2009-02-04 11:00:00 CET
2009-02-04 11:01:52 CET
REGULATED INFORMATION
Metso Oyj - Annual Financial Report
Metso's Financial Statements Review, January 1 - December 31, 2008
Metso Corporation's company release on February 4, 2009 at 12.00 p.m.
Profitability good in 2008, estimated to be satisfactory in 2009
Highlights of 2008
* New orders worth EUR 6,384 million were received in 2008 (EUR
6,965 million in 2007), i.e. 8 percent less than in the previous
year.
* At year-end, the order backlog was 6 percent lower than at the
end of December 2007, amounting to EUR 4,088 million (EUR 4,341
million at December 31, 2007).
* Net sales grew 2 percent (6 percent at comparable exchange rates)
on the comparison period and were EUR 6,400 million (EUR 6,250
million in 2007).
* Earnings before interest, tax and amortization (EBITA) were EUR
680.9 million, i.e. 10.6 percent of net sales (EUR 635.4 million
and 10.2% in 2007).
* Operating profit (EBIT) was EUR 637.2 million, i.e. 10.0 percent
of net sales (EUR 579.8 million and 9.3% in 2007).
* Earnings per share were EUR 2.75 (EUR 2.69 in 2007).
* Free cash flow was EUR 29 million (EUR 198 million in 2007).
* Return on capital employed (ROCE) before taxes was 23.2 percent
(26.1% in 2007).
* The Board proposes a dividend of EUR 0.70 per share. The Board is
further proposing the Annual General Meeting to authorize it to
pay at its discretion an additional dividend later in the year
2009 in the amount not exceeding EUR 0.68 per share, should the
Metso's financial position support the distribution of such
additional dividend (in 2007, an ordinary dividend of EUR 1.65
per share and an extra dividend of EUR 1.35 was paid).
Highlights of the last quarter of 2008
* New orders worth EUR 1,040 million were received in
October-December (EUR 1,771 million in Q4/07). At the same time,
EUR 151 million of previously received orders were cancelled, so
the net order intake for October-December was EUR 889 million.
* Net sales decreased by 3 percent on the comparison period and
totaled EUR 1,839 million (EUR 1,896 million in Q4/07).
* Earnings before interest, tax and amortization (EBITA) were EUR
200.0 million, i.e. 10.9 percent of net sales (EUR 193.9 million
and 10.2% in Q4/07).
* Operating profit (EBIT) was EUR 190.1 million, i.e. 10.3 percent
of net sales (EUR 179.7 million and 9.5% in Q4/07).
* Earnings per share were EUR 0.79 (EUR 0.85 in Q4/07).
Jorma Eloranta, President and CEO of Metso Corporation comments year
2008: "I am satisfied with the development of our operating profit -
our persistent work to improve profitability is yielding results. Our
financial position continues to be satisfactory but our cash flow has
a lot to improve. The dividend proposed takes into account our
dividend policy as well as the uncertainty resulting from the world
economy."
Eloranta says that the year 2009 will be demanding for Metso because
of the market situation. This will, in turn, mean decline of net
sales and operating profit. "We estimate that our 2009 net sales
will, nevertheless, exceed EUR 5 billion and our profitability will
be satisfactory. Furthermore, we expect our cash flow to clearly
improve on 2008. We are taking actions to improve and secure
competitiveness and profitability. We have already initiated measures
to adjust our capacity and cost structure to an extended period of
weak demand in several product areas. Unfortunately the actions will
also mean reductions in the number of employees."
Eloranta emphasizes that Metso has changed in the past few years: "We
are clearly more flexible and agile than during the previous
downturn. Our services business today is overall strong - last year
about 35 percent of our net sales and a significantly larger
proportion of our profits derived from services. We are truly global
in our operations: nearly half of the orders received came from
emerging markets. Energy and Environmental Technology offers
significant new business potential for us. We are building Metso on a
long-term on these and other strengths. We are also continuing
several ongoing development programs, for example in R&D and in
talent and leadership development."
As of December 1, 2008, Metso's businesses were reorganized into
three reporting segments: Mining and Construction Technology,
consisting of Mining and Construction business lines, Energy and
Environmental Technology, consisting of Power, Automation and
Recycling business lines, and Paper and Fiber Technology, consisting
of Paper, Fiber and Tissue business lines. These financial statements
are prepared based on the new operating structure.
