An Unfortunate Delay to a Success Story

Equity Research

Construction & Engineering, Finland

Metso Target price change

An unfortunate delay to a success story

 Short-term headwinds followed by massive recovery Sell Hold BUY

 Current share price reflects a disaster, but we look further ahead Company Update Q1 2020 March 31, 2020, 16:20 CET  We reiterate BUY; cut target price to EUR 30 (42) Share price (EUR) Mar 31, 15:30 CET 21.19 Market cap (EURm) 3,186 Don’t shoot the messenger No of shares (m) 150 In this report, we attempt to forecast how Metso-Outotec and Neles will fare in Free float (%) 84.1 Avg daily volume ('000) 534 the current environment. It is clear that orders will decline this year, as the Avg daily value (EURm) 11 capacity investments we forecast previously will be postponed. Something Bloomberg METSO FH Reuters METSO.HE similar happened in 2008-09 and 2011 marked the start of a mining boom. We Next event 07/05/2020: Q1 report could see history repeat itself once COVID-19 is behind us, and this time Web address: Link to company website mineral exposure is more attractive for Metso-Outotec. If this happens, 2021 IR web address: Link to IR website orders should increase dramatically. For 2020e, we assume a 30% decline in 12m target return capital orders followed by 50% growth in 2021e. Target price, inc. div. (EUR) 30.0 Expected total return (%) 41.6 Expected total dividend yield (%) 6.9 Stability of Neles is being tested DCF value (EUR) 32 Neles will take a hit from the oil and gas turmoil, but will be supported by the strongest ever pipeline for pulp and paper, which is evident from the backlog Balance sheet 2019 Net debt (EURm) 644 for Valmet and Andritz. Historically, flow-control margins have been very Net debt/equity (%) 42.2 stable, thanks to the high share of aftersales valves (~50% of Neles aftersales ROE (%) 19.6 ROIC (%) 24.0 valves and services). 2020-03-30 Votes (%) Capital (%) Updated fair value modelling points to massive upside Solidium 14.9 14.9 On 2020e depressed earnings, we estimate Metso-Outotec fair value at Cevian Capital 13.8 13.8 EUR 23.5m per Metso share and EUR 5.4 per Outotec share, and Neles fair Varma Pension 2.5 2.5 value at EUR 8, leading to fair value for Metso at EUR 31. If we value Metso- Ilmarinen Pension 2.2 2.2 Elo Pension company 1.3 1.3 Outotec service on a standalone basis, we end up with a fair price of EUR 22 per Metso share (with the capital business and Neles thrown in for free). We Total number of shares (m) 150.3 Free float (%) 100 reiterate BUY for Metso with a lower target price of EUR 30 (42), due to lower 2020e earnings.

Timo Heinonen, +358 10 444 2483, [email protected]

Company page on Handelsbanken’s REON

Absolute and relative performance EURm 2017 2018 2019 2020e 2021e Sales 2,699 3,174 3,635 3,371 3,540 EUR Sales growth (%) 4.4 17.6 14.5 -7.3 5.0 43 140% EBIT adj 226 352 454 382 475 38 124% margin (%) 8.4 11.1 12.5 11.3 13.4 33 108% EBT 183 321 385 354 443 EPS rep (EUR) 0.67 1.52 1.91 1.69 2.06 28 91% EPS adj (EUR) 0.73 1.53 2.14 1.69 2.06 23 75% Y-o-y growth (%) -31 110 40 -21 21 EPS adj revisions (%) n.m n.m n.m -28 -17 18 59% Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar P/E adj (x) 39.1 15.0 16.4 12.5 10.3 Metso rel. DJ Euro STOXX (RHS) P/BV (x) 3.2 2.4 3.5 2.0 1.9 ROE adj (%) 7.9 16.7 22.0 16.4 18.9 EV/EBIT (x) 18.9 9.9 13.0 9.3 7.3 EV/sales (x) 1.6 1.1 1.6 1.1 0.98 Share performance (%) -1m -3m -12m FCF adj yield (%) 2.0 3.1 5.2 14.1 9.6 Absolute: -27.5 -39.8 -30.9 Tot DPS (EUR) 1.10 1.20 1.25 1.47 1.50 Absolute EUR: -27.5 -39.8 -30.9 Tot div yield (%) 3.9 5.2 3.6 6.9 7.1 Relative DJStoxx: -11.6 -18.8 -15.3 Net debt/equity (%) -0.15 4.5 42.2 24.0 17.6 52w range (EUR): 38.46 / 18.55

Source: Handelsbanken Capital Markets Source: FactSet

For full disclaimer and definitions, please refer to the end of this report. Company Update, Metso, March 31, 2020

What has changed HCM vs. consensus HCM chg HCM chg HCM chg Cons diff Cons diff Cons diff EURm Q1 20e (%) 2020e (%) 2021e (%) EURm Q1 20 (%) 2020 (%) 2021e (%) Sales 0.0 n.m 3,371 -18 3,540 -18 Sales - n.m 4,095 -18 - n.m EBIT adj 0.0 n.m 381.6 -27 475.2 -15 EBIT adj - n.m 512.8 -26 - n.m margin (%) n.m n.m 11.3 -11 13.4 3 margin (%) n.m n.m 12.5 -1 n.m 13 EBT 0.0 n.m 353.6 -28 443.2 -16 EBT - n.m 480.3 -26 - n.m Net income 0.0 n.m 254.6 -28 310.2 -16 Net income - n.m 345.1 -26 - n.m EPS (EUR) 0.00 n.m 1.69 -28 2.06 -16 EPS (EUR) - n.m 2.30 -26 - n.m EPS adj (EUR) 0.00 n.m 1.69 -28 2.06 -17 EPS adj (EUR) - n.m 231 -99 - n.m Source: Handelsbanken Capital Markets Source: Handelsbanken Capital Markets and ESG analysis, environmental ESG analysis, social EURm % 3300 140 2.55 10.7

2.49 10.3

3100 136 C

(

0 2.43 9.9

2900 132 )

n 2.37 9.5

s 2700 128 2.31 9.1

2500 124 2.25 8.7 16 17 18 16 17 18 Sales Company CO2 emissions (scope 1+2)(RHS) Sick leave Employee turnover (RHS) Source: Company data, Handelsbanken Capital Markets Source: Company data, Handelsbanken Capital Markets ESG analysis, governance Risks  Mining capex could stay at low levels for several years 2018  Price pressure could dilute margins for equipment and services Anonymous hotline yes Designated ESG manager no Source: Handelsbanken Capital Markets Board gender diversity (women) (%) 25.0 Source: Company data, Handelsbanken Capital Markets

EPS 2020 estimate revisions EPS 2021 estimate revisions EUR EUR 2.6 2.6

2.4 2.4

2.2 2.2

2 2

1.8 1.8

1.6 1.6 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Adj. EPS Cons. Adj. EPS Cons. Source: Handelsbanken Capital Markets and FactSet Source: Handelsbanken Capital Markets and FactSet

Revenues, 12m rolling EBIT, 12m rolling EURm EURm 3710 20 490 12.7

460 12.1 -10 3510 430 11.5 -40 400 10.9 3310 -70 370 10.3

3110 -100 340 9.7 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Sales, rolling 12m y/y growth Adj EBIT, rolling 12m Adj EBIT-marg. Source: Handelsbanken Capital Markets Source: Handelsbanken Capital Markets

2 Company Update, Metso, March 31, 2020

Estimates

Unfortunately, COVID-19 has delayed capacity investments. Still, we continue to argue that there is demand for greater copper capacity and, if history repeats itself, we will see a massive recovery in orders, potentially as soon as 2021. However, there will be a severe decline in orders in 2020, with Q2 looking especially weak due to travel restrictions. As we have highlighted in previous reports, cyclical shares start to perform in times of crisis. Given that we expect the Metso-Outotec merger to create a strong mining supplier with a broad offering, higher value for clients and thus strong synergies, the current share price is highly attractive. Based on 2020e depressed earnings, we estimate Metso-Outotec fair value at EUR 23.5 per Metso share and EUR 5.4 per Outotec share. Neles will be weighed down by oil and gas, but supported by pulp and paper. We expect some delays in pulp and paper deliveries but, looking at the current backlogs for Valmet and Andritz, the pipeline is stronger than ever before.

We assume 30% drop in equipment orders in 2020 for Metso-Outotec Higher capacity We previously argued that timing of the Metso-Outotec merger was excellent due to the capex postponed cyclical recovery, but that was before the COVID-19 pandemic. It is obvious that orders will be down in 2020, but there is a need for greater capacity and we expect orders to recover massively once the worst is over. At this point, we assume a 30% decline for Metso-Outotec’s equipment orders in 2020e, followed by 50% recovery in 2021.

