Metso Outotec Oyj (OUKPF) Q2 2021 Earnings Conference Call August 4, 2021 6:00 AM ET

Company Participants

Juha Rouhainien – Vice President of Investor Relations

Pekka Vauramo – President & Chief Executive Officer

Eeva Sipilä – Chief Financial Officer

Conference Call Participants

Magnus Kruber – UBS

Klas Bergelind – Citigroup

Artem Tokarenko – Credit Suisse

Nick Housden – RBC Capital Markets

Tomi Railo – DNB

Robert Davies – Morgan Stanley

Antti Kansanen – SEB Markets

Juha Rouhainien

Good afternoon. Good morning, ladies and gentlemen. This Juha from Metso Outotec [ph], and I want to welcome you all to this audio cast and conference call, where we discuss our second quarter and half-year results for 2021, that we published earlier today.

Results will be presented by our President and CEO, Pekka Vauramo, and CFO, Eeva Sipilä and after the presentation; we’ll have time for Q&A, as always. We’ll try to limit the length of this call into 60 minutes, so please be brief with your questions when you ask them. And as you can see from our presentation, in the first pages, we have the usual forward-looking statements, and then some information about the financial data we have put out, in terms of both IFRS based-numbers and illustrative financial information.

Without further ado, we’ll kick off the presentation. I’ll be handing over to President and CEO, Pekka Vauramo. Please go ahead.

Pekka Vauramo

Thank you, and thanks for — thanks for joining this call, and we’ll go straight into quarter two. We saw as we — as we said in our outlook, a strong market activity during the second quarter, and I’m sure you have noticed that in our order. And order announcements that we have made several of them during the quarter. And order intake was really strong in all of our three segments. Then when we look at the top lines of segments, aggregates, we saw really strong ordering intake, sales and profitability, as well — as well in fact, we are on record level now in aggregate, so all together. It’s, of course a good result, but I have to say that it was something that we were expecting to happen now in this kind of marketing environment.

On slight disappointment side is the low sales of minerals, a good order intake there as well, but low gross sales, primarily because we are now delivering low order index that we did book end of last year. And we — we’ve been saying all the time that one should not expect our top line start to grow before second half of the — of the year and that is still the outlook on that side. Metso’s turnaround program is progressing and we were able to show black numbers now. Now those small one but more important is that we are moving ahead with that plan and integration as such, we are ahead of the original plan, and we’ll — well on speed and plan to achieve 120 cost synergies — €120 million cost synergies by the end of the year. And, clearly, sustainability is gaining importance, and this visible in many areas of use in our own operations, but we are seeing it already in our order intake and the type of orders that we are — we are receiving from our customers.

Then on the figures, orders received grew by 43% so good — strong performance, as we were expecting second quarter to be very positive and favorable. Sales flat, just like we had been saying that we shouldn’t expect top line start to grow before second half of the — of the year.

Adjusted EBITDA slightly below last year’s €135 million to €139 million last year and this, primarily, because of the sales — low sales during the quarter. Operating profit, €97 million last year, €89 million, we are seeing now smaller number of — in our adjustments, as we have progressed already quite far in our integration and synergy work. So that is then increasingly that line. Cash flow continues to be on our strong side. However, we will see that one going down as we — as we move on and as the top line starts to grow and we start to tie capital — working capital into our supply chain, primarily. And in the integration side to cost synergies, we track €105 million run rate until we — we’ll — on track to achieve 120 by the end of the — end of the year. COVID is still with us as we — as we all know, and by, no means, it’s not over, yet we see different variance, as we all read about and third waves on fourth waves coming.

We are seeing some domestic traveling, recovering. The next says here, Australia, but reason from Australia is that — is that part of the country is in complete lockdown. So because of the recent cases there, so situation is still changing. This is affecting, primarily, our service activity our minerals business. Our own operations have such — have been running well with the measures that we have in — have in place and we don’t — we haven’t had any major outbreaks or COVID there, in any of our locations. Then going into segments aggregates, really strong order performance €363 million, that’s nearly 70% more than — more than a year ago. And it is the infrastructure packages that is encouraging — encouraging the industry to invest and have the — have their production machinery in good shape for the upcoming projects.

Sales at €320 million that’s up, nearly, 30% and, obviously, that is — that is, basically, orders that we did book in the — in the fourth quarter of last year and beginning of first quarter of this year and that was the basis for highest sales and right now. Adjusted EBITDA €47 million now, last year €34 million record margin level, and to great extent, thanks to — thanks to volume growth, but also good self-help that we have done, implemented the improvement programs and measures during the past 12, 15 months in our aggregates business. Then a minerals audit performance was up from last year €645 million last year, and now €755 million good performance in that regard. And if you remember reading from our order announcements of some of our orders, they are joint orders for metals and minerals, and they have that type of orders really contributed nicely into — in minerals order intake, but good flow of smaller orders — medium-size orders, which is always healthy in a — in a business. And, of course, the order line growing so much faster than the sales line, it means that our sales will start to grow as well, as we as — we move on. We do have negative currency impact on these top line numbers but that doesn’t really explain the profitability drop as is not so much because we do have quite a lot of natural hedge in our system.

