Stock Exchange release October 25, 2007 11:00:00 AM CET

Metso's Interim Review January 1 - September 30, 2007

Metso's profitable growth continues
 
Highlights of the third quarter
 
  •          New orders worth EUR 1,440 million were received in July-September, i.e. 9 percent more than in the corresponding period of last year (EUR 1,321 million in Q3/06).
  •          The order backlog was EUR 4,519 million at the end of September (EUR 3,737 million on Dec. 31, 2006 and EUR 4,574 million on June 30, 2007).
  •          Net sales increased by 24 percent and totaled EUR 1,452 million (EUR 1,169 million in Q3/06).
  •          Earnings before interest, tax and amortization (EBITA) were EUR 157.3 million, i.e. 10.8 percent of net sales (EUR 124.4 million and 10.6% in Q3/06).
  •          Operating profit (EBIT) was EUR 143.4 million, i.e. 9.9 percent of net sales (EUR 120.4 million and 10.3% in Q3/06).
  •          Earnings per share were EUR 0.66 (EUR 0.59 in Q3/06).
  •          Free cash flow was EUR 133 million (EUR 113 million in Q3/06).
  •  
    Jorma Eloranta, President and CEO of Metso Corporation, says "I am pleased with Metso's overall third-quarter performance although we faced currency headwinds and had certain one-off expenses. It has been especially good to notice that Metso Paper's operational performance is improving, thanks to our persistent measures to continuously enhance the operational efficiency - even though we still have work to do. Order intake in Metso Paper was low during the third quarter, but it was a timing issue and we estimate the order intake to be at a good level during the last quarter. Metso Minerals' profitability was somewhat hit by exceptionally high, one-off warranty repair costs and the weakening of the U.S. dollar. At Metso Automation, profitability has improved nicely after the past few quarters of capacity constraints and cost increases. For the first nine months, our EBITA improved by 28 percent and operating profit by 20 percent compared to the same period last year."
     
    Metso concluded its annual strategy review during the third quarter. "Our profitable growth strategy has progressed steadily in the past two years, and we continue to see a lot of opportunities to improve our performance. We believe that this strategy can deliver fast growth, strong profits and more value for our customers and shareholders also in the years to come."
     
    Eloranta confirms that Metso expects markets to continue to be favorable well into 2008. "Our strong order backlog provides solid bases for next year. We aim to deliver profitable growth for the last quarter of 2007 and in 2008."
     
     
    Metso's key figures
     

     
    1) In 2006, Metso recognized nonrecurring deferred tax assets totaling EUR 87 million, which improved the earnings per share by EUR 0.61. Of the deferred tax asset, EUR 57 million was recognized in Q2/2006 (impact to EPS EUR 0.40) and EUR 30 million in Q4/2006 (impact to EPS EUR 0.21).
     
     
    Metso's third quarter 2007 review
     
     
    Operating environment and demand for products in July-September
     
    The market situation for Metso's products and services continued to be favorable during the third quarter. Uncertainty on the international financial markets and the weakening of the U.S. dollar against the euro did not materially slow the investment activity of Metso's customers.
     
    The market situation for Metso Paper's products and services continued much the same as in the year's first half. The demand for new paper, board and tissue machines was good in Asia. Particularly in China, strong economic growth is fuelling the demand for various paper and board grades. The demand for fiber lines was good in South America and Asia, and satisfactory elsewhere. Chemical pulp production capacity is growing quickly in these areas due to good availability of cost competitive raw materials. The demand for power plants using renewable energy sources continued to be excellent. The demand for Metso Paper's aftermarket services was satisfactory.
     
    The demand for Metso Minerals' mining products, metals recycling equipment and aftermarket services remained excellent as in the year's first half. Particularly in emerging countries, lively investment in industrial and commercial facilities, infrastructure, services and housing has continued. As a result, there has been high demand for metals, and the mining industry has maintained a high level of investment globally. With respect to construction, the demand for Metso Minerals' aggregates production-related equipment was overall good in the third quarter, although the slowdown in US residential construction was reflected in a leveling off in growth in the US market. Construction demand is driven by ongoing projects to develop road networks and other transportation infrastructure in different parts of the world, especially in the emerging markets.
     
    The overall market situation for Metso Automation's products and services continued to be mainly good in the pulp and paper industry. With respect to the power, oil and gas industries, there was continuing good demand for process automation systems and excellent demand for flow control systems. Energy industry investments are driven by the increased consumption of energy and high oil prices due to global economic growth.
     