Orders were down in In 2009, orders were down 50% for Outotec and 39% for Metso’s Mining & 2009, but bounced Construction division. The following year, orders for both increased by 50%, back strongly in excluding acquisitions. Mining capex was flat in 2009, up 10% in 2010 and up 50% 2010 and 2011 in 2011, thanks to a strong recovery in expansion capex, including copper and gold, marking the start of a mining boom.

Mining capex is not a 2020e mining capex is currently a poor indicator as it reflects orders already received good an indicator and some of these will be moved to 2021e due to delivery delays. However, the world will continue to electrify itself and thus the need for increased copper capacity will return in a year or so. Thus, we argue that the recovery will be visible in supplier orders before it becomes visible in mining capex estimates. The biggest worry beyond COVID-19 is how the Chinese economy will perform. Bear in mind that China accounts for two-thirds of the growth in copper demand and thus drives the copper price.

Delayed deliveries Outotec had a strong backlog at the end of last year (equipment backlog up 35%), actually make which, in a normal environment, would support 2020 revenue. However, we assume revenue more stable delivery times will be long, due to the restrictions. Thus, some of the revenue we had assumed for 2020e is moved to 2021e and a decline in 2020e orders will have a lower impact on 2021e revenue than would normally be the case.

Spare parts should We assume a small decline in service in 2020e and double-digit growth in 2021e. In be okay, but service 2009, Outotec’s service was up 5% while Metso was down, followed by a nice projects will be recovery in 2010. It is worth noting that both Metso and Outotec are much better at delayed providing services today than they were in 2009. Outotec, in particular, has grown faster than the market in recent years and we expect that to continue.

We see margin Revenue estimates are down 21% for 2020e and 16% for 2021e. We cut our 2020e headwind in 2020, adjusted EBITA for Metso-Outotec by 29% and for 2021e by 14%. We model margin but the long-term at 10.9% for 2020e vs. 11.8% in 2019 as pro forma and 12.2% previously. We story is unchanged continue to expect a higher margin in 2021e and argue that, after synergies, the new company’s EBITA margin could reach 13-15%.

3 Company Update, Metso, March 31, 2020

Figure 1: Metso-Outotec revenue, EURm

6000

5000 Time will show if we are too conservative 4000 with 2022e 3000

2000

1000

0 2012pf 2014pf 2016pf 2018pf 2020e 2022e

Source: Handelsbanken Capital Markets

Figure 2: Metso-Outotec adjusted EBITA margin, %

16.0%

14.0%

2020e impacted by 12.0% extra costs relating 10.0% to restrictions and delayed deliveries 8.0%

6.0%

4.0% 2012pf 2013pf 2014pf 2015pf 2016pf 2017pf 2018pf 2019pfe 2020e 2021e 2022e

adj. EBITA margin adj EBITA margin post synergies

Source: Handelsbanken Capital Markets

4 Company Update, Metso, March 31, 2020

Table 1: Metso-Outotec

2012pf 2013pf 2014pf 2015pf 2016pf 2017pf 2018pf 2019pfe 2020e 2021e 2022e

Orders 3513 4038 4510 3819 4788 5405 Metso Minerals 2308 2872 3009 2612 3098 3410 Outotec 1205 1166 1501 1207 1691 1995 Change y-o-y 15% 12% -15% 25% 13%

of which equipment 1544 1748 2017 1400 2100 2550 of which service 1969 2290 2493 2419 2688 2855 Change in equipment 13% 15% -31% 50% 21% Change in service 16% 9% -3% 11% 6%

Sales 5562 4982 4194 3514 3129 3321 3858 4257 3882 4514 5087 Metso Minerals 3474 3070 2791 2313 2071 2177 2581 2976 2704 2953 3293 Outotec 2088 1912 1403 1201 1058 1144 1277 1281 1179 1561 1794

adj EBITA 624 556 404 307 177 214 235 502 424 570 653 Metso Minerals 440 403 358 261 210 190 291 381 319 402 448 Outotec 194 163 56 56 -23 34 -46 132 115 178 215

adj. EBITA margin 11.2% 11.2% 9.6% 8.7% 5.7% 6.4% 6.1% 11.8% 10.9% 12.6% 12.8% Metso Minerals 12.7% 13.1% 12.8% 11.3% 10.2% 8.7% 11.3% 12.8% 11.8% 13.6% 13.6% Outotec 9.3% 8.5% 4.0% 4.7% -2.2% 2.9% -3.6% 10.3% 9.8% 11.4% 11.4%

With synergies: 50% in 2021 and 100% in 2022 Sales 5562 4982 4194 3514 3129 3321 3858 4257 3882 4589 5237 EBITA 624 556 404 307 177 214 235 502 424 620 753 EBITA margin 11.2% 11.2% 9.6% 8.7% 5.7% 6.4% 6.1% 11.8% 10.9% 13.5% 14.4%

Amortization -23 -24 -26 -20 -19 -19 -20 -20 -21 -21 -21 EBIT 601 533 378 287 159 195 215 483 403 599 733

Net financials 48 40 35 30 25 PTP 263 523 438 629 758 Tax -68 -136 -114 -164 -197 Tax% -26% -26% -26% -26% -26%

Net profit 194 387 324 465 561 number of shares 829.6 829.6 829.6 829.6 829.6 adj EPS 0.23 0.47 0.39 0.56 0.68 Source: Handelsbanken Capital Markets

Fair value at If we value Metso-Outotec on 2020e with over-the-cycle multiple at 11.5x, we end EUR 23.5 per Metso up with EUR 23.5 fair value per Metso share and EUR 5.4 per Outotec share. A peer share and EUR 5.4 Sandvik is trading at 9.5x 2020e EV/EBITA, but it is obvious that estimates are too per Outotec share high and thus the right multiple could be quite close to the normalised multiple for Metso. Given that we expect a strong recovery in results, the fair value based on 2021e is as high as EUR 32 per Metso share and EUR 7.5 per Outotec share.

Table 2: Fair value calculation for Metso-Outotec 2018pf 2019pfe 2020e 2021e 2022e

EV/EBITA (x) 10.1 10.6 11.5 10.5 9.5 EV 2372 5298 4871 6505 7154 Fair value 1891 4898 4521 6205 6904 Per share 2.3 5.9 5.4 7.5 8.3 Per Metso share 9.8 25.4 23.5 32.2 35.8 Per Outotec share 2.3 5.9 5.4 7.5 8.3 Source: Handelsbanken Capital Markets

Service is stable and We acknowledge the high degree of uncertainty relating to equipment orders and will be key in new thus the group’s top line. However, in recent years, both Metso and Outotec have strategy and there is been able to strengthen their aftersales. It will take a lot of work for the new company a man who can to be anywhere near as good at aftersales, but the key strategic priorities will be execute increasing differentiation and greater penetration of the installed base. In particular, we trust the Outotec CEO’s knowledge of how to create a strong service story. His

5 Company Update, Metso, March 31, 2020

track record at Outotec is impressive and, prior to that, he had a long career at Atlas Copco, where he led the mining service business.

Service fair value at We value service assuming a 17% EBITA margin, except for 2020, for which we EUR 22 per Metso assume a 15% margin. However, after synergies and investments in differentiation, share and EUR5 per we expect the service margin to reach 20% in a few years. We use Epiroc multiples Outotec share for our calculations, while acknowledging that Epiroc is currently more stable and generates higher margin. However, Epiroc’s multiple is only marginally higher than Metso’s normalised multiple and we expect increased pressure on Epiroc in the short term too. On this basis, we end up with a fair value for the service business of EUR 22 per Metso share and EUR 5 per Outotec share on 2020e. The difference between this and the current market price is significant.

Table 3: Metso-Outotec fair value for service business

2018pfe 2019pfe 2020e 2021e 2022e

Service sales 2290 2493 2419 2688 2855 Service EBITA (17% margin excl 2020 15%) 389 424 363 457 485 of group EBITA 166% 84% 86% 80% 74% Service EV/EBITA 15.0 14.0 12.8 12.0 11.0 Service EV 5839 5934 4644 5484 5338 Fair value 5358 5534 4294 5184 5088 Per share 6.5 6.7 5.2 6.2 6.1 Per Metso share 27.8 28.7 22.3 26.9 26.4 Per Outotec share 6.5 6.7 5.2 6.2 6.1 Source: Handelsbanken Capital Markets

Neles – resilience is tested now Given that Neles has 37% exposure to oil and gas (2018), it will obviously suffer from a decline in orders. In 2018, a weak year in that segment, Neles had 21% exposure to pulp and paper. In 2020, this segment will be strong, judging by the long backlog at Valmet and Andritz. The timing of pulp and paper orders is difficult to predict, as it is clear there are going to be some delays. We assume 2020e equipment orders will decline by 11%, mainly due to drop in oil and gas in H1. In 2021e, we expect orders to rebound by 21%, thanks to pulp and paper and, hopefully, a more stable business environment. We expect equipment revenue to be more stable than orders and, at the group level, revenue will be further stabilised by services.

