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Annual Review 2005

Sustainability Report 2005Annual Review 2005 Financial Statements 2005

For further information, visit www.metso.com

A n n uA l R e v i e w

– i ntro duc tion

– Strategy

– Business areas

– i nvestor information

F i n A n c i A l S tAt e m e n t S

– Financial statements and notes

– Shares and shareholders

S u S tA i n A B i l i t y R e p o R t

– m etso and sustainable development

– economic resp onsibi l it y

– S o cial resp onsibi l it y

– environmental resp onsibi l it y

Metso is a global engineering and technology corporation with 2005 net sales of approximately EUR 4.2 billion. Its 22,000 employees in more than 50 countries serve customers in the pulp and paper industry, rock and minerals processing, the energy industry and selected other industries.

Metso’s Annual Reports 2005

http://www.metso.com

Table of Contents

i n t r o d u c t i o n

METSO CORPORATION 2–3

FINANCIAL PERFORMANCE IN 2005 4–5

s t r a t e g y

FROM THE CEO 6–7

VISION AND STRATEGY 8–9

FINANCIAL TARGETS 10–11

VALUES AND ETHICAL PRINCIPLES 12–13

OPERATING ENVIRONMENT 14–19

RISKS AND RISK MANAGEMENT 20–25

b u s i n e s s a r e a s

METSO PAPER 28–35

METSO MINERALS 36–43

METSO AUTOMATION 44–49

METSO VENTURES 50–53

i n v e s t o r i n f o r m a t i o n

CORPORATE GOVERNANCE 56–61

BOARD OF DIREC TORS 62–63

EXECUTIVE TEAM 64–65

STOCK EXCHANGE RELEASES AND ANNOUNCEMENTS IN 2005 66

INVESTOR RELATIONS 67–69

INFORMATION TO SHAREHOLDERS 70–71

ADDRESSES 72

M E T S O ’ S A N N U A L R E V I E w 2 0 0 5 1

Metso CorporationMetso is an international engineering and technology corporation that serves customers in the pulp and paper industry, rock and minerals processing, energy industry and other selected industrial sectors. Metso Corporation comprises four business areas: Metso Paper, Metso Minerals, Metso Automation and Metso Ventures.

In 2005, Metso Corporation’s net sales totaled some eur 4.2 billion. Metso has business operations in over 50 countries, and some 22,000 employees.

Metso has production on all continents. The main market areas are Europe and North America, which account for some 60 percent of net sales. However, Asia and South America are becoming increasingly important.

Metso is listed on the Helsinki and New York stock exchanges.

metSo pApeR

net SAleS in 2005� – eur 1,702 million

peRSonnel, DecemBeR 31, 2005� – 8,201

pRoDuctS AnD SeRviceS – Equipment and machinery for mechanical and chemical pulp production, paper machines, tissue machines, board machines, paper finishing systems, and knowhow, maintenance and aftermarket services

cuStomeRS – Mechanical and chemical pulp makers, and paper, tissue and board producers

mARket poSition – Global market leader of papermaking lines, and one of the leading suppliers of boardmaking machines and pulping lines

tARget mARket – approximately eur 10 billion

lARgeSt mARket AReAS – Europe, North America and Asia

mAin competitoRS – Voith Paper from Germany, Andritz from Austria and Mitsubishi from Japan

metSo mineRAlS

net SAleS in 2005� – eur 1,735 million


pRoDuctS AnD SeRviceS – Rock and minerals processing systems, crushers, screens and conveyors, mobile crushing and screening equipment, grinding mills, separation equipment for minerals, recycling systems for metals, wear protection products and conveyor belts, wear and spare parts and aftermarket services

cuStomeRS – Mining, quarries and contractors, civil engineering and construction, and recycling of metals and construction materials

mARket poSition – Global market leader in rock and minerals processing systems and recycling systems for metals and construction materials


lARgeSt mARket AReAS – Europe and North America; South America and Asia are increasingly important

mAin competitoRS – Terex and Astec from the USA, Sandvik from Sweden, Krupp Polysius from Germany, FLSmidth from Denmark and Outokumpu Technology from Finland

2 M E T S O ’ S A N N U A L R E V I E w 2 0 0 5

Net sales by business area

Metso Paper 39%[2004: 42%]

Metso Minerals 40%[2004: 37%]

Metso Automation 14%[2004: 15%]

Metso Ventures 7%[2004: 6%]

Finland 8% [2004: 9%]

Other Nordic countries 12% [2004: 8%]

Other European countries 25% [2004: 25%]

North America 21% [2004: 21%]

South and Central America 12% [2004: 8%]

Asia-Pacific 17% [2004: 23%]

Rest of the world 5% [2004: 6%]

Net sales by market area

Personnel by business area

Metso Paper 37%[2004: 40%]

Metso Minerals 39%[2004: 37%]

Metso Automation 14%[2004: 15%]

Metso Ventures 9%[2004: 7%]

Corporate Office and Shared Services 1%[2004: 1%]

metSo AutomAtion

net SAleS in 2005� – eur 584 million


pRoDuctS AnD SeRviceS – Process industry automation and information management application networks and systems, production process measurement systems and equipment, control valves, and support and maintenance services

cuStomeRS Mechanical and chemical pulp makers, paper and board producers, and the energy, oil and gas industries

mARket poSition – Global market leader of special catalytic equipment, consistency transmitters and control and automated valves, thirdlargest supplier of automation solutions for the pulp and paper industry, and one of the largest European suppliers of power plant automation


lARgeSt mARket AReAS – Europe and North America

mAin competitoRS – ABB from Switzerland, Emerson, Honeywell and Flowserve from the USA, Invensys from the UK and Siemens from Germany For further information,

visit www.metso.com

metSo ventuReS

net SAleS in 2005� – eur 284 million


The business area comprises four business groups: Metso Panelboard, Metso Powdermet, Foundries and Valmet Automotive

pRoDuctS – Production lines, equipment and aftermarket services for the panelboard industry, industrial castings, material technology expert services, and the contract manufacture of specialty cars

cuStomeRS – Construction and furniture industries, producers of packaging material, paper and board producers, rock and minerals processing, the engineering industry, and car makers

mARket poSition – Metso Panelboard is among the three largest equipment suppliers for the panelboard industry in the world. Valmet Automotive is one of Europe’s leading contract manufacturers of specialty cars n

METSO PAPER: The PM2 paper machine at SP Newsprint’s Dublin mill in Georgia, USA. The machine produces high-quality newsprint from recycled fiber.METSO MINERALS: Paul Bernhardt, who is in charge of Metso Minerals’ service operations at Newcrest Mining Limited’s Telfer mine in Australia.METSO AUTOMATION: Petrobras’ Technical Assistant Rui Nunes Mascarenhas (left) and Metso Automation’s Process and Energy Automation Maintenance Technician Isaias do Espírito Santo at the Petrobras oil refinery in Brazil.METSO VENTURES: Mill Manager Manuel Casáis (left) and Metso Panelboard’s Sales Manager Berbado Alvarez de Prado (right) taking part in a conversation at Pina S.A. particleboard mill in Cuenca, Spain.


M E T S O C O R P O R A T I O N


Financial performance in 2005

order backlog bolstered by 38 percent n The demand for Metso’s products

remained good in 2005 in the mining, civil engineering, energy and oil industries and improved during the year also in the pulp and paper industry. Orders received increased by 19 percent, with the strongest growth being in Metso Minerals and Metso Paper. Metso’s order backlog was 38 percent stronger than one year earlier.

net sales increased by 17 percentn Metso’s net sales grew by 17 percent,

and this growth was almost entirely organic. It was due to the good market situation, improved competitiveness and the increasingly strong focus on customer orientation after the restructuring.

n Deliveries increased in all business areas. Growth was strongest at Metso Minerals (27%). The relative share of the aftermarket business decreased slightly, as project and equipment deliveries increased substantially. In terms of euros, the volume of the aftermarket business grew by 11 percent.

greater efficiency and a stream-lined cost structure as plannedn The improvement of Metso’s

profitability is due not only to a more active market, but also to the significant efficiency improvement programs and business restructuring of recent years, which have helped to streamline the cost structure altogether by nearly eur 150 million annually.

n The first efficiency improvement program, the Corporationwide M100 commenced in 2003, was completed at the end of 2004. The program’s

savings of eur 100 million materialized in 2005 results.

n The MP50 program, which was started in September 2004, aimed at renewing Metso Paper’s business model and streamlining its cost structure. The program was concluded in 2005. The measures carried out under the program in 2005 were mainly targeted at improving the profitability of the Tissue business line. The annual savings generated by the program are estimated at more than eur 43 million. Three quarters of these materialized already in 2005.

n Thanks to the efficiency improvement measures, outsourcing and the development of the subcontractor network, Metso’s cost structure is today more competitive and flexible. Consequently, profit performance is on a more sustainable basis. The streamlined cost structure helps to better withstand business cycle variations.

Substantial profit improvementn The Corporation’s operating profit

improved substantially to eur 335 million. The improvement in operating profit was due to increased delivery volumes, a streamlined cost structure and improved productivity. The operating margin was 7.9 percent, clearly exceeding the 6 percent target set for 2005. Apart from Metso Ventures, all business areas achieved their operating profit targets.

n Profit from continuing operations before taxes was eur 292 million. The Corporation’s tax rate was low (24.6%). With the result of Metso’s U.S. operations turning clearly positive, Metso was able to utilize tax losscarry forwards from prior years, for which Metso has not recognized

any deferred tax assets. The tax rate is expected to be below the regular level also in 2006–2007.

n The profit attributable to equity shareholders, i.e. the profit for the financial year, was eur 236 million, and earnings per share were eur 1.69. The return on capital employed (ROCE) was 18.8 percent, which clearly exceeded the target of 12 percent set for 2005. Return on equity (ROE) was 20.9 percent.

gearing decreased furthern Metso Corporation’s cash flow from

operations decreased to eur 164 million, as the growth in net sales increased net working capital, particularly in Metso Minerals. At Metso Minerals, inventories grew and receivables increased, but the turnover of net working capital remained on par with the previous year. A total of eur 170 million was tied up in net working capital in the Corporation.

n Metso’s gross capital expenditure was eur 107 million. Free cash flow was eur 106 million. At the end of the year, the liquid assets totaled almost eur 500 million. Investments (excluding acquisitions) in 2006 are estimated at approx. eur 120 million.

n Net interestbearing liabilities decreased and were eur 289 million at the end of the year. eur 93 million in bonds and other loans were prematurely repaid during the year.

n Gearing, i.e. the ratio of net interest bearing liabilities to shareholders’ equity, decreased further to 22.4 percent. Shareholders’ equity increased, as a result of both the improved profit performance and a capital increase of eur 72 million arising from stock option programs.

In June 2004, Metso’s management focus was set on the improvement of profitability and the strengthening of the balance sheet. The efficiency improvement programs were completed in 2005, and the restructuring measures began to generate results, which were reflected in a clear improvement in profitability. As a result of these positive developments, Metso’s management focus has shifted towards profitable growth.


F I N A N C I A L P E R F O R M A N C E I N 2 0 0 5

(50)

0

50

100

150

200

250

300

350

0504030201(2)

0

2

4

6

8

10

12

14

Operating profit (loss)

EUR million %

Operating margin, %Excluding goodwillimpairmentExcluding reversal of Finnish pension liability (TEL)

2003

2004

0

1,000

2,000

3,000

4,000

5,000

0504030201Orders receivedOrder backlog

Orders received and order backlog

EUR million

0

1,000

2,000

3,000

4,000

5,000

0504030201

Net salesEUR million

Years 2001–2003 presented in accordance with Finnish GAAP

18

20

22

24

26

28

1–12

/05

10/0

4–9/

05

7/04

–6/0

5

4/04

–3/0

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1–12

/04

%

Cost structure(rolling 12 months)

Gross margin, % Selling, general & administrative costs, % of net sales

Key Figures (In millions)

2004 EUR

2005 euR

Net sales 3,602 4,221

Aftermarket operations, % of net sales 40.0 38

Operating profit excluding reversal of the Finnish pension liability (TEL) 124.2 329.9

% of net sales 3.4 7.8

Reversal of the Finnish pension liability (TEL) 75.3 5.1

Operating profit 199.5 335.0


Profit on continuing operations before tax 140 292


Profit on continuing operations 158 220


Profit (loss) attributable to equity shareholders 143 236

Earnings per share from continuing operations, EUR 1.16 1.57

Earnings per share from continuing and discontinued operations, EUR 1.05 1.69

Dividend/share, EUR 0.35 1.40*

Balance sheet total 3,570 3,904

Return on capital employed (ROCE), % 10.7 18.8

Return on equity (ROE), % 15.9 20.9

Equity to assets ratio, % 30.9 37.5

Gearing, % 49.7 22.4

Cash flow from operations 261 164

Free cash flow 211 106

Free cash flow / share 1.55 0.76

Orders received 3,989 4,745

Order backlog from continuing operations, December 31 1,705 2,350

Personnel, December 31 22,802 22,178

* Board proposal

In addition, the divestiture of Metso Drives in April decreased net interest bearing liabilities. Metso’s equity to assets ratio was 37.5 percent at the end of the year.

towards profitable growth with current structure n Metso outlined its profitable growth

strategy in August 2005. More specific information on the strategy and the management agendas for 2006–2008 is included on pages 8–11 of the Annual Review.

n The feasibility study regarding various alternative corporate structures, which was commenced in August 2005, was completed in February 2006. The study focused on the opportunities offered by various structure options to create shareholder value, and on strategic and industrial aspects. It was decided to maintain Metso’s structure intact, as, according to the feasibility study, the new strategy and current structure offer for now the best potential to further increase shareholder value. n

“�The year 2005 was the best in Metso’s history. Our dedicated efforts to continuously improve competitiveness, productivity and the quality of operations have begun to generate results. This is a very encouraging start.”�Jorma Eloranta, President and CEO


F I N A N C I A L P E R F O R M A N C E I N 2 0 0 5


F R O M T H E C E O

Dear shareholder,2005 was a successful year for Metso. We strengthened our position as the global market and technology leader in several of our main products, both in our traditional markets as well as in emerging markets.

The efficiency improvement measures made in previous years and the good market situation also carried our profitability to a significantly improved level. Metso’s balance sheet is now strong, too. Profitability development was favorable in all our business areas. Particularly at Metso Minerals and Metso Automation, their new way of operating emphasizing continuous improvement and costconsciousness produced outstanding results. Metso Paper also reached the profit targets set for 2005.

The favorable profit development and our strengthened balance sheet were mirrored in the price increase and heavier trading of Metso’s shares on the stock exchanges. Metso’s market capitalization had risen to over four billion euros by February 2006, from less than two billion euros one year ago. Considering both the increase in the share price and the dividends paid, the return on Metso’s share amounted to 101 percent in 2005. The positive development influenced the spring dividend proposal of eur 1.40.

We are continuing Metso’s longterm development from this platform and aiming for profitable growth. Achieving and maintaining profitable growth over the longterm isn’t easy; it requires a lot of effort. However, I have strong confidence in Metso employees and in our knowhow. Continuous improvement of our own operations and competitiveness has taken root as our way of operating. Now we are sharpening our focus on strengthening customer satisfaction.

Metso’s purpose statement – Engineering Customer Success – expresses

the direct correlation between our success and our customers’ success. We are in the business of providing our customers with the knowhow and technology that will help them improve their competitiveness and the productivity of their industrial processes.

Customer satisfaction is of critical importance in achieving our target of annual net sales growth of 10 percent. The aim is to achieve about half the growth organically and the other half through carefully selected, complementary acquisitions.

Our customers operate in growth sectors: Mining industry production, for example, is expected to grow 37 percent in 2004–2012. Production of aggregates, the world’s most common raw material, is expected to grow over 40 percent during the same time period, and pulp, paper and board production by 20 percent.

Geographically, growth and investments in new machines will be concentrated to the emerging markets, such as China, India, Brazil and Russia. Metso Paper, for example, intends to strengthen its presence in China by increasing local manufacturing and purchasing. The conditional agreement on the acquisition of a Chinese paper machine manufacturer is evidence of this. This agreement was announced in February 2006. Metso Automation has strengthened its technology and maintenance services in Brazil, and Metso Minerals has increased its foundry and manufacturing capacity in Brazil and India.

We believe the demand for machine and production line rebuilds will continue to be strong in Europe and North America. About twothirds of Metso’s net sales will continue to come from these markets, and success requires continuous development of the service network and service offering.

Our vision is to become the industry benchmark – measured in terms of customer satisfaction, operational efficiency, desirable workplace, or the creation of shareholder value. Achieving our vision requires us to be ready to renew our own ways of operating and to pursue profitable growth by listening to our customers’ needs.

An element in Metso’s renewal is the letter of intent signed in February 2006 to acquire Aker Kvaerner’s Pulping and Power business. Realization of the transaction will make Metso a significant supplier of comprehensive pulp mills – thereby fulfilling particularly customer demand in South America.

A strong and successful company is able to grow on its own terms. This view is supported also by the February 2006 feasibility study on alternative Metso structures. Based on the findings of the study, Metso’s Board of Directors decided to keep Metso’s current structure intact to continue executing its strategy of profitable growth.

Metso’s performance in 2005 demonstrated the high caliber of the company, but we have set our goals even higher. Metso employees all over the world have also committed to these goals. Through continuous, longterm development, we can create genuine and sustainable value for our shareholders.

I want to thank our customers for the fruitful cooperation and our partners for their desire to play a role in developing Metso. I also acknowledge the courage of Metso employees to meet the challenges of renewal, and thank our shareholders for the confidence they have shown. We hope that we can continue to be worthy of their trust also in the future.

Jorma Elorantap R e S i D e n t A n D c e o

m e t S o co R p o R At i o n

Renewing Metso


F R O M T H E C E O

Vision and strategy

puRpoSeMetso’s purpose, Engineering Customer Success, combines Metso’s strong engineering knowhow and customer success. Customer satisfaction is the prerequisite for Metso’s growth.

Metso’s customers are industrial companies that expect of their machinery and equipment suppliers longterm commitment and responsibility for delivered processes. Customer investments are typically large, and have long life cycles. Investments should yield a sufficient return on capital, which can be enhanced by cooperation between Metso and the customer throughout the process life cycle. Customers operate globally, and expect their suppliers to have a local presence. Metso’s strong

OUR PURPOSE IS

n Engineering Customer Success

OUR VALUES

4Customer’s success 4Profitable innovation 4Professional development 4Personal commitment

COMMON STRATEGIC GOALS TOWARDS THE VISION:

CUSTOMER SATISFAC TION

4�Solutions that best meet the customer needs throughout the process life cycle

4Customer-oriented approach in all operations

4Strong local presence globally

4Leading technology

OPERATIONAL EXCELLENCE

4�Continuous productivity and quality improvement

4�World-class business, management and people processes

4Profitability and growth exceeding our peers

4A great place to work

Metso’s strategic goal for 2006–2008 is to achieve sustainable profitable growth. Profitable growth will be attained through improved customer satisfaction and operational excellence.


V I S I O N A N D S T R A T E G Y

network makes it possible to serve customers on all continents.

Metso strives to produce increasingly competitive and efficient solutions, equipment and services, based on close customer cooperation, and technology and process expertise. Metso’s strengths also include wellknown product brands and a good reputation.

Metso delivers its purpose through its values and its ethical principles. For more information on values and ethical principles, please refer to pages 12–13.

viSionMetso’s vision is to become the industry benchmark. It challenges each Metso employee to reflect what he or she can personally do to better meet the expec

VISION

nWe want to become the industry benchmark

tations of customers, colleagues and shareholders.

For metso, being the industry benchmark means that n Metso’s solutions best meet the

customer needs. n Metso is the market and technology

leader in its chosen industries. n Metso is the leading company in

operational excellence. n Metso is the preferred employer. n Metso generates the best shareholder

value in its peer group.

StRAtegic goAlSMetso’s strategic goals are based on Metso’s purpose statement, values and ethical principles. Strategic goals form the roadmap that guides Metso towards its vision.

The strategic goals relate to customer satisfaction and operational excellence.

customer satisfaction n Solutions that best meet the customer

needs throughout the process life cycle.

n A customeroriented approach in all operations.

n A strong local presence, globally. n Leading technology.

operational excellence n Continuous improvement in

productivity and quality. n Worldclass business, management

and people processes. n Profitability and growth exceeding

our peers. n A great place to work.

The strategic goals form a permanent foundation on which the shortterm management agenda is built.

mAnAgement AgenDA 2006–2008Metso’s Management Agenda for 2006–2008 defines the focus areas and priorities in customer satisfaction

development and operational excellence, which are required to attain profitable growth in the strategy period 2006–2008. Metso’s growth will support the sustainable profitability development and strengthen its market leadership position.

the key focus areas in customer satisfaction are: n Strengthen the leading position in all

its market areas, n Complement life cycle offering both

through Metso’s own development and by complementary acquisitions, and

n Develop closer customer relationships by bringing sales, service, purchasing and manufacturing closer to customers. This is especially true in the emerging markets of Asia, South America and Russia.

the key focus areas in operational excellence are: n Continuous improvement of

productivity and quality. The focus will in particular be on the development of worldclass business processes and systems enabling organic growth.

n Develop supply chain management to increase flexibility, cost competitiveness, and quality.