     
    Orders received in July-September
     
    The value of orders received by Metso during the third quarter increased by 9 percent on the corresponding period of 2006, and totaled EUR 1,440 million.
     
    Metso Paper's order intake increased by 5 percent and the growth was due to the Pulping and Power businesses acquired at the end of 2006. The growth in orders received by the Power business line was limited, however, by the high order backlog and high capacity utilization. Geographically, the most important market areas were Europe and Asia-Pacific. The largest orders received by Metso Paper in July-September included a packaging board production line for Mondi Packaging in Europe, a kraftliner board machine for Lee & Man Paper's Hongmei mill in China and a biomass-fired power boiler for Kalmar Energi Värme AB in Sweden. Several contract negotiations that were underway in the third quarter are expected to be concluded before the year-end.
     
    Metso Minerals' order intake grew by 17 percent. Orders increased strongly in the Mining and Recycling business lines, while growth in the Construction business line leveled off. Geographically, new orders came from all market areas, but especially from Europe. The largest orders received by Metso Minerals included minerals processing equipment for Arcelor Mittal Steel's concentrator plants in Ukraine, grinding equipment for Platmin Limited's platinum mine in South Africa and crushing and screening equipment for Construtora Norberto Odebrecht S.A.'s projects in Angola and Venezuela. Metso Minerals also entered into a five-year service contract with Codelco in Chile.
     
    Metso Automation's third-quarter order intake was on par with the corresponding period of last year. Growth was limited by the high order backlog and high utilization of production capacity in the flow control business. New orders received during July-September included e.g. delivery of valves for Société Internationale de Dessalement's desalination plant in Saudi Arabia.
     
     
    Financial performance in July-September
     
    Metso's third-quarter net sales grew by 24 percent on the corresponding period last year and totaled EUR 1,452 million. Organic growth was good in all business areas but strongest in Metso Minerals. Also the Pulping and Power businesses acquired at the end of 2006 contributed to the growth.
     
    Metso's third-quarter earnings before interest, tax and amortization (EBITA) were EUR 157.3 million, or 10.8 percent of net sales compared with EUR 124.4 million or 10.6 percent of net sales for the corresponding period last year. EBITA improved in all business areas. EBITA margin improved in both Metso Paper and Metso Automation whereas Metso Minerals' EBITA margin decreased. Metso's third-quarter operating profit was EUR 143.4 million or 9.9 percent of net sales (EUR 120.4 million and 10.3 percent in Q3/2006).
     
     
    Metso's January-September 2007 Interim Review
     
     
    Orders received and order backlog
     
    In January-September, Metso's orders received grew by 25 percent on the comparison period, and totaled EUR 5,194 million. Orders received grew in all business areas, and two thirds of the increase was attributable to the acquired Pulping and Power businesses. Excluding the effect of exchange rate translation, the increase in orders received would have been about three percentage points higher. The growth in orders was proportionally strongest in Metso Paper's Power business line, Metso Minerals' Recycling business line and Metso Automation's Flow Control business line. Growth in new orders was strongest in Europe. Metso's order backlog increased by 21 percent on the end of 2006 and was EUR 4,519 million at the end of September.
     
    Orders received by business area

     
     
    Orders received by market area

     
    Q1-Q3/07
    Q1-Q3/06
     
    EUR million
    % of orders received
    EUR million
    % of orders received
    Europe
    2,321
    45
    1,522
    37
    North America
    773
    15
    879
    21
    South and Central America
    611
    12
    519
    12
    Asia-Pacific
    1,115
    21
    946
    23
    Rest of the world
    374
    7
    282
    7
    Total
    5,194
    100
    4,148
    100
     
     
    Net sales
     
    Metso's net sales for January-September grew by 27 percent on the comparison period and totaled EUR 4,354 million. Excluding the effect of exchange rate translation, the increase in net sales would have been about 3 percentage points higher. Excluding the effect of the Pulping and Power businesses acquired at the end of 2006, the increase in net sales was approximately 12 percent. The main drivers of organic growth were the continuing good market situation and expanded market presence. Measured in euros, the net sales of the aftermarket business increased by 20 percent and it accounted for 34 percent (37% in Q1-Q3/06) of Metso's net sales. The decrease in the relative share of the aftermarket business was due to the acquired Pulping and Power businesses, in which the share of the aftermarket business is below Metso's average.
     