Figure 3: Neles equipment sales and orders

700

600

500

400

300

200

100

0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e

Equipment sales Eqipment orders

Source: Handelsbanken Capital Markets

6 Company Update, Metso, March 31, 2020

We expect margin It is worth bearing in mind that profitability in the flow-control market is quite stable. In headwind in H1 a broad peer group, the margin has been 13-16% every year since 2008. For Neles, 2020, followed by a we assume 2020e EBITA margin will decline (after group overheads i.e. as a stand- quick recovery alone company) to 13.5%, from 14.5% in 2019, before recovering to 15% in 2021e. Table 4: Neles 2013 pro forma – 2022e

2013pf 2014pf 2015pf 2016pf 2017pf 2018pf 2019pfe 2020e 2021e 2022e

Sales 854 867 663 528 522 593 660 668 695 775 Equipment 465 508 510 530 600 Service 128 152 158 165 175 Service of sales 22% 23% 24% 24% 23% Growht 2% -24% -20% -1% 14% 11% 1% 4% 12% Equipment 9% 0% 4% 13% Service 19% 4% 5% 6%

adj EBITA 106 120 90 70 65 87 96 90 102 117 EBITA margin 12.4% 13.9% 13.5% 13.3% 12.5% 14.7% 14.5% 13.5% 14.6% 15.1%

Amortization -4 -3 -3 -3 -2 -2 -3 -3 -3 -3 EBIT 102 117 87 67 63 85 93 87 99 114

Net financials 10 10 7 11 16 20 25 PTP 77 73 92 104 103 118 138 Tax -20 -19 -24 -27 -27 -31 -36 Tax% 26% 26% 26% 26% 26% 26% 26%

Net profit 57 54 68 77 76 87 102 number of shares 150.3 150.3 150.3 150.3 150.3 adj EPS 0.45 0.51 0.50 0.58 0.68

Source: Handelsbanken Capital Markets

Table 5: Neles fair value calculation

2018pf 2019pfe 2020e 2021e 2022e

Fair value for EV/EBITA (x) 13.0 14.1 11.7 11.1 10.3 Neles at EUR 8 on EV 1131 1354 1054 1125 1198 Fair value 1181 1399 1110 1188 1275 2020e-21e, down EV/S (x) 1.6 1.9 1.7 1.5 1.4 from EUR 10 EV 949 1254 1141 1063 1116 Fair value 999 1299 1198 1126 1193 previously Per share 7.2 9.0 7.7 7.7 8.2

Source: Handelsbanken Capital Markets

7 Company Update, Metso, March 31, 2020

Estimates

Table 6: Metso Minerals

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e

Net sales 2851 3359 2955 2676 2198 1956 2064 2581 2976 2704 2953 3293 Equipment 1483 1795 1486 1200 761 631 702 937 1161 1008 998 1194 Services 1370 1692 1469 1475 1437 1325 1368 1644 1815 1696 1955 2099 Growth y/y 23% 18% -12% -9% -18% -11% 6% 25% 15% -9% 9% 12% Equipment 26% 21% -17% -19% -37% -17% 11% 33% 24% -13% -1% 20% Services 20% 24% -13% 0% -3% -8% 3% 20% 10% -7% 15% 7% services of sales 48% 50% 50% 55% 65% 68% 66% 64% 61% 63% 66% 64%

Equipment EBITA (est.) 78 115 112 72 -4 -15 -28 28 54 30 40 60 Margin 5% 6% 8% 6% 0% -2% -4% 3.0% 4.7% 3.0% 4.0% 5.0% Services EBITA (est.) 247 305 272 266 244 205 196 263 327 288 362 388 Margin 18.0% 18.0% 18.5% 18.0% 17.0% 15.5% 14.3% 16.0% 18.0% 17.0% 18.5% 18.5%

adj EBITA 324 420 383 338 241 190 168 291 381 319 402 448 adj EBITA margin 11.4% 12.5% 13.0% 12.6% 11.0% 9.7% 8.1% 11.3% 12.8% 11.8% 13.6% 13.6% NRI -1 -8 -50 -81 -20 -36 -8 -1 -21.5 0 0 0 Amortization -11 -11 -11 -13 -7 -6 -6 -8 -9 -12 -12 -12 EBIT 313 401 322 244 213 148 153 282 350 307 390 436

Order intake 2855 3330 2974 2359 2260 2115 2308 2872 3009 2612 3098 3410 Growth y/y 42% 17% -11% -21% -4% -6% 9% 24% 5% -13% 19% 10% book-to-bill 1.00 0.99 1.01 0.88 1.03 1.08 1.12 1.11 1.01 0.97 1.05 1.04 Order backlog 2027 1983 1535 1108 1006 1078 1173 1411 1408 1316 1461 1578 Growht y/y 49% -2% -23% -28% -9% 7% 9% 20% 0% -7% 11% 8%

Equipment orders 1370 1692 1469 849 783 767 834 1095 1102 750 1050 1260 Service orders 1485 1638 1505 1510 1477 1348 1474 1777 1907 1862 2048 2150 Equipment growth y/y 60% 24% -13% -42% -8% -2% 9% 31% 1% -32% 40% 20% Service growth y/y 22% 10% -8% 0% -2% -9% 9% 21% 7% -2% 10% 5% Service of orders 52% 49% 51% 64% 65% 64% 64% 62% 63% 71% 66% 63% Eqmt book-to-bill 0.92 0.94 0.99 0.71 1.03 1.22 1.19 1.17 0.95 0.74 1.05 1.06 Service book-to-bill 1.08 0.97 1.02 1.02 1.03 1.02 1.08 1.08 1.05 1.10 1.05 1.02 Source: Handelsbanken Capital Markets

Table 7: Metso Flow Control

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e

Net sales 886 993 969 982 778 631 635 593 660 667.5 695 775 Equipment 416 470 446 444 346 253 407 465 508 510 530 600 Services 472 522 523 538 432 378 228 128 152 158 165 175 Growth y/y 19% 12% -2% 1% -21% -19% 1% -7% 11% 1% 4% 12% Equipment 21% 13% -5% 0% -22% -27% 61% 14% 9% 0% 4% 13% Services 18% 11% 0% 3% -20% -13% -40% -44% 19% 4% 5% 6% services of sales 53% 53% 54% 55% 56% 60% 36% 22% 23% 24% 24% 23%

Equipment EBITA (est.) 38 27 50 46 35 23 52 64 74 65 75 88 Margin 9% 6% 11% 10% 10% 9% 13% 14% 14% 13% 14% 15% Services EBITA (est.) 66 74 84 102 82 72 41 26 30 33 35 37 Margin 14% 14% 16% 19% 19% 19% 18% 20% 20% 21% 21% 21%

adj EBITA 104 101 134 148 118 95 93 90 104 98 110 125 adj EBITA margin 11.7% 10.2% 13.8% 15.1% 15.1% 15.1% 14.6% 15.1% 15.8% 14.7% 15.8% 16.1% NRI 0 -1 -4 -6 -5 -2 0 0 0 0 0 0 Amortization -4 -5 -4 -3 -3 -3 -3 -8 -4 -4 -4 -4 EBIT 100 96 126 139 110 90 90 82 100 94 106 121

Order intake 941 979 1012 1051 770 609 675 628 681 640 750 800 Growth y/y 18% 4% 3% 4% -27% -21% 11% -7% 8% -6% 17% 7% book-to-bill Order backlog 364 343 394 468 262 242 267 276 280 253 308 333 Growht y/y 18% -6% 15% 19% -44% -8% 10% 3% 1% -10% 22% 8%

Equipment orders 460 455 469 508 333 214 432 492 540 480 580 620 Service orders 481 523 543 543 437 395 243 136 155 160 170 180 Equipment growht y/y 23% -1% 3% 8% -34% -36% 102% 14% 10% -11% 21% 7% Service growht y/y 13% 0% 4% 0% -20% -10% -38% -44% 14% 3% 6% 6% Service of orders 51% 53% 54% 52% 57% 65% 36% 22% 23% 25% 23% 23% Eqmt book-to-bill 1.11 0.97 1.05 1.14 0.96 0.85 1.06 1.06 1.06 0.94 1.09 1.03 Service book-to-bill 1.02 1.00 1.04 1.01 1.01 1.04 1.07 1.06 1.02 1.02 1.03 1.03 Source: Handelsbanken Capital Markets

8 Company Update, Metso, March 31, 2020

Table 8: Outotec 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e

Orders 2084.5 1511.8 1177.8 1189.9 1008.0 1204.6 1165.9 1501.2 1207.0 1690.5 1994.6 Equipment 1587.7 959.7 622.7 693.3 564.5 709.7 653.1 914.9 650.0 1050.0 1290.0 Service 496.8 552.1 555.1 496.6 443.5 494.9 512.8 586.3 557.0 640.5 704.6 Growth -27% -22% 1% -15% 20% -3% 29% -20% 40% 18% Equipment -40% -35% 11% -19% 26% -8% 40% -29% 62% 23% Service 11% 1% -11% -11% 12% 4% 14% -5% 15% 10%