In implementing the management agenda, Metso will rely on handson leadership and the results will be monitored regularly. Metso will also ensure that it has the right people in the right places, and that the competences and knowledge are constantly developed. The Business Area Management Agendas form a basis for concrete action plans and programs.

The development of business will be monitored through the financial targets set for the 2006–2008 strategy period. For further information, see pages 10–11. n


V I S I O N A N D S T R A T E G Y

FinAnciAl tARgetS FoR 2006–2008 In the 2006–2008 strategy period, some 10 percent annual increase in net sales is targeted. Around half of the growth is expected to be attained organically, and the rest through complementary acquisitions. The profitability target is a 9 percent operating profit margin at the end of the strategy period.

Moreover, Metso seeks a return on capital employed (ROCE%) exceeding 15 percent regardless of the business cycle. In a situation of favorable demand, the annual ROCE% is expected to clearly surpass 15 percent.

It is strategically important for Metso to regain and retain a solid investment grade status. Consequently, gearing and free cash flow, among others, are monitored.

operating profit targets by business areaThe business areaspecific operating profit margin targets towards the end of the strategy period in 2008 are: over 8 percent for Metso Paper, over 11 percent for Metso Minerals and over 12 percent for Metso Automation. No mediumterm operating margin target has been set for Metso Ventures.

The strategic and financial targets will be reached through hundreds of operational measures and programs.

At Metso Paper, for instance, determined efforts to halve quality costs are under way. At present, quality costs account for 3–4 percent of net sales. The forming of a separate Service business line as of the beginning of 2006 enables a more focused range of aftermarket products and services to be developed. The aim is to increase the net sales of the aftermarket business by over eur 100 million in 2006–2008. Production and purchasing are being strengthened in the rapidly growing Asian and South American markets. For example in China, Metso Paper is strengthening its presence by acquiring ShanghaiChenming Paper Machinery Co. Ltd, a Chinese manufacturer of paper machines. The agreement

Metso’s progress in imple-menting the profitable growth strategy is reflected against the financial targets, among other indicators. The key indicators of Metso’s financial performance in 2006–2008 are increase in net sales, return on capital employed and operating profit margin. As the level of capital employed varies between the business areas, it is important to monitor both indicators simulta-neously when evaluating Metso’s performance.

Financial targets

was signed in February 2006, and the finalization of the transaction is subject to approval by the Chinese authorities.

In February 2006, Metso Paper and Aker Kvaerner signed a letter of intent whereby Metso intends to acquire Aker Kvaerner’s Pulping and Power business. When completed, the transaction will expand Metso’s product offering.

Another goal for Metso Paper in 2006 is to make the Tissue business line profitable.

Metso Minerals is developing global procurement and logistics to make the global network to serve customers as


F I N A N C I A L T A R G E T S

0

3

6

9

12

15

Metso Ventures*

Metso Metso Automation

Metso Minerals

Metso Paper

Business area operating margin, % vs. targets%

2005 Target 2006 Target 2006–2008

>8

>11

>12

9

Metso’s financial targets for 2006Metso Corporation 10% increase in net sales

Over 7% operating profit of net sales

Return on capital

employed (ROCE) over 15%

Metso Paper 6% operating profit of net sales

Metso Minerals 10% operating profit of net sales

Metso Automation 11% operating profit of net sales

Metso Ventures 6% operating profit of net sales

Metso Automation’s good, sustained profitability level is now being used to achieve growth. Around 100 new employees will be recruited primarily in Asia, Russia and South America in sales and maintenance duties. Growth will also be sought in these regions by enhancing the use of local partners in both engineering and maintenance. Investments supporting the growth are estimated to weaken profitability somewhat in 2006, as their effects will not show until later. Metso Automation is also actively seeking potential complementary acquisitions.

Achieving the corporatelevel operating profit margin target of 9 percent towards the end of the strategy period will require that Metso’s business areas successfully complete the ongoing development programs and that the market demand is at least as favorable as in 2005. Metso is continuing its efforts to decrease the negative impact of cyclicality on its financial performance. During low stages of the business cycle, the operating profit margin is estimated to be no more than 3 percent smaller.

Dividend policyAccording to the dividend policy approved by the Board, Metso will distribute an annual dividend of at least 40 percent of earnings per share to its shareholders.

outlook FoR 2006 The market situation is expected to continue to be favorable in the civil engineering, mining and power industry in 2006. Pulp and paper industry demand is expected to remain at least as satisfactory as in 2005.

Based on the strong order backlog and current favorable market outlook it is estimated that in 2006 Metso Corporation’s net sales will grow by over 10 percent and that operating profit will clearly surpass the operating profit in 2005.

efficiently as possible. By producing new life cycle services, the payback period of customer investments will be reduced and the production capacity utilization rate and the quality of the end product will be improved.

To improve the productivity and to strengthen the principal production plants inhouse production and the subcontractor networks will be expanded. Capitalizing on a good market situation also requires more efficient management of the sales process. Metso Minerals is also actively searching for potential complementary acquisitions.

* No medium-term operating margin target has been set for Metso Ventures.


F I N A N C I A L T A R G E T S

vAlueSThe values behind Metso’s operations were defined in 2001, and since then they have been the guideline for business operations and everyday work. These values will also guide Metso’s operations in the longterm.

customer’s successProfitable business is possible only through our customers’ success. We develop solutions that anticipate our customers’ future needs and take environmental factors into account. In serving customers we commit ourselves to high standards and professional performance.

profitable innovationWe create added value for our customers and owners through innovation. We are ready to question present practices and abandon obsolete ones. We utilize and combine the vast and diverse knowledge of the entire organization. Metso’s growth is based on creativity and healthy risktaking in a working environment that encourages and rewards innovation.

personal commitmentAs we finish what we undertake and accept ownership of and responsibility for our actions, we can always be trusted. We are direct and honest in our communication and respect cultural

differences. Even though we openly express our views, we work diligently to achieve mutually agreed targets.

professional development We are willing to learn – and that includes from each other. We regard professional development as an integral part of our work. We welcome new challenges and tackle them to the best of our abilities. The wellbeing of our working community is of paramount importance to us.

etHicAl pRincipleS Ethical standards and principles support Metso’s sustainability and provide Metso and its stakeholders with commonly accepted guidelines and perspectives for future decisions. They create uniformity in all business transactions and work assignments.

Metso’s ethical principles also describe company culture, commonly accepted practices, and commitment to comply with laws and regulations. Instead of creating new obligations, they define, confirm and document Metso’s best practices.

All Metso’s employees should know the ethical principles and also put this knowledge into practice. Consistency in applying these principles is also a way to earn a reputation as a credible corporate citizen.

Values and ethical principles ensure consistency in Metso operations

Metso complies with applicable laws, regulations and generally accepted business practices. Metso’s operations are also guided by its values, ethical principles and good governance practices. The values and ethical principles ensure that Metso’s operations are consistent and uniform, independent of the country and business area. Metso strives to be a good corporate citizen in all its operations.


V A L U E S A N D E T H I C A L P R I N C I P L E S

integrityIntegrity is fundamental to all of Metso’s dealings, actions, statements and reporting, and is an essential aspect of sustainability. Metso respects its promises and commitments.

compliance with laws and regulationsMetso is committed to full compliance with all applicable national and international laws, regulations and generally accepted practices. Should these prove to be insufficient or open to interpretation, the best available experts will be consulted.

transparency and opennessMetso is a public company whose shares are quoted on the Helsinki and New York Stock Exchanges. Metso provides its stakeholders with information on its status and performance simultaneously and equally, transparently and openly, without preference or favor for any group or individual, and in compliance with the law, the regulations of the mentioned exchanges and the accepted practices of the equities market. Metso’s employees do not use insider information directly or indirectly in stock trading.

Metso considers it highly important to continuously interact with the authorities and nongovernmental organizations in order to develop and sustain open and direct contact with society.

Human rightsMetso supports and respects the protection of human rights as expressed in the UN Declaration of Human Rights. As an employer, Metso accepts the basic labor rights stated by the International Labor Organization (ILO): freedom of association, the effective recognition of the right to collective bargaining, abolition of forced labor, and equality of opportunity and treatment.

Metso does not use child labor or engage subcontractors or suppliers that do so. Metso does not allow behavior that is physically coercive, threatening, abusive or exploitative.

equal opportunities and non-discriminationMetso selects and appoints employees according to their personal qualifications and skills for the job. Metso does

not engage in or support discrimination in hiring, compensation, selection to training, promotion, termination of employment, or retirement based on, but not limited to, race, caste, national origin, religion, disability, gender, sexual orientation, union membership or political affiliation.

intellectual propertyMetso values the creation and protection of knowledge and intellectual property. Accordingly, Metso’s employees act to safeguard the company’s intellectual property and do not allow unauthorized access to it by outsiders. Conversely, Metso employees respect the intellectual property held by outsiders and do not try to obtain it by illegal means. Metso encourages and supports its employees’ commitment and efforts to increase the company’s intellectual property and thus to contribute to the profitability of the company.

Rejection of corruption and briberyMetso’s management and employees are expected to act in the corporation’s best interests at all times. Employees do not become involved in business relationships that may lead to conflicts of interest. Metso and its employees do not pay bribes or illegal payments to obtain or retain business. Employees do not pay to facilitate favorable decisions or services from authorities.

Metso employees do not accept gifts from business partners exceeding normal standards of hospitality. If the acceptance of a gift or favor contains the remote possibility of a conflict of interest, the employee must clarify the situation with management in advance.

Health and safetyMetso strives to provide a safe and healthy working environment. Metso works to prevent accidents and injuries by executing policies and actions that minimize, as far as is reasonably practicable, the causes of hazards inherent in the working environment. Metso establishes and maintains systems to detect, avoid or respond to potential threats to the health and safety of all personnel.

community involvement and sponsorshipMetso encourages its units and personnel to participate in community

programs promoting the common good. Metso primarily supports programs related to youth activities, science and research, culture as well as environmental protection and conservation.

protection of the environmentMetso contributes to ecological sustainability in all its activities. Metso anticipates the environmental concerns of its customers and the expectations of the public. Metso cooperates with customers and partners to develop best practices and processes for the efficient and sustainable use of energy and materials and for the prevention of pollution.

ethical standards of suppliersMetso expects its suppliers and contractors to demonstrate similar high ethical standards and, accordingly, this criterion is of prime importance when establishing or continuing business relationships.

Application of ethical principles Metso’s ethical principles govern the actions of Metso’s management and all employees in their business operations and employment relationships. Metso ensures that these ethical principles are effectively communicated to all employees and requires all employees to adopt and apply these ethical principles.

Assurance of right and ethically sustainable working practicesA review of Metso’s ethical principles in 2005 showed that they remain relevant and sufficiently comprehensive in their original form. However, it was decided to supplement the more detailed internal instructions related to their use with, for example, prohibitions of insider trading and of participation in any activity that restricts competition. In compliance with the SarbanesOxley Act that regulates Metso as a public company listed on U.S. stock exchanges, internal control and monitoring systems have been developed. These systems have been widely tested and related training has been arranged. One objective has been to make the system relating to the treatment of suspected financial misconduct better known. n


V A L U E S A N D E T H I C A L P R I N C I P L E S


O P E R A T I N G E N V I R O N M E N T

Operating environment

FActoRS AFFecting pRoFitABilityThe demand for Metso’s products and its financial position are affected by business cycles, and the demand of customer industries’ products, as well as the customer industries’ profitability and willingness to invest. Other factors include major changes in exchange rate and the relative competitiveness of Metso’s products and services.

customer industries and business cyclesThe pulp and paper industry is Metso’s most important customer industry, because the entire net sales of Metso Paper and approximately half of the net sales of Metso Automation derive from deliveries to this customer industry. The business of Metso Paper and Metso Automation is affected by changes in pulp and paper consumption, price trends in pulp and different paper and board grades, investments by the pulp and paper industry, manufacturers’ capacity utilization and changes, among other things, in environmental legislation.

Metso’s secondlargest customer industry is the civil engineering industry, which accounts for almost half of Metso Minerals’ net sales. The development of the civil engineering industry is affected especially by the amount of infrastructure investments, which is reflected directly in the demand for aggregates.

The thirdlargest customer industry is the mining industry, whose business cycles affect Metso Minerals’ operations. Almost 40 percent of Metso Minerals’

net sales derive from industry products and services to the mining industry. The mining industry’s willingness to invest is affected by changes in the demand for and price of metals.

Metso’s fourthlargest customer industry is the energy industry. The market outlook for the energy, oil and gas industry is very important to Metso Automation, because about half of Metso Automation’s business consists of deliveries to this customer industry. Metso Automation’s operations are also affected by changes in oil and energy prices.

In the longterm, the effects of cyclical fluctations are offset by the geographical diversity of Metso’s operations, the wide range of customer industries served, and the growing importance of the aftermarket business, process improvements and machine rebuilds. Orders for new equipment are more sensitive to changes in business cycle than the aftermarket business, process improvements and rebuilds.

exchange rate changesMore than onehalf of Metso’s net sales originate from outside the euro zone. Alongside the euro, the most important invoicing currencies used are the U.S. dollar and the Swedish krona. Metso also has major exports from Brazil and South Africa. The wide geographical spread of Metso’s operations reduces the significance of individual currencies, and Metso strives to manufacture products in different currency areas near the end markets.

During 2005, the average exchange rates of currencies most relevant to Metso, except to Brasilian real, remained at almost the previous year’s level, so the translation effect was not significant in terms of income statement comparison. Exchange rate variations can have a direct impact also on the prices of raw materials and production commodities purchased in nondomestic currencies and in the prices of end products for export, in which the invoicing currency is different from the currency of the manufacturing costs (transaction effect). The foreign exchange positions that are based on binding delivery and purchase agreements are hedged in full. Future currency cash flows are hedged for periods that do not normally exceed two years. Therefore, the majority of future currency cash flows related to the order backlog are hedged.

The fact that the Chinese yuan was allowed to fluctuate against a currency basket and was revalued during 2005 did not have any significant effect on Metso’s operations. Metso is a net importer to China, but also has local manufacturing in China. If the yuan were to be revalued further, it is estimated that this would have a positive effect on the demand for Metso’s export products.

competitive situation in the business areasWith respect to pulp and paper machines and whole production lines, there are only a few competitors in Metso Paper’s sector. In the aftermarket



0 20 40 60 80 100Share of consumption in 2004, %

source: Jaakko Pöyry

Demand growth %/a

1

0

5

6

4

3

2

The estimated demand growth for paper and board through 2020

Average 2,1 %/a

AfricaRest of Asia

OceaniaWestern Europe

North America Japan

Eastern EuropeMiddle East

Latin America

IndiaRussia

China

Source: Jaakko Pöyry

business and tissue machines, there are several competitors.

In new paper machine sales, the machines are designed according to the customer’s specifications. Deciding factors for the sale of paper, board and tissue machines include machine performance and technology, supplier’s process knowhow, delivery time, price, service availability and previous reference deliveries. In the aftermarket business, the key competitive factors are local presence and operations near the customer, as well as price, availability and technology.

Metso Minerals’ main competitors for sales of new machines and whole production lines are global companies. In addition, there are also many local competitors especially for lighter equipment. The competitive field for the aftermarket business is fragmented and the competitors are mainly local and regional operators. The key competitive factors are solutions’ performance, technology, reference deliveries, operations near the customer, project competence and price and availability.

Process automation systems are competed for globally and the competitors are mainly multinational companies. The competitive factors are reliability and usability of equipment and systems, applications expertise, technical development, ease of installation and configuration, price, availability of customer support, reputation and references. Field equipment systems, especially valves, are manufactured by numerous companies, but many of them have specialized in a narrow product

“�The pulp and paper industry is the most important of Metso’s customer industries, because the entire net sales of Metso Paper and about half of the net sales of Metso Automation derive from deliveries to this customer industry.”

branch or application area. Metso Automation’s control, shutoff and emergency shutoff valves, and intelligent equipment and software, are widely used in the pulp and paper industry and in the energy, oil and gas industry.

long-teRm mARket DevelopmentMetso operates on growing markets and the production volumes of all main customer industries are estimated to be increasing. By 2012, ore production is estimated to grow by an average of almost four percent a year, aggregates by over four percent, paper, board and fiber by over two percent and energy by about two percent a year.

metso paper’s operating environmentMetso Paper’s target markets are approx. eur 10 billion in size, depending on the business cycle. Aftermarket

business amounts more than a half of the total target market size. Also the majority of Metso Paper’s net sales derive from services related to rebuilds, process improvements, maintenance and aftermarket. More than onethird of net sales derive from the sale of new machines.

In 2000, Metso Paper bought Beloit’s service business, after Beloit had gone bankrupt. Metso Paper and Beloit have jointly delivered about half of the world’s paper machine capacity in use, some 40 percent of the tissue machine capacity and about a third of the pulping line and board machine capacity. Most of Metso Paper’s net sales still originate from Scandinavia, Western Europe and North America, but demand for paper and board is increasing faster than average in Eastern Europe, Asia, South America and Africa. It is estimated that pulp, paper and



95

100

105

110

115

120

125

130

135

140

145

Output of customer industries

2012f2005Sources: Jaakko Pöyry, Raw Materials Group, Freedonia, International Energy Agency

Index (2005 = 100)

Paper, board and papermaking fiber 2–3%/aGrowth ~20%

Aggregates 4–5%/aGrowth ~40%

Metal ore 3–4%/aGrowth ~30%

Energy 2%/aGrowth ~15%

2012f2005Sources: Jaakko Pöyry, Freedonia

Index (2005 = 100)

90

100

110

120

130

140

150

160

170

180

Aggregates and fiber, paper & board production growth in China

Aggregates 7.0%/aGrowth 61%

Paper & Board 5.7%/a Growth 47 %

Papermaking fiber 4.4%/aGrowth 35%

Sources: Jaakko Pöyry, Raw Materials Group, Freedonia, International Energy Agency Sources: Jaakko Pöyry, Freedonia

board production will grow by over two percent per year on average by 2012. Tissue and board production is forecast to grow slightly more quickly than average.

The number of new paper machines startups has been falling since 1999, and it is expected that fewer than ten new, wide paper machines will be started up per year globally from now on. On the other hand, the size and speed of the machines have correspondingly increased. Customers making investment decisions increasingly place value on their return on investment.

As the real price of pulp and paper is falling, the objective of the pulp and paper industry is to continually reduce the operating and investment costs of production lines. Interest in cooperation with suppliers throughout the entire life cycle has increased, and, in addition to major capital investments, there is

more and more need for smallerscale rebuilds and process improvements, and maintenance services.

As the investments to increase capacity are diminishing in Europe and North America, China has become the main market area for new paper machines. In recent years, about half of the world’s new paper and board production capacity has been concentrated on China.

Especially in South America, investments are being made in new chemical pulping lines that use for example, locally grown shortfiber eucalyptus trees as raw material. Moreover, labor costs in South America are much lower than in Europe and North America. Asia is also a growing market for pulping lines.

The consumption of packaging board will grow especially in China, because the packagingintense export industry

has moved there from the Western countries and Japan. Packaging board is also becoming lighter. This trend is clear in Europe, where machines are being developed to produce lighter grades. Development of the converting and printing methods related to packaging materials has led to stricter quality requirements, which is reflected in the demand for board machine rebuilds. An increase in the demand for daily consumer goods in the emerging markets requires an increase in the production of interior packaging materials in these areas.

Demand for tissue machines is expected to grow especially in the emerging markets, most of all in Asia. In these markets, demand has been greatest for small and less expensive machines. Demand for the larger ThroughAir Drying (TAD) machines is expected to pick up in a few years in North America.

“�Sales of new machines account for over a third of Metso Paper’s net sales. Most of the net sales derive from products and services related to rebuilds, process improvements, maintenance and aftermarket business.”



metso minerals’ operating environmentMetso Minerals’ target markets are approx. eur 12 billion in size. Metso Minerals has supplied over half of the world’s grinding mills in use, about 30 percent of the crushers, over 20 percent of metal crushers, and 5–10 percent of the screens. During the next five years, aggregates production is forecast to grow annually by 4–5 percent, mining industry production by 3–4 percent and the metal recycling industry by 3–4 percent.

Crushed rock is the most commonly used raw material in the world. For example, the construction industry annually uses approximately 18 billion tons of aggregates. GDP and population growth increase infrastructure construction, which affect the demand for aggregates. Stricter environmental requirements have limited the use of natural gravel and sand, but at the same time increased the use of crushed rock and also recycled aggregates.