    Net sales by business area

     
    Net sales by market area

     
     
    Financial result
     
    Metso's January-September earnings before interest, tax and amortization (EBITA) were EUR 441.5 million, or 10.1 percent of net sales (EUR 345.0 million and 10.1% in Q1-Q3/06). EBITA improved in all business areas due to strong volume growth. At Metso Paper, all business lines improved their operating results and the EBITA margin increased. At Metso Minerals and Metso Automation, the EBITA margin was at the level of the comparison year.
     
    Metso's operating profit for January-September was EUR 400.1 million, or 9.2 percent of net sales (EUR 332.2 million and 9.7% in Q1-Q3/06). Operating profit includes a EUR 27 million amortization of intangible assets related to the acquisition of the Pulping and Power businesses.
     
    Metso's net financial expenses for January-September were EUR 25 million (EUR 28 million). Net financial expenses include EUR 6 million of foreign exchange gains.
     
    Metso's profit before taxes for January-September was EUR 375 million (EUR 304 million). The profit attributable to shareholders for January-September was EUR 261 million (EUR 287 million), corresponding to earnings per share (EPS) of EUR 1.84 (EUR 2.03 per share). In the comparison period, Metso recognized in the income statement a nonrecurring deferred tax asset of EUR 57 million related to its U.S. operations, which lowered the tax rate for 2006 and improved EPS by EUR 0.40. Metso's tax rate for 2007 is estimated to be about 30 percent.
     
    Metso's return on capital employed (ROCE) was 24.5 percent (22.1%) and the return on equity (ROE) was 23.6 percent (29.5%).
     
     
    Cash flow and financing
     
    Metso's net cash generated by operating activities for January-September was EUR 260 million (EUR 368 million). As a result of the strong growth of the order backlog and net sales, inventories increased in all business areas. Growth in inventories was partly offset by growth in advances received and accounts payable. In the third quarter, net working capital remained at the level of the second quarter. Metso's free cash flow for January-September was EUR 163 million (EUR 291 million) and for the third quarter EUR 133 million (EUR 113 million).
     
    Net interest-bearing liabilities totaled EUR 521 million at the end of September. Gearing was 33.8 percent. Metso's equity to assets ratio was 36.6 percent. In April, Metso paid dividends of EUR 212 million for 2006.
     
     
    Capital expenditure
     
    Metso's gross capital expenditure for January-September was EUR 110 million excluding acquisitions (EUR 89 million). About one third of the capital expenditure was related to investments increasing capacity necessitated by strong volume growth.
     
    In China, Metso is building a service center for Metso Paper in Guangzhou, due for completion in 2008. An expansion of Metso Paper's Service Center is ongoing in Wuxi, while Metso Automation has completed an expansion of its valve production plant in Shanghai.
     
    In India, Metso is expanding assembly capacity for mobile crushing and vibrating equipment in Bawal and a foundry in Ahmedabad, as well as office facilities, primarily for new engineering resources in New Delhi. The capacity of the Brazilian crusher manufacturing plant is also being extended.
     
    In the United States, Metso is establishing a service center of Metso Power in Charlotte, North Carolina.
     
    In Finland, Metso is expanding its power boiler production facilities at Lapua and increasing capacity in the paper machine roll production line in Jyväskylä. A new assembly line for track-mounted crushing plants was introduced in Tampere early in the year, and a research center including a pilot plant and rock laboratory will be completed by the end of the year. Metso is also increasing its valve production capacity in the Helsinki production plant.
     
    Metso is investing in an enterprise resource planning (ERP) solution covering the entire supply chain within Metso Automation. The investment is due to be completed by the turn of 2009-2010. A similar investment is underway in Metso Minerals.
     
    Metso estimates that gross capital expenditure for 2007 will be about 30 percent higher than in 2006. The growth will be due to investments increasing capacity and the ERP investments of Metso Minerals and Metso Automation.
     
    Metso's research and development expenditure totaled EUR 79 million (EUR 80 million) during January-September, or 1.8 percent of Metso's net sales.
     
     
    Holding in Talvivaara Mining Company Ltd
     
    Metso's approximate 4 percent holding in Talvivaara Mining Company Ltd is classified in the balance sheet as an available-for-sale investment. At the end of September, Metso's holding was valued at approximately EUR 36 million. In connection with Talvivaara's listing in May, Metso undertook to retain its Talvivaara shares for at least 6 months. Metso's holding relates to a joint R&D project with Talvivaara Mining Company to develop rock processing and bulk materials handling processes.
     