Order book 1947.1 1371.7 1138.0 1102.8 1002.0 988.0 830.3 1069.6 1098.0 1227.6 1428.4 Equipment 1747.7 1152.9 891.1 873.8 798.0 794.0 637.3 861.6 875.2 971.3 1146.6 Service 199.4 218.8 246.9 229.0 204.0 194.0 193.0 208.0 222.8 256.2 281.8 Growth -30% -17% -3% -9% -1% -16% 29% 3% 12% 16% Equipment -34% -23% -2% -9% -1% -20% 35% 2% 11% 18% Service 10% 13% -7% -11% -5% -1% 8% 7% 15% 10% Eq. Book-to-bill 1.0 0.7 0.7 1.0 0.9 1.1 0.9 1.5 1.0 1.1 1.2 Se. Book-to-bill 1.0 1.1 1.1 1.0 1.0 1.0 1.1 1.1 1.0 1.1 1.0

Sales 2087.7 1911.7 1402.6 1201.2 1057.6 1143.8 1197.5 1210.3 1178.6 1561.0 1793.7 Equipment 1611.7 1405.8 883.6 689.9 610.6 668.6 725.1 616.9 636.4 953.9 1114.7 Service 476.0 505.9 519.0 511.3 447.0 475.2 472.4 550.1 542.2 607.1 679.0 Growth -8% -27% -14% -12% 8% 5% 1% -3% 32% 15% Equipment -13% -37% -22% -11% 9% 8% -15% 3% 50% 17% Service 6% 3% -1% -13% 6% -1% 16% -1% 12% 12% Service of sales 23% 26% 37% 43% 42% 42% 39% 45% 46% 39% 38%

2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e 2022e Minerals Processing

Sales 926 806.7 659.6 548.8 539.5 668.4 757.8 799.1 860 1120 1210 Change Y/Y -13% -18% -17% -2% 24% 13% 5% 8% 30% 8%

adj EBITA 127.6 86.5 63.2 19.5 37.0 63.5 84.1 81.4 90.0 135.0 150.0 EBITA margin 13.8% 10.7% 9.6% 3.6% 6.9% 9.5% 11.1% 10.2% 10.5% 12.1% 12.4% PPAs -2.9 -3.7 -3.4 -3.3 -3.2 -3.1 -2.7 -2.7 -2.7 -2.7 -2.7 NRIs -2.7 1.5 -13.9 -33.6 -12.2 -0.4 -3.0 1.0 0.0 0.0 0.0 EBIT 122 84.3 45.9 -17.4 21.6 60.0 78.4 79.7 87.3 132.3 147.3 EBIT margin 13.2% 10.4% 7.0% -3.2% 4.0% 9.0% 10.3% 10.0% 10.2% 11.8% 12.2%

Metals, Energy and Water

Sales 1161 1105 743 653 518 475 440 412 319 441 584 Change Y/Y -5% -33% -12% -21% -8% -8% -6% -23% 38% 32%

adj EBITA 75.3 90.8 -1.2 42.5 -55.0 -23.1 -110.4 46.5 30.0 48.0 70.0 EBITA margin 6.5% 8.2% -0.2% 6.5% -10.6% -4.9% -25.1% 11.3% 9.4% 10.9% 12.0% PPAs -9.6 -9.3 -5.0 -6.1 -4.2 -4.2 -1.7 -1.7 -1.7 -1.7 -1.7 NRIs 5.6 -1.9 -12.2 -23.3 -22.9 0.1 -3.9 0.0 0.0 0.0 0.0 EBIT 71.3 79.6 -18.4 13.1 -82.2 -27.2 -116.0 44.8 28.3 46.3 68.3 EBIT margin 6% 7% -2% 2% -16% -6% -26% 11% 9% 10% 12%

Other Sales 0.4 -0.2 -0.1 -0.1 0 -0.1 -0.3 -1 -0.3 -0.3 -0.3 adj EBITA -8.9 -14.4 -6 -5.9 -3.3 -6.9 -5.3 -6 -5 -5 -5 EBIT -8.9 -22 -17.1 -8 -7.7 -6.8 -7 -16.6 -6 -6 -6 Source: Handelsbanken Capital Markets

9 Company Update, Metso, March 31, 2020

Valuation charts Current vs. high/low/median, 10 years * P/E x 49 P/BV EV/Sales EV/EBITDA EV/EBIT 4.1 1.7 15.3 19.0

29 1.4 3.0

10.3 12.1 19

2.1 9 13 14 15 16 17 18 19 20 1.0 7.4 8.4 1.9 1.0 7.4 8.4 P/E adjusted EV/EBITDA x EV/EBIT x 17 20

15 17

11 9

7 8 13 14 15 16 17 18 19 20 13 14 15 16 17 18 19 20

EV/EBITDA EV/EBIT

P/BV x and ROE % EV/sales x and EBIT margin % 4.8 25 1.9 13

4.2 20 1.7 10

3.6 15 1.5 8

3 10 1.3 5

2.4 5 1.1 3

1.8 0 0.9 0 12 13 14 15 16 17 18 19 20 12 13 14 15 16 17 18 19 20 P/BV ROE (RHS) EV/Sales EBIT margin (RHS) FCFE yield % Dividend (ordinary) and 10-year bond yield % 25 7

20 5

1 5

0 -1 11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20

FCFE OTC/nm Div Yield Bond Yield

Source: Handelsbanken Capital Markets and company fundamentals Note: The median value is the figure on left-hand side and the current value is shown by the arrow on the right-hand side.

10 Company Update, Metso, March 31, 2020

Momentum

Share price and recommendation Target and share price EUR EUR 43 43 Buy

38 38

33 33 Hold 28 28

23 23 Sell 18 18 18 19 20 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Metso SHB Cons. Metso SHB Cons.

EPS 2020 estimate revisions EPS 2021 estimate revisions EUR EUR 2.6 2.6

2.4 2.4

2.2 2.2

2 2

1.8 1.8

1.6 1.6 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Adj. EPS Cons. Adj. EPS Cons.

Source: Handelsbanken Capital Markets and FactSet

Opportunities Risks  Metso will be a top gainer when mining capex returns to growth  Mining capex could stay at low levels for several years  Metso has an industry leading Service network but low penetration and  Price pressure could dilute margins for equipment and services thus significant potential Source: Handelsbanken Capital Markets Source: Handelsbanken Capital Markets

11 Company Update, Metso, March 31, 2020

Valuation data EUR 2014 2015 2016 2017 2018 2019 2020e 2021e Share price year-end/current 24.9 20.7 27.1 28.5 22.9 35.2 21.2 21.2 Share price high 32.0 29.6 28.3 33.7 32.3 39.8 37.0 - Share price low 21.7 17.3 17.4 26.5 22.4 22.4 17.9 - Market cap (m) 3,738 3,112 4,074 4,280 3,443 5,289 3,186 3,186 Net debt (m) 553.0 153.0 17.0 -2.0 63.1 644.0 381.5 296.5 MV associates (m) 20.0 13.0 5.0 7.0 15.0 21.0 21.0 21.0 MV minorities (m) 8.0 8.0 8.0 7.0 10.0 3.0 3.0 3.0 EV (m) 4,279 3,260 4,094 4,278 3,501 5,915 3,549 3,464

P/E reported (x) 19.9 7.0 31.4 42.2 15.0 18.5 12.5 10.3 P/E adj (x) 13.4 14.4 25.6 39.1 15.0 16.4 12.5 10.3 P/CEPS (x) 14.2 6.1 21.4 26.6 11.7 15.3 10.1 8.7 P/BV (x) 3.06 2.17 2.85 3.18 2.45 3.47 2.00 1.90 ROE adj (%) 23.2 16.1 11.1 7.8 16.6 21.9 16.3 18.9 Pre-tax ROIC (%) 21.0 33.9 16.0 16.8 26.5 24.0 19.5 25.0

EV/sales (x) 1.2 1.1 1.6 1.6 1.1 1.6 1.1 1.0 EV/EBITDA (x) 8.3 8.2 12.9 15.0 8.4 11.5 8.0 6.5 EV/EBIT (x) 9.7 9.9 16.0 18.9 9.9 13.0 9.3 7.3 EBIT adj margin (%) 12.1 11.1 9.9 8.4 11.1 12.5 11.3 13.4