Aggregates demand is forecast to grow especially in China, India, Russia, the United States and Eastern Europe. For example, the Chinese government plans to build 50,000 kilometers of fourlane roads by 2020. In Russia, aggregates production is expected to rise steadily by about 7 percent a year. Aggregates production is increasing also in the United States. In July 2005, Congress approved a new Transportation Equity Act (SAFETEALU), reserving almost usd 300 billion for the development of the country’s transportation infrastructure until 2009, an increase of 30 percent compared to the previous

“�Metso operates in growing markets, and the production volumes of all its main customer industries are estimated to be increasing.”



“�Metso Minerals has supplied over half of the world’s grinding mills in use, about 30 per cent of the crushers, over 20 per cent of the metal crushers, and 5–10 per cent of the screens.”

sixyear period. It is believed that this project will have a positive effect on Metso Minerals’ business especially during the first three years. Road construction projects in Eastern Europe supported by the European Union are also expected to increase the demand for Metso Minerals’ aggregates production equipment.

The mining industry processes approximately 5 billion tons of metal ores and 3 billion tons of industry minerals a year. In North America and Europe, demand for Metso Minerals’ products in the mining industry is weighted towards the aftermarket and service business. New mining projects are being started mainly in the southern hemisphere. The most significant factor affecting raw material demand has been the rapid growth of the Chinese economy, making the country the world’s leading consumer of metals.

Customers’ high capacity utilization during a good price and demand situation has also increased demand for Metso Minerals’ products. Mining companies have tried to respond to higher demand especially by increasing their material handling capacity. However, the lack of resources, and especially of experienced project managers and engineering personnel, will level out demand in the coming years, and investment project schedules have, in some cases, been lengthened.

The demand for scrap metal is expected to remain strong in the next few years. Steel companies are using increasingly more scrap metal for production instead of virgin raw mate

rial. The amount of recycled scrap metal is expected to grow annually by 5 to 6 percent by 2025.

metso Automation’s operating environmentThe size of Metso Automation’s target market is approx. eur 10 billion. Metso Automation is one of the world’s leading companies making measurement equipment and automation systems for the pulp and paper industry, and the world’s largest supplier of automatic shutoff valves for the pulp and paper industry. In the long run the markets for automation systems, valves and analyzers used in the pulp and paper industry are expected to grow by about 3 percent a year. The market growth in automation and information systems for the energy, oil and gas industry is estimated to be almost 4 percent, while the market growth for valves is estimated to be over 3 percent a year.

New pulp and paper industry investments are focused mainly in Asia and South America. The aging machine and equipment base in Europe and North America is increasing the demand for performanceenhancing solutions and services. This will increase the significance of automation solutions, such as preventive condition monitoring.

Demand for oil has outpaced the producers’ ability to boost their capacity, and nowadays oil refining capacity is insufficient in relation to the demand for end products. The resulting sharp rise in the price of crude oil and petroleum products is expected to lead to the construction of new refining capacity

and the modernization of existing production plants. Since the demand for oil and petroleum products is greater than the supply, the demand for valves will increase and the valve market is expected to remain good. Moreover, the energy and process industry is expected to increase its investments in automation systems. n

Market information sources: Jaakko Pöyry Consulting, Raw Materials Group, Freedonia and International Energy Agency.



Risk management is an integral part of Metso’s business management. Metso’s Board of Directors approves the risk management principles. It also ensures that the planning, information and control systems in place for risk management are sufficient and support the attainment of business goals. The Board’s Audit Committee reviews risk management and ensures its compliance with Metso’s Corporate Governance principles.

The Corporate Risk Management Team confirms the business areaspecific Risk Management Program, on which risk management implementation is based. The Risk Management Team is chaired by the Corporation’s Executive Vice President and CFO and consists of nominated business area representatives.

The Corporate Risk Management function is responsible for the implementation of the risk management program and policy, and for the development of Corporationwide risk management methods and guidelines so that they support the objectives and continuity of Metso’s business. The Risk Management function reports to the Corporation’s Executive Vice President and CFO. The business area presidents are responsible for the management of risks related to the operations of their respective business areas.

Metso’s all business areas make annually a risk assessment. Metso’s Risk Management function cooperates with an external insurance broker to conduct risk management evaluations of Metso’s key units in accordance with a 5year plan. The evaluations are presented to

the Risk Management Team, which determines the necessary measures.

Metso has prepared for property, business interruption, transport and liability risks through global insurance schemes. Liability risks include damage caused by Metso’s operations and products, and management liabilities. The insurance coverage consists of property, transport and liability insurance schemes and their local applications. The Corporation’s total riskbearing capacity is taken into consideration when setting the amount of deductibles. Metso’s captive insurance company acts as a partial reinsurer in some of the Corporation’s own insurance programs.

The following describes the business risks, financial risks, operational risks and hazard risks that are the most significant for Metso’s operations. Metso monitors these risks actively. Metso’s view is that, when properly controlled, business and financial risks also create opportunities for the development of Metso’s business, but that any materialized operational risks and hazard risks have a negative effect on Metso’s business.

Despite the actions taken to manage and limit the effects of the risks, there can be no assurance that such risks, if materialized, will not have a material adverse effect on Metso’s business, financial condition or operational result.

BuSineSS RiSkS

Business development risksThe longterm development of Metso’s business is affected by business devel

opment risks that are related to new markets and business potential and also involve risks related to the Metso brand and values. When planning and implementing new business, Metso takes into account not only the development potential and availability of new products and technological solutions, but also the different life cycle stages of the customers’ and Metso’s products and production plants.

Business development risks also include the risks related to mergers and acquisitions, which Metso takes into account by using Metso acquisition Process (MAP) accepted in the beginning of 2006 and through the due diligence process. The business to be acquired has to fulfill both strategic and financial targets. Also the risks related to the business to be acquired, including product liabilities and environmental responsibilities, and risks related to reputation and the personnel, are taken into account. Additionally, business development risks include the risks related to the supply and availability of natural resources, raw materials and power.

The development of personnel competence and the utilization of personnel potential are critical for business development. Metso annually carries out an evaluation related to management resources, in which Metso’s key executives, their possible deputies, successors and any necessary new management resources are surveyed. In 2005, this evaluation covered 350 persons. Metso also monitors the age structure of the personnel to avoid risks

Risks and risk management


R I S K S A N D R I S K M A N A G E M E N T

related to people retiring, for example. Metso’s management is currently not aware of any possible risks related to the personnel’s age or retirement that would be material for the Corporation’s business development.

Business environment risksBusiness cycles in the global economy and in customer industries influence the demand for Metso’s products and its financial position, especially in the shortterm. Metso Paper and Metso Automation are affected by the development of the pulp and paper industry. In addition, Metso Automation is affected by the energy, oil and gas industry cycles. Metso Minerals’ operations are dependent especially on the outlook of the civil engineering industry, and most significantly on the level of infrastructure investments. Metso Minerals is also affected by business cycles in the mining industry.

In the longterm, the effects of business cycles are reduced by the geographical diversity of operations and by the range of customer industries served. New equipment orders tend to be more affected by business cycles than the demand for rebuilds, process improvements and aftermarket operations, for which Metso’s large global installed base offers a strong platform. In order to further reduce the risks of business cycles, Metso has actively promoted process life cyclerelated operations and longterm partnerships with customers. In addition, in recent years Metso has increased the flexibility of the cost base by outsourcing and by focusing its own operations on the manufacture and assembly of core components. The increase in outsourcing has been reflected, for example, in an increase in Metso’s purchases from suppliers.

market risksChanges in customers’ demand affect Metso’s operations. Such changes may be related to changes in customer companies’ strategy, product development and requirements, and environmental aspects, among other things. For exam

ple, some of Metso Paper’s customers are increasingly focusing on their core competence – the production of pulp, paper or board – and are outsourcing the mill service business to partners. Metso Paper’s objective is to conclude longterm service agreements with these customers, in which the main responsibility for process service is transferred to Metso Paper.

Metso has many competitors in different business areas and products. Metso aims to differentiate itself from competitors through quality, reliability, local presence and availability, and to provide highlevel technological competence and longterm commitment to the customer. Metso seeks competitive advantage through continuous product development based on research and cooperation with customers. Metso also aims to be flexible and costconscious in its operations.

To better serve its new customers, Metso aims to increase its own manufacturing and assembly capacity of components in fast growing market areas, such as China, India and Brazil. In these areas, the products and services developed by new local competitors are also monitored closely. Although Metso’s main competitors are still European and North American companies, some Asian suppliers are providing solutions that compete with their low prices. Metso protects the products and intellectual property rights related to its business through patents and trademarks.

technology risksMetso’s technology risks are related to technological competence, and research and technology development (R&D). In R&D, Metso manages the projects in accordance with the Metso Innovation Process, in which a business plan is created for a new product or concept and its profitability is evaluated at different stages of the development process. The business plan defines responsibilities and roles for all functions of product development and launch – such as service, sales, industrial design and marketing – from the very

beginning of the development process. The product’s intellectual property rights and environmental perspectives are also taken into account.

Use of new technology may increase qualityrelated costs. For example, the qualityrelated costs of Metso Paper represent some 3–4 percent of the business area’s net sales. An objective for 2006–2008 is to further improve the quality of deliveries and to halve these costs.

political, economic, cultural and legislative development trendsThe operations of both Metso and its customers are geographically widespread. Global political development, political unrest, terrorism and armed conflicts constitute risks to Metso’s operations. The company’s operations are also affected by cultural and religious factors, and by legislation

– particularly different countries’ environmental legislation.

Revisions of the environmental legislation in various countries often take a long time. Metso monitors laws that are under preparation and anticipates their effects on its own business and that of its customers. However, unanticipated legislative changes may have adverse effects on Metso’s business. Such a situation may arise, if, for example, a raw material that Metso uses in its production or that is contained in subcontracted components is prohibited. In such cases, production costs may increase due to the development of alternative solutions. Tighter environmental legislation may increase Metso’s manufacturing costs, but it also provides opportunities to offer customer industries new solutions that meet more stringent environmental standards.

Metso has its own manufacturing and supplier networks in many developing countries. In addition, the demand for new machinery and equipment increasingly comes from countries in Asia and South America. Sudden political, economic and/or legislative changes in these countries could have a material adverse effect on Metso’s business. For



example, China has a significant direct and indirect effect on Metso’s net sales and, hence, any sudden political, economic or legislative changes in China could, especially in the shortterm, have an effect on Metso’s business. The risks related to these developing countries are somewhat reduced by the wide geographical and industry coverage, as well as the more stable aftermarket operations in Europe and North America.

phenomena related to climate change and environmentEmissions from Metso’s own production units are in compliance with the set permit limits. Risks related to climate change are accounted for in the planning of Metso’s energy consumption and raw materials for its products. Metso’s research and technology development gives appropriate consideration to increases in energy prices, and the goal is to reduce the energy consumption of new products.

The measures taken to control diseaserelated risks include personnel vaccinations.

FinAnciAl RiSkSThe task of Metso’s Corporate Treasury is to manage currency and other financial risks related to operations, and to safeguard the availability of the Corporation’s equity and debt capital under competitive terms. The Corporate Treasury functions act as the counterparty to the business areas’ operating units and centrally manage external funding. It is

also responsible for the management of liquid assets and the provision of proper hedging measures.

liquidityCash and committed revolving credit facilities are used to protect shortterm liquidity. Liquidity and financing costs are managed by balancing the proportion of shortterm and longterm loans, as well as the average remaining maturity of longterm loans. In the longterm risks in the availability of funds and pricing are also managed by diversifying funding between the money and capital markets and banks. Credit rating agencies assess Metso’s business and publish credit ratings.

interest rate risksChanges in market interest rates and interest margins may influence financing costs, returns on financial investments and valuation of derivative contracts. Interest rate risks are managed through the ratio of floatingrate to fixedrate loans and the average length of interest rate periods. Additionally, interest rate swaps and other derivative contracts may be used.

currency risksExchange rate changes affect Metso’s business, although the geographical diversity of operations decreases the significance of any individual currency. Exchange rate variations can have a direct effect on the prices of raw materials and production commodities purchased in nondomestic currencies

and in the prices of end products for export, in which the invoicing currency is different from the currency of the manufacturing costs (transaction effect). More than onehalf of Metso’s net sales originate from outside the euro zone. Alongside the euro, the most important currencies used in invoicing are the U.S. dollar and the Swedish krona. When the net sales and results of subsidiaries outside the euro zone are translated into euros, they may increase or decrease because of exchange rate changes, even though no real change in such net sales or results has occurred (translation effect). Exchange rate movements may also weaken the cost competitiveness of Metso’s products against the products of competitors manufactured in another currency area.

In accordance with Metso’s Treasury Policy, the operating units are required to hedge in full the currency exposures that arise from firm delivery and purchase agreements. In addition, the units can hedge anticipated foreign currency denominated cash flows by taking into account the significance of such cash flows, the competitive situation and other possibilities to adjust. Metso has operations in countries in which currency regulation affects the hedging of risks. The most important of these are Brazil and China. Hedging operations are centralized in Metso’s Corporate Treasury. Upper limits on the open currency exposures of the Corporate Treasury, calculated on the basis of their potential profit impact have been set. These limits cover net exposures



from transfers between units and items arising from financing activities. Future currency cash flows are hedged for periods not normally exceeding two years. Accordingly, the majority of future currency cash flows related to the order backlog is hedged.

The equity of subsidiaries outside the euro zone is affected by exchange rate risks, which may lead to translation differences in the consolidated equity. These risks are hedged with respect to essential currencies in accordance with Metso’s Treasury Policy by using noneuro denominated loans and forward exchange agreements.

credit risks and other counterparty risksMetso’s operating units are primarily responsible for credit risks pertaining to sales activities. The business areas determine the guidelines for delivery and payment terms granted to customers, their supervision and enforcement, which are then implemented at the business line and operating unit level. Large projects also require corporate level handling. Metso’s Corporate Treasury provides centralized services related to customer financing and seeks to ensure that the principles of the Treasury Policy are adhered to with respect to terms of payment and the required collateral.

When investing cash assets and making derivative contracts, the Metso Corporate Treasury only accepts counterparties that fulfill the credit rating criteria defined in the Treasury Policy, or parties approved in advance by Metso’s Board of Directors. With respect to investments, derivative contracts and borrowing, counterpartyspecific limits

have been set to avoid risk concentrations.

Metso has agreed on extended payment terms with selected customers. In establishing credit arrangements, the creditworthiness of the customer and the timing of cash flows expected to be received under the arrangement are assessed. However, should the actual financial position of customers or general economic conditions differ from the expectations, the ultimate collectibility of such trade receivables may be required to be reassessed, which could result in a writeoff of these balances in future periods.

Metso’s ability to manage trade receivables exposures, customer financing, risk concentrations and financial counterpartyrelated risks depends on a number of factors, including Metso’s capital structure, market conditions affecting the counterparties and the ability to mitigate exposure on acceptable terms. The risks of individual customers or other counterparties are generally not significant compared to the magnitude of Metso’s business, and the aim is to reduce customer risks by exact sales contracts, payment terms and collateral, as well as by effective quotation control procedures.

opeRAtionAl RiSkSMetso’s operational risks include business interruption risks, organization and managementrelated risks, information security risks, production, process and profitability risks, project activity risks, contract and liability risks, product safety, crisis situations and illegal acts.

A crisis management organization was established within Metso in 2005

to maintain the Corporation’s crisis management readiness. In the event of any crisis, the crisis management organization will quickly assess what measures are needed for resolving the crisis and whether any external resources need to be used.

The methods used to prevent Metso employees from engaging in illegal activity include not only the company’s values and ethical principles, but also the ‘Whistleblower’ channel. The channel is operated by a third party and any Metso employee is able to report any actual or suspected misconduct with potential financial effects. Misconduct reports can be filed via the Internet, by email or by phone.

The most critical operational risks for Metso are profitability risks, business interruption risks, project activity risks and contract and product liability risks.

profitability risksOne of Metso’s key targets is profitable business. In largescale projects and equipment transactions there is a risk, however, that the actual costs of the transaction cannot be estimated accurately enough in the offer stage, and that therefore it is not possible to determine the right transaction price for Metso or to assess whether the market price level or Metso’s cost competitiveness are sufficient to conclude the transaction.

To manage risks related to pricing, Metso’s businesses apply various quality systems, operating guidelines and profitability analyses that take into account, among other things, the product to be sold, the customer and the payment terms. Internal approval procedures in


which pricing authorizations are linked with transaction values are also utilized in project and product pricing.

Business interruption risks Risks related to the management of raw materials, suppliers and subcontractors are significant for Metso.

The delivery problems of raw material producers can influence the price and availability of the raw materials used in Metso products. Thus procurement costs may increase and delivery leadtimes lengthen.

Critical raw materials include steel and scrap iron, for which the price and availability may fluctuate. That can have an adverse effect on Metso’s operations. The global coverage of Metso’s businesses and suppliers is expected to reduce the effect of any local disturbances. Metso’s aim is to make longterm supply contracts to reduce the effects of shortterm price volatility or availability issues. In addition, whenever possible, replacement suppliers are identified in order to manage the risks related to a single supplier. However, this is not always possible. For example, a raw material used by Metso Minerals in manufacturing wear parts for crushers is virgin manganese for which the supply is mainly limited to South Africa. Delivery problems facing local producers or political or legislative changes in South Africa can affect the availability of manganese, which may have an adverse effect on the wear parts business of Metso Minerals. This risk is managed by maximizing the use of recycled manganese.

Indirectly, changes in the prices of electricity, oil and metals may have a material adverse effect on Metso, if they decrease the investment willingness of customer industries.

The risks related to the purchase of raw materials have decreased in recent years because of the increasing focus on manufacturing and assembling core components only. On the other hand, outsourcing increases the importance of and risks related to suppliers and subcontractors. The majority of product components are purchased from suppliers, for whom it is not necessarily possible to find alternative suppliers at short notice. The delivery problems of subcontractors may adversely affect customer relationships and businesses. For example, Metso Paper has identified, with respect to its Finnish units, alternative subcontractors and raw material suppliers for all key components, and has also identified business bottlenecks. In 2005, these bottlenecks were mainly related to the capacity of the foundries. Corresponding identification was started in all other business areas in 2005.

project activity risksMetso’s operations consist partly of large project deliveries to the pulp and paper industry and the mining industry. These deliveries can involve projectspecific risks concerning delivery schedules as well as equipment startup, capacity and end product quality. In some projects, risks may also arise from new technology included in the deliveries. The risks of individual projects are generally not significant compared to the entire scope of the Metso’s business.

The aim is to reduce projectspecific risks by assessing risk potential already at the offer stage, and by preparing for risks through the use of detailed terms and conditions in sales contracts and through quality management.

contract and product liability risksMetso is occasionally involved in product liability claims typical for companies in comparable industries. The claims are covered by an insurance policy with coverage of up to eur 100 million per year, subject to applicable insurance conditions. The aim is to minimize product liability risks by improving product safety through R&D investments, automation and customer training, and by detailed sales contract terms. Although the insurance coverage is currently estimated as adequate to cover liability risks, Metso may be held responsible for damages beyond the scope of the insurance coverage.

HAzARD RiSkSHazard risks include occupational health and safetyrelated risks, personnel security risks, environmental risks, fire and other disasters, natural events and premises risks.

Metso has taken precautions against hazard risks by means of occupational health and safety guidelines, certification principles, travel safety instructions, rescue planning and premises risks instructions. The materialization of risks has also been prepared for in the Corporation’s insurance program. n

For further information, please read Metso’s web report.


TOP LEFT: Metso Automation’s Process and Energy Automation Technician Isaias do Espírito Santo discussing with Petrobras employees in the control room of Petrobras REVAP facility. TOP RIGHT: SP Newsprint’s Paper and Related Manager Steven Galbraight (left) and Metso Paper’s Application Specialist Dan Thomas at SP Newsprint’s paper mill in Dublin, Georgia, United States.

MIDDLE: The Pedreiras Basalto quarry in Brazil and the crushing plant delivered by Metso Minerals. BOTTOM RIGHT: Metso partner Bernd Schubert (left) and Zellstoff Stendal’s employees Norman Pempel (middle) and Uwe Koodts at the Stendal pulp mill in Germany. BOTTOM LEFT: SP Newsprint’s Dublin mill in Georgia, United States, manufactures high-quality recycled newsprint.

TOP LEFT: Metso Automation’s deliveries to UMP Wisaforest mill in Finland included control valves and flow meters. TOP MIDDLE: Easy Tyre barking drums, a Metso Paper delivery, at Zellstoff Stendal’s pulp mill in Germany. TOP RIGHT: A cone crusher’s conveyor delivered by Metso Minerals at Pedreiras Basalto’s quarry in Brazil. MIDDLE LEFT: João Simoso, Basalto’s owner at Pedreiras Basalto quarry in Brazil. MIDDLE: Pina S.A’s particleboard factory in Cuenca, Spain.