     
    Acquisitions and divestments
     
    In July 2007, Metso agreed to sell the assets of its German press and energy plants business to G. Siempelkamp GmbH & Co. KG. The business was transferred to the buyer on September 28, 2007. The 65 employees of Metso Panelboard GmbH were also transferred to Siempelkamp. The transaction price was EUR 7 million and Metso booked a small gain on sale in the third quarter.
     
    In July 2007, Metso acquired Bender Holdings Limited and its subsidiary companies in the United Kingdom to further strengthen Metso Paper's aftermarket business. The company employs 97 persons and its net sales in 2006 amounted to approximately EUR 24 million. As a result of the acquisition, Metso Paper became the global market leader in Yankee cylinder grinding and coating services for tissue machines.
     
    In June 2007, Metso strengthened Metso Paper's aftermarket business by acquiring Mecanique et Depannage Industries s.a.r.l. (MDI) from France. MDI employs 30 people.
     
    In March 2007, Metso acquired the North American metals recycling technology provider, Bulk Equipment Systems and Technologies Inc. (B.E.S.T. Inc), located in Cleveland, Ohio. The acquisition price was approximately EUR 9 million. The company's net sales for 2006 were EUR 8 million and it employs approximately 40 people.
     
    In March 2007, Metso sold the majority of Metso Paper AG in Delémont, Switzerland. Metso Paper remained as a minority shareholder. The company has about 70 employees and annual net sales of approximately EUR 10 million.
     
     
    Acquisition and integration of the Pulping and Power businesses
     
    Metso closed the acquisition of Aker Kvaerner's Pulping and Power businesses on December 29, 2006. The acquisition price was EUR 336 million, including EUR 6 million in expenses related to the acquisition and EUR 53 million in net cash.
     
    Integration of the acquired businesses into Metso Paper has proceeded according to plan. Metso holds to its previous estimate that the annual cost savings achievable through synergies will amount to EUR 20-25 million from 2008 onwards. The cost savings for the first year have been realized sooner than expected, and it is estimated that over one half of the annual savings will be achievable this year. During January-September, about EUR 10 million of synergy benefits were realized. The nonrecurring expenses resulting from integration of the acquired businesses are estimated to be less than EUR 10 million, of which EUR 5 million was recognized in January-September.
     
    During the first nine months, the global customer interface organization was restructured and overlapping activities were eliminated in Sweden and Finland. By the end of September these measures had resulted in the reduction of about 130 employees.
     
    The amortization of intangible assets resulting from the transaction is estimated to be EUR 37 million in 2007, EUR 20 million in 2008 and after that EUR 13 million annually until the intangible assets have been fully amortized. In the first nine months, the amortization of intangible assets amounted to EUR 27 million.
     
     
    Personnel
     
    Metso had 26,603 employees at the end of September. This was 925 employees more than at the end of last year (25,678 employees). The increase in personnel was the most significant in the Asia-Pacific region. In January-September, Metso had an average of 26,127 employees.
     
    Personnel by region

     
     
     
    BUSINESSES
     
    Metso Paper
     

     
    Aker Kvaerner's Pulping and Power businesses were acquired on December 29, 2006, and the acquired balance sheet was consolidated to Metso on December 31, 2006. The acquired businesses had no effect on Metso's income statement for 2006 and are therefore not included in the comparative segment information except for order backlog and personnel as at December 31, 2006.
     
    Metso Paper's net sales for January-September increased by 47 percent on the comparison period and totaled EUR 2,016 million. Growth excluding the acquired Pulping and Power businesses was about 9 percent. All business lines delivered organic growth except for Panelboard. Measured in euros, the volume of the aftermarket business increased by 32 percent and it accounted for 30 percent of net sales (33% in Q1-Q3/06). The majority of the growth in the aftermarket business was attributable to the acquired Pulping and Power businesses.
     
    Metso Paper's EBITA was EUR 133.0 million, or 6.6 percent of net sales (EUR 83.5 million and 6.1% in Q1-Q3/06). Profitability improved in all business lines. The operating profit was EUR 97.3 million, or 4.8 percent of net sales (EUR 76.6 million and 5.6% in Q1-Q3/06). The operating profit for January-September was weakened by a EUR 27 million amortization of intangible assets related to the acquisition of the Pulping and Power businesses. The steep rise in the stainless steel price had about a EUR 10 million negative impact on Metso Paper's profitability during the first half year. However, the stainless steel price has leveled off during 2007 and going forward the impact on profitability is not estimated to be material. Metso Paper's third-quarter operating profit includes EUR 6 million expenses related to the restructuring of its operations in Como, Italy. In the fourth quarter, Metso Paper is estimated to record over EUR 10 million of one-time expenses related to the integration of the acquired Pulping and Power businesses and other ongoing measures to improve cost-competitiveness.
     