Sales; €578 million versus €650 million last year, and that is just the timing of deliveries and the low orders end of — end of last year, and of course, yes, COVID is affecting our service sales still and we are somewhat behind; and service naturally has bigger — lower service sales has naturally have bigger impact on profitability. Adjusted EBITDA down from €110 million to €82 million, margin of 14.2% [ph]. And we have some internal issues relating to our integration and merger or merging of our warehouses and things like that, in addition to the issues with global logistics that we all suffer from.

In the metal side, orders really grew by — from €87 million to €243 million, so three times more orders, roughly, now than a year ago, and market activity really is improving. And we saw several orders — medium-sized orders in — from the pelletizing plants, and that is very positive development. Overall, sales €112 million flat, compared to a year ago, and they’re as well timing of deliveries that the big orders that we have — and lot ordering intake end of last year, will only start to realize in the second half and — of this year and the beginning of next year.

Adjusted EBITDA slightly on black side €2 million important is that turnaround program is going well, and the orders that we booked during the quarter and, of course, the major order that we had booked after the quarter is contributing really nicely to the — to the possibilities to have a nice turnaround for metal spaces.

Eeva, please?

Eeva Sipilä

All right. Good morning, good afternoon on my behalf to everyone as well. One year since the closing of the Metso, the tech transaction — our financials are getting easier to read.

As similar to Q1, the actual Q2 figures are straightforward as is any sequential comparison or — comparison to year in — year-end in the case of, for example, balance sheet numbers. However, please do remember that on the comparison to 2020 first-half or second quarter, under IFRS, that year-over-year comparison is only the Metso minerals numbers. So for operationally better comparison, I recommend using the illustrative combined figures when it comes to second quarter 2020 or first half 2020. Earlier, words of caution still apply that they do combine the history of two separate companies. So they are — as their name says illustrative. But moving to this other income statement, so let’s go to the sales in the second quarter were just over €1 billion so flat year over year. Sales are, however, over 9% up sequentially.

I do appreciate that even if we have highlighted that the backlog composition, especially in minerals and metals segments after several weak order quarters last year, in the midst of the COVID-19 is very second halfway to this year, as that backlog only got more support from orders from Q4. Last year onwards, this sales number of a — just over €1 billion is on the low end of expectations. Only in our aggregate segment is the revenue recognition more immediate following order intake and, overall, of course, lead times from order to delivery are much shorter in that segment. Now, unfortunately, this is a timing issue. Our order intake is very encouraging for future revenue growth. However, you should more expected minerals and metal segments the sales growth to start moving up over the coming quarters, rather than sort of assume any abrupt leaps.

We did some — face some unplanned delivery issues, and due to having a few bigger footprint moves in our supply and warehouses coincide with a quarter with the, overall, very challenging global logistics availability. And even small misses get big if the availability and cost of a new routing is far from normal — was not the big number in volumes, the fixing was not free either and, hence, gross profit is also slightly impacted and does not really reflect the good work done in most of the company. Nevertheless, €131 million translating into 12.9% adjusted EBITDA margin is 50 basis points up from Q1. And we are pushing on many fronts integration and business-specific improvement measures to mention the two main drivers to continue towards our margin target of 15%.

Adjustments were €13 million in the quarter, mainly from the integration. PPA amortization was another €13 million and other immortalization €8 million, which will then, leads to an operating profit of €97 million. We have an unchanged guidance for the integration related adjustments for this year so that you can expect some of that still to come through in in the second half. But, thereafter, you only then need to model the non-cash amortization elements.

Moving to the P&L elements below operating profit on the next slide, I would, perhaps, just note that we’re delivering integration benefits also in our effective tax rate, which is at the 25% level year to date. Earnings per share for continuing operations were seven cents for the quarter and 15 cents year to date. Thanks to a small capital gain from our divestment of the aluminum business in April, the year-to-date EPS, including discontinued operations is two cents higher, so 17 cents.

Moving through our balance sheet; so total assets are up some €100 million from the beginning of the year. You’ll still see a modest growth in inventories and receivables, however, clearly indicating the direction we see when you when you sort of remember the strong order intake in that we’ve seen in the in the first half. We were able to pay back debt, as well as the first installment of our dividend and still maintain a solid level of liquid funds. A few highlights on our cash flow, firstly, obviously, very happy to see continued healthy cash flow in the second quarter. Since the merger of Metso, the tech we have delivered solid cash flow in every quarter, which has helped to quickly strengthen our balance sheet. As we move forward, we do expect sales growth to affect our working capital increasingly, but similar to Q2 where in addition to profit from continuing operations, we saw a positive contribution from divestments under discontinued operations we do expect to see further support on that row also in the second half, from the divestment announced.

