentage of aftermarket is much higher there.
Okay. Thank you.
The next question comes from William Mackie from Kepler Cheuvreux. Please go ahead.
Yes. Good morning. Thanks for the time. Kepler Cheuvreux. My first couple of questions relate to aggregates, please. How you observe the trends in Q1 and looking to Q2, how would you describe the distributor inventory levels by region and perhaps the distributor behavior in Q1, if there was any pull forward of the sort of spares and consumables or equipment? Perhaps how you're reading the distributor stock levels and how they may behave going into the second quarter or the second part of the year. My second question again relates to aggregates.
Just to really understand what you're communicating, the success of all of the work on the pricing actions and cost actions and the benefits of perhaps a normalization of the supply chain, we should be anticipating you can sustain this level of profitability for at least the foreseeable 1 to 2 quarters ahead. It's how we should perhaps specifically think about that margin level that you've now achieved.
On the on the distributor behavior, I think there is a regional difference. I think so there is not necessarily a big difference between distributors and end customers per se. They are both much more cautious in Europe and both customer groups are more bullish in North America. This very much relates to the underlying demand and availability of funding and the whole picture. In Europe, there is clearly visible caution and as said, volumes in units, in unit terms, volumes are clearly down from a year back.
Just the fact that inflation in a way, when we report in EUR masks part of the part of that volume drop. Obviously it means that they're they are more focused on their inventory, and so are we, because it's not in our interest either to push anything into a pipeline that doesn't move. We also need to manage our risks very much in the same way as we did in 2020 when there was a caution in the market. Then to your question on aggregate.
Yes, indeed, when we are able to really run the operations on a full level, we think that there's nothing extraordinary in the quarter. But of course there is uncertainty now on that volume outlook towards the second half of this year. And that will then obviously have an impact on how well and efficiently we are able to run the operations.
Thank you. My brief follow-up, again, sticking with aggregates. When you look over a longer time period and take into account the success of pricing, I mean, in aggregate, if we were to look at the changes that you achieved in equipment pricing over that 2.5 year period, what sort of price increase across the group should we be thinking of? Is this 10%, 15%, 20% in terms of the quantum?
It's more than any of those numbers.
Brilliant. Thank you very much.
Please state your name and company. Please go ahead.
Yes. Hi, Nick Housden from RBC. Thank you for taking my questions. My first one is a follow-up on the result of the strategic review of the metals business. I was just wondering if, you know, maybe without necessarily being specific about the exact numbers, if you could give us a rough idea of sort of the margin differential between the smelting business that you're keeping and the roughly EUR 300 million worth of sales in the metals business that you're carving out. You know, just looking at the all year numbers for the division, they were close to 11%, so it does imply that the smelting margin must be quite a good number, and correspondingly the margin for the other businesses is probably quite low. Thanks.
Yes, Nick. Maybe the best way to answer your question is that eventually when our preparations for the divestments advance enough, the two businesses for sale will move into discontinued operations, and smelting will then be reported as part of the minerals segment. We don't see the smelting business having a negative impact on the minerals segment margin. It is very fits well there, which tells you that when the total metals is around the 10%, obviously gives you an idea on the profitability of the two other ones.
Thanks. That's really helpful. My second and final question is maybe just looking sort of down the road and kind of through this mining cycle that, you know, we're experiencing at the moment. One of your peers that discloses aftermarket growth in their mining related businesses has said that that business over the past decade or so has grown at about 7% a year. I'm just wondering if we're thinking about, you know, modeling for your business, you know, minerals aftermarket sales growth, if that's a fair starting point in your view, sort of mid to upper single digits, or if there's sort of a structural reason why it would be different to that peer? Thanks.
Yeah. I don't see that there's any structural difference as a such. We haven't done the numbers serious. Maybe we should do that exercise to firm it up. I would say that we see fairly similar things happening. What we have done organically is we have grown our Life Cycle Services part of the business. There we have been growing faster than the market as a such.
Other than that, I would say that we've very much grown with the market and we've grown with the nature of the business as well. Of course, there are some drivers when we look into the future that where business is headed. For example, we know that filtration, dewatering will be done more, also tailings will be subject to filtration and that is relatively high aftermarket part of the business. We can expect some growth when we take a bit of a longer term view, medium term and long-term view on aftermarket.
That's great. Thank you very much.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Yeah, thanks for taking a follow-up. Eeva, just a question on the cash flow that you already mentioned, kind of the prospects in the coming quarters. Just coming back, is there any a headwinds that would prevent you on reaching a lower working capital per sales going into back half of year? I understand the seasonality, but just a year-over-year comparison, would you expect to release cash out of the working capital this year?
That's very much the target. Of course, the headwinds in a way are that we, as you see from our numbers, we are growing at very high rates. Of course, we have a natural need for working capital in order to keep our customer promises. Of course, compared to last year, there is more inflation in the system. Definitely working hard to turn the trend and as the supply chain and the overall sort of hassle risks have reduced. There's less need for buffers and extra checkpoints. That we are very focused on delivering a better cash flow this year.
Working capital is really the other element. Profitability we have a good start on.
Just to remind, if you kind of remove these excess buffers and extraordinary items, what's a long-term level of working capital per sales that you are targeting? What are kind of the self-help stuff that you are doing in order to get it a bit lower?
I think the challenge, Antti, is in our business that when it is cyclical business, there's not one number that will depend also on the cycle, for instance, where we are within the aggregate cycle or mining cycle. I think the sort of now the graph we had in our material, we're kind of trying to work in a way that this is a business where we shouldn't be sort of tremendously capital, working capital heavy per se, as a lot we work to orders rather than stock. Let's see. You know, During Metso Outotec, we've had 3 crazy years in supply chain.
I'm not sure I can expect the normal ever to come. The, as said, let's see where we get this year and certainly on a better level, and it'll be easier to discuss what the perhaps future normal could be.
All right. Thank you.
All right. We are approaching half past. As mentioned, we'll have our AGM starting momentarily, so we need to go to the meeting location and greet and welcome our shareholders and start the meeting shortly. This wraps up our first quarter 2023 results conference call. Thanks for participating. Thanks for asking questions, and looking forward to speak to you all soon again. Take care.