    The value of orders received by Metso Paper increased by 42 percent on the comparison period and totaled EUR 2,271 million. The order intake of the Power business grew by over 70 percent in January-September, although the third-quarter order intake was limited by strong order backlog and high capacity utilization rates. The order intake of the Panelboard and Tissue business lines clearly declined from the comparison period. Excluding the effect of the Pulping and Power businesses, Metso Paper's order intake was on par with the comparison period. The most significant orders of January-September included orders received from Mondi Packaging for a packaging board line in Europe, from Oji Paper for a paper making line in Japan, from Henan Puyang Longfeng Paper for a printing paper line in China, from Votorantim Celulose e Papel for pulp mill equipment in Brazil and from Celbi for pulp mill equipment in Portugal. The end-of-September order backlog, EUR 2,455 million, was 10 percent higher than the order backlog at the end of 2006.
     
     
    Metso Minerals
     

     
    Metso Minerals' net sales for January-September increased by 17 percent on the comparison period and totaled EUR 1,837 million. Most of the growth was derived from the Mining business line, but the net sales of the Construction and Recycling business lines were also up on the comparison period. Measured in euros, the volume of the aftermarket business grew by 13 percent and it accounted for 42 percent of net sales (43% in Q1-Q3/06).
     
    The January-September operating profit of Metso Minerals increased to EUR 248.7 million, or 13.5 percent of net sales. Profitability improved in the Mining and Recycling business lines. Continued strengthening of the euro weakened Metso Minerals' operating profit margin by close to one percentage point during the first nine months. The third-quarter operating profit was negatively affected by exceptional one-off warranty repair costs related to one mining equipment project.
     
    The value of orders received by Metso Minerals was up by 19 percent and totaled EUR 2,314 million. Order intake growth was strongest in the Recycling business line. New orders grew also in the Mining and Construction business lines. During January-September construction equipment orders in the United States were on par with the corresponding period last year despite the uncertainty in the U.S. housing market, because Metso is more exposed to transportation infrastructure. The largest orders of January-September included orders received from Boliden for a grinding system in Sweden, from Alcoa for bulk materials handling equipment in Brazil, from Gold Reserve Inc. for minerals processing equipment in Venezuela, from Osisko Exploration for grinding equipment in Canada and from Arcelor Mittal Steel for minerals handling equipment in Ukraine. The order backlog increased by 35 percent on the end of 2006 and was EUR 1,728 million at the end of September.
     
     
    Metso Automation
     

     
    Metso Automation's net sales for January-September increased by 15 percent on the comparison period and totaled EUR 485 million. The increase derived mainly from deliveries of flow control systems to the energy industry, but deliveries of automation systems also increased. Measured in euros, the volume of the aftermarket business grew by 8 percent and it accounted for 22 percent of net sales (23% in Q1-Q3/06).
     
    Metso Automation's operating profit in January-September amounted to EUR 64.6 million or 13.3 percent of net sales. The negative impact of high raw material prices and increase in relative share of project deliveries was offset by the growth in net sales. The operating profit margin improvement during the third quarter was attributable to good sales volume, improved pricing and more favorable sales mix.
     
    The value of orders received by Metso Automation increased by 8 percent on the comparison period and was EUR 598 million. The increase derived mainly from the Flow Control business line from the power, oil and gas industries. In the third quarter, the intake of new orders was limited by the high order backlog and high capacity utilization rates in the Flow Control business line. The largest orders of January-September included orders from the Chiyoda-Technip Joint Venture for a valve delivery to Qatar, from Henan Puyang Longfeng Paper for a process automation system in China and from Petrobras for an automation system modernization project for its oil refinery in Brazil. Metso Automation's order backlog was 38 percent larger than at the end of 2006 and amounted to EUR 382 million at the end of September.
     
     
    Valmet Automotive
     
    Valmet Automotive's net sales for January-September were EUR 64 million. Operating profit was EUR 7.1 million, or 11.1 percent of net sales. About half of the operating profit is attributable to non-recurring income. During January-September Valmet Automotive manufactured an average of 111 cars per day.
     
     
    Short-term risks of business operations
     
    China is the primary market for new paper and board machines and thus any substantial changes in demand on the Chinese market may have a material adverse effect on Metso Paper's profitability. Metso seeks to mitigate these risks by developing its global aftermarket operations and increasing the flexibility of its delivery chain.
     