FCF adj yield (%) 4.9 10.1 7.2 2.0 3.1 5.2 14.1 9.6 Tot div yield (%) 4.2 7.0 3.9 3.9 5.2 3.6 6.9 7.1 Payout ratio (%) 84.0 49.3 122 163 78.8 65.6 86.8 72.7 Source: Handelsbanken Capital Markets Peer group valuation CCY Price (Sh. curr.) Mcap (EURm) EV/S (x) EV/EBIT (x) P/E adj. (x) Sales growth (%) 2020e 2020e 2020e 2020e Metso EUR 21.2 3,186 1.1 9.3 12.5 -7.3 Sandvik SEK 141 15,916 1.7 9.0 12.4 1.6 Atlas Copco SEK 330 36,093 3.7 17.0 22.5 4.4 Terex USD 13.8 882 0.4 6.1 7.3 -16.4 FLSmidth & Co DKK 153 1,047 0.5 6.8 8.2 -3.0 Outotec EUR 3.3 610 0.5 4.0 6.1 16.4 ABB USD 17.3 30,773 1.4 12.8 16.7 -0.6 Weir GBP 6.7 1,946 1.1 8.0 8.6 -5.9 Emerson Electric* USD 46.6 25,867 1.8 11.4 13.5 -3.2 Flowserve USD 22.5 2,669 0.9 8.2 10.0 1.5 Pentair USD 29.6 4,503 1.9 10.7 11.7 1.9

Average 1.4 9.4 11.8 -1.0 Median 1.1 9.0 11.7 -0.6 Average excl. Metso 1.4 9.4 11.7 -0.3 Median excl. Metso 1.3 8.6 10.9 0.4 Source: Handelsbanken Capital Markets and FactSet

12 Company Update, Metso, March 31, 2020

DCF model assumptions EURm 2019 2020e 2021e 2022e 2023e 2024e 2029e 2034e 2039e Sales 3,635 3,371 3,540 3,717 3,903 4,098 4,986 5,504 6,077 EBITDA - Reported 477.8 443.6 533.2 540.2 447.3 466.8 717.1 705.3 594.5 EBITA2 - Reported (=EBITA bef gw amort) (use: IS) 418.1 381.6 476.2 483.2 390.3 409.8 598.3 605.5 486.2

Sales CAGR (%) 14.5 -7.3 5.0 5.0 5.0 5.0 4.0 2.0 2.0 EBITDA growth (%) 23.3 -13.6 20.0 1.5 -51.1 76.6 9.0 -0.3 -3.4 EBITA growth (%) 29.0 -15.9 24.5 1.7 -57.1 97.7 7.9 0.2 -4.3

EBITDA margin (%) 14.1 13.2 15.0 14.5 6.8 11.4 14.4 12.8 9.8 EBITA margin (%) 12.5 11.3 13.4 13.0 5.3 10.0 12.0 11.0 8.0

Capex/sales (%) 0.55 0.59 0.57 0.54 0.51 0.49 2.5 2.0 2.0 Capex/depreciation (x) 0.34 0.32 0.35 0.35 0.35 0.35 1.0 1.1 1.1 Net working cap/sales (%) 26.9 24.5 24.5 24.5 24.5 24.5 15.0 15.0 15.0

WACC assumptions (%) Calculation of DCF (EURm) DCF checkpoints (%) Risk-free interest rate 2.0 NPV FCFF 5,374 5y hist sales growth -0.13 Equity market risk premium 4.5 ND inc off-BS & Hybrids 644 5y exp sales growth 2.4 Equity beta (x) 1.3 Market value Preferred stock 0.0 Sustainable growth 2.0 Implicit asset beta (x) 1.2 Market value Associates 21 Sust EBITDA margin 9.8 Cost of equity 7.9 Market value Minorities 3 Sust EBITA margin 8.0 Pre-tax cost of debt 3.0 Surplus values 0.0 Sust after-tax ROIC 15.0 Equity weight 90.0 Other adjustments 0.0 Terminal value/DCF 29.4 WACC 7.3 DCF value 4,748 Implicit equity weight 89.3 DCF value/share (EUR) 31.6 Share price potential to DCF value 49.0

Source: Handelsbanken Capital Markets

P&L accounts – quarterly data EURm Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20e Q2 20e Q3 20e

P&L Sales 898.0 836.0 903.0 933.0 963.0 0.0 0.0 0.0 Total op expenses -780.1 -722.2 -774.5 -810.1 -850.4 n.m n.m n.m EBITDA 117.9 113.8 128.5 122.9 112.6 0.0 0.0 0.0 Depreciation & impairment -10.0 -10.0 -10.0 -10.0 -10.0 0.0 0.0 0.0 Amortisation intangibles -10.6 -3.9 -4.3 -5.7 -5.8 0.0 0.0 0.0 EBIT 97.3 99.9 114.2 107.2 96.8 0.0 0.0 0.0 Net financials -6.0 -10.0 -10.0 -6.0 -7.0 0.0 0.0 0.0 EBT 91.3 89.9 104.2 101.2 89.8 0.0 0.0 0.0 Reported tax -23.2 -26.0 -15.0 -28.0 -29.6 0.0 0.0 0.0 tax rate (%) 25.4 28.9 14.4 27.7 33.0 0 0 0 Net income 68.1 63.9 89.2 73.2 60.2 0.0 0.0 0.0

Growth (%) Sales 26.5 17.1 16.4 18.7 7.2 n.m n.m n.m Total expenses 22.8 16.5 14.4 18.9 9.0 -100.0 -100.0 -100.0 EBITDA 58.3 20.9 29.8 17.5 -4.5 n.m n.m n.m EBIT 63.0 26.3 34.4 19.6 -0.5 n.m n.m n.m EBT 70.0 28.2 37.1 21.1 -1.6 n.m n.m n.m Net income 442.0 30.1 67.7 24.9 -11.6 n.m n.m n.m

of sales (%) EBITDA margin 13.1 13.6 14.2 13.2 11.7 n.m n.m n.m EBIT margin 10.8 11.9 12.6 11.5 10.1 n.m n.m n.m EBT margin 10.2 10.8 11.5 10.8 9.3 n.m n.m n.m Net margin 7.6 7.6 9.9 7.8 6.3 n.m n.m n.m

Adjusted values Total adjustments to net inc -1.0 0.0 0.0 -17.8 -18.1 - - - EBITDA 118.9 113.8 128.5 140.7 130.7 0.0 0.0 0.0 margin (%) 13.2 13.6 14.2 15.1 13.6 n.m n.m n.m EBIT 98.3 99.9 114.2 125.0 114.9 0.0 0.0 0.0 margin (%) 10.9 11.9 12.6 13.4 11.9 n.m n.m n.m EBT 92.3 89.9 104.2 119.0 107.9 0.0 0.0 0.0 Net income 69.1 63.9 89.2 91.0 78.3 0.0 0.0 0.0 Source: Handelsbanken Capital Markets

13 Company Update, Metso, March 31, 2020

Revenues, 12m rolling EBIT, 12m rolling EURm EURm 3710 20 490 12.7

460 12.1 -10 3510 430 11.5 -40 400 10.9 3310 -70 370 10.3

Business areas – quarterly data EURm Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20e Q2 20e Q3 20e

Sales Minerals 729.0 681.0 735.0 763.0 797.0 0.0 0.0 0.0 Flow Control 168.0 155.0 168.0 170.0 167.0 0.0 0.0 0.0 Total 897 836 903 933 964 0 0 0 Minerals (%) 18.2 16.6 17.2 19.0 9.3 n.m n.m n.m Flow Control (%) -5.6 19.2 12.8 16.4 -0.60 n.m n.m n.m Total (%) 12.8 17.1 16.4 18.6 7.5 n.m n.m n.m

EBIT Minerals 74.6 82.9 90.8 91.0 85.2 0.0 0.0 0.0 Flow Control 25.1 23.0 27.7 28.0 21.5 0.0 0.0 0.0 Other and intra group -9.4 -6.0 -4.3 -11.8 -9.9 0.0 0.0 0.0 Total 90.3 99.9 114 107 96.8 0 0 0

EBIT margin (%) Minerals 10.2 12.2 12.4 11.9 10.7 n.m n.m n.m Flow Control 14.9 14.8 16.5 16.5 12.9 n.m n.m n.m Total 10.1 11.9 12.6 11.5 10.0 n.m n.m n.m Source: Handelsbanken Capital Markets