Metso's key figures
EUR million Q4/08 Q4/07 Change % 2008 2007 Change %
Net sales 1,839 1,896 -3 6,400 6,250 2
Net sales of services 616 559 10 2,199 2,024 9
business
% of net sales 34 30 35 33
Earnings before interest,
tax and amortization 200.0 193.9 3 680.9 635.4 7
(EBITA)
% of net sales 10.9 10.2 10.6 10.2
Operating profit 190.1 179.7 6 637.2 579.8 10
% of net sales 10.3 9.5 10.0 9.3
Earnings per share, EUR 0.79 0.85 -7 2.75 2.69 2
Orders received 889 1,771 -50 6,384 6,965 -8
Order backlog at end of 4,088 4,341 -6
period
Free cash flow -22 0 n/a 29 198 -85
Return on capital employed
(ROCE) before taxes, % 23.2 26.1
Equity to assets ratio at
end of period, % 30.9 37.7
Gearing at end of period, % 75.7 33.4
Metso's last quarter 2008 review
Operating environment and demand for products in October-December
The market situation for Metso's products and services weakened
substantially in the year's final quarter. Due to the uncertainty in
the financial markets and the slowdown in global economic growth,
customers hesitated with their investment decisions, and demand
weakened for all Metso products and services. Some of our mining and
construction as well as pulp and paper industry customers initiated
discussions to extend the delivery schedules of projects in the order
backlog or to postpone or even cancel such projects for the time
being. The demand for services was also negatively affected because
of lower capacity utilization rates in customer industries and while
customers aim to use their existing spare and wear part inventories.
In the mining industry, investment plans were cut drastically in the
fourth quarter following a rapid decline in the demand for minerals
and their prices, resulting in a considerable decrease in the demand
for mining industry equipment and services. In the construction
industry, the slowdown of global economic growth and a reduction of
available financing notably weakened the outlook and the construction
industry's willingness to invest in new equipment. The rapid change
in the market situation also weakened the demand for services both in
the mining and construction industries.
In the power industry, the economic uncertainty and poor availability
of financing weakened the demand for power plants utilizing renewable
energy sources in Europe and North America. The demand for automation
products was weak in the pulp and paper industry and satisfactory in
the power, oil and gas industries. The demand for services business
also weakened as a result of the cost saving schemes carried out by
customers. The demand for metals recycling equipment weakened
following the rapid decline of the demand for and the prices of scrap
metal.
During the year's final quarter, the pulp and paper industry's demand
for new machines and equipment deteriorated to a much lower level
than it had been before, and the new equipment markets are estimated
to be more clearly focused on Asia and South America. The closures of
customer mills in the Nordic countries and elsewhere in Europe and
North America and the decreasing markets for new machines globally
have reduced the demand for Metso's paper and fiber products and
services. The situation escalated as a result of the global financial
crisis.
Orders received in October-December
The orders received by Metso in October-December fell clearly below
the comparison period's level and totaled EUR 1,040 million. At the
same time, about EUR 151 million of previously received orders were
cancelled, so the net value of orders received in October-December
was EUR 889 million.
Many of Metso's customers hesitate to make decisions on new
investments in the prevailing climate of economic uncertainty. Orders
received decreased across all reporting segments. New order intake
slowed down, particularly in the Paper, Fiber and Construction
business lines.
The orders received by Mining and Construction Technology fell 31
percent below the last quarter in 2007 and totaled EUR 485 million
(EUR 705 million). At the same time, a total of EUR 146 million
previously received orders were cancelled, leaving the net value of
orders received in October-December at EUR 339 million. Cancellations
and project schedule postponements took place both in the mining and
construction industries. In regional terms, orders received decreased
considerably in South America, Eastern Europe and in Australia. The
major orders received in October-December included grinding equipment
to Norilsk Nickel in Russia.
Development was steadier in Energy and Environmental Technology, and
orders received in the final quarter fell by 6 percent from the
comparison period and totaled EUR 346 million. At the same time, a
total of EUR 5 million previously received orders were cancelled,
leaving the net value of orders received at EUR 341 million. Orders
for automation products remained at the comparison period's level.
Orders for power and recovery boilers, and metals recycling products
dropped by one-third compared to last year. In geographical terms,
the orders received by Energy and Environmental Technology increased
most notably in Eastern Europe and fell most considerably in South
America and Western Europe. Among the largest orders received during
the fourth quarter were an automation system to the EnerjiSA Enerji
Üretim A.S.'s combined cycle power plant in Bandirma, Turkey and
multifuel-fired power boilers to Stora Enso Poland S.A.'s power plant
in Poland and Kuopion Energia Oy's power plant in Finland.
Orders received by Paper and Fiber Technology in October-December
fell by 70 percent from the comparison period and totaled EUR 207
million. New order intake was at a very low level across all regions.
Major orders received by Paper and Fiber Technology during the final
quarter included two tissue lines to HengAn International Group in
China.
The EUR 40 million delivery for a board machine to Lee & Man in China
was cancelled from the order backlog in December. The payments
received by Metso relating to the project cover expenses incurred.
Financial performance in October-December
Metso's net sales in October-December were EUR 1,839 million (EUR
1,896 million). Net sales of the services business grew 10 percent on
the comparison period and accounted for 34 percent (30% in Q4/07) of
Metso's fourth-quarter net sales.
Metso's fourth-quarter earnings before interest, tax and amortization
(EBITA) improved on the comparison period and were EUR 200.0 million
or 10.9 percent of net sales (EUR 193.9 million and 10.2% in Q4/07).