    The delivery times for Metso products have been lengthened because of strong growth in order intake and backlog. Therefore, there is a risk that material and other costs may rise significantly during the delivery time and have a greater impact on Metso's profitability than currently anticipated. In the current strong demand situation, the scarcity of certain components and subcontractor resources, particularly at Metso Minerals and Metso Automation, may also lengthen delivery times.
     
    The general uncertainty in the financial markets is not estimated to have a material impact on the overall demand for Metso's products and services, although it may affect the timing of some customer projects or demand in some geographical regions.
     
    Metso strives to manage and limit the potential adverse effects of these and other risks. However, if the risks materialize, they could have a significant adverse effect on Metso's business, financial position and results, or on the price of the Metso share.
     
     
    Metso share is delisted from the New York Stock Exchange
     
    In July, 2007 Metso decided to apply for the delisting of its share and deregistration in the United States. The final day for trading in Metso's American Depositary Receipts (ADR) on the New York Stock Exchange was September 14, 2007. Trading in Metso's ADRs in the United States continues on the OTC market under the trading symbol MXCYY, and trading in Metso's ordinary shares continues normally on the Helsinki Stock Exchange. On September 17, 2007, Metso submitted Form 15F to the U.S. Securities and Exchange Commission (SEC) to terminate its registration and reporting obligations. Metso expects the process to be completed during 2007.
     
     
    Events after the review period
     
    Metso Paper initiated measures in Finland to improve its competitiveness
     
    Metso Paper's Paper and Board business line initiated in October personnel negotiations affecting certain Finnish units. The primary aim of the negotiations is to agree on measures to enhance Metso Paper's competitiveness. It is estimated that the personnel reduction need is 170-220 employees in total. The measures will affect all employee groups in the Anjalankoski, Hollola, Jyväskylä, Järvenpää, Karhula, Turku and Valkeakoski units in Finland.
     
    The personnel reductions relate to Metso Paper's reorganization carried out in summer 2007, in which the units and functions of the Paper and Finishing business line were merged organizationally. Now the target is to eliminate overlapping operations and to develop and strengthen sales and services closer to customers. The non-recurring expenses related to the measures are estimated to be non-material to Metso. A more precise estimate of the expenses and savings can be made after the negotiations are concluded. The personnel negotiations are being conducted at each location, and the actions decided on are estimated to take place during the first half of 2008.
     
     
    Short-term outlook
     
    The favorable market outlook for Metso's products and services is expected to continue.
     
    It is expected that there will be no significant changes in Metso Paper's market outlook in the fourth quarter or in the first half of 2008. It is estimated that the demand for new paper, board and tissue lines as well as fiber lines will continue at the current level. In China, the growth in paper and board consumption, which is the key driver for new equipment investment among customers, is forecast to remain brisk. Demand in Europe and North America is estimated to focus mainly on machine rebuilds and aftermarket services. It is anticipated that the demand for power plants utilizing renewable energy sources will continue at an excellent level in Metso's main market areas in Europe and North America. Metso Paper aims to substantially grow its aftermarket business, and the demand for aftermarket services is forecast to remain satisfactory.
     
    Metso Minerals' market outlook for the year's final quarter continues to be favorable. The demand for mining products, metals recycling equipment and aftermarket services is also estimated to continue at an excellent level in 2008. Investments in industrial and commercial facilities, infrastructure, services and housing are expected to remain buoyant, particularly in emerging economies. As a result, it is expected that the demand for metals will remain strong and that the investment activity of Metso's customers will remain excellent. In construction, the demand for Metso Minerals' equipment relating to aggregates production is expected to continue to be good at least for the first half of 2008. Construction demand is being bolstered by ongoing projects to develop road networks and other transportation infrastructure around the world.
     
    Metso Automation's market outlook for the first half of 2008 shows no change from the first nine months of this year. It is estimated that pulp and paper industry demand will be good. In the power, oil and gas industries, the demand for process automation systems is expected to be good and the demand for flow control systems excellent. Energy industry investments are driven by the increased consumption of energy and high oil prices due to global economic growth.
     
    It is estimated that Metso's net sales for 2007 will grow by approximately 25 percent on 2006 and that the operating profit will clearly improve. It is estimated that the EBITA margin improves to about 10 percent and the operating profit margin will be around 9 percent. The operating profit margin in 2007 is affected by approximately one percentage point due to the integration costs and high amortization of intangible assets related to the acquisition of the Pulping and Power businesses as well as one-time costs related to the measures aimed at improving Metso Paper's cost competitiveness.
     