14 Company Update, Metso, March 31, 2020

P&L accounts – annual data EURm 2014 2015 2016 2017 2018 2019 2020e 2021e

Income statement Sales 3,658 2,977 2,586 2,699 3,174 3,635 3,371 3,540 Total op expenses -3,232 -2,353 -2,298 -2,422 -2,758 -3,157 -2,928 -3,007 EBITDA 425.8 624.3 287.7 277.3 415.6 477.8 443.6 533.2 Depreciation & impairment -56.0 -50.9 -43.4 -42.0 -41.0 -40.0 -39.0 -39.0 Amortisation intangibles -19.0 -18.1 -17.3 -17.5 -23.6 -19.7 -23.0 -18.0 EBIT 351 555 227 218 351 418 382 476 Net interest expenses -68.8 -39.3 -39.4 -35.0 -30.0 -33.0 -28.0 -33.0 Net financials -68.8 -39.3 -39.4 -35.0 -30.0 -33.0 -28.0 -33.0 EBT 282 516 188 183 321 385 354 443 Paid tax -93.0 -74.0 -58.0 -82.0 -92.0 -98.6 -99.0 -133.0 Reported tax -93.0 -74.0 -58.0 -82.0 -92.0 -98.6 -99.0 -133.0 tax rate (%) 33.0 14.3 30.9 44.9 28.7 25.6 28.0 30.0 Minorities -1.0 ------Net income 188.0 442.0 129.6 101.4 229.0 286.5 254.6 310.2

Growth (%) Sales -5.2 -18.6 -13.1 4.4 17.6 14.5 -7.3 5.0 Total expenses -3.7 -27.2 -2.3 5.4 13.9 14.5 -7.3 2.7 EBITDA -15.3 46.6 -53.9 -3.6 49.9 15.0 -7.2 20.2 EBIT -17.0 58.3 -59.1 -4.1 61.2 19.1 -8.7 24.8 EBT -23.6 83.0 -63.6 -2.6 75.6 20.0 -8.2 25.3 Net income -21.0 135.1 -70.7 -21.7 125.8 25.1 -11.1 21.9

of sales (%) EBITDA margin 11.6 21.0 11.1 10.3 13.1 13.1 13.2 15.1 EBIT margin 9.6 18.7 8.8 8.1 11.1 11.5 11.3 13.5 EBT margin 7.7 17.3 7.3 6.8 10.1 10.6 10.5 12.5 Net margin 5.2 14.8 5.0 3.7 7.2 7.9 7.6 8.8

P rofitability (%) ROE reported 15.7 33.3 9.0 7.3 16.7 19.6 16.4 19.0 ROE adj 23.3 16.2 11.1 7.9 16.7 22.0 16.4 18.9 ROCE 20.3 15.1 11.4 10.2 16.2 19.9 15.4 18.6 Pre-tax ROIC 21.0 33.9 16.0 16.8 26.5 24.0 19.5 25.0 After tax ROIC 14.1 29.1 11.1 9.3 18.9 17.9 14.1 17.5 Sales/capital invested (x) 2.1 1.8 1.7 1.9 2.2 2.0 1.6 1.8 Sales/total assets (x) 1.0 0.90 0.80 0.83 0.95 1.00 0.86 0.89

Adjusted values Total adjustments to net inc -90.4 226.2 -29.7 -8.1 -1.0 -35.9 - 1.0 EBITDA 516.2 398.1 317.4 285.4 416.6 513.7 443.6 532.2 margin (%) 14.1 13.4 12.3 10.6 13.1 14.1 13.2 15.0 EBIT 441.2 329.1 256.7 225.9 352.0 454.0 381.6 475.2 margin (%) 12.1 11.1 9.9 8.4 11.1 12.5 11.3 13.4 EBT 372.4 289.8 217.3 190.9 322.0 421.0 353.6 442.2 Net income 278.4 215.8 159.3 109.5 230.0 322.4 254.6 309.2 Source: Handelsbanken Capital Markets

15 Company Update, Metso, March 31, 2020

Business areas – annual data EURm 2014 2015 2016 2017 2018 2019 2020e 2021e

Sales Minerals 2,676 2,198 1,956 2,064 2,581 2,976 2,704 - Flow Control 982 778 631 635 593 660 668 775 Other and intra group - 1.0 ------Total 3,658 2,977 2,587 2,699 3,174 3,636 3,371 775.0

Sales growth (%) Minerals -9 -18 -11 6 25 15 -9 n.m Flow Control 1 -21 -19 1 -7 11 1 16 Total -5.2 -18.6 -13.1 4.3 17.6 14.6 -7.3 -77.0

EBIT Minerals 244 213 148 153 282 350 307 436 Flow Control 139 110 90 90 82 100 94 121 Other and intra group -32 232 -11 -26 -20 -32 -19 -16 Total 351 555 227 218 344 418 382 541

EBIT margin (%) Minerals 9.1 9.7 7.6 7.4 10.9 11.8 11.3 n.m Flow Control 14.1 14.2 14.3 14.2 13.8 15.2 14.1 15.6 Other and intra group n.m >999 n.m n.m n.m n.m n.m n.m Total 9.6 18.7 8.8 8.1 10.8 11.5 11.3 69.8 Source: Handelsbanken Capital Markets Forecast balance sheet – annual data EURm 2015 2016 2017 2018 2019 2020e 2021e Accounts receivable 841 819 750 645 672 708 779 Inventory 715 709 750 950 1,156 944 956 Other current assets - - - - 315 292 307 Cash & other interest-bearing 590 698 826 614 226 489 573 Current assets 2,146 2,226 2,326 2,209 2,369 2,433 2,615 Goodwill 452 452 466 525 618 618 618 R&D - - - - 20 20 20 Other intangible 98 86 79 83 169 146 128 Tangible assets 343 315 287 425 528 509 490 Shares associates 13 5 7 15 21 21 21 Oth non-IB fixed assets 78 73 93 101 121 121 121 Other financial assets 79 79 29 41 41 41 41 Total assets 3,209 3,236 3,287 3,399 3,887 3,909 4,054 Equity 1,436 1,431 1,344 1,406 1,523 1,590 1,679 Minorities 8 8 7 10 3 3 3 Shareholder equity 1,444 1,439 1,351 1,416 1,526 1,593 1,682 Pension provisions 99 88 68 68 69 69 69 Deferred tax liabilities 24 18 21 32 70 70 70 LT interest-bearing debt 765 767 554 474 837 837 837 ST interest-bearing debt 57 27 299 244 74 74 74 Provisions 27 40 37 32 147 147 147 Trade payables 469 470 547 774 448 415 436 Other current liabilities 324 387 410 359 716 703 739 Current liabilities 850 884 1,256 1,377 1,238 1,193 1,249 Total equity & liabilities 3,209 3,236 3,287 3,399 3,887 3,909 4,054 Net interest bearing debt 153 17 -2 63 644 381 297 Source: Handelsbanken Capital Markets

16 Company Update, Metso, March 31, 2020

Forecast cash flow EURm 2014 2015 2016 2017 2018 2019 2020e 2021e EBIT before associates 350.8 555.3 227.0 217.8 351.0 418.1 381.6 476.2 + Net financials -43.0 -24.0 -39.4 -35.0 -32.0 -33.0 -28.0 -33.0 - Paid tax -126.0 -72.0 -58.0 -82.0 -92.0 -98.6 -99.0 -133.0 - Change in NWC -75.0 64.0 92.0 -31.1 -122.2 -50.9 153.9 -41.3 + Depreciation/impairment 75.0 69.0 -60.7 59.0 59.8 59.7 62.0 57.0 + Other adjustment 74.2 -232.3 185.1 0.6 -4.3 n.m n.m n.m Cash flow from operations (CFFO) 256.0 360.0 346.0 129.3 160.3 295.3 470.5 326.0 - Net recurring capex -74.0 -46.0 -51.0 -45.0 -53.9 -20.0 -20.0 -20.0 FCF bef Acq. & Div. (FCF) 182.0 314.0 295.0 84.3 106.3 275.3 450.5 306.0 - Acquisitions -19.0 - - - - -280.0 - - + Divestments 8.0 305.0 ------FCF to equity (FCFE) 171.0 619.0 295.0 84.3 106.3 -4.7 450.5 306.0 - Paid dividends to shareholders -150.3 -217.0 -157.0 -157.9 -165.4 -180.4 -187.9 -221.0 + Other adjustments -10.7 -2.0 -2.0 92.6 -6.0 -395.8 - - NET cash flow/change in NIBD 10.0 400.0 136.0 19.0 -65.1 -580.9 262.5 85.0 Funds from operations (FFO) 331.0 296.0 254.0 160.4 282.5 346.2 316.6 367.2 Cash flow from operations (CFFO) 256.0 360.0 346.0 129.3 160.3 295.3 470.5 326.0 FCF bef Acquisitions & Divestments (FCF) 182.0 314.0 295.0 84.3 106.3 275.3 450.5 306.0 FCF to equity (FCFE) 171.0 619.0 295.0 84.3 106.3 -4.7 450.5 306.0 Source: Handelsbanken Capital Markets Financial ratios – annual data % 2014 2015 2016 2017 2018 2019 2020e 2021e Equity/total assets 36.1 45.0 44.5 41.1 41.7 39.3 40.7 41.5 Net debt/equity 45.0 10.6 1.2 -0.15 4.5 42.2 24.0 17.6 Net debt/EBITDA (x) 1.3 0.2 0 n.m 0.2 1.3 0.9 0.6 Net cash flow/capex 13.5 >500 267 42.2 -121 <-200 >500 425 EBITDA net interest cover (x) 6.2 15.9 7.3 7.9 13.9 14.5 15.8 16.2 EBIT net interest cover (x) 5.1 14.1 5.8 6.2 11.7 12.7 13.6 14.4

