Perttu Louhiluoto President, Automation November 27, 2013 ...

Creating performance and success

Perttu Louhiluoto President, Automation

November 27, 2013 London, UK

Our development for the past 12 months has been very good 1

Automation is a growth business and we serve diversified industries

2

We have solid growth opportunities in all our focus industries

3

We are ready to execute on our ambitious targets 4

© Metso © Metso

Metso in O&G – safety valves practically invulnerable for sabotage

“The facility's hundreds of control valves (officially known as ESDs; or emergency shutdown devices),… ,were virtually invulnerable, having been recently refitted with something called a Neles ValvGuard system”

(Extract from Dead or Alive by Tom Clancy, page 566)

Petrobras Paulinia’s (REPLAN) oil refinery is a terrorist target, but Metso’s intelligent safety valves provide a high level of protection.

Capital Markets Day 2013 3

© Metso © Metso

Our Automation business today

Flow control solutions, automation and information management networks and systems, combined with life cycle performance services

Flow Control Flow Control solutions covering control, automated on-off and safety valves, as well as intelligent positioners and instrumentation

32% of net sales

Services Services to maximize our customers’ profitability, ranging from process optimization to intelligent maintenance and upgrades

45% of net sales

Process Automation Systems Complete process automation solutions covering control systems, specialty systems, measurements, analyzers, and other applications

23% of net sales

Net sales 2012: EUR 859 million Personnel ~ 4,100

Our customers: O&G, P&P, Power, Mining, and other process industries


© Metso © Metso

Share of personnel in emerging markets has increased


61 % 26 %

8 %

3 % 2 %

December 2005 Total number of employees: 3,169

September 2013 Total number of employees: 4,250

Europe and CIS South and Central America

Asia-Pacific

North America

54 %

20 %

19 %

6 % 2 %

Africa and Middle East

Europe and CIS South and Central America

Asia-Pacific

North America

Africa and Middle East

Transactions 2005 - 2013 Acquisition of Kemotron (conductivity measurements), Mapag (high-performance valves), Viconsys (Machine vision), Valstone (Globe valves), ExperTune (Performance services) : ~200 people

© Metso © Metso

Major achievements during this year

Capital Markets Day 2013 6 *before non-recurring items

Driving services growth by acquiring ExperTune (performance services)

Investing in a direct presence in emerging markets by in-housing our valve production from the SNJ joint venture in China (divesting 50% holding of joint venture)

Significant GP-% improvement in Flow Control

Realized procurement savings of EUR ~5 million

Acquisitions Operational improvements

Operative ROCE-%

EBITA-%*

EBITA*, EUR million

Orders received, EUR million

Change from 1-9/2012 1-9/2013

+8% 693

+12% 79

+1.8-points 13.0%

+5.4 % -points 35.3%

© Metso © Metso

Strong profitability improvement in Flow Control


Jan 2008 Sep 2013

Multiple percentage points

Main sources Improved supply chain

management and procurement savings

Reduced fixed costs Volume leverage Price management

Flow Control GP-% development



2


3

We are ready to execute on the ambitious targets

4

© Metso © Metso

We are in a market strongly driven by megatrends

Capital Markets Day 2013 9 Source: J.P: Morgan Global Industrial Automation research Sep 2013, data from VDMA.

Automation helps process industries: generate more output

from less input (labor, materials, energy)

generate less waste and pollution

optimize yields improve environmental

management and compliance

maximize uptime

Automation industry net sales growth vs overall machinery sector

© Metso © Metso

We serve a diversified mix of industries Approximate net sales split


Mining and other

Power

Oil & gas

Pulp & Paper

#1 Automation provider in P&P

75% of the world's pulp flows through Metso valves

40% of the world’s polyolefin flow through Metso’s valves

60% of all LNG flows through Metso’s valves

Nearly

1,000 power plants worldwide feature Metso’s process automation

>100 Minerals processing systems delivered

1st Industry’s first mobile crushing plant automation system

40%

40%

10%

10%

© Metso © Metso

Markets are expected to continue to grow

Capital Markets Day 2013 11 Source: EIF, ARC, Frost & Sullivan and Metso estimates