Metso's operating profit increased and was EUR 190.1 million, or 10.3
percent of net sales (EUR 179.7 million and 9.5% in Q4/2007). The
improvement in profitability in the fourth quarter was attributable
to Paper and Fiber Technology. The profit attributable to
shareholders was EUR 112 million (EUR 120 million in Q4/07) in
October-December, corresponding to earnings per share (EPS) of EUR
0.79 (EUR 0.85 in Q4/07).
Metso's Financial Statements Review 2008
Operating environment and demand for products in 2008
During the year major changes took place in the market situation of
Metso's products and services. The demand was good in the early year
and weakened considerably from the end of September onwards.
Demand for Mining and Construction Technology products was excellent
until September, when customers in both mining and construction
industries began scaling back their investments. The drop in base
metal prices that started in the summer led to cuts in mine
production and even to shutdowns of mines. In the construction
industry the slowdown of global economic growth and poor availability
of financing reduced new investments. As a result, demand for mining
and construction products and services deteriorated quickly and some
customers cancelled orders or postponed project delivery schedules.
On the annual level, demand grew in the services business,
particularly in the Mining business line. Geographically, the demand
for Metso's Mining and Construction Technology's products increased
substantially in Asia-Pacific but decreased in the United States and
in Northern Europe.
The demand for Energy and Environmental Technology's products and
services in 2008 was satisfactory. In particular, the demand for
services increased substantially during the year. Demand for power
plants utilizing renewable energy sources was satisfactory. The
demand for metals recycling equipment decreased, as the prices and
demand for scrap metal declined. In geographical terms, the demand
for Energy and Environmental Technology's products remained
satisfactory, apart from Western Europe where the demand declined
notably.
The demand for Paper and Fiber Technology products and services was
satisfactory from the beginning of the year until September, when
demand started to decline and the downward trend intensified towards
the year's end. The demand for paper, board and fiber diminished
globally, and there was overcapacity on the markets. Decision-making
schedules for new investments were extended and several projects
having reached execution phase were cancelled or postponed. The
demand for tissue lines remained fairly even throughout the year. The
demand for services slowed down towards the end of the year as a
result of shutdowns of a number of customer mills and the cost
savings programs carried out by customers.
Orders received and order backlog
Orders received by Metso in 2008 totaled EUR 6,384 million, down 8
percent on the comparison period. Calculated at comparable exchange
rates, the value of orders received decreased by 5 percent. Orders
received were close to the previous year's level in Mining and
Construction Technology, and at a lower level in Energy and
Environmental Technology and Paper and Fiber Technology due to the
weak fourth quarter.
The three countries generating the largest total value of orders
received were the United States, Brazil and China. When combined,
these countries accounted for 33 percent of all orders received.
Order intake increased in South America and was on a par with the
comparison period in North America and Eastern Europe. The Western
European market experienced the most abrupt slowdown during the year.
Emerging markets made up 48 percent (43%) of the orders received. At
the end of December, Metso's order backlog was EUR 4,088 million, 6
percent lower than at the end of 2007. Some customers have initiated
discussions with Metso about either extending delivery times or
putting projects on hold. Timing of slightly over 20 percent of the
order backlog can be considered uncertain. These uncertain orders
include the large pulp mill projects for Zhanjiang Chenming in China
and Aracruz in Brazil.
Orders received by reporting segments
2008 2007
EUR million % of orders EUR % of orders
received million received
Mining and Construction
Technology 2,709 42 2,776 39
Energy and Environmental 1,658 26 1,884 27
Technology
Paper and Fiber 2,021 31 2,293 33
Technology
Valmet Automotive 65 1 85 1
Intra-Metso orders -69 -73
received
Total 6,384 100 6,965 100
Orders received by market area
+-------------------------------------------------------------------+
| | 2008 | 2007 |
|----------------------+-----------------------+--------------------|
| | EUR | % of orders | EUR | % of |
| | million | received | million | orders |
| | | | | received |
|----------------------+---------+-------------+---------+----------|
| Europe | 2,375 | 38 | 3,135 | 44 |
|----------------------+---------+-------------+---------+----------|
| North America | 1,070 | 17 | 1,033 | 15 |
|----------------------+---------+-------------+---------+----------|
| South and Central | 1,056 | 16 | 818 | 12 |
| America | | | | |
|----------------------+---------+-------------+---------+----------|
| Asia-Pacific | 1,476 | 23 | 1,514 | 22 |
|----------------------+---------+-------------+---------+----------|
| Rest of the world | 407 | 6 | 465 | 7 |
|----------------------+---------+-------------+---------+----------|
| Total | 6,384 | 100 | 6,965 | 100 |
+-------------------------------------------------------------------+
Net sales
Metso's net sales in 2008 were at the previous year's level, totaling
EUR 6,400 million. At comparable exchange rates, net sales growth
would have been approximately 6 percent. At comparable exchange
rates, the net sales of Mining and Construction Technology and Energy
and Environmental Technology grew by 16 and 18 percent respectively,
while Paper and Fiber Technology's net sales decreased by 12 percent.