BOTTOM LEFT: Business Manager Colin Lake (left), Newcrest Mining Ltd and Manager Grinding Circuit Phil Marshall, Telfer, in front of a Metso grinding mill, at Telfer mine in Australia. BOTTOM MIDDLE: A Metso cone crusher at Pedreiras Basalto’s quarry in Brazil. BOTTOM RIGHT: Neles ESD (emergency shut-down) valve package with Valveguard™ partial stroke system at Petrobas REVAP refinery in Brazil.

Metso Paper

Metso Paper provides services, new process lines, machine rebuilds and process improvements required by customers throughout the product and process life cycles. The aim is to develop the efficiency and competi-tiveness of pulp and paper-making processes together with customers.

SMALL PICTURE: Thomas Sjögren, Production Manager, Zellstoff Stendal and Wolfgang Schubert, Project Manager, Metso Paper. The Stendal mill in Germany has an annual production target of 550,000 tons of homogenous high-quality pulp. BIG PICTURE: In connection with the expansion of SP Newsprint’s Dublin paper mill in Georgia, in 1989, Metso Paper, then under the name Valmet, delivered the PM2 paper machine to the mill. Today, PM2 produces newsprint at world record efficiency.


M E T S O P A P E R

Metso Paper’s position as one of the world’s leading suppliers of the pulp and paper industry processes and services is based on its broad range of products and installed base of machinery. Some 1,500 paper and board machines delivered by Metso Paper are currently in operation around the globe. Metso Paper has also delivered machinery, equipment and processes for about 800 pulping lines.

Metso Paper’s technological and process expertise is strong. Together with Metso Automation, Metso Paper can offer its customers in the pulp and paper industries a complete range of products.

objective is to maintain market position and strengthen technological leadershipMetso Paper’s management agenda for 2006–2008 was confirmed in August 2005. The primary goals are an improvement in profitability and customer satisfaction and especially the growth of the aftermarket business. The order backlog will be strengthened in both new and traditional markets. Customer satisfaction will be improved by developing the quality of processes and deliveries and by new solutions and services that enhance customers’ competitiveness. Profitability will also be improved by focusing on the costeffectiveness of purchasing and manufacturing. In China and South America, for example, the local manufacturing capacity and business networks will be strengthened.

Metso Paper’s goal is to be the market and technology leader in pulp and paper industry processes. Technology leadership is based on the


M E T S O P A P E R

metso paper and Sp newsprintSP Newsprint is a privately held American business owned by three large North American media companies: Cox Enterprises, Knight-Ridder and Media General. The company is produces high-quality newsprint from recycled fiber.

When it opened in 1979, the company’s mill in Dublin, Georgia was the first in the southern United States to produce high-quality newsprint from 100 percent recycled fiber. At the time, many people in the industry doubted that this could even be accomplished.

continuous development of aftermarket products, productivityenhancing technological concepts and solutions that are economical in terms of investment cost.

The key targets of the strategy period also include the improvement of the Tissue business line’s profitability and the development of the reference portfolio for packaging board machines.

profitability improved substantiallyThe program aimed at renewing Metso Paper’s business concept and streamlining its cost structure (MP50) was completed by the end of 2005. The program’s measures in 2005 were mainly targeted at improving the profitability of the Tissue business line. In 2005, nonrecurring costs of eur 7 million were recognized in relation to the MP50

program, in addition to eur 24 million recognized in 2004. The annual savings generated by the program are estimated at more than eur 43 million.

Business flexibility has been enhanced and efficiency increased by, for example, outsourcing production and developing logistics centers. Local manufacturing capacity has also been increased in South America by starting paper and board machine assembly at Sorocaba in Brazil, for example. As rebuilds and service of installed equipment constitute an ever increasing proportion of Metso Paper’s net sales, steps have been taken to centralize service and maintenance points and to streamline their operations in Europe and North America.

The efficiency improvement measures, the streamlined cost structure, as well as growth in deliveries clearly raised the profitability of Metso Paper in 2005.

“�Growth in deliveries, the efficiency improvement measures and a streamlined cost structure clearly raised profitability.”

BIG PICTURE: SP Newsprint’s Paper and Related Manager Steven Galbraith (left) and Mill Manager Jack Carter take pride in the Dublin mill’s high efficiency. TOP RIGHT: A long partnership with Metso complements the mill’s own competencies; Metso Paper’s Regional Sales Manager John Barnett and Design Engineer Gary S. Fry. MIDDLE RIGHT: The PM2 machine has made a world record in newsprint production. BOTTOM RIGHT: SP Newsprint communicates regularly with Metso’s experts – Dublin Mill Production Manager Mark Haser (right) and Metso Paper’s Air Systems Application Specialist Dan Thomas.


M E T S O P A P E R

Today the Dublin mill has not only survived but is setting records.

Like other North American papermakers, SP Newsprint is under extreme market pressure to keep costs down. As a result, large capital investments are limited and the mill relies instead on regular maintenance and an ongoing program of upgrades for its older paper machines.

e F F o R t A n D i n S i g H tThe Dublin mill has two paper machines. PM1 is an older Beloit machine and PM 2 was built by Metso Paper (then Valmet) when the mill expanded in 1989. While some sections of PM2 have been rebuilt, such as the addition of a third winder in 1993 and the insertion of a shoe press in 1998, major investments in the machine have been limited. Ongoing improvements and upgrades are the source of PM 2’s success.

These improvements come about through dedication and hard work. SP Newsprint employees receive excellent training and have a thorough knowledge of their machine. This is complemented and improved by SP Newsprint’s long-term relationship with Metso.

S t R o n g co o p e R At i o nMetso strengths have provided fuel for SP Newsprint’s ingenuity, in daily operations as well as during rebuilds. The mill’s Metso machines are easy to maintain and reassemble, and through organized internal processes the mill has reduced roll changes and other forms of downtime to an absolute minimum.

SP Newsprint relies on regular contact with Metso’s team of experts. Typically six Metso Paper engineers are in constant touch with the Dublin mill, and others contribute when a specific project is underway. If a situation calls for unusual resources, Metso’s representative in Atlanta finds the right talent and technology within Metso’s global network.

AwA R D - w i n n i n g e F F i c i e n c yThe combination of local and Metso expertise has meant proud achievements for the Dublin mill.

PM 2 is currently operating over 92 percent efficiency and for the last four years has set the world record for newsprint productivity as measured in kg/cm/day. Some of PM 2’s successful technology is also being applied to PM 1.

This life cycle relationship, in which Metso and the mill work as active partners, is helping SP Newsprint maintain the high efficiency that is an integral part of its company culture.

S p n e w S p R i n tn SP Newsprint Paper Mill, Dublin, Georgia, USA

n Produces newsprint from 100 percent recycled material

e q u i p m e n t n Beloit and Valmet (both now Metso) paper

machines with rebuilds

n Stock screens, VacRolls, PressJade rolls, MetsoKajaani RMi

key figures 2004 2005

(In millions) EUR EUR

Net sales 1,559 1,702Operating profit excluding reversal of the Finnish pension liability (TEL) 8.2 87.7Reversal of the Finnish pension liability (TEL) 39.8 3.2Operating profit 48.0 90.9Capital employed, December 31 323 329Gross capital expenditure 33 34Research and development expenses 50 51Orders received 1,726 1,993Order backlog, December 31 946 1,267


metso paper

Metso Paper is one of the world’s leading suppliers of papermaking, tissue, boardmaking and pulping lines. Metso Paper’s range of products and services covers the whole process life cycle, from production lines and their rebuilds to various service and maintenance operations. Of Metso Paper’s business operations, about one third consists of new lines, one third of rebuilds, and one third of process improvements and other aftermarket services.

Metso Paper has its own operations and production in 28 countries. In addition, its products and services are sold by 24 sales units, more than 40 service centers in different parts of the world and the logistics centers in Finland, the USA and China. There are altogether 12 technology centers in Finland, Sweden, Italy and the USA.

Research and product development with a strong customer-orientationMetso Paper is allocates 3–4 percent of its annual net sales to research and development. Research and development is conducted in close cooperation with customers, Metso Automation, research institutes and universities.

In line with the strategy, research and development has been more clearly focused on the products and services needed in after market operations, process improvements and machine rebuilds.

Metso Paper’s most significant fiber technology product launches in 2005 included SuperKit, which was developed to enhance the continuous cooking process and includes a number of new equipment solutions.

At Shandong Bohui Paper’s mill in China, the world’s largest production


M E T S O P A P E R

milestones in 2005 n Risto Hautamäki took office as Presi

dent of Metso Paper on April 1.n In June, Metso Paper signed a con

tract to supply a printing paper line to Shandong Chenming Paper in China. The manufacturing line to be built in Shandong province will be the world’s largest of its kind, with an annual capacity exceeding 400,000 tons. The order includes the world’s largest deinking line, a paper machine, two winders, a wide range of automation, control and monitoring systems for the whole papermaking line by Metso Automation, and various auxiliary systems.

n In September, Metso Paper’s annual Technology Days were organized in Beijing, China. Participating in the event were over 400 customers and representatives of other stakeholders. The theme of the Technology Days was “Commitment to Customer Success”.

n In September, a new sales company was established at Gurgaon, near New Delhi in India, to strengthen Metso Paper’s presence in the country’s emerging pulp and paper industry markets.

n In October, Metso Paper agreed with Myllykoski Corporation on the delivery of a papermaking line to the Czech Republic. The new production line will produce 380,000 tons per year of uncoated publication papers. The order is valued at over eur 200 million.

n In October, a production line for highquality SC magazine paper was started up at Stora Enso’s Kvarnsveden mill in Sweden. Metso Paper’s delivery included the main papermaking machinery, process systems, auxiliary systems, electrification and services. Measured by value, the delivery is one of the largest in the history of Metso.

n In December, a contract was signed to deliver a pulp drying line to Suzano Bahia Sul in Brazil. The drying line, which will have the world’s highest capacity, is a part of Suzano Bahia Sul’s expansion project at the Mucuri mill. The order is valued at approx. eur 100 million.

Pulp baling line at Zellstoff Stendal’s pulp mill in Germany. More and more often pulp industry customers expect one supplier to deliver turnkey solutions for pulp production. The demand for complete pulp mill processes has developed favorably in recent years, particularly in South America and Asia.


M E T S O P A P E R

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line developed by Metso Paper based on singleline refining was started, producing bleached chemithermomechanical pulp (BCTMP) with poplar as the raw material.

In May 2005, an OptiConcept production line delivered by Metso Paper was started at the UPM Changshu mill in China. The new line represents the latest paper making technology and is the largest and fastest uncoated fine paper production line in the world. The line will produce 450,000 tons per year of uncoated copy and offset papers.

Likewise in China, the first headboxes representing the costefficient Val product range were successfully introduced on a coated board production line.

At the end of 2005, Metso Paper launched the first newgeneration OptiLoad TwinLine multinip calenders that improve the printing qualities of printing paper.

operations organized into five business linesMetso Paper is the leading life cycle solutions supplier in its field, providing its customers globally with process efficiency improvement services, machine rebuilds and new process lines. Metso Paper’s operations have been streamlined by an organizational change at the beginning of 2006. The organization is now divided into five business lines, namely Fiber, Paper and Board, Finishing, Tissue and Service.

The Fiber business line is a supplier of environmentally friendly technology. Its product range covers all production technologies for chemical and mechanical pulp and recycled fiber.

The Paper and Board business line is responsible for the development and production of the main processes for paper and board machines.

The Finishing business line is responsible for coaters and reels, calenders,

winders and roll handling systems, and air and chemical systems.

The Tissue business line produces technology, processes and equipment used in tissue production.

The Service business line, comprising roll service units, spare parts services, maintenance functions and the Scandinavian Mill Service, started operations at the beginning of 2006. The Service business line was established in response to the growth of the aftermarket business. The objective is to improve customer service.

Demand for rebuilds and aftermarket services remained goodThe size of the global market for pulp and paper machinery is approximately eur 10 billion.

The demand for pulp and paper machinery is affected by the general economic outlook, trends in the demand for and prices of pulp and different paper and board grades, and the capacity utilization of manufacturers.

The price of pulp fell in early 2005, but stabilized in the second half of the year. In Europe, the prices of publication papers were steady. In North America, paper prices mainly increased, but leveled off at the end of the year. The prices of board grades began to rise slightly towards the end of the year in Europe and North America.

The demand for rebuilds and aftermarket services was good. The markets for new machinery also picked up a little at the end of the year.

Especially in Europe, investments in paper machine rebuilds remained at a good level. The demand for new paper and board machines was strongest in Asia. Tissue machine markets clearly picked up during the first half, and the demand remained good for the rest of the year. The demand for new fiber lines was excellent in South America

“�Metso Paper’s primary goals for 2006–2008 are an improvement in profitability and especially the growth of the aftermarket business.”


M E T S O P A P E R

metso paper and zellstoff Stendal gmbHThe Zellstoff Stendal pulp mill is situated in Sachsen-Anhalt, west of Berlin in what was once East Germany. The mill, whose main shareholder is Mercer International, produces kraft pulp for papermaking reinforcement using bleached softwood spruce and pine.

When the Stendal mill came on stream in 2004, it created jobs for around 600 locals and represented an important milestone in the rebuilding of former East Germany’s industrial infrastructure. However, it also had high demands to fulfill in terms of capacity and quality.

A n A m B i t i o u S co n t e n D e RGiven tough competition from Asia, new pulp mills like Stendal are unusual in Europe – especially in the case of long fiber. So despite easy access to roads, railways and the River Elbe, the Stendal mill needed to balance high quality and low cost in order to succeed in the Central European market.

The mill’s annual target was set at 550,000 metric tons of reliable, uniform and high-quality pulp, to be produced using regional wood resources.

To ensure this capacity, Metso was chosen as the single supplier when the mill was contracted in 2001. By delivering the complete process from wood handling to baling, Metso was able to optimize the balance, tuning and automation of the different equipment.

B u i lt F o R co n S i S t e n c yThe technology chosen for Stendal was specially designed to produce a high-quality end product with minimum environmental impact. The wood-handling phase, for example, was built using Metso ChipWay, a technology that minimizes wood losses and creates chips with a high degree of uniformity.

Most important, however, were the eight Metso digesters, designed for SuperBatch-K cooking. The SuperBatch-K process delivers pulp of the highest quality while maximizing strength properties, which are of vital importance in meeting the

needs and requirements of paper producers. The process is also highly flexible with varied materials, such as Stendal’s mix of 70 percent pine and 30 percent spruce.

lo o k i n g to t H e F u t u R eAfter one year of operation, results suggest that the Stendal mill will live up to its tough expectations. Stendal’s SuperBatch cooking process is getting highly consistent pulp from the local softwood. There is every confidence that the Metso equipment and process automation will yield affordable, reliable and high-quality pulp production.

Two additional Metso digesters, delivered in December 2005, will allow Stendal to run more flexibly, thus enabling further cost and quality optimization. Their addition will help Stendal take full advantage of the Metso Fiberline system.

and good in Asia. In Europe, fiber line demand was focused on rebuilds.

Metso Paper’s operating environment is described in more detail on pages 15–19.

value of orders increased The value of orders received by Metso Paper increased by 15 percent on the comparison year. The growth was proportionally the largest for the Tissue and Fiber business lines’ orders. A number of orders were received for the new Advantage DCT 100 tissue machine concept. The concept is specifically designed for emerging markets where tissue consumption is on the rise.

TwinRoll wash pressers in the fiber line at Zellstoff Stendal’s mill in Germany. Metso has delivered to the mill an entire pulp production line, from wood handling to pulp baling.

During 2005, Metso Paper received 15 orders for new paper, tissue and board machines and 7 orders related to pulping lines. Metso Paper’s largest orders in 2005 were for paper making lines for the Czech Republic, Indonesia and China, board machines for Turkey and China, and the world’s largest pulp drying line for Brazil.

The most significant delivery was a newsprint line to Stora Enso’s Kvarnsveden mill in Sweden.

Share of the aftermarket operations remained unchanged and accounted for 35 percent of the net sales.


M E T S O P A P E R


Finland 12% [2004: 12%]





Asia-Pacific 21% [2004: 32%]


Orders received by market area

Finland 9% [2004: 13%]





Asia-Pacific 22% [2004: 18%]


“�Demand for machine rebuilds and aftermarket services is expected to remain good in 2006.”

For further information, visit www.metsopaper.com

BIG PICTURE: Zellstoff Stendal’s Engineer Steffen Ratzlow (left) and Metso Paper’s Project Director Wolfgang Schubert. TOP RIGHT: The mill’s Production Manager Thomas Sjögren is proud of the technology that enables the production of high-quality products in an environmentally friendly way. MIDDLE RIGHT: Stendal relies on Metso’s process automation. BOTTOM RIGHT: Zellstoff Stendal GmbH’s Managing Director Ulf Johansson (right) and Metso Paper’s Project Director Wolfgang Schubert have set high targets for the mill.

z e l l S to F F S t e n D A l g m B Hn Zellstoff Stendal Pulp Mill, Sachsen-Anhalt,

Germany

n Produces bleached long-fiber pulp for all types of papermaking

e q u i p m e n tn Complete pulping process from wood

handling to baling

n Process automation system

Asian markets growingThe demand for machine rebuilds and aftermarket services is expected to remain good in 2006. With respect to the markets for new machines, demand is expected to remain at the same level as in 2005.

The demand for printing papers experienced moderate growth in Europe in 2005. In 2006, the growth is expected to remain at the same level as in 2005. In North America, the demand for printing papers fell in 2005 with no change for the better anticipated in 2006. In China, demand is expected to remain good.

The demand for tissue and board is expected to grow globally during 2006. However, only a few new machine projects are expected in Europe and North America in the coming years.

In the pulp industry, a considerable proportion of new capacity will be based on recycled fiber and planted shortfiber species, mainly eucalyptus. Also in China, the mechanical pulp will be made from shortfiber species. Metso Paper is conducting research and development related to the production of pulp from recycled fiber and shortfiber species. n


M E T S O P A P E R

http://www.metsopaper.com

Metso Minerals

Metso Minerals is increasing customer orientation in all its operations, striving towards partnerships that cover the entire life cycle of customer processes and equipment.

SMALL PICTURE: Commercial Manager Ednilson Artioli of Pedreiras Basalto (left) and Technical Salesman José Geraldo Bertolim of Metso Minerals, with the crushing plant delivered to the Basalto quarry in São Paulo in the background. BIG PICTURE: The future once again looks bright for Newcrest Mining Limited’s Telfer mine. Thanks to the steady and reliable equipment supplied by Metso Minerals, Telfer is expected to operate according to plan for the next 25 years.


M E T S O M I N E R A L S

Metso Minerals’ goal is to strengthen its position as the global market leader in rock and minerals processing systems and in recycling systems for metals and construction materials. Its competitive advantages include strong technology expertise, a comprehensive understanding of customer processes, a product and service range that covers the entire process, and the most extensive installed equipment base in the sector. Metso Minerals’ global manufacturing, service and sales network enables quick response to customer needs.

objective is to strengthen market position Metso Minerals’ management agenda for 2006–2008 was confirmed in August 2005. Metso Minerals’ goal is profitable growth. Organic growth is supported through possible complementary acquisitions. One example of a complementary acquisition that strengthens Metso Mineral’s market position and product portfolio is the August 2005 acquisition of Texas Shredder, an American supplier of metal recycling equipment.

Metso Minerals is strengthening its operations in the emerging markets of China, India and Russia. In India, Metso Minerals is increasing its foundry and manufacturing capacity to meet growing local demand and strengthen its market position. In Russia, Metso Minerals is developing key mining customer relationships and is continuing its successful strategy in the metal recycling business. Due to the rising price of scrap metal, recyclers in Russia are investing in highquality metal recycling technology – an area where Metso has established a leading supplier in recent years.



result of restructuring and new way of operating. Profitability was improved in 2005 especially by the positive market situation and the ensuing strong product demand, but also by good capacity utilization, a more efficient supply chain and a streamlined cost structure.

In 2005, Metso Minerals continued to streamline its operations by developing its supplier network, logistics and warehousing. For example, component purchases and warehouse functions have been centralized. Extensive manufacturing plant and logistics center investments were started in South Carolina, USA. In early 2005, a new assembly line for mobile crushing and screening equipment was started up in Tampere, Finland, resulting in a significant shortening of manufacturing lead times.

The objective of the investments in 2005 was also to strengthen presence

metso minerals and pedreiras Basalto Pedreiras Basalto, one of the successful enterprises of Brazil’s Grupo Estrutural, is one of the fastest-growing aggregates producers in South America. The company supplies raw material to the civil construction segment, serving customers such as ready-mix companies and paving plants, municipalities and government undertakings. Its 14 quarries must provide a quick response to increasingly varied customer demands, while maintaining the high product quality that has made Pedreiras Basalto the first choice for civil projects.