    It is estimated that Metso's profitable growth will continue next year.
    The estimates concerning financial performance are based on Metso's current business scope, order backlog and market outlook.
     
    Helsinki, October 25, 2007
     
    Metso Corporation's Board of Directors
     
     
     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     
     

     

     

     

     

     

     

     

     
     
     
    Notes to the Interim Review
     
    This interim review has been prepared in accordance with IAS 34 'Interim Financial Reporting'. The same accounting principles have been applied as in the annual financial statements.
     
    New accounting standards
     
    IFRS 7
    In August 2005, IASB issued IFRS 7 'Financial Instruments: Disclosures' which requires the company to disclose information enabling users of its financial statements to evaluate the significance of financial instruments to its financial position and performance. Metso adopted the standard and the related amendments to IAS 1 'Presentation of Financial Statements' from January 1, 2007.
     
    IFRS 8
    In November 2006, the IASB issued IFRS 8 'Operating segments' which requires the application of the 'management approach' in segment reporting. This would result in uniformity between the disclosed information and the principles for evaluating the financial performance of segments followed internally by the management. Metso will evaluate the effects of IFRS 8 on the consolidated financial statements. The standard will come into force in the financial years beginning after January 1, 2009, but may already be applied in earlier financial years.
     
    Subpoena from U.S. Department of Justice requiring Metso to produce documents
     
    In November 2006, Metso Minerals Industries, Inc., which is Metso Minerals' U.S. subsidiary, received a subpoena from the Antitrust Division of the United States Department of Justice calling for Metso Minerals Industries, Inc. to produce certain documents. The subpoena relates to an investigation of potential antitrust violations in the rock crushing and screening equipment industry. Metso is cooperating fully with the Department of Justice.
     
     
    Decisions of the Annual General Meeting
     
    On April 3, 2007 the Annual General Meeting of Metso Corporation approved the accounts for 2006 as presented by the Board of Directors and discharged the members of the Board of Directors and the President and CEO from liability for the 2006 financial year. In addition, the Annual General Meeting approved the proposals of the Board of Directors to amend the Articles of Association and to authorize the Board of Directors to resolve on a repurchase of the Corporation's own shares and on a share issue.
     
    The Annual General Meeting decided to establish a Nomination Committee of the Annual General Meeting to prepare proposals for the following Annual General Meeting in respect of the composition of the Board of Directors and the remuneration of directors. The Nomination Committee consists of representatives appointed by the four biggest shareholders along with the Chairman of the Board of Directors as an expert member.
     
    Matti Kavetvuo was re-elected as the Chairman of the Board and Jaakko Rauramo was re-elected as the Vice Chairman of the Board. Eva Liljeblom, Professor at the Swedish School of Economics and Business Administration, Helsinki, Finland, was elected as a new member of the Board. The Board members re-elected were Svante Adde, Maija-Liisa Friman, Christer Gardell and Yrjö Neuvo. The term of office of Board members lasts until the end of the following Annual General Meeting.
     
    The Annual General Meeting decided that the annual remuneration of Board members would be EUR 80,000 for the Chairman, EUR 50,000 for the Vice Chairman and the Chairman of the Audit Committee and EUR 40,000 for the members, and that the meeting fee, including committee meetings, would be EUR 500 per meeting.
     
    PricewaterhouseCoopers Oy, Authorized Public Accountants, was re-elected to act as the Auditor of the Corporation until the end of the next Annual General Meeting.
     
    The Annual General Meeting decided to pay a dividend of EUR 1.50 per share for the financial year which ended on December 31, 2006. The dividend was paid to shareholders who were entered in the company's shareholder register maintained by the Finnish Central Securities Depository on the record date for dividend payment, April 10, 2007. The dividend was paid on April 17, 2007.
     
     
    Board committees
     
    At its assembly meeting the Board of Directors elected from its midst the members of the Audit Committee and Compensation Committee.
     
    The Board's Audit Committee consists of Maija-Liisa Friman (Chairman), Svante Adde and Eva Liljeblom. The Board of Directors assigned Svante Adde as the financial expert of the Audit Committee.
     
    The Board's Compensation Committee consists of Matti Kavetvuo (Chairman), Jaakko Rauramo, Christer Gardell and Yrjö Neuvo.
     
     
    Shares, options and share capital
     
    A total of 35,000 shares were subscribed with Metso Corporation's 2003A stock options during the period February 8 - March 15, 2007. The resulting increase in share capital of EUR 59,500.00 was entered in the Finnish Trade Register on March 29, 2007. The shares became subject to trading on the Helsinki Stock Exchange together with the existing shares on March 30, 2007. The right to receive dividends and other shareholder rights of the new shares commenced on the registration date.
     