FCFF/total debt 17.3 35.2 29.1 7.7 13.7 25.2 37.8 26.0 Total debt/capital 41.5 36.3 35.6 38.7 33.6 37.4 36.4 35.1 Short-term debt/capital 3.4 2.5 1.2 13.6 11.4 3.0 3.0 2.9 Long-term debt/capital 38.1 33.8 34.3 25.1 22.2 34.3 33.4 32.3

Inventory/sales 23.0 24.0 27.4 27.8 29.9 31.8 28.0 27.0 Receivables/sales 30.7 28.2 31.7 27.8 20.3 27.2 29.7 30.7 Accounts payable/sales 19.1 17.9 22.3 24.6 27.9 28.0 28.3 28.1 Working capital/sales 22.4 25.6 25.9 20.1 14.6 26.9 24.5 24.5 Current ratio 184 252 252 185 160 191 204 209 Quick ratio 115 168 172 125 91.4 98.0 125 133 Source: Handelsbanken Capital Markets Per share data m 2014 2015 2016 2017 2018 2019 2020e 2021e Nr of shares, year-end 150.3 150.3 150.3 150.3 150.3 150.3 150.3 150.3 Nr of shares, average 150.3 150.3 150.3 150.3 150.3 150.3 150.3 150.3 EPS reported (EUR) 1.25 2.94 0.86 0.67 1.52 1.91 1.69 2.06 Y-o-y growth (%) -21.0 135.1 -70.7 -21.7 125.8 25.1 -11.1 21.9 EPS adj (EUR) 1.85 1.44 1.06 0.73 1.53 2.14 1.69 2.06 Y-o-y growth (%) -4.6 -22.5 -26.2 -31.2 110.0 40.2 -21.0 21.5 Cash earnings (EUR) 1.75 3.40 1.27 1.07 1.95 2.30 2.11 2.44 DPS - ordinary (EUR) 1.05 1.05 1.05 1.10 1.20 1.25 1.47 1.50 Payout ratio (%) 84.0 35.7 121.8 163.1 78.8 65.6 86.8 72.7 DPS - EO (EUR) - 0.40 ------Payout ratio (%) 0.0 13.6 0.0 0.0 0.0 0.0 0.0 0.0 Tot cash payout ratio (%) 80.0 49.3 121.8 155.6 72.2 63.0 73.8 71.2 Book value (EUR) 8.1 9.6 9.5 8.9 9.4 10.1 10.6 11.2 Y-o-y growth (%) 4.1 17.6 -0.3 -6.1 4.6 8.3 4.4 5.6 Net debt (EUR) 3.68 1.02 0.11 -0.01 0.42 4.28 2.54 1.97 NAV (EUR) 4.36 5.9 5.9 5.3 5.3 4.76 5.4 6.1 Source: Handelsbanken Capital Markets

17 Company Update, Metso, March 31, 2020

Disclaimer

Recommendation structure and allocations Handelsbanken Capital Markets Equity Research (HCM) employs a three-graded recommendation scale. The recommendations reflect the analyst’s assessment of how much the share price may appreciate or depreciate in absolute terms in a 12-month time horizon and takes into account risks related to both fundamental expectations and share performance. This assessment is not based on a proprietary HCM model and the basis for the analyst’s assessment is dependent on the characteristics of the sector and the company and a multitude of fundamental and timing factors are incorporated. For more detailed information about the recommendation structure please consult the Handelsbanken Capital Markets website: https://www.researchonline.se/desc/recstruct. Investment ratings are determined by the ranges described in the table below. The recommendations do not represent the analyst’s or the bank’s assessment of the company’s fundamental value or quality. The recommendations and absolute performance intervals, together with the allocation of the rating categories amongst companies under coverage and amongst companies under coverage for which Handelsbanken has provided investment banking services in the past 12 months are listed below:

Ratings: definitions and allocations

1 2 3 HCM rating RTP is expected to be HCM Universe IB services Buy above 10% 49% 10% Hold between 0% and +10% 35% 18% Sell below 0% 16% 25%

1 RTP is defined as the expected share price appreciation or depreciation including dividends over the next 12 months 2 Percentage of companies under coverage within each recommendation 3 Percentage of companies within each recommendation for which investment banking services have been provided in the past 12 months

Source: Handelsbanken Capital Markets, as per 31/3 2020 251 143870 UnderWork Buy EUR 21.19 Buy Reiterated

Recommendations are continuously reviewed by the analyst and monitored by the Research Management and will be updated and/or refreshed regularly. The rationale behind a change in recommendation will be explained in such a refresher/update.

A list of all recommendations made by investment research during the preceding 12-month period is available here: https://www.researchonline.se/desc/rechist.

The target price (TP) is the analyst’s assessment of the level at which the share should be traded in a 12- month period. The TP is used as a basis for the recommendation (see explanation above) and takes into account timing-related issues and triggers, such as relative valuation and newsflow. The TP does not represent the analyst’s or the bank’s assessment of the company’s fundamental value or quality.

Unless otherwise specified, share prices mentioned in this report refer to the closing price of the previous day.

Risk warning All investments involve risks and investors are encouraged to make their own decision as to the appropriateness of an investment in any securities referred to in this report, based on their specific investment objectives, financial status and risk tolerance. The historical return of a financial instrument is not a guarantee of future return. The value of financial instruments can rise or fall, and it is not certain that you will get back all the capital you have invested. At times, the expected total returns may fall outside of the above stated ranges because of price movement and/or volatility. Such interim deviations from specified ranges will be permitted but will become subject to review by Research Management.

Valuation and methodology Target prices, outlooks and recommendations expressed in this research report are based on a combination of valuation models, such as discounted cash flow (DCF) and relative valuation to peers using ratios such as price-to-earnings (P/E), enterprise-value-to-operating-profit (EV/EBITDA), price-to-book (P/B) and earnings models. Sales and earnings forecasts are based on historical financial data as reported by the company and the analyst's expectations for company-specific performance are derived from expectations of micro- and macroeconomic developments. The company's different business segments are modelled separately in this process and then aggregated to achieve group forecasts for sales, earnings, cash flow and the balance sheet. For more detailed information about the valuation and methodology please consult the Handelsbanken Capital Markets website: https://www.researchonline.se/desc/disclaimers.

18 Company Update, Metso, March 31, 2020

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19 Company Update, Metso, March 31, 2020

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20 Company Update, Metso, March 31, 2020

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Metso This report has not been given to the subject company, or any other external party, prior to publication to approve the accuracy of the facts presented. The subject company has not been notified of the recommendation, target price or estimate changes, as stated in this report, prior to publication. Mar 31. 2020: Metso

- Handelsbanken's analyst Timo Heinonen has no position in Metso or a related instrument.

Handelsbanken beneficially owns one percent or more of any class of common equity securities of the company that is the subject of this research report.

On 2019-02-19 the recommendation Reduce, which was set on 2018-10-01 at the share price of EUR 30.54, was changed to the current recommendation Buy at a share price of EUR 28.72.

Share prices mentioned in this report refer to the intraday price on 2020-03-31 at 15:30 CET.

For more company-specific disclosure texts, please consult the Handelsbanken Capital Markets website: https://www.researchonline.se/desc/disclosure.