Pulp & Paper

Power

Mining

Up- and midstream

Downstream

Chemical and Petrochemical

Industrial Gas

Oil

& G

as

Total market size, USD bn

Short-term outlook

Long-term outlook

Automation CAGR-%, 2012-17

3

4

25

13

14

3

6

6

6

6



2


3

We are ready to execute on the ambitious targets 4

© Metso © Metso Capital Markets Day 2013 13 Source: EIF, ARC, Frost & Sullivan and Metso estimates

Automation market: USD 38 billion Addressable market: USD 5 billion Market growth rate: 6% Metso market position: Established niche position Main competitors: Emerson, Flowserve, Samson

• Automation has grown its oil & gas business consistently over time

- 10-year CAGR: ~10%

• We have established strong direct sales channels and a presence with major end-customers and engineering, procurement and construction companies (EPCs)

• Very fragmented business with a large number of players

• Strong and growing services business

Oil & Gas is a highly lucrative automation market with the biggest potential for Automation

40%

Net sales split (Approximate)

O&G

Opportunities for profitable growth for Metso

© Metso © Metso © Metso © Metso Capital Markets Day 2013 14

Lot of opportunities globally – including in frontier markets

North America • Shale/Tight oil • Shale gas • Oil sands • Petrochemical

South America • Brazil Pre-salt • Shale gas

in Argentina

China: • Refining • Shale gas

reserves • Pipelines

Asia-Pacific: • Conventional

oil & gas • Refining

EMEA: • Conventional oil & gas in: • Middle East, Africa

and Russia • Russia refinery

modernizations

O&G

Regional share of Automation’s oil & gas sales

%

35%

10%

20% 5%

30%

© Metso © Metso

Metso can solve customers’ challenges


Customer challenges 1. Improved profitability 2. Environmental concerns and

compliance needs 3. Safety concerns 4. Maximized uptime

Metso solutions Maximize the profitability of our customers’ businesses with the most reliable and cost-efficient solutions Services: • Intelligent maintenance and shutdown

solutions • Process and control optimization • Replacement products and spare parts • Upgrades and extensions

Flow Control: • Control and automated on-off valves • Emergency shut-down (ESD) valves

Process Automation: • Process Control systems

O&G

© Metso © Metso Capital Markets Day 2013 16

• Solutions for improving customers’ plant operation • Flexible solutions enhansing

production, efficiency, quality, or other business objectives • Can be applied to greenfield or

brownfield sites • Can be sold

- as a service and as software - through direct and partner

channels

Focus on optimizing performance ExperTune

O&G

#8,000 installations globally

http://en.wikipedia.org/wiki/File:MarathonOil.jpg

http://www.satorp.com/home.html


Automation market: USD 3 billion Addressable market: USD 3 billion Market growth rate: 3% Metso market position: #1 Main competitors: ABB, Honeywell, Flowserve

• Globally a niche segment, where Metso is the #1 player

• Some segments are growing, and growth is projected for pulp & paper automation overall

• Limited number of new entrants expected and competitors defocusing

Pulp & Paper provides profitable growth opportunities for Automation

P&P

40%


Opportunities for profitable growth for Metso


• Metso’s automation offering for pulp, paper, and power has brought strong results - World’s leading process automation, flow

control solutions and related services provider for pulp and paper

- Widest range of automation-solutions for pulp and paper • Unique automation technology

and product development - Close cooperation with equipment vendor

and plant suppliers in projects and in sales

• Close cooperation with Metso and Valmet will continue benefitting both companies and on customers

Metso and Valmet will continue to work closely together

P&P


Automation market: USD 14 billion Addressable market: USD 5 billion Market growth rate: 6% Metso market position: Established niche position Main competitors: ABB, Siemens, Emerson

• We have consistently developed the power automation system business for many years

• Our technology is installed in over 1,000 power plants globally

- Niche position in bio and waste-to-energy and in selected countries

- Partners utilizing our technology • Entered the indian fossil fuel power

generation with Bharat Heavy Electricals Limited (BHEL) - >80% market share in Indian Distributed Control System (DCS) market in power

• Entered the Chinese fossil fuel power market with SAC JV

Automation is looking to grow in the power industry with partners

10%


Power

Opportunities to grow through our partners


• JV established with Guodian Nanjing Automation Co., Ltd (SAC) in 2011 (Metso 33% / SAC 67%) - SAC is a public company owned 58% by Huadian Power

International Corporation Limited, one of the five largest power generating companies in China