    At the end of September, Metso's share capital was EUR 240,982,843.80 and the number of shares was 141,754,614. The number of shares includes 60,841 Metso shares held by the parent company and 204,539 Metso shares held by a partnership consolidated in Metso's consolidated financial statements. Together these represent 0.19 percent of all the shares and votes. The average number of shares outstanding in January-September, excluding Metso shares held by the company, was 141,450,391.
     
    After cancellations and exercised options there remains a total of 100,000 year 2003A options in Metso's stock options program, all of them held by Metso's subsidiary, Metso Capital Ltd.
     
    Metso's market capitalization, excluding Metso shares held by the company, was EUR 6,834 million on September 30, 2007.
     
     
    Credit ratings
     
    In May, Standard & Poor's Ratings Services upgraded the long-term credit rating of Metso Corporation to BBB from BBB- and the short-term rating to A-2 from A-3. The rating on Metso's senior unsecured debt was upgraded to BBB- from BB+. The outlook on rating is considered stable.
     
    The current Moody's Investor Service rating for Metso's long-term credit is Baa3. The outlook on rating is considered stable.
     
     
    Share ownership plan
     
    Metso has a share ownership plan for 2006-2008. The maximum number of shares to be allocated to the 2006-2008 incentive plan is 360,000 Metso Corporation shares.
     
    The share ownership plan for the year 2006 was directed to 60 Metso managers. Based on the 2006 earnings period, 99,961 shares corresponding to 0.07 percent of Metso shares were distributed at the end of March 2007. Members of Metso's Executive Team received 25,815 shares.
     
    Metso's Board of Directors decided in February to direct the 2007 share ownership plan to a total of 84 Metso managers. The potential reward from the plan will be based on the operating profit for 2007 of Metso and its business areas. The share ownership plan will cover a maximum of 125,500 Metso shares in 2007. Members of the Metso Executive Team will be allocated a maximum of 26,500 shares of this total. If the average trade-weighted price of the Metso share during the first two full weeks of March 2008 exceeds EUR 48, the number of shares to be granted under the 2007 plan will be decreased by a corresponding ratio. Payment of the potential rewards will be decided during the first quarter of 2008.
     
    The maximum number of shares to be allocated for the 2008 earnings period as well as the share value limit will be decided by Metso's Board of Directors at the beginning of 2008.
     
     
    Shares traded on the Helsinki and New York Stock Exchanges
     
    The number of Metso Corporation shares traded on the Helsinki Stock Exchange in January-September was 267 million, equivalent to a turnover of EUR 11,106 million. The share price on September 30, 2007 was EUR 48.30. The highest quotation during the review period was EUR 49.84 and the lowest EUR 34.79.
     
    The trading of Metso ADRs (American Depository Receipts) on the New York Stock Exchange was terminated on September 14, by which time approximately 6 million Metso ADRs, equivalent to a turnover of USD 344 million, had been traded. The price of an ADR on September 14, 2007 was USD 63.70. The highest quotation during the January 1 - September 14 period was USD 65.94 and the lowest USD 44.37.
     
     
    Disclosures of changes in holdings
     
    J.P. Morgan Chase & Co. announced that the funds they managed held 6,996,732 Metso shares/ADRs on February 12, 2007 corresponding to 4.94 percent of the paid up share capital of Metso Corporation.
     
    No disclosures of changes in holdings were received during the second or third quarter of 2007.
     
     
    Metso's financial reporting for 2008
    Metso's financial statements release for 2007 will be published on February 6, 2008. The 2008 interim reports for January-March, January-June and January-September will be published on April 23, July 24 and October 28 respectively.
     
     
    For further information, please contact:
    Jorma Eloranta, President and CEO, Metso Corporation, tel. +358 (0)204 84 3000
    Olli Vaartimo, Executive Vice President and CFO, Metso Corporation, tel. +358 (0)204 84 3010
    Johanna Sintonen, Vice President, Investor Relations, Metso Corporation, tel. +358 (0)204 84 3253
     
    It 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.
     
    Metso Corporation
     
     
    Olli Vaartimo                                         l
    Executive Vice President and CFO  
     
    Kati Renvall
    Vice President, Corporate Communications
     
    Distribution:
    Helsinki Stock Exchange
    New York Stock Exchange
    The media
    www.metso.com