Looking down at their net working capital by item, the balance of the items is really similar to earlier inventories stood at €1.154 billion at the end of June. Trade payables continued to exceed. Trade receivables also in Q2, we’ve seen the advances increase slightly, as we’ve booked some bigger orders where they typically form a part of the payment structure. Lastly, on our financial position, as mentioned, healthy cash flow has improved our balance sheet KPIs since the merger. During the second quarter, we cancelled two revolving facilities, which would have become short term and were signed when the COVID-19 uncertainty was highest, and we didn’t feel we would need them anymore. The base revolver of €600 million is more than sufficient for our needs. Also, we had a strong cash position — as we had a strong cash position, we made an early repayment of €50 million on our term loan. So net debt totaled €686 million at the end of June, and our debt to capital was 33.4%.

And with that, I would hand it back to our President and CEO, Pekka, please.

Pekka Vauramo

So, thank you, Eeva. A few words on integration and strategy before we go into Outlook and Q&A. Like mentioned already, I mean run rate basis the cost synergies, we track €105 million now. Now, this means that our original plan that we announced at the time when this transaction Metso, the transaction was announced was €100 million, so we are ahead of that plan both time-wise and in total already.

Already under — and €122 million remains the target at the end of the — end of the year. The remaining work is primarily in the area of I.T. and procurement and for the rest of the year. Restructuring of the organization is almost completed now, but we have enough work and enough sort of programs that will contribute towards €120 million by the end of the year. Then the sales revenue synergies, we have reported, in our current sales line, year to date on €40 million of revenues and entries and this additional €91 million that we have in our order backlog. So that number is starting to be already sort of meaningful number and is closer — getting closer to the — to the — to our target, which is €150 million by the end of — end of next year. And the estimated — the restructuring cost integration cost is €75 million and so far we have booked €51 million of that.

And I mentioned earlier on that, that sustainability — we are seeing sustainability already in our order bookings. We are developing a measurement, which we will be able to track in future. In future, we were not able to do it yet but we already know that the share of planet positive products and technologies is increasing. And it’s really becoming a criteria for customers when they — when they take decisions and part of — part of justification of project center investment cases. We are committed to 1.5 max global warming and we have the science-based targets established for that one. We are tracking well in achieving those science-based targets, we are in fact well ahead in some of those lines, but this also volume related issue, especially the emission side of it and, currently, we are going through a low volume period and, therefore, we are slightly ahead of those targets at this moment. We will sort of get closer to this once the volumes get normalized later on, and we are engaging our suppliers as well into this work we have set a target that 30% of suppliers spend by 2025, we need to have science-based targets and that work has started.

And we launched the Planet Positive product portfolio, and that is really to make easy for customers, to make the right ecological choices or the best ecological choices and to make easy also for external world to track our performance and sustainability. And then, in other financial ESG safety work that we have been doing very consistently, by addressing things that are not moving in the right direction and addressing those locations where we may have had issues is really bearing fruit. Now, we are here to date — on year-to-date basis on LTI F1 on record low level at 0.6. And just to mention in the — in the — in the month of June, we didn’t have any lost time injuries with our own employers and only one with our contractor. So good improvement on first time for Metso Outotec to be on monthly basis that low level, but the work continues any incident or injuries on unnecessary under — and we keep on working with that.

Planet Positive is visible in orders, pellet plants, several orders. As we have booked them, they all contribute towards lower emissions in steel production, the lightweight metal Outotec the truck bodies that we are — we are selling, and still in the launching phase of that one, but we are starting to have a very good footprint already globally on — with those ones. And if you recall, the lightweight truck body means that any ore that is hauled with it, requires 10% less fuel and reduces those 10% emissions. And, yes, we have some process plants and precious metals, recycling plant and lithium plant orders that we have booked, and they are naturally in this area.

On highlights, really the major one is the €360 million order, which we — which we booked after closing of the second quarter. So this number will be reported in the third quarter order intake. It is a joint order between metals and minerals. About 80% is metals and 20% minerals. It is a massive project of astrocytes copper smelter, well-known technology we have delivered flat smelting technology based, copper smelters more than 55 zero basis to different parts of the — of the — of the world and, therefore, we don’t feel that that this includes any technological risk as such. So very, very happy about that one. That is a project that has been discussed and debated in Indonesia, possibly, for 10, 15, maybe 20 years and now finally then the parties decided to progress with that.