• Our Distributed Control System (DCS) technology complements SAC’s digital power plant offering in turnkey deliveries for Huadian Corp’s power plant projects

• Fast business start-up, with numerous projects won, commissioned, or being commissioned

• SAC JV's first project with DCS and turbine controls for an ultra-supercritical 1,000 MW plant successfully commissioned at Huadian's Jurong plant

Success through partnerships: Case SAC JV

Power


Automation market: USD 4 billion Addressable market: < USD 1 billion Market growth rate: 6% Metso market position: Established niche position Main competitors: ABB, Honeywell, Rockwell

• We have gained a foothold in mining automation

• Market is developing rapidly – large demand for intelligent solutions to solve major industry challenges

- Increasing HSE standards - Decreasing ore grade quality - More remote mine sites and

scarcity of talent - Rising energy and water costs

• Our offering includes complementary slurry pump and valve solutions

Mining provides lucrative growth opportunities for us

10%


Mining and other

Excellent opportunity for us to develop intelligent solutions by combining our process, equipment and automation know- how

© Metso © Metso

Customer World’s third largest hydroelectric plant Contractor: Consorcio Construtor Belo Monte – CCBM

Delivering intelligent solutions: Case Belo Monte


Engineering, Procurement and Construction (EPC) for crushing plants Mining and Construction

3 fixed, fully automated crushing plants Mining and Construction

3 mobile crushing plants featuring remote monitoring Mining and Construction

Process automation and info systems for all six plants Automation

Mining and other

Intelligence

Equipment

Solutions

Remote monitoring system for mobile equipment Automation

http://en.wikipedia.org/wiki/File:Belo_Monte_Dam.jpg



2


3

We are ready to execute on the ambitious targets 4

© Metso © Metso © Metso © Metso Capital Markets Day 2013 24

We have set ourselves ambitious targets in Automation

Become a leading provider of advanced

automation solutions for mining and construction

customers

Become one of the industry leaders

(profitability, scope, and size) in the flow control space

Become one of the top 3 flow control companies in oil & gas,

refining, and petrochemicals

Achieve a significant and growing PAS

business outside pulp & paper

Maintain market

leadership in pulp & paper automation

Achieve significant growth in services

© Metso © Metso

We are focusing on prioritized must-win initiatives to reach our targets


Services

Technology

Growth countries

Operating model

People

Developing new businesses

• Expand service business offering and competencies • Strengthen our network

Must-win Initiative

• Strengthen the role of regions • Increase growth in China, Brazil, India, Russia, and the Middle East

• Develop and expand our valve offering • Develop Metso DNA as a growth platform

• Strengthen cost-competitiveness and operational excellence, sourcing in particular

• Ensure that we capture the true value of acquisitions

• Strengthen our safety culture • Upgrade critical core competencies

• Grow in mining and construction automation • Grow in analyzers


Conclusions

Automation’s organic development for the past 12 months has been very good

We have solid growth opportunities in all our target industries Oil & Gas Pulp & Paper Power Mining

We have set ourselves ambitious targets: Become one of the top

3 flow control companies in oil & gas, refining, and petrochemicals

Achieve significant growth in services

Achieve a significant and growing business outside pulp & paper

Become a leading provider of advanced automation solutions for mining and construction customers

We will achieve our targets by: Strengthening our cost-

competitiveness and operational excellence

Strengthening the role of regions

Expanding our service business

Developing our technology leadership and new business models

© Metso © Metso

Automation

28

Business model

Services Mix of Flow Control and Process Automation system clientele

Metso direct sales and service network

>90%

A few agents in selected markets and distributor network in North America

<10%

In-house spare parts operations. Knowledge based services and OEM maintenance.

70%

Spare parts components and sub-contracted basic services

30%

Customer base

Sales & service

Product supply

Capital Markets Day 2013

Flow Control Global large end customers and EPCs. Number of regional and local players. Long-term focus.


80%

A few agents in selected markets and distributor network in North America

20%

In-house order engineering, production of key components and assembly

50%

Externally purchased materials, castings and components

50%

Process Automation systems A few global corporations and a number of regional and local players. Long-term focus.


>90%

<10%

In-house assembly and final testing, in-house project management and engineering

40%

Externally purchased components, sub-assemblies, engineering and services

60%

A few agents for selected products and markets. Role of strategic partners increasing

Perttu Louhiluoto President, Automation November 27, 2013 ...

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