Pedreiras Basalto grows through acquisitions and expansion of existing quarries and names them according to acquisition sequence. Its main quarries today are Basalto 5 and Basalto 10, which

BIG PICTURE: Metso Minerals’ Brazilian team cooperates closely with Pedreiras Basalto; Toshihiko Ohashi (left), CSR System Manager from Metso Minerals, Darci R. Braga (middle), Production Manager from Basalto, and Geraldo Bertolim, CE Technical Salesman from Metso Minerals. TOP RIGHT: João Simoso (right), Basaltos Owner, and Dionísio Covolo, Sales Manager from Metso Minerals are satisfied with the powerful crushers. MIDDLE RIGHT: With the powerful cone crushers, the work gets done with reduced energy consumption and fewer pieces of equipment. BOTTOM RIGHT: Pedreiras Basalto has been a Metso customer since 1991.

Pedreiras Basalto’s quarry near São Paulo, Brazil: Cone crushers delivered by Metso Minerals.

“�Metso Minerals’ profitability improved due to higher volumes, good capacity utilization and a streamlined cost structure.”

Metso Minerals already has a strong presence in South America, where the Metso Minerals’ largest manufacturing unit is located in Sorocaba, Brazil. The unit’s operations will be further strengthened.

Metso Minerals is responding to growing demand for aftermarket services by developing life cycle services. Operational flexibility is being improved by developing processes for purchasing and manufacturing. An example is the project to implement an enterprise resource planning system covering the whole of Metso Minerals. During the project, operations will be standardized and processes developed to be applicable globally. One objective is also to develop the sales network and improve sales processes.

profitability performance exceeded the targetsMetso Minerals’ profitability and productivity have improved significantly as a



are both located a short distance from São Paulo. Quarry 5 is a particularly large operation, produc-ing 1.7 million tons of diabase aggregates per year.

i n A D e q uAt e c R u S H i n gBasalto 5 was acquired in 1996 and Basalto 10 in 2005. When Pedreiras Basalto took over the operation of these facilities, it found a good deal of obsolete equipment, especially among the crushers.

Particularly problematic were the cone crushers, which confer quality to the aggregates by determining granulometry and shape. The majority of the old cones could not meet the growing need for fine aggregates and were no longer covered by technical support. To ensure aggregates quality and the assistance needed for high productivity, Pedreiras Basalto turned to Metso.

A w e l l - p R o v e n S tA n D A R DMetso has been present in Brazil for nearly a century and is a locally respected supplier of solutions and services for aggregates and mining companies. Pedreiras Basalto, whose policy is to work with the best technologies, has been a Metso customer since 1991.

Based on experience with Metso HP (High Performance) cone crushers at some of its other operations, Pedreiras Basalto decided on HP technology for its cone crushing at quarries 5 and 10. HP 400 and 500 cone crushers were chosen for their excellent performance, which allows the flexible production of fine aggregates at high capacities. Metso screens were also involved in the deliveries, including a Triplate LH (low head) 12' × 24' DD (double-deck) screen that is the first of its kind in the world.

q uA l i t y A n D e F F i c i e n c yWith their crushers standardized to Metso HP technology, quarries 5 and 10 are offering greater productivity and a truly high-quality product. The same amount of work can be done using less energy and fewer machines, which means a higher degree of efficiency and reduced noise levels on site.

In addition, Pedreiras Basalto is benefiting from a close relationship with Metso’s team in Brazil. Thanks to local technical support and an effective aftermarket program that includes a parts agreement, the company has lowered its operating costs and is able to get even more from its already robust Metso equipment.

p e D R e i R A S B A S A lton Quarries 5 and 10, near São Paulo, Brazil

n Production of various aggregate sizes for civil construction purposes

e q u i p m e n t n Quarry 5 – HP 400 cone crusher with feeder, HP

500 cone crusher, screen

n Quarry 10 – Two HP 400 cone crushers, Triplate LH 12' × 24' DD screen



Net sales 1,366 1,735Operating profit excluding reversal of the Finnish pension liability (TEL) 100.3 177.2Reversal of the Finnish pension liability (TEL) 4.9 0.4Operating profit 105.2 177.6Capital employed, December 31 712 895Gross capital expenditure 24 55Research and development expenses 9 11Orders received 1,566 1,936Order backlog, December 31 560 852


metso minerals

Metso Minerals is the leading global supplier of rock and minerals processing systems and recycling systems for metals and construction material.

Near 50 percent of Metso Minerals’ net sales derive from civil engineering sector solutions and services, near 40 percent from mining industry solutions and services and the rest from other customer industries such as metal recycling.

Metso Minerals has its own manufacturing in 35 units around the world, with sales and service units, representatives and distributors in over 100 countries. Sales are conducted through eight regional sales organizations, while there are 135 sales units in 45 countries. Metso Minerals’ most important research and development centers are located in Europe and the USA, Brazil and New Zealand.

in rapidly developing markets. For example, in parts of India that are difficult to access, Metso Minerals has established mobile maintenance and spare parts units near customer sites to provide rapid, flexible service. In China, new service contracts have been signed and project management capacity has been extended in the mining sector. Personnel and customer commitment has been enhanced by increasing training.

product development focused on crushers and mobile devicesIn 2005, Metso Minerals research and development projects focused on modernizing cone crushers and mobile devices and developing related automation systems.

In addition, Metso Minerals launched portable metal shears, suited primarily for small metal recycling operations. The screen media product range was expanded with modular



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screen solutions that are compatible with almost all the screen systems on the market without welding or cutting.

operations organized into four business linesMetso Minerals’ four business lines are responsible for sales, operational devel opment, manufacturing, the supply chain, product development and customer service strategy on a global scale.

The largest business line, Crushing and Screening, is a leading supplier of mobile crushing and screening units and entire rock processing systems. Its range includes individual crushers, screens, feeders, conveyors and wear and spare parts.

The Minerals Processing business line is responsible for production processes for the mining industry and industrial minerals, including related products such as grinding mills, enrichment and pyro processing equipment, slurry pumps, bulk materials processing equipment and aftermarket services for these products. Metso Minerals is, for example, the global market leader in grinding mills and rotary railcar dumpers used in the mining industry.

Products in the Wear Protection and Conveying business line include linings for grinding mills, screening media and other wear, impact, dust and noise protection products, as well as conveyor belts and components. Its main customer industries include not only aggregates production and mines, but also the energy industry, port operators and the pulp and paper industry.

The Recycling business line covers equipment and solutions needed for the recycling, crushing and sorting mainly of metals, but also industrial and household waste. Its product range includes metal shredders, shears, scrap shears and scrap baling presses. Its customers include the automobile industry, scrap yards and municipal waste recycling plants.

Strong demand continued in customer sectors Metso Minerals’ key customer industries are the mining industry, quarries and contractors, the civil engineering industry and the recycling of metals and construction materials.

In 2005, demand for Metso Minerals’ aggregates production equipment

continued to be favorable in Europe and Asia and extremely good in North America. North American demand was affected particularly by an increase in infrastructure investments. As demand continues to be high, the challenge is to maintain delivery reliability and ensure a highly competent personnel.

Mining industry investments were affected in 2005 especially by the growing demand for raw materials and higher prices. In particular, the price of copper strenghtened steadily throughout the year. New mining projects were started especially in Brazil, China and Australia.

Active investments in the mining industry supported an excellent level of demand for Metso Minerals’ mining equipment throughout the year. The strong demand for iron ore also boosted orders for bulk materials handling systems in countries that are major producers of iron ore, e.g. in Brazil, Australia and China.

The customers of mining industry have increasing expectations concerning delivery reliability and quality, which means that the minerals producers must constantly develop their technology and processes.

In response to the increasing demand for crushers used in the mining sector and in road construction, Metso Minerals increased its manufacturing capacity and project management capability in several units around the world. New service contracts were signed in the mining business.

The development in wear protection products included higher production volumes, linings for larger grinding mills and an increase in global contracts.

The aftermarket business developed favorably on the whole and increased in euroterms, as customers invested in improving the capacity of old plants and reopening old quarries and mines.

Due to high metal prices and investments to increase production, the demand for equipment used in the metal recycling industry also remained good.

Metso Minerals’ operating environment is described in more detail on pages 15–19.

the value of orders increased significantlyThe value of orders received by Metso Minerals increased by 24 percent com



milestones in 2005 n In January, a contract was signed for

the delivery of a materials handling system to the Brazilian steel producer, Cia. Siderúrgica Nacional (CSN). The order is valued at approximately eur 47 million.

n In March, Metso Minerals participated in the ConExpo/ConAgg show, the world’s largest construction industry exposition in Las Vegas, USA.

n In August, Metso Minerals bought Texas Shredder, Inc, a supplier of metal shredder products. By this acquisition, Metso Minerals considerably strengthened its position in the North American metal recycling market, which is the largest in the world.

n September saw the start of a large enterprise resource planning project that will last several years. This investment is designed to improve the efficiency and transparency of Metso Minerals’ key operations on a global scale.

n In November, Metso Minerals announced that the North American warehousing, logistics and customer service of its Crushing and Screening business line will be centralized to Columbia, South Carolina. The purpose of the Columbia facility is to meet the U.S. market’s growing demand for crushed aggregate, improve flexibility and customer service and enhance the efficiency of crushing and screening equipment deliveries in North America. The renovated customer service center will open in spring 2006.

n In November, a contract was signed for the delivery of two cable belt conveying systems for coal transportation to the Dawson coal mine in Central Queensland, Australia. The delivery is valued at approximately eur 22 million.

A primary gyratory crusher in Newcrest Mining Limited’s Telfer mine in Australia.



pared with the previous year. The largest relative increase, almost 30 percent, was achieved in orders for the Recycling business line. The growth is partly attributable to Texas Shredder, acquired during the third quarter. The orders for the Minerals Processing and the Crushing and Screening business lines increased by about 25 percent from the comparison year.

Metso Minerals’ aftermarket operations accounted for 46 percent of net sales. As project and equipment deliveries increased significantly, the relative proportion of the aftermarket operations was lower than in the comparison period.

Metso Minerals’ largest orders included bulk materials handling systems for Brazil, an extensive cable belt conveying system for Australia, grinding mills for Brazil and lime calcination plants for China.

metso minerals and newcrest mining limitedLocated in Western Australia, 450 km inland from Port Hedland, lies the Telfer gold mine. Owned by Newcrest Mining Limited, the mine was at one time the most productive in Australia, producing 6 million ounces of gold over a span of 25 years. However, increasing amounts of copper in the Telfer ore forced the mine to suspend operations in the year 2000.

The copper, which was leached out by cyanide during the gold treatment process, had made operations at Telfer uneconomical. Yet feasibility studies indicated that a rich body of ore still existed underground. In 2002, the Newcrest Board thus approved a plan to expand the plant’s capacity, creating a massive, high-volume operation that would achieve economies of scale.

S i z e A B l e n e e D SThe Board’s feasibility studies indicated that the Telfer mine would have to crush and mill 17–20 million tons of ore per year in order to justify operations. A conventional crushing and grinding circuit in two production trains was proposed,

incorporating both underground work and an open pit mine.

The plan called for one primary gyratory crusher to be installed underground, while two were to be installed above ground for use in the pit. After crushing, the ore would enter a production train and pass through one of two semi-autogenous (SAG) mills, then through one of two ball mills in circuit with the SAGs. As it turned out, Metso was the only supplier who could provide this equipment in a size sufficient for the desired capacity.

R e p u tAt i o n A n D R e S p e c tWhile equipment size was a major issue, it was not the only reason Metso received the contract in October 2002. Because of the huge scale of the new operations, Newcrest was anxious to avoid major breakdowns and failures. The Metso reputation for durability was appealing, as was the fact that Metso had supplied other plants of similar size.

In addition, Metso’s service played a pivotal role. Metso had done good work at Newcrest’s Cadia mine, where a team led by Keith Hill had installed

the world’s largest SAG mill in 1996. Having been impressed by his experience and his straightforward working style, Newcrest requested Hill for the commissioning of the Telfer equipment as well.

A p R o m i S i n g S tA R tThe Metso team had a challenging schedule for commissioning the new equipment, which included spending Christmas 2004 at the remote Telfer site. The tough work in the field, however, allowed Newcrest to commence commercial operation of the pit mine in February 2005. Reaching the throughput performance criteria in just two to three weeks, the startup ranks among the world’s best.

The increased scale of the Telfer plant has made mining there highly economical. Cash flow is good, and the copper that was once a problem is now produced as a concentrate and sold to complement gold revenue. Thus, with the new Metso equipment running steadily and reliably, Newcrest officials are looking with optimism at Telfer’s projected 25-year run.

A grinding mill at Newcrest Mining Limited’s Telfer mine. Metso Minerals was the only company that was able to deliver equipment large enough for the desired capacity.




Finland 3% [2004: 2%]





Asia-Pacific 15% [2004: 14%]



Finland 2% [2004: 2%]





Asia-Pacific 16% [2004: 17%]


“�The infrastructure investments will affect development in the sector for several years.”

For further information, visit www.metsominerals.com

positive market outlookDemand for Metso Minerals’ aggregates production solutions is expected to continue to be favorable in 2006, thanks especially to infrastructure investments. In the USA, the Congress passed the Transportation Bill in July 2005, reserving usd 300 billion in 2009 for the de velopment of transportation infrastructure, an increase of 30 percent compared to the previous sixyear period. Major infrastructure investments can be expected also in Eastern European countries, for example in Poland, which joined the EU recently. Likewise, in India, the government has decided to embark on major projects to improve the road network.

These investments will affect development in the sector for several years, because many infrastructure projects are only in the initial stages. The longterm market outlook is positive, due especially to the growth of emerging

economies. Investments to improve infrastructure will also increase demand for iron ore and other base metals.

Mining industry demand is expected to remain strong also in 2006, although a lack of experienced personnel and other resources is still delaying the start of new investment projects. However, this is seen as positive for Metso Minerals, because demand is expected to remain good for a longer period.

In metal recycling, investments will remain at a high level in the next few years, and markets are expected to grow by at least 5 percent a year. As the industry is still very fragmented, many of Metso Minerals’ smaller customers are expected to merge, and other consolidations are expected as well in the next few years.

In coming years, other customer sectors of Metso Minerals are also expected to merge into increasingly large entities. n

n e w c R e S t m i n i n g l i m i t e Dn Telfer gold mine, Western Australia

n Projected average annual gold output of 800,000 ounces and copper output 30,000 tonnes

e q u i p m e n t n Primary gyratory crushers

n SAG mills and ball mills

BIG PICTURE: Business Manager Colin Lake (left), responsible for Newcrest Mining Ltd’s Telfer gold mine project and Manager Grinding Circuit Phil Marshall from the Telfer mine are satisfied: expanding the mine has made the operation very profitable. TOP LEFT: The Telfer mine has one underground primary gyratory crusher and two crushers that operate above the ground. TOP RIGHT: According to Telfer’s Sanijy Manchanda (right) and Metso Minerals’ Paul Bernhardt the commencement of Telfer’s mining operations was one of the most successful in the world.


43

http://www.metsominerals.com

Metso AutomationMetso Automation’s objective is to create added value for its customers by improving the performance, productivity, product quality and eco-efficiency of their processes. Close cooperation with Metso’s other businesses, especially with Metso Paper, creates new opportunities to develop and apply productive automation solutions.

SMALL PICTURE: The world’s largest maxDNA system was installed at Petrobras REVAP already at the construction stage, and it controls all the refinery’s system. BIG PICTURE: Petrobas REVAP facility produces 226,000 barrels of gasoline, diesel fuel, jet fuel, liquid gas, asphalt and sulfur on a daily basis. Neles T5 series control valve package was included in Metso Automation’s extensive delivery.


M E T S O A U T O M A T I O N

Metso Automation’s goal is to grow as a global supplier of automation and field systems applications for the pulp and paper industry, as well as for the energy, oil and gas industry. Growth will be based on new products and innovations, utilizing the base of already installed equipment and systems, and strengthening the business area’s presence and operations in the growing markets of AsiaPacific, Russia and Latin America. Growth will also be supported, if necessary, by complementary acquisitions.

In August 2005, Metso Automation’s management agenda and financial targets for 2006–2008 were published. The key objectives are to ensure growth and strong profitability. Metso Automation also aims to create the conditions for future growth and the development of new, efficient business processes.

positive development continuedIn 2005, Metso Automation concentrated on ensuring positive business development and securing strong profitability. A competitive cost structure, a more efficient supply chain, the continual reduction of working capital, and a business culture that emphasizes results have created a good basis for sustained profitable growth.

The good financial performance of Metso Automation was influenced by many factors in 2005. These include the good profitability performance of Neles valves and the increasing demand for, and improved profitability of, Jamesbury and StoneL valves and positioners in North America. Succesfully implemented system projects have enhanced the positive performance of the power and process business in Europe.



metso Automation and petrobras Petrobras is Brazil’s largest energy and oil com-pany, possessing 95 production platforms and 15 refineries with a throughput of 1.8 million barrels of crude oil per day. One of its most important facilities is Petrobras REVAP (Henrique Lage Refin-ery), which daily produces 226,000 barrels of gaso-line, diesel fuel, jet fuel, LPG, asphalt and sulfur.

Located in São José dos Campos, São Paulo State, Petrobras REVAP was planned in the late 1970s and was inaugurated in 1980. Its production was first based on low-viscosity crude oil, but this was later switched to Brazilian offshore crude with high levels of grit and coke. In time, this switch led to serious valve problems in the refinery’s direct-fired heaters.

B lo c k Ag e A n D l e A k SDirect-fired heaters, which bring crude feedstock to the correct temperature for distillation, contain a series of tubes called passes. Each heater contains 6-8 passes, each of which has its own control valve. At Petrobras REVAP, these pass valves were double-seat globe valves, which seized up when they became encrusted with grit and coke from the viscous oil. They also led to serious oil leakages, which created a fire hazard.

In 2001, the corrective maintenance of these valves had become costly in terms of labor and productivity. Shutdowns of the distillation process were required in order to clean the valves every 2-3 months, and there were often problems with local environmental departments.

To improve the situation, Petrobras turned to Metso, with whom the refinery had cooperated since the installation of a maxDNA distributed control system. This maxDNA system, which is the world’s largest, was installed during Petrobras REVAP’s construction and controls all of its operational systems.

co m B i n e D B e n e F i t SWhen Metso began investigating valve options for Petrobras, both Neles MBV metal-seated ball valves and Top 5 heavy-duty rotary control valves were considered. The Top 5 valves were installed initially and provided good results, but in 2002 tests were conducted using 16 Neles Finetrol valves with Q Trim. This proved an even better solution for controlling the flow of crude oil in the direct-fired heaters.

The high-performance Finetrol valves offered Petrobras the control benefits of linear valves with

the inherent benefits of rotary valves, such as freedom from clogging and leakage. They could be installed with the same face-to-face dimensions as the globe valves, which meant economical installation without pipework changes. Combined with smart valve controllers and Metso Field Care configuration and condition monitoring software, they meant new opportunities for predictive maintenance.

R e co m m e n D e D R e l i A B i l i t yToday the Finetrol valves at Petrobras REVAP are all running smoothly. Thanks to information provided by the Field Care software, Petrobras can reliably predict any valve problems and take preventative action. This has meant an end to crude oil leaks and unscheduled refinery shutdowns, and the ability to plan maintenance has lowered maintenance costs and reduced the need for spare parts.

In fact, the reliability of the Metso solution has led Petrobras to adopt Finetrol as the answer to most flow control problems involving high-viscosity, high-temperature oil products in heater passes. As a result, Neles Finetrol is the valve type most rec-ommended to sites with similar process condi-tions in Brazil and elsewhere in South America.

Specialization in selected customer industriesMetso Automation comprises two business lines: Process Automation Systems and Field Systems. The Process Automation Systems business line provides automation and information management application networks and systems and the life cycle services that support these. Field Systems, on the other hand, provides various industries with flow control solutions, automated and manual control valves and positioners, analyzers and specialty sensors.

Metso Automation’s business is divided into three strategic focus areas: the pulp and paper industry, the energy and process industry, and valves.

Customers appreciate Metso Automation’s specialization in certain customer industries and the high level of process and application competence that results from this.

Metso Automation’s strengths also include the ability to manage challenging and large projects, an extensive base

of installed equipment, a flexible global network of experts, strong brands and life cycle services.

Future success will require continuous investments in new products, services and business innovations. In 2005 Metso Automation used approximately 5 percent of its net sales in developing new products and applications, and new technology.

Metso Automation launched several new products in 2005, of which the most significant were the kajaaniROTARY pulp consistency transmitter, the kajaaniMAP onlineanalyzer to measure the freeness, fiber dimensions and shives content of mechanical, chemical and recycled fiber pulp, and the IQCaliperL measurement device that scans paper caliper.

the energy, oil and gas industry market was the driving force Deliveries of systems and equipment for the energy, oil and gas industry continued their strong growth in 2005. They

“�In 2005, Metso Auto-mation concentrated on ensuring positive business develop-ment and securing strong profitability.”