Company overview

% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e

P&L S ales (EURm) ------4,282 3,858 3,658 2,977 2,586 2,699 3,174 3,635 3,371 3,540 growth n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m -10 -5 -19 -13 4 18 15 -7 5 SG&A to sales 0 0 0 0 0 0 0 0 0 16.5 18.2 18.7 19.9 20.0 18.9 17.2 16.2 19.6 0 EBITDA (EURm) ------550 503 426 624 288 277 416 478 444 533 margin n.m n.m n.m n.m n.m n.m n.m n.m n.m 12.8 13.0 11.6 21.0 11.1 10.3 13.1 13.1 13.2 15.1 EBITA (EURm) ------493 442 370 573 244 235 375 438 405 494 margin n.m n.m n.m n.m n.m n.m n.m n.m n.m 11.5 11.4 10.1 19.3 9.4 8.7 11.8 12.0 12.0 14.0 EBIT (EURm) ------457 423 351 555 227 218 351 418 382 476 margin n.m n.m n.m n.m n.m n.m n.m n.m n.m 10.7 11.0 9.6 18.7 8.8 8.1 11.1 11.5 11.3 13.5 Net income (EURm) ------267 238 188 442 130 101 229 286 255 310 growth n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m -10.9 -21.0 135 -70.7 -21.7 126 25.1 -11.1 21.9 Adj net income (EURm) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 278 292 278 216 159 110 230 322 255 309 growth n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 4.9 -4.6 -22.5 -26.2 -31.2 110 40.2 -21.0 21.5

Balance sheet (EURm) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e Tangible assets ------833 376 398 343 315 287 425 528 509 490 Goodwill ------887 456 461 452 452 466 525 618 618 618 Current assets ------4,419 2,505 2,245 2,146 2,226 2,326 2,209 2,369 2,433 2,615 Cash ------731 467 279 590 698 826 614 226 489 573 Total assets ------6,642 3,678 3,403 3,209 3,236 3,287 3,399 3,887 3,909 4,054 Equity ------2,207 1,173 1,221 1,436 1,431 1,344 1,406 1,523 1,590 1,679 Minority ------20 8 8 8 8 7 10 3 3 3 LT int bearing debt ------1,102 784 800 765 767 554 474 837 837 837 ST int bearing debt ------204 278 72 57 27 299 244 74 74 74 Current liab ------2,976 1,581 1,218 850 884 1,256 1,377 1,238 1,193 1,249 Total liabilities ------6,642 3,678 3,403 3,209 3,236 3,287 3,399 3,887 3,909 4,054 Net int bearing debt ------537 563 553 153 17 -2 63 644 381 297

Cash flow (EURm) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e CFFO ------359 316 256 360 346 129 160 295 470 326 Capex ------156 -95 -74 -46 -51 -45 -54 -20 -20 -20 Free cash flow ------203 221 182 314 295 84 106 275 450 306 Acquisitions ------15 -5 -44 -19 - - - - -280 - - Divestments ------10 5 8 305 ------FCF to equity ------15 208 182 171 619 295 84 106 -5 450 306

Ratios 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e Pre-tax ROIC n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 19.6 21.0 33.9 16.0 16.8 26.5 24.0 19.5 25.0 ROE reported n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 14.1 15.7 33.3 9.0 7.3 16.7 19.6 16.4 19.0 ROCE n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 16.5 20.3 15.1 11.4 10.2 16.2 19.9 15.4 18.6 Capex to sales 0 0 0 0 0 0 0 0 0 3.6 2.5 2.0 1.5 2.0 1.7 1.7 0.55 0.59 0.57 NWC to sales n.m n.m n.m n.m n.m n.m n.m n.m n.m 21.4 19.1 22.4 25.6 25.9 20.1 14.6 26.9 24.5 24.5 S ales/assets (EURx) n.m n.m n.m n.m n.m n.m n.m n.m n.m 1.29 0.75 1.03 0.90 0.80 0.83 0.95 1.00 0.86 0.89 S ales/IC (x) n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 1.71 2.07 1.76 1.69 1.92 2.24 1.99 1.63 1.79 Net debt/equity n.m n.m n.m n.m n.m n.m n.m n.m n.m 24.1 47.7 45.0 10.6 1.2 -0.1 4.5 42.2 24.0 17.6 Equity/total assets n.m n.m n.m n.m n.m n.m n.m n.m n.m 33.5 32.1 36.1 45.0 44.5 41.1 41.7 39.3 40.7 41.5

Share data (EUR) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e Avg no shares (m) 136 136 136 141 142 141 142 150 150 150 150 150 150 150 150 150 150 150 150 c hange (%) 0.0 0.0 0.0 4 0.3 -0.3 0.3 6 0.0 0.0 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 A vg diluted shares (m) 136 136 136 141 142 141 142 150 150 150 150 150 150 150 150 150 150 150 150 c hange (%) 0.0 0.0 0.0 3.8 0.3 -0.3 0.3 5.6 0.0 0.0 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share price YE 9.7 11.7 23.1 38.2 37.3 8.5 24.6 41.8 28.7 32.0 31.0 24.9 20.7 27.1 28.5 22.9 35.2 21.2 21.2 Market cap (m) 1,318 1,587 3,147 5,406 5,292 1,204 3,491 6,255 4,287 4,794 4,664 3,738 3,112 4,074 4,280 3,443 5,289 3,186 3,186 EV (m) 1,318 1,587 3,147 5,406 5,292 1,204 3,491 6,255 4,287 5,316 5,156 4,279 3,260 4,094 4,278 3,501 5,915 3,549 3,464 Net debt/share 0 0 0 0 0 0 0 0 0 3.6 3.7 3.7 1.0 0.1 0 0.4 4.3 2.5 2.0 EPS reported ------1.78 1.58 1.25 2.94 0.86 0.67 1.52 1.91 1.69 2.06 growth (%) n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m -11 -21 135 -71 -22 126 25 -11 22 EPS adj 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.86 1.94 1.85 1.44 1.06 0.73 1.53 2.14 1.69 2.06 growth (%) n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 4 -5 -22 -26 -31 110 40 -21 21 BVPS n.m n.m n.m n.m n.m n.m n.m n.m n.m 14.7 7.8 8.1 9.6 9.5 8.9 9.4 10.1 10.6 11.2 DPS - Ordinary ------1.00 1.05 1.05 1.05 1.10 1.20 1.25 1.47 1.50 DPS - Extraordinary - - 1.00 - 1.35 ------0.40 ------Total cash distr./share 0.00 0.00 0.00 1.00 0.00 1.35 0.00 0.00 0.00 0.00 1.85 1.00 1.45 1.05 1.05 1.10 1.20 1.25 1.47

Valuation (x) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021e P/E reported n.m n.m n.m n.m n.m n.m n.m n.m n.m 18.0 19.6 19.9 7.0 31.4 42.2 15.0 18.5 12.5 10.3 P/E adjusted n.m n.m n.m n.m n.m n.m n.m n.m n.m 17.2 16.0 13.4 14.4 25.6 39.1 15.0 16.4 12.5 10.3 P/CEPS n.m n.m n.m n.m n.m n.m n.m n.m n.m 13.3 14.7 14.2 6.1 21.4 26.6 11.7 15.3 10.1 8.7 EV/EBITDA n.m n.m n.m n.m n.m n.m n.m n.m n.m 9.5 9.3 8.3 8.2 12.9 15.0 8.4 11.5 8.0 6.5 EV/sales n.m n.m n.m n.m n.m n.m n.m n.m n.m 1.2 1.3 1.2 1.1 1.6 1.6 1.1 1.6 1.1 0.98 EBIT margin (%) n.m n.m n.m n.m n.m n.m n.m n.m n.m 11.5 11.4 10.1 19.3 9.4 8.7 11.8 12.0 12.0 14.0 P/sales n.m n.m n.m n.m n.m n.m n.m n.m n.m 1.1 1.2 1.0 1.0 1.6 1.6 1.1 1.5 0.95 0.90 P/BV n.m n.m n.m n.m n.m n.m n.m n.m n.m 2.2 4.0 3.1 2.2 2.8 3.2 2.4 3.5 2.0 1.9 ROE reported (%) n.m n.m n.m n.m n.m n.m n.m n.m n.m n.m 14.1 15.7 33.3 9.0 7.3 16.7 19.6 16.4 19.0 FCF adj yield (%) 0 0 0 0 0 0 0 0 0 4.2 4.7 4.9 10.1 7.2 2.0 3.1 5.2 14.1 9.6 Tot div yield (%) 0 0 4.3 0 3.6 0 0 0 0 0 3.2 4.2 7.0 3.9 3.9 5.2 3.6 6.9 7.1

Event calendar Management Company profile May 07, 2020 (09:00) Q1 report CEO Pekka Vauramo Metso is a globally leading supplier of stone crushers and grinding mills used in the Aug 05, 2020 (09:00) H1 report CFO Eeva Sipilä mining and construction industries. The Automation division serves in principal the oil & petroleum and pulp & paper industries. Service make up almost 50% of group sales. IR Juha Rouhiainen - Phone number +358 20 484 3253 -

Svenska Handelsbanken AB (publ) Stockholm Copenhagen Helsinki Oslo London New York Blasieholmstorg 11 Havneholmen 29 Itämerenkatu 11-13 Tjuvholmen allé 11 3 Thomas More Square Handelsbanken Markets Securities, Inc. SE-106 70 Stockholm DK-1561 Copenhagen V FI-00180 Helsinki 875 Third Avenue, 4th Floor Postboks 1249 Vika London GB-E1W 1WY Tel. +46 8 701 10 00 Tel. +45 33 41 8200 Tel. +358 10 444 11 NO-0110 Oslo New York, NY 10022-7218 Tel. +44 207 578 8668 Fax. +46 8 611 11 80 Fax. +45 33 41 85 52 Fax. +358 10 444 2578 Tel. + 47 22 39 70 00 Tel. +1 212 326 5153 Fax. +44 207 578 8090 Fax. + 47 22 39 71 60 Fax. +1 212 326 2730 FINRA, SIPC