Then we just announced signing of the agreement with Ahlström Capital to divest waste recycling. We expect that one to close during the — during the fourth quarter of the — of the year and the metals recycling divestment is in progress and, hopefully, we’ll hear something about that one by the — by the end of the year.

The market outlook, we are on sort of — on relatively high level as our order intake is also indicating that one. We’re expecting the high and strong current level to continue and remain. COVID is, of course, around us, as we all know, and we will see is still impact of that one. And, especially, the changes and the new variants of virus will cause sort of unexpected events in near future as well. But I would say that in a big picture, our industry has shown that it’s very resilient against this kind of pandemic, but it does cause some operational issues which is affecting slightly our numbers as well. But we expect in, general, the environment to remain at the current strong level.

Thank you.

Juha Rouhainien

All right. Thank you, Pekka. Thank you, Eeva. And now it’s time to open the lines for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Magnus Krupa at UBS. Please go ahead. Your line is open.

Magnus Krupa

Hi, Pekka, Eeva, Magnus with UBS; a couple of questions from me. I guess, first off, I’ll start where you ended, Pekka, on the outlook; I think to be able to — you’re thinking about the outlook statements in terms of the different business areas? I mean, you’ve shifted from improving to current strong leverage. Is there sort of an element here of sustained momentum in mining offset, perhaps, by a sort of tempering or a cool or, in aggregate, as we go into the second half? Or how do you think about the business areas in the context of updated objects that are variable.

Pekka Vauramo

You know, I think it’s a — it’s a very well sort of thought by you — by you. I mean, our aggregates business is seasonally lower in the second half of the — of the year, and that is, of course, reflected here in the statement as well. And then on the other hand, we are — we are on high level in our order bookings both in metals and minerals. Minerals now it’s time really to deliver and execute the order book. We will see nice orders going forward, as well — as well but very difficult with the — with the — with the COVID situation to say that we would — we would go much higher than where we are at this moment. In order to climb higher level at this moment, we really would have to clear the pandemic first.

Magnus Krupa

That’s very — that’s very helpful. Actually just continuing on that point, I mean, if you could talk a little bit about your pipeline for the year in mining overall, do you have anything similar in the nature of the recent order? Maybe, obviously, if you could discuss if there’s any differences between the minerals and the metals that would most be interesting and, obviously, the metals market seems to be to be heating up quite a bit now.

Pekka Vauramo

Yes, that’s right. I would say that minerals market is heating up as well but the nature of minerals business is different. There are project orders as well in minerals but they are smaller orders. Metals orders tend to be bigger ones. And because the business is somewhat low, it makes the business it bit more the — bit more difficult to forecast the metal side and the — and then makes it look also very lumpy, especially the order intake. But we like how — the way how minerals currently is that the orders are smaller in size. There are — there — they are — they’re well manageable as such, and risk profile is something lower than and, typically, in our metals businesses.

Magnus Krupa

Got it. And in the metals, and, specifically, do you have anything in the pipeline that sort of similar to the freeboard order? I mean, I know there’s a Swedish company building something in Norway that’s pretty big.

Pekka Vauramo

Yes, that’s right. But I mean anything that would start with the — with three, no, we don’t.

Magnus Krupa

Okay, got it. Thank you so much.

Operator

Thank you. Our next question comes from the line of Klas Bergelind of Citi. Please go ahead. Your line is open.

Klas Bergelind

Thank you. Hi, Pekka and Eeva, it’s Klas at Citi. So my first question I had is on the margin drag from the supply chain issues in minerals. And part of this is related to the integration of Metso Outotec. And so firstly, what impact was this on the margin in minerals? And do you think this effect will last till year end? And I would also assume that the listing of the mobility restrictions eventually should help the service business quite a bit into the second half. So if you could, perhaps, help us also, with the pent-up effect there, how much below normal levels is the service business? So several questions in one sort of impact, first, of the margin pressure, because of the integration will stay until year and then likely pent-up effect in services. Thank you.

Eeva Sipilä

Thanks, Klas. If I tried to answer that, I mean, we were — we’re not talking about a huge number per se, from the — as a drag from the actions. Now clearly, sort of we’ve had — have had challenges in being on time in some of our supply units. And hence, then we’ve had to use air freight, for instance, to compensate to kind of catch up to make it still on time or less, less late to the customer and these are the things. Now, obviously, we wouldn’t be talking about them if they weren’t millions, but it’s still a sort of more a single million issue. We tried to sort of estimate kind of how much — how much sales we lost on the aftermarket side from the hassle. And in the consolidation actions, we, basically, been moving — consolidating inventories from several locations to fewer locations, and kind of gearing up in the new location, then the operations is where we’ve sort of had the had the issues. Maybe it’s around sort of roughly €15 million of sales. So it’s, of course, money in the quarter. But, I think, the sort of big — a big, perhaps bigger impact, really, to the sort of consensus sales was really from the backlog, and we were just not clear enough in our communication on the sort of order backlog composition or, perhaps, earlier. Then, the actions are now complete.