Finland 20% [2004: 19%]





Asia-Pacific 15% [2004: 14%]



Finland 20% [2004: 20%]





Asia-Pacific 15% [2004: 15%]


BIG PICTURE: Neles ball valve package. Changing the valves has meant an end to crude oil leaks and unscheduled refinery shutdowns. TOP RIGHT: Engineering Manager Lincoln Shiodiro Isikawa (left) from Petrobras and General Manager Marcelo Franco Motti from Metso Automation. MIDDLE RIGHT: The world’s largest maxDNA system controls all the refinery’s systems. BOTTOM RIGHT: Process and Energy Automation Maintenance Technician Isaias do Espírito Santo of Metso Automation.



Net sales 535 584Operating profit excluding reversal of the Finnish pension liability (TEL) 55.9 79.9Reversal of the Finnish pension liability (TEL) 13.7 0.8Operating profit 69.6 80.7Capital employed, December 31 135 125Gross capital expenditure 6 11Research and development expenses 31 29Orders received 570 580Order backlog, December 31 176 179


metso Automation

Metso Automation specializes in application networks and systems and field solutions for automation and information management in the process industry, and in services that cover the whole life cycle of the products. It serves customers in the pulp and paper industry and in the energy, oil and gas industry.

Metso Automation is a global player with production in Finland, France, the United States, China and Brazil, and sales and customer service units in 34 countries. There are research and development units in Finland, the United States and Canada.

p e t R o B R A Sn Petrobras REVAP (Henrique Lage Refinery),

São José dos Campos, Brazil

n Production of gasoline, diesel fuel, jet fuel, LPG, asphalt and sulfur

e q u i p m e n tn Neles Finetrol rotary control valves and Neles

smart valve controllers ND 9000

n VALVGUARD System for ESD valves

n Metso Field Care configuration and condition monitoring software

n maxDNA distributed control system (DCS)



milestones in 2005 n During the year, Metso Automation

delivered numerous automation systems to Russia. The customers included the Surgutneftgaz natural gas compression plants and gas turbine power plants and the SiburTyumen gas processing works.

n At the end of 2005, Botnia S.A. made a valve order for a new pulp mill to be built in Uruguay. The valves will be delivered in the summer of 2006.

n The success of PaperIQ Plus systems continued. Metso Automation gained many orders around the world.

n In September, Metso Automation opened a technology center in Aracruz, Brazil to strenghten its presence in South America.

n Metso Automation delivered extensive control and monitoring systems to Stora Enso’s Kvarnsveden mill in Sweden. A production line for highquality SC magazine paper delivered by Metso Paper was started in October.

n A multiyear project for Shell in Nanhai, China was concluded. The extensive delivery consisted of some 3,500–4,000 control valves, mainly ball, butterfly and segment valves and Neles Finetrol® rotary control valves. This was the single biggest Metso Automation delivery to Shell and one of the biggest deliveries in the hydrocarbon industry.

Neves control valve package at UPM Wisaforest’s mill in Pietarsaari, Finland.



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accounted some 50 percent of Metso Automation’s net sales.

As the price of pulp and paper remained low in 2005, the pulp and paper industry made few investments in new capacity in Europe and North America, which are Metso Automation’s strongest market areas. However, the aging machinery and equipment base in Europe and North America has increased demand for performance optimization services. With respect to Metso Automation, too, the market in 2005 emphasized solutions that improve both the performance of existing machinery and equipment and the quality of endproducts.

In 2005, the price of crude oil was high and refineries were operating at full capacity, which affected the global growth of the control and automated valve market. The strong demand for the oil and gas industry products has kept customers’ production plant and refinery investments at a high level.

The market for energy industry automation systems was affected by tighter competition among customers, resulting from the privatization of plants, the lifting of competition restriction and changes in environmental legislation. On the other hand, changes in environmental legislation are increasing the use of waste as an energy source, which will strengthen the demand for automation in the future.

The value of new orders received by Metso Automation remained at the previous year’s level, totaling eur 580 million. More orders were received for field equipment than for automation systems. Aftermarket operations accounted for 24 percent of net sales. Metso Automation has started measures to strengthen its sales and service network by adding about 100 employees during 2006 to secure future growth.

Focus on utilizing growth opportunitiesMetso Automation’s growth opportunities in the pulp and paper industry

derive from a strengthening of its presence in growing markets, from its new products and services and from its focus on products and services for aging machinery and equipment. The main focus is on continuously developing and strengthening customer relationships. The growing demand for a high return on investments will continue to enhance the important role of automation.

In growing markets, such as China and Brazil, the focus is on strengthening sales, maintenance and project resources and ensuring the utilization of Metso Automation’s products in new machines. Product and service development in turn emphasizes innovative applications, analyzers and sensors and preventive condition monitoring and usability services. Different types of optimization, performance and life cycle services are directed at the aging machinery and equipment in North America and Europe.

The global valve business is still fragmented. Developing the business requires active participation in the industry’s restructuring. The focus in the valve industry is gradually shifting towards supplementary services, such as valve maintenance and repair. The development focus will be on new products and applications for condition monitoring and runnability.

The energy, oil and gas industry markets are growing fastest in China, India and elsewhere in Asia, as well as in Russia and South America. Metso Automation aims to expand its operations both in the growing markets and with existing customers. The share of the energy and process industry to Metso Automation’s total business is expected to grow more quickly than that of the pulp and paper industry. n

For further information, visit www.metsoautomation.com

“�Metso Automation aims to expand its operations both in the growing markets and with the existing customers.”



http://www.metsoautomation.com

TOP LEFT: Pina S.A, a mid-sized particle board mill in Cuanca, Spain, where Metso Panelboard have delivered a wood cleaning system. TOP RIGHT: The facilities in the Valmet Automotive’s Uusikaupunki plant are among the best in Europe. BOTTOM LEFT: Metso Ventures’ Foundries business group comprises the foundries located in Tampere and Jyväskylä, Finland, and in Karlstad, Sweden. BOTTOM RIGHT: Late in 2005, Metso Powdermet was awarded with environmental certification in accordance with the ISO 14001 Standard.

Metso VenturesMetso Ventures consists of business operations under strategic development and units that serve the Corporation’s other busi-nesses. The business groups within Metso Ventures are Metso Panelboard, Found-ries, Metso Powdermet and Valmet Automotive.


M E T S O V E N T U R E S

metso panelboardn Metso Panelboard is one of the

world’s leading equipment and aftermarket service suppliers to the panelboard industry. It designs and supplies both entire production lines and individual equipment for the panelboard industry for manufacturing fiberboard, particle board and OSB board as well as supporting aftermarket services.

metso powdermetn Metso Powdermet develops materials

technology and component solutions for the pulp and paper industry, mineral and mining industry, and process and energy industry.

Foundriesn The foundries’ main products are

various components and castings, such as cylinders and rolls, ship’s engine blocks, crusher frames and consumables, wind turbine gear parts and propeller hubs.

valmet Automotiven Valmet Automotive is an independent

contract manufacturer of specialty cars, which offers its expertise to other car manufacturers.

In March 2005, Metso divested Metso Drives, a mechanical power transmission equipment supplier that was a part of Metso Ventures, to the private equity investor CapMan.



metso panelboard Metso Panelboard is one of the world’s leading suppliers of equipment and aftermarket services for the panelboard industry. Its strength lies in its broad knowledge of total processes, enabling the creation of customeroriented solutions.

Metso Panelboard is seeking growth in new market areas such as China, Russia and Eastern Europe. It is also aiming to increase the relative share of its aftermarket operations, particularly in Europe and North America, where it has a large base of installed machinery. Metso Panelboard has supplied its customers with over 900 panelboard production lines. Its customers are panelboard manufacturers for the furniture and construction industry. About 70 percent of the panelboard made with equipment supplied by Metso Panelboard is used for furniture production.

In 2005, Metso Panelboard achieved the growth targets set for it, but failed to reach the profitability targets. The weak profitability was due to tight price competition in the markets, cost overruns in certain projects and postdelivery costs incurred on earlier

key figures, metso ventures 2004 2005


Net sales 230 284Operating profit (loss) excluding reversal of the Finnish pension liability (TEL) (20.8) 10.2Reversal of the Finnish pension liability (TEL) 14.6 0.6Operating profit (loss) (6.2) 10.8Capital employed, December 31 39 78Gross capital expenditure 16 15Research and development expenses 5 5Orders received 213 324Order backlog, December 31 66 104


end products in customer industries is expected to remain low in 2006. The Russian markets still hold promise for new production line deliveries. The rebuild business is also expected to develop well. The competition between equipment suppliers will most likely continue to be tight, causing price pressures.

metso powdermetMetso Powdermet develops, subcontracts the manufacture of and delivers components based on powder metallurgy and other corresponding manufacturing techniques. It also consults Metso’s other businesses in issues related to materials technology.

The need for new material solutions has grown, since increased process speeds and efficiencies are placing more stringent demands on the strength and durability of machine parts. Additionally, new kinds of wear and spare parts solutions that are more durable and costefficient are being developed for the needs of the service and aftermarket business.

Metso Powdermet’s orders received increased substantially in 2005. Net sales increased due to favorable development in the offshore industry and nuclear power plant component deliveries. Field tests of rolls developed for Metso Paper and wear parts designed for Metso Minerals on pilot machines and customer machines were very successful. Late in 2005, Metso Powdermet was awarded with environmental certification in accordance with the ISO 14001 standard.

FoundriesMetso Ventures’ Foundries business group comprises the foundries located in Tampere and Jyväskylä, Finland, and in Karlstad, Sweden. The combined annual capacity of the three foundries

projects. Metso Panelboard has initiated measures to improve the situation.

The number of orders received increased, particularly in the final quarter. Equipment orders were received e.g. for a fiberboard plant in Chile and for a particleboard line in China.

Thanks to its large installed base, Metso Panelboard succeeded in its goal of increasing the share of rebuilds in the business. The net sales of the aftermarket business increased in 2005, but this growth could not compensate for the weak profitability of project deliveries.

Product launches made during the year included the new EVOseries Defibrator™. Events such as the Ligna world fair for the forestry and wood industries were utilized in new product launches, and the products and solutions presented were well received. Other major developments included the positive demand for Mill Performance analyses in new markets, the Metso Panelboardwide implementation of an enterprise resource planning system (SAP), and the strengthening of the sales organization in Russia and France.

Further mergers are expected to take place among Metso Panelboard’s customer companies. The price level of



is about 50,000 tons of iron and steel castings.

The objective of the Foundries is to join forces to competitively provide advanced castings for Metso’s own units and for customers outside the Corporation.

Deliveries of the Foundries were at a good level in 2005 due to buoyant demand for cast products. As a result of increased delivery volumes, Foundries exceeded the growth targets set for them.

During 2005, investments were made in all three foundries to increase production capacity and improve productivity. Investment benefits are expected to materialize in 2006, for example, through improvements in profitability, quality and costefficiency.

valmet AutomotiveValmet Automotive focuses on producing and developing specialty cars. The strengths of Valmet Automotive are its high quality and costefficiency, the competence of its personnel and its readiness to manufacture new products quickly. The facilities of the Uusikaupunki plant are among the best in Europe. In cooperation with its partners, Valmet Automotive can deliver complete specialty car projects, from design to production.

Valmet Automotive began the production of a new Porsche Boxster model in the autumn of 2004 and a new Porsche Cayman S model in the fall of 2005. The daily production rate was increased to some 150 cars in the autumn 2005. Valmet Automotive reached the targets set for starting the production of a new model as well as the targets concerning the quality, timetables and productivity in serial production.

In 2005, a eur 40 million investment program was completed. The program

For further information, visit www.metsopanelboard.com www.metsopowdermet.com www.metsofoundries.com www.valmet-automotive.com

focused on modernizing the production processes for the new Porsche models and increasing the production line’s manufacturing capacity to 180 cars a day. Valmet Automotive’s production figures doubled in the year under review to 21,233 cars from 10,051 the previous year. The strong production growth was reflected in higher net sales and better profitability.

Valmet Automotive has been seeking a new production contract. It has developed cooperation concepts with external car designers to be able to offer car manufacturers entire specialty car projects. However, no new production contracts have so far resulted from this.

The personnel situation returned to normal, and at the end of 2005 the number of personnel was 1,068. All the remaining laidoff car builders were employed during the year, and a further approx. 150 new employees were also hired.

The Porsche models under production at Valmet Automotive are at the beginning of their life cycles. Both models have been extremely well received by the market. If production continues at a daily rate of 150 cars, the 2006 production figures will be almost 1.5 times higher.

Valmet Automotive will continue its efforts to improve productivity and to obtain another customer and production line alongside the Porsche production. n

key figuresmetso panelboard 2004 2005(In millions) EUR EUR

Net sales 104 112 Operating loss excluding reversal of the Finnish pension liability (TEL) (1.2) (2.7)

Reversal of the Finnish pension liability (TEL) 0.7 0Operating loss (0.5) (2.7)Capital employed, December 31 (14) 16 Order backlog, December 31 32 50 Personnel, December 31 264 281

key figuresFoundries 2004 2005(In millions) EUR EUR

Net sales 75 82 Operating profit excluding reversal of the Finnish pension liability (TEL) 3.6 5.1

Reversal of the Finnish pension liability (TEL) 3.3 0.2Operating profit 6.9 5.3 Capital employed, December 31 25 30 Order backlog, December 31 28 45 Personnel, December 31 587 618

key figuresvalmet Automotive 2004 2005(In millions) EUR EUR

Net sales 40 78 Operating profit (loss) excluding reversal of the Finnish pension liability (TEL) (23.2) 5.5

Reversal of the Finnish pension liability (TEL) 10.4 0.4 Operating profit (loss) (12.8) 5.9 Capital employed, December 31 24 30 Number of cars produced 10,051 21,233 Personnel, December 31 763 1,068



http://www.metsopanelboard.com

http://www.metsopowdermet.com

http://www.metsofoundries.com

http://www.valmet-automotive.com

TOP LEFT: Bleach plant reaction towers at Zellstoff Stendal’s pulp mill in Germany. TOP MIDDLE: SP Newsprint’s mill in Dublin, Georgia, USA, produces newsprint out of recycled fiber. TOP RIGHT: A view from Pina S.A’s particleboard mill in Cuenca, Spain. MIDDLE LEFT: Metso Minerals’ Paul Bernhardt (left), Area Manager of Mill Linings & Wear Products, Telfer’s Phil Marshall (middle), Manager Grinding Circuit and Newcrest Mining Ltd’s Colin Lake, Business Manager at the Telfer mine in Australia. MIDDLE: A miner at the Australian Telfer mine.

BOTTOM LEFT: Dublin Mill Manager Jack Carter (left), SP Newsprint, and Product Manager John O’Malley, Metso Paper, at SP Newsprint’s mill in Georgia, USA. MIDDLE: The crushing plant supplied by Metso Minerals at Pedreiras Basalto’s quarry near São Paulo, Brazil. MIDDLE RIGHT: Pulp baling line at Zellstoff Stendal’s pulp mill in Germany. BOTTOM RIGHT: The Telfer gold mine in Western Australia in night lighting.

TOP LEFT: The PM2 paper machine at SP Newsprint’s paper mill in Dublin, Georgia, USA. The machine’s performance is based on continuous improvement and upgrading. TOP RIGHT: Pedreiras Basalto and Metso Minerals cooperate closely at Basalto’s quarry near São Paulo, Brazil.

BOTTOM LEFT: The cooperation between Metso Automation and Petrobras bears fruit – Petrobras now relies on Neles Finetrol to provide valves as a solution to most flow control problems. Petrobras’ Technical Assistant Rui Nunes Mascarenhas (left), and Metso Automations’ Process and Energy Automation Maintenance Techician Isaias do Espírito Santo. MIDDLE RIGHT: A grinding mill at the Telfer mine in Australia. BOTTOM RIGHT: A view from Petrobras’ refinery in Brazil.

general governance issuesThe duties of Metso Corporation’s (Metso) bodies are determined by the Finnish law and by Metso’s corporate governance policy.

Metso follows the guidelines issued by the Helsinki Stock Exchange, the Finnish Central Chamber of Commerce and the Confederation of Finnish Industry and Employers relating to the governance of publicly quoted companies with the exception that Metso does not have a nomination committee established by the Board of Directors, but one established by shareholders at Metso’s Annual General Meeting on April 4, 2005. Metso further complies with the guidelines for insiders published by the Helsinki Stock Exchange.

In addition to being listed on the Helsinki Stock Exchange, Metso is also listed on the New York Stock Exchange and is an SECregistered company. The company follows the requirements of the NYSE and U.S. securities market legislation concerning foreign private issuers, when these are not in conflict with the Finnish law.

The Annual General Meeting (AGM) is the supreme decisionmaking body of Metso Corporation and it meets at least once a year. The AGM decides on the matters stipulated in the Finnish Companies Act such as the acceptance of the financial statements and the proposed dividend, the release from liability of members of the Board of Directors and the President and CEO. The AGM also elects the members of the Board of Directors and the Auditors, and decides on the compensation paid to them.

The Board of Directors (Board) and the President and Chief Executive Officer (CEO) are responsible for the management of Metso. Other executives have an assisting and supporting role. The Board ensures good corporate governance practices within Metso.

BoardThe Board supervises the operations and management of Metso and decides on significant matters relating to strategy, investments, organization and finance.

The main duties of the Board are as follows:n To approve Metso’s longterm goals

and strategyn To approve Metso’s annual business

and other major action plansn To approve Metso’s organizational

structure and the main principles for the incentive systems, and to nominate the President and CEO, the Presidents of the Business Areas and the members of the Metso Executive Team

n To approve Metso’s corporate policies in key management areas, such as corporate governance, risk management, financial control, financing, internal audit, information security, corporate communications, human resources, and to approve Metso’s ethical principles, values and environmental principles

n To decide on matters the Board delegates to the President and CEO for decision

n To ensure that the supervision of the accounting and financial matters is properly organized, and to ensure proper preparation of the interim and annual financial statements

n To ensure the adequacy of planning, information and control systems for monitoring the bookkeeping and handling of financial matters and risk management

n To monitor and evaluate the performance of the President and CEO and to decide upon his remuneration and benefits

n To make proposals for and convene the Annual General Meeting

n To decide upon other matters that do not belong to daytoday operations

or are of major importance, such as major investments, acquisitions and divestitures, and major joint ventures and loan agreements. The Board also decides upon guarantees given by Metso Corporation

n To decide upon other matters in accordance with the provisions in the Finnish Companies Act.

the committees of the Board of DirectorsThe Board has two permanent committees, i.e. an Audit Committee and a Compensation Committee. The Board supervises the activities of these committees.

The Audit Committee consists of the committee’s chairman and two members, who are all elected by the Board from among its independent members. The Audit Committee draws up a written working order for itself.

The duties of the Audit Committee include a review of financial reporting by assessing Metso’s draft financial statements, draft interim reports, accounting policies, significant or exceptional business transactions and management estimates. The Audit Committee assesses compliance with laws and provisions and with internal instructions. It assesses the adequacy of Metso’s internal control and risk management, approves the internal audit plan and follows up on internal audit reporting. The Audit Committee is responsible for matters related to preparing for the election of auditors, assessing the audit plan and costs, studying the auditor’s reports and discussing them with the auditors, and assessing the quality and scope of the audit.

The Compensation Committee consists of the committee’s chairman and two members, who are all elected by the Board from among its members.

Corporate Governance


C O R P O R A T E G O V E R N A N C E

The Compensation Committee reviews and monitors the competitiveness of the remuneration and incentive systems within Metso, prepares and makes proposals to the Board for the remuneration and benefits of the President and CEO, and decides upon the remuneration and benefits of the officers reporting to the President and CEO. The committee may authorize its Chairman to decide upon the remuneration and benefits of these officers.

president and ceoThe Board nominates the President and CEO, who is in charge of the management of Metso’s businesses in accordance with the Finnish Companies Act and instructions given by the Board.

The President and CEO reports to the Board and keeps the Board sufficiently informed about Metso’s business environment, such as customers, competition and markets, as well as the financial position of Metso and other significant matters.

The President and CEO prepares the matters on the agenda of the Board and its committees and implements the decisions made by the Board and its committees, if not decided otherwise by the Board. The President and CEO guides and supervises the operations of Metso and its Business Areas. The President and CEO also acts as chairman for the Metso Executive Team and the Boards of the Business Areas.

metso executive teamThe President and CEO and other members designated by the Board form Metso’s Executive Team.

The Executive Team assists the President and CEO in the preparation of matters such as Metso’s business plans, strategy, policies and other matters of joint importance within Metso’s business areas and the Corporation. The

Metso Executive Team will convene when called by the President and CEO.

Business Area presidentsThe Business Area Presidents report to Metso’s President and CEO and keep him sufficiently informed about the Business Areas’ business environment, such as customers, competition and markets, as well as about the Business Areas’ financial position and development.

The Business Area Presidents are in charge of the daytoday management of the Business Areas.

