Business operation risks

Global economy and customer industries
Cyclical changes in the global economy have an impact on the demand for Metso's products and its financial position, especially in the short-term. In the long-term, these impacts are leveled out by the wide geographical spread of Metso's operations, the number of customers from different industries, the large base of installed machinery and stable customer relationships.

The Svedala acquisition led to a significant change in the Corporation's structure, for the Metso Minerals business area now equals Metso Paper in size. Due to the acquisition, Metso's dependence on the business cycles of the pulp and paper industry has diminished, since Metso Minerals is tied to the development of the mining, construction and civil engineering industries. Metso Minerals' main focus is on infrastructure investments, the demand for which is more stable by nature. In addition, the increasing share of net sales derived from aftermarket and maintenance services reduces the risks related to cyclical changes.

Competition
The business of both Metso and its customers is geographically widely spread. Political and legislative changes can weaken Metso's competitiveness or restrict its operations in some countries. At the end of 2002 Metso was not aware of any probable political risks of potential material significance to Metso's operations.

Current or future competitors may launch new and revised products and new technology that may decrease the value and competitiveness of Metso's products and weaken Metso's possibilities to achieve its financial goals.

Changes in foreign exchange rates have an impact on Metso's competitiveness. This impact is reflected directly in the prices of raw materials, factors of production and the final products. Indirectly they can affect the profitability of Metso's competitors and Metso's position on the market. The wide geographical spread of Metso's operations reduces the significance of individual currencies, however.

Production, products and technology
Every attempt is made to maintain and improve the competitiveness of products and services by emphasizing research and development, by taking care of intellectual property rights, including patents, and by cooperating with other companies.

The adaptability of production to changes in demand has been enhanced by, for example, increasing outsourcing and by focusing on the manufacture and assembly of key components. Quality and internal processes are controlled in accordance with ISO 9001 quality systems.

Metso has been involved in general lawsuits or those associated with product liability, and the claims arising have been covered with general and product liability insurance. Attempts are made to prevent product liability lawsuits by emphasizing product safety at the product planning phase.

Environmental aspects are increasingly emphasized in Metso's products. It is the task of product development to ensure that the environmental impacts of new products and services are taken into account. Many laws and regulations that promote environmental protection guide the Corporation's operations. Moreover, environmental systems meeting ISO 14001 standard are essential tools in Metso's environmental management.

Raw materials and subcontractors
Developments in the global economy and political factors may influence the prices and availability of raw materials. For example, changes in energy and oil prices have a negative influence on Metso in cases where the price changes directly affect customer industries' willingness to invest.

Metso buys most of the raw materials and product components it needs from subcontractors with whom it has made long-term contracts. These limit the availability and pricing risks related to purchasing. The most significant subcontractors are audited before co-operation begins and also regularly during the contract period.