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17 Sep 2010
Approximately EUR 1.3 billion of long-term financial debt affected
Frankfurt am Main, September 17, 2010 -- Moody's Investors Service today changed the outlook on Metso's
Baa2 long-term issuer rating to stable from negative. The
outlook change was triggered by a sound order intake and a strengthened
order book, as well as a material net debt reduction.
Oliver Giani, Senior Analyst at Moody's said: "The
development of Metso's order intake during the last twelve months
is clearly positive. The company has seen the trough in demand
in September / October 2009 and the low point in revenues -- which
was well above what we expected in our downside scenario -- was reached
in February 2010. During this year so far the company's order
book increased by 22%, providing increased visibility for
future sales development. Restructuring measures initiated in 2009
should contribute to the improvement in reported EBITA-Margin."
Based on rolling 12-month figures, Metso's order intake
started to pick up in October 2009. Since then the company shows
a steady growth to a level of EUR5.6 billion of order intake during
the 12 months period ending in June 2010. Lead times between signing
of an order and final delivery and a conservative management approach
may be the reason why this has not yet caused sizeable revenue growth;
annualised revenues are still close to the EUR5 billion low point seen
in Q1 2010. However, this level is materially above the scenario
which triggered the assignment of a negative outlook on the rating during
2009. The positive message we take from these indicators is confirmed
by the company's recent revision of its net sales guidance to a
10 percent growth for 2010. This development should -- supported
by the restructuring actions taken -- translate into margin improvement
In addition to that, the agency notes that Metso was also quite
successful in improving its working capital management. Since January
2009 EUR525 million of working capital have been released and contributed
to a material increase in liquid funds. If including other interest
bearing assets in Moody's calculation Metso's net debt reduced
by more than EUR500 million to EUR 946 million as of 30 June 2010.
Albeit the company might require a higher working capital level when the
business picks up, we do not expect to see the former high levels
The stable outlook reflects Moody's expectation that Metso has seen
the trough and that the factors mentioned above will allow the company
to at least defend the current level of profitability. Also,
we expect Metso to be able to stabilize the generation of retained cash
flow at the current level and to use the liquid funds available to reduce
debt at maturity.
Moody's notes that one of the key limitations to the rating is the expectation
of a certain volatility of the company's financial performance,
which has been incorporated into the Baa2 rating. Moody's cautions
that growth strategies combined with a generous dividend policy exceeding
Free Cash Flow generation or slackened corporate discipline could have
negative rating implications. Further, a significant and
continuous disruption in earnings and cash flows, resulting in Retained
Cash Flow to Debt metrics falling to the high teens at the low point of
a cycle would place downward pressure on the ratings. With regard
to liquidity, Moody's would expect Metso to manage an early
extension of its EUR500 million revolver maturing in December 2011 and
to keep liquidity provision sufficient to cover even extreme working capital
Any upward rating action would require a sustainable and structural stabilization
of Metso's debt protection metrics (RCF/Net Debt sustainably above 30%
and FCF/Debt in the range of 7% - 10%) beyond a cyclical
recovery, supported by a conservative financial policy.
..Issuer: Metso Corporation
....Outlook, Changed To Stable From
The last rating action for Metso was on November 16, 2009,
when Moody's concluded a review for a possible downgrade of the
rating with a rating confirmation at Baa2, negative outlook.
The principal methodology used in rating Metso was Moody's Global
Heavy Manufacturing Rating Methodology, published in November 2009
and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Metso Corporation, headquartered in Helsinki, Finland,
is a leading global supplier of machinery and technology for the pulp
and paper industry, rock and minerals processing equipments,
and control valves for the energy and selected other industries.
The company operates in about 50 countries with 28 thousand employees.
For 2009, Metso reported revenues of EUR5 billion and a EUR151 million
Frankfurt am Main
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's changes the rating outlook for Metso to stable
An der Welle 5
Frankfurt am Main 60322
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