Business Area Boards and other BoardsMetso’s President and CEO as Chairman and two to four other members form the Business Area Boards.

The Business Area Boards ascertain that operations in all companies within the Business Area are managed in accordance with the prevailing laws, regulations and Metso’s policies. The specific responsibilities of the boards of holding and other similar companies within Metso are defined by Metso’s President and CEO.

legal compliance and ethical principlesIn its business Metso complies with all applicable laws and the company’s ethical principles.

Each Metso Business Area complies with Metso’s ethical principles, ensures compliance with applicable laws, and ensures that employees are familiar with and comply with the laws, regulations and principles relating to their work.

nomination committee established by the Annual general meetingThe Nomination Committee established by the Annual General Meeting on April 4, 2005 prepares proposals for the



following General Meeting in respect of the composition of the Board and Board of Directors’ remuneration.

The Nomination Committee consists of representatives of the four biggest shareholders along with the Chairman of the Board of Directors as an expert member. The right to appoint a member is held by those four shareholders registered in Metso’s shareholder register maintained by the Finnish Central Securities Depository Ltd., who on December 1 prior to the General Meeting hold the most votes in Metso.

The Nomination Committee is convened by the Chairman of the Board, and the Committee elects a chairman from among its members. The Nomination Committee presents its proposal to the Board no later than February 1 prior to the General Meeting.

AuditorsThe auditor’s statutory obligation is to audit the company’s accounting, financial statements and corporate governance for the financial year. The parent company’s auditor must also audit the consolidated financial statements and other mutual relationships between Group companies.

According to the Articles of Association, Metso has no fewer than one and no more than three auditors. In addition, the Annual General Meeting may elect no more than two deputy auditors.

The auditor and deputy auditor must be public accountants or a firm of public accountants certified by the Central Chamber of Commerce. The Annual General Meeting elects the auditors for a term of one year.

internal auditThe goal of Metso’s internal audit is to verify the efficiency and effectiveness of Metso’s operations, the reliability of financial and operational reporting

and compliance with applicable laws and regulations. It also ensures that the Corporation’s property is safeguarded. Internal audit supervises all units and operations of Metso.

Internal audit reviews the efficiency and appropriateness of policies and procedures and inspects the functioning of internal control. In addition, the internal audit proactively encourages the development of risk management in Metso’s various operations.

Internal audit reports to the management of Metso, the external auditors and the Audit Committee. The head of internal audit reports administratively to the Executive Vice President and CFO, but also has direct access to the President and CEO and to the Chairman of the Audit Committee.

insidersUnder the Finnish Securities Market Act, statutory insiders in Metso Corporation are the Chairman, Vice Chairman and members of the Board of Directors, the President & CEO and his deputy, the auditor and his deputy or the principally responsible auditor of a firm of public accountants. In addition, Metso’s statutory insiders include the members of the Executive Team. For the statutory insiders and people in their immediate circle, the ownership of Metso’s securities is public. Metso also has other permanent insiders and projectspecific insiders whose securities ownership is not public.

Metso complies with the Helsinki Stock Exchange’s Guidelines for Insiders that entered into force on January 1, 2006. The guidelines recommend that insiders trade in the company’s securities only when the markets have as complete information as possible on issues influencing the value of the securities. Metso’s permanent insiders are not permitted to trade in the company’s issued securities during the 21 days

immediately prior to the publication of the company’s interim reviews or financial statements release.

Metso Corporation’s registers of permanent insiders are maintained by the Corporate Legal Department. Metso updates the register of statutory insiders in the Finnish Central Securities Depository Ltd’s Sire system, in which information on the ownership of securities can be obtained directly from the bookentry system. The holdings of Metso’s statutory insiders are listed on Metso’s Internet pages, and are updated once per day.

information Metso has Finnish and English Internet sites at www.metso.com. In addition to comprehensive investor information, they present the company’s corporate governance system and all other information published pursuant to the disclosure obligations of listed companies.

�A comparison of Metso’s corporate governance practices and the require-ments of Section 303A of the NYSE Listing Rules currently applicable to U.S. domestic companies is available at www.metso.com/investors > governance.




http://www.metso.com/investors

corporate governance in 2005

n Metso’s Annual General Meeting was held in Helsinki, Finland, on April 4, 2005.

n The Annual General Meeting elected six members to Metso’s Board of Directors. Matti Kavetvuo was re-elected as Chairman and Jaakko Rauramo as Vice Chairman. Svante Adde was elected as a new Board member. The Board members re-elected were Maija-Liisa Friman, Satu Huber and Juhani Kuusi.

n Pursuant to the Act on Personnel Representation in the Administration of Undertakings, a personnel representative participates in the meetings of Metso’s Board of Directors as an invited expert. However, this representative has no right to vote and cannot be held legally responsible for any decisions made by the Board. The personnel representative is elected by Metso’s personnel groups, and his term of office is the same as the Board members’ term. In 2005, Pentti Mäkinen participated in the work of Metso’s Board as the personnel representative.

n In 2005 Metso Corporation’s Board met 15 times. The average attendance at meetings was 95.7 percent.

n As of April 4, 2005, the Board’s Audit Committee consisted of Maija-Liisa Friman (Chairman), Svante Adde and Satu Huber. The Board of Directors assigned Svante Adde as the financial expert of the Audit Committee. In 2005 the Audit Committee met 6 times. In addition to its regulatory tasks, the Audit Committee monitored, for example, the progress of the reporting of internal controls in accordance with paragraph 404 of the Sarbanes-Oxley Act (SOX 404) and evaluated the calculations related to the impairment testing of Metso’s goodwill.

n As of April 4, 2005, the Compensation Committee consisted of Matti Kavetvuo (Chairman), Jaakko Rauramo and Juhani Kuusi. In 2005, the Compensation Committee met 5 times. Its main tasks during the year were to examine management compensation and incentive systems and Metso’s compensation systems.

n Jorma Eloranta, Metso’s President and CEO, continued as Chairman of Metso’s Executive Team and Olli Vaartimo, Metso’s Executive Vice President and CFO, as Vice Chairman. Other members of the Executive Team were Business Area Presidents: Risto Hautamäki (Metso Paper), Bertel Langenskiöld (Metso Minerals), Matti Kähkönen (Metso Automation) and Vesa Kainu (Metso Ventures). Risto Hautamäki has served in his position since April 1, 2005. Before this, Bertel Karlstedt was the President of Metso Paper. In 2005, Metso’s Board of Directors convened 18 times.

n During 2005 the main task of the Executive Team was the determination of the strategy for 2006–2008, the setting of financial targets and their communication. Other important matters dealt with during the year were related to the business areas’ joint IT administration and business infrastructure projects, back office development projects and the monitoring of implemented synergies. The tasks included also Metso’s management processes, incentive systems and the SOX 404 project.

n The U.S. Sarbanes-Oxley Act (SOX) contains several control and governance systems and their control-related regulations, which affect all publicly listed companies in the USA, including Metso. At the end of 2006, Metso’s management will provide their assessment on the efficiency and

success of internal controls related to financial reporting as requested by SOX 404. In order to fulfill the SOX 404 regulations, internal control guidelines have been developed in Metso. During 2005, processes and control procedures subject to SOX were developed in almost 50 of Metso’s largest units, and the project advanced on schedule. In the second half of the year, the processes and control procedures of four Metso pilot units were tested in compliance with the SOX regulations. In the first quarter of 2006, tests carried out under the supervision of Internal Audit were started in the Corporation’s largest units. Most of the testing will be done in the second quarter of 2006. In line with the SOX requirements, testing will continue for the whole year. The assessment on internal controls in financial reporting provided by an external auditor will begin in the second quarter of 2006, and they will make their statement regarding management’s valuation on the efficiency and functioning of internal controls at the time of publishing the financial statements for 2006.

n In compliance with the regulations of SOX, Metso is using a Whistleblower channel maintained by an external party for the reporting of suspected financial misconduct. During 2005, few alerts were received via the channel, but, upon more detailed study, none of them was classifiable as financial malpractice. Most of the contacts were referred for handling by Metso’s human resources function.

n Metso’s auditor since 1999 has been PricewaterhouseCoopers, Authorized Public Accountants. In 2005, PricewaterhouseCoopers was paid EUR 2.9 million in auditing fees and EUR 1.3 million in other fees. In addition, they



were paid EUR 2.1 million for taxation services.

n Metso’s revised insider guidelines became effective on January 1, 2006.

n The Annual General Meeting of April 4, 2005 established a Nomination Committee to prepare proposals concerning Board members and Board remuneration for the next Annual General Meeting. In December 2005, the composition of the Nomination Committee was as follows: Markku Tapio (Chairman of the Nomination Committee), Director General, State Shareholdings Unit (State of Finland); Lars Förberg, Managing Partner (Cevian Capital); Kari Puro, President and CEO (Ilmarinen) and Mikko Koivusalo, Director, Investments (Varma). The Chairman of Metso’s Board of Directors Matti Kavetvuo served as the Committee’s expert member. The Nomination Committee made its proposal on January 31, 2006.

B o A R D R e m u n e R At i o n

n Fees totaling EUR 307,427 were paid to the eight members of the Board of Directors in 2005, including previous Board members Risto Hautamäki and Pentti Mäkinen. According to a decision of the Annual General Meeting of April 4, 2005, the annual fees were as follows: Chairman of the Board EUR 60,000, Vice Chairman of the Board and Chairman of the Audit Committee EUR 40,000, and other Board members EUR 30,000. In addition, a fee of EUR 500 per meeting is paid to all members for meetings of the Board and its Committees they attend. Compensation for traveling expenses and daily allowances is paid in accordance with Metso’s general travel policy. More specific information on Board remuneration is given in Note 8 on page 33 of the Notes to the Financial Statements.

m A n Ag e m e n t R e m u n e R At i o n

n The salaries of Metso’s Executive Team comprise a fixed basic salary and a bonus based on the result of the Corporation and/or of the business area in question. The bonus may also be based on other development objectives central to operations. In addition, Senior Corporate Management was included in option schemes to April 30, 2005. Metso’s Board has approved for 2006–2008 a share ownership plan. The retirement age of Executive Team members is 60 years.

n The most comprehensive of Metso’s options programs were the 2000A/B and the 2001A/B programs. The subscription period for these options ended on April 30, 2005. More detailed information on Metso’s option programs is given on page 83 of the Financial Statements.

n The following changes in the Executive Team’s option holdings took place in 2005: Matti Kähkönen sold 90,000 and Olli Vaartimo 130,000 options under the Metso 2000A/B option program, Jorma Eloranta sold 28,500 and Bertel Langenskiöld 58,500 options under the Metso 2001A/B option program. In addition, Jorma Eloranta and Bertel Langenskiöld each subscribed for 1,500 new Metso shares with the 2001A/B options. On December 31, 2005, Jorma Eloranta was the only member of Metso’s Executive Team to hold options. He holds 100,000 Metso 2003A options.

n Metso’s Board approved in December 2005 a new share ownership plan for the 2006-2008 strategy period. The first possible incentives will be paid in spring 2007. The share ownership plan covers three earnings periods, each of them lasting one calendar year, that is, years 2006, 2007 and 2008. The Board

of Directors has authorized the Metso Compensation Committee to decide on the distribution of the share-based incentives. The potential reward from the plan will be based on the achieved operating profit of Metso Corporation and its business areas. 2006 share ownership plan is directed to a total of 55 Metso managers, and the entire Metso Executive Team is included in the incentive plan. The share ownership plan in 2006 will cover a maximun total of 120,000 shares from Metso’s treasury shares. The Metso Executive Team’s share of this total is a maximum of 21,900 shares. Payment of the potential rewards will be decided during the first quarter of 2007.

n In 2005 salaries and bonuses totaling EUR 2,135,121 were paid to the seven members of the Executive Team for the actual period they were members. Of this, the share of the performance bonus for 2004 was EUR 383,000.

n President and CEO Jorma Eloranta’s salary in 2005 was EUR 460,101. In addition, he received in 2005 a profit bonus of EUR 82,000 from 2004 and benefits in the form of a car and a telephone. He has also been granted a total of 100,000 Metso 2003A options. According to his contract, Jorma Eloranta’s age of retirement is 60 years, and the full pension is 60 percent of his annual salary. If his contract is terminated, he is entitled to compensation corresponding to 24 months’ salary.

n On December 31, 2005, no members of the Executive Team or of the Board of Directors had any loans outstanding from the Corporation or its subsidiaries.

n More detailed information on management remuneration is given in Note 8 on page 34 of the Notes to the Financial Statements and on the share ownership plan on page 83.



Board of Directors

Matti Kavetvuo, b orn 1944

Metso Board member and Chair-man of the Board since 2003.Chairman of Metso’s Compensation Committee and expert member of the Nomination Committee.Independent Board member. Finnish citizen.M.Sc. in Engineering and M.Sc. in Economics.

Holdings Dec. 31, 2005: No Metso shares.

Matti Kavetvuo was President and CEO of Pohjola Insurance Group until 2001, when he retired. Previously, he was President and CEO of Valio Ltd. in 1992–1999, and President and CEO of Orion Corporation in 1985–1991. Kavetvuo was employed by Instrumentarium Corporation in 1971–1984, serving as President in 1979–1984.

c H A i R m A n o F t H e B o A R D :

Orion Corporation,Suominen Corporation.

v i c e c H A i R m A n o F t H e B o A R D :

Alma Media Corporation, Kesko Corporation.

B o A R D m e m B e R :

KCI Konecranes International Plc,Marimekko Corporation,Perlos Corporation.

Jaakko Rauramo, b orn 1941

Metso Board member since 1999. Vice Chairman of the Board since 2004.Member of Metso’s Compensation Com-mittee.Independent Board member.Finnish citizen.M.Sc. in Engineering.Honorary Doctorate in Engineering, Helsinki University of Technology, 2005.

Holdings Dec. 31, 2005: 4,205 Metso shares.

Jaakko Rauramo was President and CEO of SanomaWSOY in 1999–2001 and President of Sanoma Corporation in 1984–1999.


SanomaWSOY Corporation.


The Foundation of the Confederation of Finnish Industry and Employers,European Publishers’ Council,Stiftelsen Svenska Dagbladet, The Museum of Television & Radio, New York, Reuters Founders’ Share Company Limited.

c H A i R m A n :

National Board of Economic Defense.

D e l e g At i o n m e m B e R :

The Research Institute of the Finnish Economy (ETLA), Finnish Business and Policy Forum (EVA), The Helsinki Region Chamber of Commerce, The Central Chamber of Commerce.

Svante Adde, b orn 1956

Metso Board member since 2005.Member and financial expert of Metso’s Audit Committee.Independent Board member.Swedish citizen.B.Sc. in Economics and Business Administration. Managing Director, Compass Advisers, London.


Svante Adde has been Managing Director of the London office at Compass Advisers, since May 2005. Previously, he worked as CFO of Ahlstrom Corporation in Helsinki, 2003–2005, and as Manag-ing Director and Head of Nordic Corporate Finance at Lazard, a global investment bank. Before Lazard, Adde worked at Citigroup. He has lived in London since 1983.


KCI Konecranes International Plc, Brammer plc.


B O A R D O F D I R E C T O R S

Maija-Liisa Friman, b orn 1952

Metso Board member since 2003.Chairman of Metso’s Audit Committee.Independent Board member.Finnish citizen.M.Sc. in Engineering.President and CEO, Aspocomp Group Oyj.


Maija-Liisa Friman has been President and CEO of Aspocomp Group Oyj since April 2004. Prior to that she was Managing Director of Vattenfall Oy in 2000–2004 and President of Gyproc Oy in 1993–2000.


SYK Ltd, Sponda Plc, The Finnish Medical Foundation, Ilmarinen Mutual Pension Insurance Company.

Satu Huber, b orn 1958

Metso Board member since 2004.Member of Metso’s Audit Committee.Independent Board member.Finnish citizen.M.Sc. in Economics and Business Administration.State Treasury: Director of Finance and Head of the Finance Division.

Holdings Dec. 31, 2005: 500 Metso shares.

Satu Huber has been Director of Finance and Head of the Finance Division of the State Treasury since 1997. In 1995–1997 she was First Vice President in Merita Investment Banking, her most recent responsi-bilities being Scandinavian money and bond markets and Global Sales. In 1992–1995 she was Vice President of Treasury Sales in the Union Bank of Finland.


Ekonomiska Samfundet i Finland r.f.

Juhani Kuusi, b orn 1938

Metso Board member since 2000.Member of Metso’s Compensation Committee.Independent Board member. Finnish citizen.D.Sc. (Tech.)


Juhani Kuusi was Senior Advisor in the Finnish National Fund for Research and Development (Sitra) in 2004–2005. Kuusi was Senior Vice President, Technology Strategy in Nokia in 2003, from which post he retired. In 1995–2002 he was Head of the Nokia Research Center. Before that, he had been Director General of the National Technology Agency of Finland (Tekes) in 1983–1995, Director of the Reactor Laboratory of the Technical Research Center of Finland (VTT) in 1980–1983, and Research Director of Oy Finnatom Ab in 1975–1979.

Pentti Mäkinen, b orn 1952

Metso Board member 2000–2005.Mäkinen has participated in Board meetings since April 4, 2005 as an invited expert member represent-ing the personnel.Finnish citizen.Employee of Metso since 1969.Plater-welder.


Pentti Mäkinen works as a Coordinator, Vocational Competence Development in Metso Paper, Jyväskylä, Finland. Previously, he was the Chief Shop Steward in Metso Paper, Jyväskylä in 1999–2004 and 1995–1996, and an Industrial Safety Delegate in 1990–1995. Mäkinen is Chairman of the National Council of the Finnish Metal Workers’ Union.

Metso’s definition of Board members’ independence complies with the guidelines of the Helsinki Stock Exchange, the Central Chamber of Commerce and the Confederation of Finnish Industry and Employers on the governance of publicly listed companies. The definition of independence also complies with the regulations of the New York Stock Exchange and the Sarbanes-Oxley Act concerning foreign companies.

The Board members’ updated holdings of Metso shares are presented at www.metso.com/investors > governance > insiders.

More detailed CVs of the Board members are presented at www.metso.com/about us > management > Board of Directors.


B O A R D O F D I R E C T O R S


http://www.metso.com/about

Executive Team

The Executive Team members’ updated holdings of Metso shares and options are presented at www.metso.com/investors > governance > insiders.

More detailed CV’s of the Executive Team members are presented at www.metso.com/about us > management > Executive Team.

Jorma Eloranta, b orn 1951

President and CEO.Chairman of the Executive Team.Finnish citizen.M.Sc. in Engineering.Joined the company in 2004.

Holdings Dec. 31, 2005: 3,300 Metso shares.Metso’s 2003A options Dec. 31, 2005: 100,000.

Jorma Eloranta has been President and CEO of Metso since March 1, 2004. He was President and CEO of Kvaerner Masa-Yards Inc. in 2001–2004. Previ-ously, he was President and CEO of Patria Industries Group in 1997–2001, Deputy Chief Executive of Finvest Group and Jaakko Pöyry Group in 1996–1997, and President of Finvest Ltd in 1985–1995.


Oy Center-Inn Ab.


Uponor Corporation,Technology Industries of Finland.

m e m B e R o F S u p e R v i S o Ry B o A R D :

Ilmarinen Mutual Pension Insurance Company.

Olli Vaartimo, b orn 1950

Executive Vice President and CFO and Deputy to the President and CEO.Vice Chairman of the Executive Team.Member of the Executive Team since 1999.Finnish citizen.M.Sc. in Economics and Business Administration.Joined the company in 1974.


Olli Vaartimo has been Executive Vice President and CFO since 2003. He was President and CEO of Metso and Chairman of Metso’s Business Area Boards from September 2003 to March 2004, after which he returned to his duties as Metso’s Executive Vice President and CFO and Deputy to the President. In 1999–2003 Vaartimo was President of Metso Minerals and in 1993–1999 President of Nordberg in the Rauma Corporation. In 1991–1998 he was also Executive Vice President of Rauma Corporation.

Risto Hautamäki, b orn 1945

President, Metso Paper.Member of the Executive Team since 2005.Finnish citizen.M.Sc. in Engineering.Joined the company in 2005.


Risto Hautamäki has been President of Metso Paper since April 1, 2005. Previously he was President and CEO of Tamfelt Corporation in 1995–2005. In 1990–1994 he was President and CEO of Valmet Paper Machinery Inc. and Executive Vice President and Chief Operating Officer in 1989–1990. Hautamäki was a member of Metso’s Board of Directors and Compensation Committee in 2004–2005 when he started in his current position.


Wärtsilä Corporation.


E X E C U T I V E T E A M


http://www.metso.com/about

Vesa Kainu, b orn 1947

President, Metso Ventures.Member of the Executive Team since 2003.Finnish citizen.B.Sc. in Engineering.Joined the company in 1971.

Holdings Dec. 31, 2005: 60 Metso shares.