I mean, it’s sort of we are in the locations we want to be and ramping up operations. So in that sense, we’re well on track. Of course, it takes a bit of time to catch up, but we’re not — we’re not really expecting or planning for disturbances in the second half. We do need to sort of just fix the issues and, in that sense, sort of move forward. Then you had a question on the mobility. Yes, that’s, of course, when you sort of the news is daily changing on what restriction one has and where, difficult to answer. But, as we write in the report, when the restrictions have eased, we have sort of seen then the possibility and willingness from customers to meet us at site and get kind of a bit back to normal. But, of course, it is subject to an abrupt changes back to restriction mode as well. So it’s — I think that is something that I assume we’ll see for the rest of the — rest of the year.

As partly, of course, we’re learning to move around it, but there’s just the element of other things that actually have to happen on the site, and hence sort of that it would just need to sort of follow sort of where the pandemic takes us.

Klas Bergelind

Have you done any — anything, Eeva, in terms of looking at how much pent up it could be once restrictions are lifted the services? Because I would assume that we’re trailing the very strong activity as from a mobility point of view?

Eeva Sipilä

Well, obviously, you kind of look at the installed base and sort of average consumption and average demand and these type of indicators, and, of course, sort of plan together with our customers. I mean, clearly, sort of the challenge for all — for both of us will then be that if then sort of demand leaps, the availability question will come. We now see the availability problem — problems already in components and in many fronts, not only in our industry, and, of course, that’s something that we, together, need to manage and prepare with our customers. And I think kind of in trying to sort of caution on that, that not every everybody can move at the same time. And that’s something. But really, sort of — I said when there’s so many moving elements now on a — on a — I said on a daily basis in some countries, it’s super difficult to be sort of quantified more.

Klas Bergelind

Fair enough.

Pekka Vauramo

I would assume that we are maybe 10% below in our service, exploring the really the consumables that has sort of gone almost like normal now. But in the rest of the services, we are probably 10% behind and with the volume. And I would — I would estimate that this volume comes back at one point.

Klas Bergelind

Thank you very much. My most final one is on is — on the mix between equipment and services now, when equipment will be a bigger part of sales into the second half. And I’m referring to minerals here; do you think that you have enough self-help efforts to lift the gross margin in equipment? Or shall we expect the big negative effects from higher equipment sales into the second half? I know that this difficult guide on magnitude, but we have inefficiencies because of supply chain a little bit. And then, obviously, the question is, we’ll have another impact on the margin as we invoice out more from the backlog.

Eeva Sipilä

We also need to remember that we do suffer from under absorption at this moment. And with the higher volume, sir, equipment side that will reduce, and that will sort of mitigate the impact of — impact of margin and anti-mix impact. And in that regard, I’m expecting our services to recover. Like I said, I mean, we are about 10% below where we should be in a normal sort of course of a year and once that returns. So I’m not too concerned about that we would see margin drop, that would be dramatic in that one. We see also volume growth at the same time.

Klas Bergelind

Yes, very clear. Thank you.

Operator

Thank you. Our next question comes from the line of Artem Tokarenko of Credit Suisse, Please go ahead. Your line is open.

Artem Tokarenko

Hi, good afternoon. Thank you very much for taking my question. This is Artem from Credit Suisse. I have three please. My first question is about synergies. Could you help us understand what was the P&L contribution in H1? And with a faster delivery, what should we expect in terms of P&L contribution for H2, please?

Eeva Sipilä

Sure, Artem. So we try to clarify it in our — in our report. Now, we made reference to Q Q3 and Q2 specifically. But they’re, basically, sort I would say that the — if you use the run rate number we have given out in — at the end of every quarter and then as it is an annual number, you kind of divide it by four to get the impact on the next quarter; so now we were at €105 million; so we’re going at roughly, €26 million impact for Q3. We were at a — just above €80 million at the end of March. And, hence, it was around €24 million for Q2, and I believe we were at €60 million-ish at year end. So, again, that will be then sort of €15 million, roughly, for Q1. So it’s that’s kind of the speed you’re sort of you — the progress has been adding, roughly, €5 million from — sequentially, from quarter to another.

Artem Tokarenko

Thank you very much. My second question is around your comment in the reports around supply chain and logistics costs. I guess could you maybe talk a little bit about whether that’s something temporary or whether that’s more structural, like your supply chain raising prices, cost inflation, et cetera?