The net sales of the services business grew by 9 percent (about 13
percent at comparable exchange rates), accounting for 35 percent of
Metso's net sales (33% in 2007). The growth of the services business
was strongest in Energy and Environmental Technology, where the
growth was 20 percent at comparable exchange rates.
Measured by net sales, the three largest countries in 2008 were the
United States, China and Finland, which together accounted for about
29 percent of total net sales.
Net sales by reporting segments
2008 2007
EUR million % of net EUR million % of net
sales sales
Mining and Construction
Technology 2,586 40 2,330 37
Energy and Environmental 1,775 27 1,543 25
Technology
Paper and Fiber Technology 2,044 32 2,364 37
Valmet Automotive 65 1 85 1
Intra-Metso net sales -70 -72
Total 6,400 100 6,250 100
Net sales by market area
2008 2007
EUR million % of net EUR million % of net
sales sales
Europe 2,680 41 2,551 40
North America 1,015 16 1,049 17
South and Central 770 12 859 14
America
Asia-Pacific 1,516 24 1,488 24
Rest of the world 419 7 303 5
Total 6,400 100 6,250 100
Financial result
Metso's earnings before interest, tax and amortization (EBITA) for
2008 improved by 7 percent and were EUR 680.9 million, or 10.6
percent of net sales (EUR 635.4 million and 10.2% in 2007). The
increase of EBITA measured in euros was mainly attributable to Mining
and Construction Technology. Improvement in the EBITA margin was
primarily due to Paper and Fiber Technology.
Metso's operating profit for 2008 was EUR 637.2 million, or 10.0
percent of net sales (EUR 579.8 million and 9.3% in 2007).
Metso's net financial expenses for 2008 were EUR 89 million (EUR 33
million in 2007). Interest-bearing liabilities have increased
substantially through the significant growth in net working capital
over the year, the high level of investments and the pay-out of an
extra dividend. The increased debt level, the relatively large share
of floating interest rate debt and the general rise in interest rates
have resulted in an increase in interest expenses of almost EUR 25
million from the comparison period. Another reason for the increase
in net financial expenses was foreign exchange losses of EUR 24
million (in 2007, EUR 7 million gains). These gains and losses derive
mainly from USD-denominated export credit financing of a Brazilian
subsidiary. On the other hand, related gains and losses arising from
customer deliveries are, once recognized, reported in operating
profit.
Metso's profit before taxes was EUR 548 million (EUR 547 million in
2007). Metso's tax rate for 2008 was 29 percent, and it is estimated
to be approximately 30 percent in 2009. The profit attributable to
shareholders was EUR 389 million (EUR 381 million) in 2008,
corresponding to earnings per share (EPS) of EUR 2.75 (EUR 2.69 per
share).
Metso's return on capital employed (ROCE) before taxes was 23.2
percent (26.1%) and return on equity (ROE) was 26.0 percent (25.4%).
Cash flow and financing
Metso's net cash generated by operating activities was EUR 137
million in 2008 (EUR 294 million in 2007). Net cash generated by
operating activities was burdened by the net working capital being
tied up in all segments. Strong organic growth during the past years
has made supply chain management more challenging, resulting in
working capital being tied up in inventories. Net working capital
increased by EUR 437 million during the year. The increase was
highest in Mining and Construction Technology but also other segments
reported clear increases. Over half of the increase came from the
inventories but also receivables increased by almost EUR 100 million
as a result of high level of net sales in December, and payables
decreased by almost EUR 100 million due to decrease in procurement
towards the end of the year. During the last quarter, net working
capital increased by EUR 140 million, the main reasons being increase
in receivables and decrease in payables. Inventories decreased
clearly during the last quarter in spite of negative impact of order
cancellations and delivery schedule extensions. Also advances
received decreased towards the end of the year as a result of low
level of new orders.
Metso's free cash flow in 2008 was EUR 29 million (EUR 198 million).
Free cash flow for the last quarter was EUR 22 million negative (EUR
0 million in Q4/07).
Net interest-bearing liabilities totaled EUR 1,099 million at the end
of the year (EUR 540 million on Dec 31, 2007).
The total amount of short-term debt maturing within the next 12
months decreased by EUR 79 million during the final quarter and was
EUR 346 million at the end of the year. EUR 141 million of short-term
debt consists of commercial papers issued in the Finnish markets. EUR
101 million are current portions of long-term debt and the remainder
is local working capital financing of certain subsidiaries, primarily
in Brazil. About EUR 160 million of existing long-term debt will
mature in 2010.
The total amount of net funding acquired in 2008 was EUR 621 million,
of which almost EUR 500 million was new long-term debt. Metso's
liquidity position is satisfactory. The syndicated EUR 500 million
revolving loan facility is available until late 2011, and it is
currently undrawn.
Gearing was 75.7 percent (33.4%) and the equity-to-assets ratio was
30.9 percent (37.7%). In April, following the Annual General Meeting,
Metso paid EUR 425 million in dividends for 2007, which together with
the growth in net working capital and high level of investments
increased gearing.
Capital expenditure
Metso's gross capital expenditure for 2008 grew by 60 percent on the
previous year and was EUR 255 million (EUR 159 million in 2007).