Vesa Kainu has been President of Metso Ventures since 2003. In 2001–2003 he served as Executive Vice President of Metso Minerals, while in 1999–2001 he was President of Metso Paper Service. Prior to that, he headed Valmet’s Service busi-ness line from 1994.


Exel Oyj.Tamfelt Oyj Abp.

Matti Kähkönen, b orn 1956

President, Metso Automation.Member of the Executive Team since 2001.M.Sc. in Engineering.Finnish citizen.Joined the company in 1980.


Matti Kähkönen has been President of Metso Automation since 2001. Prior to that, he headed the Metso Automation Field Systems business line in 1999–2001, and served as Division President of Neles Controls in Rauma Corporation from 1993.

Bertel Langenskiöld, b orn 1950

President, Metso Minerals.Member of the Executive Team since 2003.Finnish citizen.M.Sc. in Engineering.Joined the company in 2003.


Bertel Langenskiöld has been President of Metso Minerals since 2003. Previously, he was President and CEO of Fiskars Corporation in 2001–2003, and President of Tampella Power/Kvaerner Pulping, Power Division in 1994–2000.


Wärtsilä Corporation.Cidron International Oy (Outokumpu Copper Products Oy).

corporate officePresident and CEO – Jorma ElorantaExecutive Vice President and CFO – Olli VaartimoCorporate Communications – Kati RenvallCorporate Development – Juhani KyytsönenFinance – Reijo KostiainenHuman Resources – Taina Sopenlehto

Information Technology – Pauli NuutinenInternal Audit – Jarmo KääriäinenInvestor Relations – Johanna Sintonen Legal Matters – Harri Luoto (Aleksanteri Lebedeff as of May 1, 2006)Stakeholder Relations and Trade Policy – Jukka SeppäläTreasury – Pekka Hölttä


E X E C U T I V E T E A M

JanuaryJan 4 Metso’s Reedrill sale has been

closed Jan 12 Metso to supply fiberboard

production line to GreeceJan 26 Metso to supply a tissue machine

to Fabrica De Papel San Francisco in Mexico

Jan 28 Franklin Resources Inc.’s holdings in Metso to 2.82 percent

FebruaryFeb 2 The Nomination Committee

proposes six members to Metso Board of Directors

Feb 2 Metso Corporation’s Financial Statements 2004: Operating performance turned clearly upward

Feb 2 Metso Paper to strengthen its management – Risto Hautamäki appointed President

Feb 2 Notice of Annual General Meeting

Feb 3 Metso sells real estate in Pori, Finland

Feb 16 Metso signs Letter of Intent for a board making line to Turkey

Feb 17 Metso to supply particleboard line to Slovenia

Feb 21 Capital Research and Management Company’s Holding in Metso to 4.7 percent

Feb 25 Moody’s changed the outlook to stable on Metso’s longterm rating

march mar 4 Metso to sell Metso Drives to

private equity investor CapMan for eur 98 million

mar 7 Mreal Simpele BM3 rebuilt for even better quality with Metso’s latest technology

mar 7 Metso to supply a bulk materials handling system to Cia. Siderúrgica Nacional in Brazil

mar 8 Metso to conclude a major service contract with SAICA in Spain

mar 8 UPMKymmene’s holding in Metso

mar 10 Metso’s Annual Report 2004 published

mar 11 Deutsche Bank AG’s holding in Metso to 7.19 percent

mar 11 Correction to release on Deutsche Bank AG’s holding in Metso

mar 31 Metso Annual Report on Form 20F

mar 31 Metso Paper to modernize CENIBRA’s fiber line in Brazil

mar 31 Metso’s comparative data for 2004 under IFRS

April Apr 4 Metso’s Annual General Meeting,

April 4, 2005: Review by president & CEO Jorma Eloranta

Apr 4 The Annual General Meeting of Metso Corporation: Dividend of eur 0.35 per share

Apr 8 Metso Drives sale to CapMan has been finalized

Apr 13 Metso to supply a printing paper machine to Guangzhou Paper in China

Apr 15 Metso Corporation’s first quarter in 2005 clearly better than in 2004

Apr 15 Metso to supply fiberboard production line to Thailand

Apr 15 Deutsche Bank AG’s holding in Metso to 11.68 percent

Apr 19 Comparative quarterly IFRS information for 2004

Apr 20 Deutsche Bank AG’s holding in Metso to 7.82 percent

Apr 27 Metso Corporation’s interim review, January–March 2005: Favorable development in the first quarter supports achievement of financial objectives for 2005

maymay 3 Metso Corporation shares

subscribed with options may 4 Metso to rebuild UPM’s fine

paper machine in Germanymay 9 Trading of Metso Corporation

shares subscribed with optionsmay 25 Harris Associates L.P.’s holding in

Metso to 4.82 percent

JuneJun 20 NWQ Investment Management

Company LLC’s holding in Metso to 5.71 percent

Jun 20 Franklin Resources Inc.’s holdings in Metso to 5.36 percent

Jun 28 Metso Paper’s Bertel Karlstedt resigns from Metso

Jun 30 Metso to supply a printing paper line to Shandong Chenming Paper in China

JulyJul 27 Metso Corporation’s interim

review, January–June 2005: Strong performance continued; Financial targets for 2005 to be exceeded

AugustAug 29 J.P. Morgan Chase & Co.’s

holdings in Metso to 5.04 percentAug 31 Metso to expand its metal

recycling business with a U.S. acquisition

Aug 31 Metso’s strategic focus on profitable growth; New financial targets set; Corporate structure to be further reviewed

SeptemberSep 2 Metso to supply environmentally

sound pulp bleaching systems to Japan and Spain

Sep 6 J.P. Morgan Chase & Co.’s holdings in Metso to 4.91 percent

Sep 13 Franklin Resources Inc.’s holdings in Metso to 4.78 percent

Sep 16 Fidelity International Limited’s holdings in Metso to 5.00 percent

octoberoct 5 Metso agrees with Myllykoski to

supply paper making line in the Czech Republic

oct 18 Metso files the Form 20F/A oct 26 Metso’s financial information in

2006oct 26 Metso Corporation’s interim

review, January–September 2005: Good progress in profitability and net sales

novembernov 3 Metso to supply fiber line and

bleaching process to Tamil Nadu in India

nov 11 J.P. Morgan Chase & Co.’s holdings in Metso to 5.33 percent

nov 15 Fidelity Management Research Company’s holdings in Metso to 5.01 percent

nov 18 NWQ Investment Management Company LLC’s holding in Metso to 0.08 percent

DecemberDec 2 Metso Oyj’s largest shareholders

on December 1, 2005Dec 13 Moody’s changed the outlook

to positive on Metso’s longterm rating

Dec 14 Metso to supply world’s highest capacity pulp drying line to Suzano Bahia Sul in Brazil

Dec 14 Fidelity Management Research Corporation’s holdings in Metso to 4.97 percent

Dec 15 Metso’s Nomination Committee representatives

Dec 15 Metso to supply a kraftliner board machine to Lee & Man Paper in China

Dec 15 Metso’s contract for the board line delivery to Turkey becomes effective

Dec 21 Fidelity Management Research Corporation’s holdings in Metso to 5.03 percent

Dec 22 Metso’s Board of Directors approves a share ownership plan for 2006–2008

Dec 30 Deutsche Bank AG’s holdings in Metso to 4.97 percent

Stock exchange releases and announcements in 2005


S T O C K E X C H A N G E R E L E A S E S A N D A N N O U N C E M E N T S I N 2 0 0 5

pRincipleS

mission and goalsThe main mission of Investor Relations in Metso is to support the correct valuation of Metso’s share by giving information on matters concerning Metso’s operations and operating environment, strategy, objectives and financial situation, so that capital market participants can form a balanced view of Metso as an investment.

Metso Investor Relations is also responsible for gathering and analyzing market information and investor feedback to be used by Metso’s management and Board of Directors.

The goal of Metso Investor Relations is to provide correct, adequate and uptodate information regularly and impartially to all market participants. The work aims at promptness, transparency and good service.

mode of operationMetso Investor Relations is responsible for investor communications as well as daily contacts in cooperation with Corporate Communications. All investor requests are processed centrally through Investor Relations.

In addition to financial reports, Internet pages and the investor magazine, Metso’s investor communications involve investor meetings and seminars in which Corporate executives participate actively. Metso also arranges an annual Capital Markets Day for investors and analysts.

Silent periodMetso is not in contact with capital market representatives during a period of three weeks prior to the publication of its annual or interim financial results.

Investor relationscontact informationJohanna Sintonen, Vice President, Investor RelationsTel: +358 20 484 3253Email: [email protected]

Elina Lehtinen, Financial Communicator, Investor RelationsTel: +358 20 484 3215Email: [email protected]

Tuula Schreurs, Financial Communicator, Investor RelationsTel: +358 20 484 3211Email: [email protected]

North America:Mike Phillips Senior Vice President, Finance and Administration, Metso USA Inc.Tel. +1 770 246 7237Email: [email protected]

Investor Relations email:[email protected]


I N V E S T O R R E L A T I O N S

mailto:[email protected]





changes of addressIf your address changes, you are requested to send a written notification of this to the bank where your bookentry account is held. If your account is held at the Finnish Central Securities Depository Ltd’s account operator, please send the written notification to:

Finnish Central Securities Depository Ltd.P.O. Box 1110FI00101 HelsinkiFax: +358 20 770 6656(Free customer helpline Monday to Friday 9 a.m. – 4 p.m. EET, tel. +358 800 180 500, only in Finnish and Swedish.)The notification must include the shareholder’s name, new address and, for identification purposes, the old address or bookentry account number.

Metso ADS holders are requested to contact the Bank of New York:

The Bank of New YorkInvestor ServicesP.O. Box 11258Church Street StationNew York, NY 102861258, USATel. (nat.): 1888BNYADRsTel. (intl): +1 610 382 7836Email: [email protected]: www.stockbny.com

Other than shareholders are requested to notify the Metso Corporate Office of address changes.

investment analysisAccording to our knowledge, the following banks and brokerage firms evaluate Metso Corporation as an investment. This is not necessarily a complete list. Those listed here follow Metso on their own initiative. Metso is not responsible for any statements they make.

HelsinkiAlfred Berg FinlandD. Carnegie Deutsche BankEnskilda SecuritiesE. Öhman J:or FondkommissioneQ BankFIM SecuritiesHandelsbanken Capital MarketsKaupthing BankMandatum StockbrokersOpstock

Rest of EuropeABG Sundal CollierCitigroup Global MarketsCredit Suisse First BostonDanske EquitiesDresdner Kleinwort WassersteinGoldman SachsJP Morgan SecuritiesLehman BrothersMerrill LynchNordea Markets EquitiesUBS




http://www.stockbny.com

credit researchCitigroup Global MarketsDanske BankDeutsche BankDresdner Kleinwort WassersteinJP Morgan SecuritiesMerrill LynchNordea Debt Capital MarketsSEB Merchant BankingSociété Générale

Updated contact information on analysts following Metso is available at www.metso.com.

�Additional information on Metso as an investment is available at www.metso.com/investors.

Forward-looking statementIt should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding expectations for general economic development and the market situation, expectations for customer industry profitability and investment willingness, expectations for company growth, development and profitability and the realization of synergy benefits and cost savings, and statements preceded by “expects”, “estimates”, “forecasts” or similar expressions, are forward-looking statements. These statements are based on current decisions and plans and currently known factors. They involve risks and uncertainties which may cause the actual results to materially differ from the results currently expected by the company.

Such factors include, but are not limited to:1. general economic conditions, including

fluctuations in exchange rates and interest levels which influence the operating environment and profitability of customers and thereby the orders received by the company and their margins

2. the competitive situation, especially significant technological solutions developed by competitors

3. the company’s own operating conditions, such as the success of production, product development and project management, and their continuous development and improvement

4. the success of pending and future acquisitions and restructuring.





Annual general meetingThe Annual General Meeting of Metso Corporation will be held on Tuesday, April 4, 2006 at 2 p.m. in the Marina Congress Center at Katajanokanlaituri 6, 00160 Helsinki, Finland. Registration of shareholders participating in the meeting and distribution of ballots will begin at 1.00 p.m.

Shareholders who are entered as shareholders in the Corporation’s shareholder register maintained by the Finnish Central Securities Depository Ltd. by March 24, 2006 shall have the right to participate in the Annual General Meeting.

Shareholders who wish to participate in the meeting should notify the Corporation of their intention to participate by no later than 4 p.m. on March 30, 2006. A notice of participation can be submitted at www.metso.com, by phone at +358 10 80 8300, by fax at +358 20 484 3125, or by mail to Metso Corporation, PO Box 1220, FI00101 Helsinki. Notices of participation must be received by the abovementioned deadline. Any powersofattorney should also be sent to the above address during the same registration period.

payment of dividendsThe Board of Directors proposes to the Annual General Meeting that, in line with the new dividend policy, a dividend of eur 0.70 per share be paid for 2005. In addition, the board proposes an extra dividend of eur 0.70, so the total proposed dividend is eur 1.40 per share.

Dividends will be paid to those share holders who are entered in the Corporation’s shareholder register maintained by the Finnish Central Securities Depository Ltd. on the record date, i.e. on April

7, 2006. The Board will propose to the Annual General Meeting that dividends would be paid on April 20, 2006.

Symbols and units used in tradingMetso Corporation has one share series. Metso’s shares are listed on the Helsinki Stock Exchange and are registered in the Finnish BookEntry Register maintained by the Finnish Central Securities Depository. On the New York Stock Exchange Metso’s shares are listed as American Depository Shares (ADS). Each Metso ADS represents one Metso share. The Bank of New York acts as the depository for Metso ADSs.

Helsinki Stock ExchangeShareTrading code: MEO1VLot size: 100 sharesTrading currency: eur

New York Stock ExchangeADSTrading code: MXTrading currency: USD

indexes Metso’s shares are included in at least the following indexes:OMX HelsinkiOMX Helsinki BenchmarkOMXH25OMX Helsinki CapOMX Helsinki MachineryOMX Helsinki IndustrialsBloomberg World IndexBloomberg World Industrials IndexBloomberg World Machinery Diversified IndexBloomberg European 500 IndexBloomberg European Industrials Index

Information to shareholders


I N F O R M A T I O N T O S H A R E H O L D E R S


Bloomberg Europe 500 Economic Sectors IndexBloomberg Europe 500 Machinery IndexBloomberg Europe – World IndexBloomberg Europe Machinery Diversified IndexDow Jones EURO STOXX IndexDow Jones EURO STOXX Industrial Goods & Services IndexDow Jones STOXX IndexDow Jones STOXX 600 IndexDow Jones STOXX 600 Industrial Goods & Services IndexFTSE Intl – World Europe exUK IndexFTSE World Industrial Engineering IndexFTSE World Industrials Index

Sustainability indexes:ASPI Eurozone Index Dow Jones STOXX Sustainability Index FTSE4GOOD Index Ethibel Sustainability Index GES/SIX Sustainability Index Kempen/SNS Smaller Europe SRI Index Nordic Sustainability Index

credit ratingsMetso’s credit ratings are:

Standard & Poor’s (March 3, 2004–)Longterm corporate credit rating: BB+ Outlook: stableRatings for bonds and EMTN program: BB Shortterm rating: B

Moody’s (December 13, 2005–)Longterm rating: Ba1Outlook: positive

publication dates of reviews and reports in 2006Financial statements review 2005 February 8, 2006 Annual Report and Sustainability Report Week starting on

March 13, 2006Annual Report in accordance with U.S. securities regulations (Form 20-F) March 2006Interim review for January–March April 28, 2006Interim review for January–June July 27, 2006Interim review for January–September October 25, 2006

Distribution of financial informationMetso’s Annual Report 2005 contains two separate reports: an Annual Review and the Financial Statements. Metso has also published a Sustainability Report for 2005. These reports are published in Finnish and English. They are published on Metso’s Internet pages, where the web reports of Annual Review and Financial Statements are also available. The Annual Report is mailed to all Metso shareholders. The Annual Report and Sustainability Report are also sent to anyone who orders them.

The Form 20F will be mailed upon request. It will be published on Metso’s Internet pages and the web pages of the U.S. Securities and Exchange Commission (SEC) at www.sec.gov.

Interim reviews are published in Finnish and English on Metso’s Internet pages. Webcasts of the related news conferences are held in English, and can also be viewed on Metso’s Internet pages.

Metso publishes its Index investor magazine twice a year in Finnish and English. The magazine is sent to all shareholders and to anyone who orders it.

Metso’s releases are published in Finnish and English, and can also be viewed on Metso’s Internet pages. The releases can be ordered by email through Metso’s Internet pages.

ordering financial publicationswww.metso.com/news & info > order publications.

or

Metso CorporationCorporate CommunicationsP.O. BOX 1220FI-00101 HelsinkiTel. +358 20 484 100Fax: +358 20 484 3123Email: [email protected]


I N F O R M A T I O N T O S H A R E H O L D E R S

http://www.sec.gov

http://www.metso.com/news


countries with metso operations

Denmark

The NetherlandsUnited Kingdom

BelgiumFrance

SpainPortugal

Germany

Switzerland, AustriaItaly, Serbia and Montenegro

NorwaySwedenFinlandEstonia

Ghana

RussiaPoland

Croatia, Makedonia, Bulgaria

ZambiaZimbabwe

South Africa

JapanSouth Korea

SingaporeIndonesia

AustraliaNew Zealand

CanadaUSA

Mexico

PeruBrazil

Chile

Argentina

Taiwan

Slovenia, Hungary, UkraineCzech Republic, Slovakia

Metso’s production, sales and service unitsMetso’s sales and service units, no production

Thailand, Philippines

Malaysia

Turkey, Uzbekistan

China

India

United ArabEmirates

Kazakhstan

Lebanon, Iran

Costa Rica

Venezuela

BuSineSS AReAS

metso paperRautpohjankatuP.O. Box 587 FI40101 Jyväskylä, FinlandTel: +358 20 482 150Fax: +358 20 482 151Email: [email protected]: www.metsopaper.com

metso mineralsFabianinkatu 9 AP.O. Box 1220FI00101 Helsinki, FinlandTel: +358 20 484 100Fax: +358 20 484 3216Email: [email protected]: www.metsominerals.com

metso AutomationTulppatie 1P.O. Box 310FI00811 Helsinki, FinlandTel: +358 20 483 150Fax: +358 20 483 151Email: [email protected]: www.metsoautomation.com

metso ventures

Metso PanelboardFabianinkatu 9 AP.O. Box 1220FI00101 Helsinki, FinlandTel: +358 20 484 100Fax: +358 20 484 3239Email: [email protected]: www.metsopanelboard.com

Metso PowdermetLentokentänkatu 11P.O. Box 237FI33101 Tampere, FinlandTel: +358 20 484 120Fax: +358 20 484 121Email: [email protected]: www.metsopowdermet.com

Valmet AutomotiveAutotehtaankatu 14P.O. Box 4FI23501 Uusikaupunki, FinlandTel: +358 20 484 180Fax: +358 20 484 181Internet: www.valmetautomotive.com

coRpoRAte oFFice

Metso CorporationCorporate OfficeFabianinkatu 9 AP.O. Box 1220FI00101 Helsinki, FinlandTel: +358 20 484 100Fax: +358 20 484 101Email: [email protected]: www.metso.com

Metso USA, Inc.3100 Medlock Bridge RoadNorcross, Georgia, 30071 USATel: +1 770 446 7818 Fax: +1 770 446 8794

All of Metso’s addresses are available on Metso’s website at www.metso.com/contact us > Metso worldwide.


A D D R E S S E S


http://www.metsopaper.com


http://www.metsominerals.com


http://www.metsoautomation.com


http://www.metsopanelboard.com


http://www.metsopowdermet.com

http://www.valmet-automotive.com



http://www.metso.com/contact

g R A p H i c D e S i g n H I L A N D E R S

p R o D u c t i o n K R E A B OY

p R i n t i n g L I B R I S

p H oto S E R I K G R ö N LU N D A N D R A M I S A L L E ( PAG E S 62 – 65 )

pA p e R CO V E R G A L E R I E A R T S I L K 250 G / M 2, I N S I D E PAG E S G A L E R I E A R T S I L K 150 G / M 2

P R I N T E D I N F I N L A N D

BIG PICTURE ON THE COVER: A grinding mill made by Metso Minerals at Newcrest Mining Limited’s Telfer mine in Australia. SMALL PICTURE ON THE LEFT: Neles valves delivered by Metso Automation in the oil refinery of Petrobras, Brazil’s largest oil and power company. SMALL PICTURE ON THE RIGHT: SP Newsprint’s Mill Manager Jack Carter (right) and Metso Paper’s Regional Sales Manager John Barnet at SP Newsprint’s paper mill in Dublin, Georgia, USA. Metso Paper has been strongly involved in machine rebuilds of the paper mill.

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Annual Review 2005

metso annual review 2005 - ku leuven · metso minerals, inventories grew and receivables increased,...

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