Pekka Vauramo

Yes, there’s two things. I’m — logistics is one area — one area and, yes, we have seen freight charges going up. Just read a report of a shipping company. And they said that their container charges have gone up by 59% if I recall, correctly, the number from a year ago and, of course, we are seeing this cost. We are carrying some of it and some of it our customers are carrying, of course — of course. So that is — that is one part of it. Then inflation — we do see the inflation Of course — of course, but we have taken different mitigation actions. In that one, we have the synergy work ongoing in the procurement area, where we are combining the volumes of the both the past two companies, and we have gained two benefits out of — out of that that program. And then, of course, we have been very active in our pricing. And I would — I would still say that most of the inflation is still in a supply chain. But most of the price increases are in our order backlogs at this moment, but inflation is there and it’s a sort of a reason to be cautious about that one — that one but not overly concerned. Our customers also enjoying good business, as metals are contributing quite a lot to this inflationary picture and it makes them — makes it easier for them to justify new investments and new expenditure.

Artem Tokarenko

Thank you. And my last question and maybe could you help us quantify how much of that inflation you’ve seen in the quarter in terms of EBIT bridge? And as a follow up — as a quick follow up to this question, I guess, in terms of the contracts, which you already have in your backlog, do you have any price escalations, which would allow you to pass over some of their inflation or our contract prices are firmly set? Thank you very much.

Eeva Sipilä

Well, I think the majority of the inflationary impact, Artem, is actually on the balance sheet. I mean, the inventory value, of course, is based on sort of the — sort of the prices at which goods have come in, due to the sort of rapid change, really, and how quickly then sort of certain component prices have changed, haven’t really drilled through the P&L much in India — or under the logistics that I mentioned, of course, that comes more immediately, but when it comes to this or other areas, so that’s something we kind of expect to see. I mean, we’ve been very actively managing prices, because, of course, this an environment. This is no news to the customers, no news to us, and kind of preparing in that sense. That’s, of course, are we should sort of prepare for it and balance it. If there are — there are cases where, where the sort of it makes sense for both parties really to have a certain sort of index close on date. But, of course, this sort of less typical in product type of business where it is — a customer is kind of agreeing on the price at the time of purchase.

And then, it’s for us to — us to manage the — from order to delivery period, as kind of a normal course of business. Something to, certainly, sort of be attentive to and some and not an easy fight. But I would still say that it’s a positive channel. But, of course, it’ll challenge in — to have the — because we also have met so that they do benefit from the inflation as Pekka mentioned.

Artem Tokarenko

Thank you.

Operator

Thank you. Our next question comes from the line of Nick Housden at RBC Capital Markets. Please go ahead. Your line is open.

Nick Housden

Yes. Hi, everyone. Thank you for taking my questions. My first one, is about the revenue synergies that you mentioned €40 million so far with more in the backlog? Is this all from cross selling products? Or has any of this come from increasing the service penetration of these types of business which obviously had a much lower penetration level than the Metso business? I’ll start there. Thanks.

Pekka Vauramo

There’s just both of it. Yes, I don’t have a breakdown for that one. But there’s quite a number of consumables that go into grinding mills. And really, sort of aftermarket consumable deliveries. And we thought that wasn’t really participating at all — at all. But then cross selling is there as well. Pumps that, typically, that Outotec has sourced from other than — other than Metso. And now, of course, we are supplying most of the cases and offering very sort of actively Metso pumps into the — in new proposals. But there’s both cross selling, and really new areas as well.

Nick Housden

Okay, great. And my second question is about the large acquisition that one of your peers announced last week of a well-known European mining equipment business. And I’m just wondering how you see that and how it affects the competitive landscape from your standpoint.

Pekka Vauramo

Yes. Well, I was asked the same question in our employee meeting this morning. And I described what we’ve been through. Since we announced Metso Outoec, that was two years and one month ago. And it’s quite a journey that we’ve made, and they have that journey ahead of them and we still have some distance left of our journey. So, I think, in that regard, they will be busy with many things. I leave it there.

Nick Housden

Okay, thanks you much.

Operator

Thank you. And our next question comes from line or Tomi Railo of DNB. Please go ahead. Your line is open.

Tomi Railo

Hi, this is Tomi from DNB. Just to clarify a little bit on the sales impact due to dealers. Did you say €50 million for services on bigger, let’s say, maybe €50 million sought for the equipment side from the backlog.

Eeva Sipilä

Yes. I — the — my answer to Klas’ question was that around €50 million were probably was kind of revenue that could have landed for — in the services into the — into the quarter but got in ADS [ph].

Tomi Railo

And higher impact from the backlog. So comparing to consensus this make.

Eeva Sipilä

Yes, we’re referring to the consensus. Yes, yes. And, obviously, the sort of the — there was a wide range in the — in the analyst estimates, but just refer you to the consensus average in a way clear that even you — if you add that our sales were on the low end of the — of the average — on the consensus. So really, that was backlog. Backlog, I think, was this area, where we saw that we could have done a better job in the communication.