Capital expenditure on fixed assets includes technology and capacity
acquisitions, the total value of which was approximately EUR 64
million. These were: the acquisition of Lachine's heavy fabrication
plant in Canada, the purchase of a Swedish research and development
company specializing in biofuels, LignoBoost AB and the acquisition
of the paper machinery technology of Mitsubishi Heavy Industries in
Japan. Other acquisitions of businesses are not included in the gross
capital expenditure mentioned above.
In May, Metso acquired from the Swedish STFI-Packforsk AB the shares
of LignoBoost AB, a research company. The transaction included all
the intellectual property rights as well as the LignoBoost brand and
the related know-how. The acquired company became part of Metso's
Power business line. The acquisition opens an interesting biofuel
business opportunity within pulping processes.
In May, Metso closed the deal with Mitsubishi Heavy Industries (MHI)
over the purchase of MHI's paper machinery technology, making Metso
globally the sole owner of Beloit's paper machinery intellectual
property. The effect of MHI on annual services sales is estimated to
be about EUR 10 million.
In August, Metso completed the acquisition of GE Energy's Lachine
main plant, a heavy fabrication and machining facility in Canada. The
plant was integrated into Metso's Mining business line and
approximately 170 employees were transferred to Metso. The
acquisition added significantly to Metso's mining equipment supply
capacity.
Major capital expenditure on fixed assets in 2008 was targeted to
strengthen Metso's presence in emerging markets, to improve the
efficiency of the production chain and to expand the service network.
In China, a new pulp and paper industry service center in Guangzhou
started its operations, and Metso also decided to establish a third
service center in Zibo, located in the province of Shandong. In
Tianjin, a crushing unit production capacity was expanded and new
premises for Automation business line in Shanghai are under
construction. In India, an assembly line for crushers and vibrating
equipment in Bawal and a steel casting expansion in Ahmedabad were
finalized, and construction of Metso Industrial Park in Rajasthan is
underway. In the United States, a boiler service center was opened in
Lancaster, South Carolina, and the extension of another boiler
service center was completed in Fairmont, West Virginia. In Finland,
Metso is rebuilding a pilot machine at the Paper Technology Center in
Jyväskylä. Investment projects in enterprise resource planning
systems were underway in Mining and Construction Technology and in
Automation business line.
Metso's capital expenditure in 2009, excluding corporate
acquisitions, is estimated at about EUR 150 million. New investment
commitments will be cut considerably due to the changes in the global
economy.
Acquisitions and divestments
In May, Metso acquired Kemotron A/S, a Danish manufacturer of
measurement systems. The company had a workforce of 13. The acquired
company was integrated into Metso's Automation business line.
In June, Metso completed the acquisition of MAPAG Valves GmbH, a
company manufacturing primarily butterfly valves, from the Linde
Group, a German company. With the acquisition, Metso complements the
product offering for the energy and hydrocarbon industries. The
debt-free acquisition price was EUR 36 million, and the acquired
company was integrated into Metso's Automation business line. The
company employs about 100 people. The company's annual net sales
amount to approximately EUR 36 million.
In September, Metso increased its ownership in the associated company
Valmet-Xi'an Paper Machinery Co. Ltd in China from 48.3 percent to 75
percent. The value of the share transaction was approximately EUR 5
million. The company has been consolidated into Metso's balance sheet
as of September, and its annual net sales are approximately EUR 30
million, of which sales to Metso have accounted for more than half.
At the end of the year, Valmet-Xi'an had about 1,100 employees.
In September, Metso announced the acquisition of a paper quality
control business from Finnish Fastpap Oy Ab. The business operations
based in Ylöjärvi, Finland, including a staff of 11 were integrated
into Metso's Automation business line as of October 1, 2008.
In September, Metso acquired PSP Slévárna, a producer of finished
machined manganese wear parts located in Prerov, the Czech Republic.
The acquisition price was approximately EUR 6 million. The company
was integrated into Metso's Construction business line on October 1,
2008. The acquired company has a personnel of 385 and annual net
sales of about EUR 20 million.
In October, Metso acquired the Australian company G & F Beltline
Services Pty Ltd, a provider of conveyor belt installations and
maintenance services to the mining industry. The value of the deal
was approximately EUR 6 million. The company was integrated into
Metso's Mining business line on October 15, 2008. Approximately 90
employees were transferred to Metso. Beltline's annual net sales are
approximately EUR 11 million.
In January, Metso concluded the divestment of its Panelboard
business. The panelboard press operations in Germany were divested to
G. Siempelkamp GmbH & Co. KG in September 2007, and an agreement was
concluded on the divestment of the panelboard operations in Nastola,
Finland and Sundsvall, Sweden to the German company Dieffenbacher
GmbH + Co. KG in January 2008.
In May, Metso sold its spreader roll manufacturing business (Finbow)
and the related assets to a group of Finnish investors. The business
is based in Finland and employs 20 people. The divested business was
part of Metso's Paper business line.
In September, Metso divested the shares in Sweden-based Metso
Foundries Karlstad AB to a group of financial investors represented
by Primaca Group Oy. Metso will continue as a minority owner with a
16.7 percent holding in Heavycast Oy, a new company to which the
Primaca Group transferred the acquired shares. The value of the
transaction was approximately EUR 15 million, and Metso recognized a
small tax-free capital gain from the sale. The divested business was
part of Metso's Tissue business line.
Research and development
The focus areas of Metso's research and development are environmental
technology, technology related to the services business and the
development of smart applications. Metso's research and development
expenses in 2008 totaled EUR 134 million, representing 2.1 percent of
net sales (EUR 117 million and 1.9% in 2007). In addition to this,
expenses for intellectual property rights amounted to EUR 14 million
in 2008. R&D employed 905 people (923) in 2008. Metso's personnel
made about 900 invention disclosures (850), which led to over 230
priority patent applications (220). At the end of 2008, approximately
3,000 Metso inventions were protected by patents (2,800).
Metso launched about 120 new products in 2008. New products
introduced to the markets included for example a new flotation cell
for de-inking process, a rebuild concept for gap formers, a
wheel-mounted crushing plant and the paper quality control system
PaperIQ Select.
In December, Metso and the European Investment Bank (EIB) signed a
EUR 160 million research and development loan agreement. This funding
will be used to finance part of Metso's development and innovation
activities relating to environmental products and services as well as
other strategic R&D programs over the years 2008-2012. The overall
loan period is seven years with semiannual installments starting in
2011.
Environment and environmental technology
The environmental impact of Metso's own production is minor and
relates mainly to the consumption of raw materials and energy,
emissions to air, water consumption and waste. Metso seeks to reduce
environmental hazards through continuous development and by
decreasing the use of energy, materials and hazardous substances.
Metso supplies its customers with complete product and service
concepts, and environmental efficiency is integral to the company's
offering. Many of Metso's technology solutions have been developed in
close cooperation with customers. Metso's environmental solutions are
related especially to renewable energy sources, energy efficiency of
our customers' production processes, waste management, recycling,
efficient utilization of raw materials and water, reducing dust,
noise, carbon dioxide and particle emissions, and process
optimization. Metso also provides training, maintenance and service
relating to the products. Metso takes care of the entire life cycles
of production processes and promotes the right and environmentally
sustainable way to use the solutions it provides.
Over one half of Metso's net sales can be classified as environmental
business, using the OECD definition.
Risks and business uncertainties
Metso's operations are affected by various strategic, financial,
operational and hazard risks. Metso takes measures to manage and
limit the potential adverse effects of these risks. If such risks
materialized, they could have material adverse effects on Metso's
business, financial situation, and operating result or on the value
of shares and other securities.
Metso's risk assessments take into consideration the probability and
effects of the risks on net sales and financial results. The
management estimates that the overall risk level of the company is
currently manageable in proportion to the scope of Metso's operations
and the practical measures available to manage these risks.
Owing to the uncertainty of the financial markets and the slowdown of
global economic growth, Metso's business environment is expected to
be demanding in 2009. In an operating environment that is subject to
rapid changes, the importance of efficient risk management increases,
and the management of strategic and financial risks will receive in
particular emphasis. Even though the geographical diversity of
Metso's operations and the broad range of the company's customer
industries serve to even out the effects of cyclical changes over the
long term, the rapid slowdown of global economic growth and
prolongation of the financial crisis and downturn in the economy may
deteriorate the demand for Metso's products and services further.
Global economic uncertainty and the financial crisis may have adverse
effects on projects in Metso's order backlog. Some projects may be
postponed or they may be suspended or discontinued. Metso's
management estimates that slightly over 20 percent of projects in the
order backlog are subject to uncertainties relating to delivery
schedules. Metso applies the percentage of completion method to
long-term delivery agreements. The customer advance payment is
typically 10-30 percent, in addition to which the customer makes
payments based on the milestones during the project execution. Metso
continually evaluates its customers' creditworthiness and ability to
fulfill their obligations. If a customer faces liquidity problems,
Metso discusses with the customer the possibility of changing project
delivery schedules and the resulting cost escalation effects or any
other measures needed. As a rule, Metso does not finance customer
projects.
Metso has launched many measures to adapt to the rapidly-changing
operating environment. Capacity and cost structure is adjusted to
correspond with the demand to maintain the company's competitiveness.
The global economic crisis may shrink the markets for Metso's
products, which may lead to intensified price competition.
Securing the continuity of Metso's operations requires that
sufficient funding is ensured under all circumstances. The financial
crisis may have adverse effects on the availability of Metso's debt
financing or increase the costs related to it. Metso's management
estimates that the company's financial assets and available credit
facilities are sufficient to secure short-term liquidity. At the end
of December, cash and cash equivalents totaled EUR 314 million and
credit facilities available for withdrawal totaled EUR 500 million.
Metso's long-term loans mature relatively evenly during 2009-2012,
the average repayment period of loan capital is four years, and they
do not have covenants initiating premature repayment on the basis of
credit ratings. Currently Metso fully meets the covenants and other
terms related to its financing agreements.