Tomi Railo

And, good, thank you. And the second question on the quoting new sales proposals, as you say, in the — in the report that it continued during the second quarter. How do you see July and August early August developing?

Pekka Vauramo

Yes, basically, no change in that one, other than, of course in our aggregates because it’s seasonal business and seasonal the second half being the slower ones today, that we see some decline. But trust — ongoing trading for aggregates so July was the strongest July ever for us. So in that regard, that even though we’re hitting slow season, we’re still seeing relatively strong months.

Tomi Railo

And thirdly, a quick one, if I may, synergies processing ahead of the plan. Do you see any upside for the €120 million target?

Pekka Vauramo

We are working on new items continuously. But we — of course, we want to deliver what we — what we’ve said and — said and we stay with the — stick with the €120 million target. And inflation — inflationary environment hasn’t made it easy for us to — us to sort of be more bullish with that target but we have been able to generate new items so that we can fulfill the €120 million.

Tomi Railo

Thank you very much.

Operator

Thank you. [Operator Instructions] The last question in the queue so far comes from the line of Robert Davies at Morgan Stanley. Please go ahead. Your line is open.

Robert Davies

Yes, thank you for taking my questions. I had a couple of ones just around the sort of, I guess, bigger projects that you’re managing. You sort of highlighted the one that you had posted close. Just from a risk management project is — can you just walk us through what sort of different notes and maybe the way OpenStack used to manage those businesses as a standalone entity? I know that you mentioned a year or so ago; you’ve sort of seen some of the processes. Just be keen to hear of — give us a good example of a bigger project. What was sort of different to maybe how that project would have been signed or how you’re going to deal with that over the next year or so? Thank you.

Pekka Vauramo

Yes, thanks. Really question. As such, we need to sort of remember that the previous project of that size was booked really long, long time ago, nearly, what, seven, eight years ago, all together. And Outotec already, before merger, had upgraded the risk management and risk analysis part, and mitigation actions — as such, and we have, of course, continued along the same path. We have certain decision-making create — and matrix and we are reviewing does it — the offer and contracts of this size. We are reviewing very thoroughly, such that I would say almost like minutes before signing for any changes. So, we are — we are on the pulse of what is happening. And then, of course, we do have ongoing project reporting and review of the — of the projects on monthly basis in the management and the — and the — our audit committee is looking into these projects on quarterly basis — how we tracking on bigger ones and major ones. And that is the visibility that we — that we do have.

We have upgraded also and changed also how we how we behave at the — at the — at the worksite. We are now accumulating documentation in a different way than what was done in the past. And vantage is always important in projects, because there’s — there is tendency that towards the end of the project, then all the — all the things will be reviewed and revised and, potentially, claims will be presented both ways — both ways. And we are now much better equipped for that one than we used to be.

Eeva Sipilä

Maybe to add, Robert, to that, and in this specific case, so it’s a — as you may know, that’s a pure engineering design really licensing contract. So it is — it is an — there is nothing under construction or kind of any EPC elements. It’s really pure engineering. And, of course, that’s at the core of our competence area, even, clearly, happens to be a big in engineering project. And the other thing I would highlight that it is very known technology, if anything really copper smelting is something that has been sort of well proven over the past, I believe, this was — there was — there’s more than 50 sort of copper smelters delivered by Outotec in the past. And, of course, that’s something that was another main sort of criteria kind of ticked our sort of risk management books that we can assume that this — there will be no surprises. But, obviously, like I said, it’s really on the focus — on the execution will — is always crucial and continues to be so.

Pekka Vauramo

Yes. And we took a position in Metso Outotec that we are not accepting and participating EPC contracts anymore. And now, 13 months into Metso Outotec, we have not booked a single EPC contract. And I don’t feel that we have lost too much — we haven’t lost the single order because of that one. Some of the orders have turned into smaller by volume. But at the same time when volume goes down, our margin levels do go up and our risk exposure reduces. So, this is what we have been doing and this is what we will continue to do with regards to the project.

Robert Davies

Thank you. And then, my second question was just around the order progression within the minerals business. You’ve already seen three or four quarters now of improving momentum. Just to be keen to hear what your view there is to the back half of the year. I know you mentioned or there’s a couple of questions earlier talking about a potential catch up effect, I guess, is it possible or do you think it’s reasonable to assume more than double-digit growth in that business or the second half of the year, realize that maybe the comps are beginning last week as we get towards the tail end of the year? Just be curious, the cadence of growth profile in aftermarket specifically as you go into the back half of the year? Thank you.