The capital tied up in net working capital and the level of capital
expenditure have a fundamental effect on the adequacy of financing. A
prolonged economic downturn could slow Metso's attempts to release
some of its net working capital. Metso has no particularly
large-scale investment schemes underway, and Metso's management
estimates that it is well positioned to manage the capital
expenditure levels in the coming years.
Changes in the prices of raw materials and components could also
affect Metso's profitability. On one hand, the risk of increases in
direct costs typically diminishes during economic downturn. On the
other hand, some of Metso's customers are raw material producers,
whose ability to operate and invest may be hampered by declining raw
material prices.
Of the financial risks that affect Metso's profit, currency exchange
rate risks are among the most substantial ones. Exchange rate changes
can affect the business, although the geographical diversity of
operations decreases the significance of any individual currency. The
prevailing uncertainty in the markets is likely to increase exchange
rate fluctuations. Exchange rate variations can have a direct impact
in situations where the invoicing currency is different from the
currency of the manufacturing costs. Exchange rate fluctuations may
also weaken the cost competitiveness of Metso's products against the
products of competitors manufactured in another currency area.
Alongside the euro, the most important currencies used in invoicing
are the U.S. dollar, the Swedish krona, the Canadian dollar and the
Brazilian real. Exchange rate changes affect Metso's business
indirectly, as Metso translates the net sales and financial results
of its subsidiaries based outside the Eurozone into euros. Metso
hedges in full those currency exposures that arise from firm delivery
and purchase agreements. In addition, Metso's units can hedge
anticipated foreign currency denominated cash flows by taking into
account the significance of such cash flows, the competitive
situation and other opportunities to adapt.
Subpoena from the United States Department of Justice requiring Metso
to produce documents
In November 2006, Metso Minerals Industries, Inc., which is Metso's
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.
Adjusting to changes in demand
Metso has begun to adjust its operations for an extended period of
weak demand. The focus is on adjusting the capacity to correspond
with the demand, ensuring profitability and strengthening the cash
flow. The measures which were commenced in early October, will
continue in 2009. The first measures were to cut down the use of
temporary work force and subcontracting. In a rapidly deteriorating
market situation these measures have turned out to be insufficient,
and Metso has had to start temporary lay-offs and personnel
reductions in many units. In most cases, the temporary lay-offs
concern all employee groups, and their duration varies, depending on
the work load, from few weeks to longer periods. The measures are
intended to secure the competitiveness of Metso's businesses by
adjusting the operations and cost structures to correspond with the
demand situation.
Personnel
At the end of 2008, Metso had 29,322 employees, which was 2,485 more
than at the end of 2007 (26,837 employees at December 31, 2007). In
terms of regions, the growth in personnel numbers was most
substantial in Asia-Pacific, where 15 percent of the Group's
personnel are based. In 2008, Metso had an average of 28,010
employees.
The main drivers behind personnel increases were the investments in
delivery and service capability and strengthening of Metso's global
presence. Personnel in Mining and Construction Technology increased
due to growth investments in Canada, Brazil and India. Personnel in
Energy and Environmental Technology increased mainly through the
increase in the production capacity of the Power and Automation
business lines in India and China and the MAPAG acquisition in
Germany. Personnel in Paper and Fiber Technology increased during the
year by about 1,100 people in China due to the acquisition of
Valmet-Xi'an Paper Machinery Co. Ltd, but decreased in Europe and
particularly in the Nordic countries as a result of efficiency
improvement measures.
Metso's personnel is divided as follows by reporting segment: Mining
and Construction Technology 38 percent, Energy and Environmental
Technology 22 percent, Paper and Fiber Technology 36 percent, and
Valmet Automotive, service centers and Group Head Office 4 percent.
The countries with the largest numbers of Metso's personnel were
Finland, the United States, Sweden, China and Brazil. These countries
accounted for 70 percent of the entire Metso's personnel.
The salaries and wages of Metso employees are determined on the basis
of local collective and individual agreements, employee performance
and job evaluations. Basic salaries and wages are complemented by
performance-based compensation systems. In 2008, the total amount of
salaries and wages paid was EUR 1,066 million (EUR 1,036 million in
2007).
Personnel by area
Dec 31, % of total Dec 31, % of total Change
2008 personnel 2007 personnel %
Finland 9,252 32 9,386 35 -1
Other Nordic countries 3,332 11 3,602 14 -7
Other Europe 3,842 13 3,183 12 21
North America 3,964 14 3,865 14 3
South and Central 2,991 10 2,675 10 12
America
Asia-Pacific 4,469 15 2,705 10 65
Rest of the world 1,472 5 1,421 5 4
Total 29,322 100 26,837 100 9
Strategic study
In August, Metso initiated a study to assess value-enhancing
opportunities, including structural options. In December, Metso's
Board of Directors decided to discontinue the study as a result of
the significant change in global economy. Metso's Board and
management continue to look for value enhancing opportunities in the
normal course of business.