Eeva Sipilä

Yes, in a way. As Pekka mentioned, the sort of where parts consumer was, of course, been steadier, because it’s so product — sort of production rates related. And I think we’re at sort of been — sort of customers have been running flat out now for a few quarters so hard to hard to push for more. But, certainly, in the services, I think that sort of opportunities there. We would be a bit — a bit sort of cautious on sort of calling and sort of get — sort of giving — sort of confirming any specific number for you because it’s just that there is just this uncertainty around a sort of COVID-19 situation that can easily sort of change it. But, clearly, as you see also, from that, specifically the sort of mineral services order growth number, it is in a way where things have improved. And in that sense, we would — we would sort of expect to see that trend continue in the second half.

Robert Davies

Thank you. And then, my final one is more of a big picture question really on in terms of some of these orders and minerals that we’ve seen in the last year or two, different companies have talked about seeing bigger projects sort of cut up into smaller pieces. When you look in sort of total across these projects that have been broken up into smaller pieces, do you feel like you’re still able to get as much value to them? Is pricing more difficult when they’re sort of so granular and sub-segmented into little bit? Is it easier to put pricing more aggressively if you have a sort of large encompassing project? Or is it a bit more easy to get pricing when they come in big part sort of smaller and medium size — medium-sized pieces? Just kind of curious in terms of pricing on the sort of small and medium versus the sort of bigger projects you historically had. Thank you.

Pekka Vauramo

Very comfortable with the way how business is going in that regard. We like the small orders rather than big lumpy ones.

Robert Davies

Great. Okay, thank you very much. That was all my questions.

Operator

Thank you. We have a follow up from Magnus Kruber at UBS. Please go ahead. Your line is open.

Magnus Kruber

Hi, thanks also for taking my follow up. I just wanted to ask you a bit following Artem’s question on the — on pricing and raw material headwinds. Which quarter do you see as the peak headwind quarter as we start now? Obviously, things can change. But as we start now, which is the peak, headwind quarter. And also on minerals and aggregates separately, are you sort of pricing ahead? Or in the — in with the — with the inflation, or is there lagging on the pricing side, if there’s a difference in the facing of those pricing versus the cost would be interesting to hear.

Pekka Vauramo

Yes, we do pricing, of course, differently in different businesses. In projects, we — our aim is to fix our costs at the time when we book our project orders, and then do — we like to have a cost escalation clauses in those ones where we — where we sort of time-wise cannot lock them — lock them. And, recently, we have been very successful in doing so. Then the productive businesses, which is spare parts, consumables, so aggregates, we, of course, work with the price lists, and that is more sort of working ahead — ahead of the curve.

Magnus Kruber

Okay. So it’s fair to say that you believe your head overall on pricing in this business areas into the second half?

Pekka Vauramo

That’s a difficult topic always to comment on rising.

Magnus Kruber

Yes. Thank you so much.

Operator

Thank you. And we have one final question here. That’s from the line of Antti Kansanen of SEB. Please go ahead. Your line is open.

Antti Kansanen

Yes, hi. Antti Kansanen from SEB. Thanks for taking my question is on the minerals equipment sales side, and I mean you were on €250 million, €260 million level pre-pandemic; and, obviously, now below that. But if the growth is heating up kind of — do you see scope for more and where do you see kind of the model next right now? Is it supplier capacity that even your own assembly capacity and so forth, if we see the continuous growth on the MNOs [ph] equipment side going into ’22 and onwards?

Pekka Vauramo

I think we — our current order book is really in, I would say, hectic engineering phase both in metals and minerals businesses. And that is — that is a phase when — where the revenue recognition is fairly low, we really — we have a smaller number of actual deliveries in this one. But as we move on — move on and deliver the order book we get into different phase, where the bulk of the revenues will really come from deliveries, so that’s where the growth then comes into picture.

Antti Kansanen

Yes. I was more thinking about that if they’re starting to be, at some point, this — that’s going to be a strong order intake on the leads to prolonged and prolonged delivery times and kind of we are struggling to get the deliveries out of the backlog. Or how should we think about this going forward?

Pekka Vauramo

Yes, of course, in businesses where we have clear products, then at times like this we are selling longer delivery times. And in project businesses we, of course, are dependent on the capability of our supply chain to keep the promise on deliveries. But that’s how we work. We work both, I mean, in pricing side and the — and delivery-wise together with our suppliers and we, of course, want to align and streamline those things, have back-to-back agreements 100%. So that’s how we work. Fact of life is that in today’s — like this delivery times to get longer without them being delayed, in fact.

Antti Kansanen

Sure, all right. Thank you.

Operator

Thank you. And there are no further questions. I’ll hand back to our speakers for the closing comments.

Juha Rouhainien

All right there, ladies and gentlemen, we are at the hour, so it’s a good time to wrap up this second quarter results conference call. We are looking forward to speaking with you very soon again and, in the meantime, enjoy your summer. Bye-bye.