New Corporate Governance
The new corporate governance policy of Metso became effective on
January 1, 2009. The updated policy takes into consideration the
changes in Metso's organizational structure and business operating
model as well the as recommendations outlined in the Finnish
Corporate Governance Code issued by the Finnish Securities Market
Association.
Reorganization of Metso's business
Metso's businesses were reorganized into three reporting segments as
of December 1, 2008; Mining and Construction Technology which is
headed by Matti Kähkönen, Energy and Environmental Technology, headed
by Pasi Laine, and Paper and Fiber Technology, headed by Bertel
Langenskiöld.
Changes in top management
Metso appointed two new members to its Executive Team as of December
1, 2008. The new members are Kalle Reponen, Senior Vice President,
Strategy and M&A, and Perttu Louhiluoto, who started at Metso on
October 1, 2008 as Senior Vice President, Operational Excellence.
Metso also established Metso Executive Forum to enforce strategy
execution globally as of December 1, 2008. In addition to the Metso
Executive Team members, the members of the Metso Executive Forum are
from Metso's main business lines and geographical regions: Andrew
Benko (Mining business line), João Ney Colagrossi (Construction
business line), Per-Åke Färnstrand (Fiber business line), Heinz
Gerdes (Recycling business line), Ari Harmaala (China), Hannu Mälkiä
(Paper business line), Lennart Ohlsson (Power business line) and
Sudhir Srivastava (India).
Financial targets and dividend policy
In connection with the annual strategy rounds Metso updated its
long-term financial targets for the period 2009-2012. The following
targets were set in August 2008 to replace the previous financial
targets set in October 2006:
- Net sales growth more than 10 percent
- EBITA to improve annually and EBITA margin to exceed 12 percent
- ROCE-% before taxes to exceed 25 percent
- Cash conversion (free cash flow / net income) to exceed 100 percent
- Solid investment grade credit ratings to be maintained
- To distribute at least 50 percent of annual earnings per share as a
dividend or in the other forms of repatriation of capital (share
buybacks, redemptions etc.)
Even though the net sales growth, EBITA and ROCE targets continue to
be valid for longer term, Metso does not consider these targets to be
achievable for 2009 after major changes in Metso's operating
environment. The cash conversion, and solid investment grade status
as well as dividend policy, are valid targets also for 2009. As
usual, Metso will assess its financial targets and dividend policy
after the annual strategy round during the second half of 2009.
Decisions of the Annual General Meeting
The Annual General Meeting of Metso Corporation on April 2, 2008
approved the accounts for 2007 as presented by the Board of Directors
and decided to discharge the members of the Board of Directors and
the President and CEO of Metso Corporation from liability for the
financial year 2007. In addition, the Annual General Meeting approved
the proposals of the Board of Directors to authorize the Board to
decide upon repurchasing the Corporation's own shares, arranging a
share issue, granting special rights and decreasing the share premium
reserve and the legal reserve.
The Annual General Meeting decided to establish a Nomination
Committee of the Annual General Meeting to prepare proposals for the
next Annual General Meeting in respect of the composition of the
Board of Directors and director remuneration. The Nomination
Committee consists of the representatives appointed by the four
biggest shareholders and the Chairman of Metso's Board 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. Jukka Viinanen and Arto
Honkaniemi were elected as new members of the Board. Board members
re-elected were Maija-Liisa Friman, Christer Gardell and Yrjö Neuvo.
The term of office of Board members lasts until the end of the next
Annual General Meeting.
The Annual General Meeting decided that the annual remunerations for
Board members be EUR 92,000 for the Chairman, EUR 56,000 for the Vice
Chairman and EUR 45,000 for the members and that the meeting fee
including committee meetings be EUR 600 per meeting. The auditing
company PricewaterhouseCoopers Oy, Authorized Public Accountants, was
re-elected as the Corporation's Auditor until the end of the next
Annual General Meeting.
The Annual General Meeting decided that a dividend of EUR 3.00 per
share be paid for the financial year which ended on December 31,
2007. The dividend comprised an ordinary dividend of EUR 1.65 per
share and an extra dividend of EUR 1.35 per share. The dividend was
paid on April 15, 2008.
Members of Metso's Board Committees
Metso Corporation's Board of Directors elected from its midst the
members of the Audit Committee and Compensation Committee at its
assembly meeting. The Board's Audit Committee consists of Maija-Liisa
Friman (Chairman), Arto Honkaniemi and Jukka Viinanen. The Board's
Compensation Committee consists of Matti Kavetvuo (Chairman),
Christer Gardell, Yrjö Neuvo and Jaakko Rauramo.
The Nomination Committee consists of Metso's four biggest registered
shareholders on November 3, 2008 and they have named the following
persons as their representatives for Metso's Nomination Committee
i.e. State of Finland: Pekka Timonen, Cevian Capital II Master Fund
L.P.: Lars Förberg, Varma Mutual Pension Insurance Company: Mikko
Koivusalo and Ilmarinen Mutual Pension Insurance Company: Harri
Sailas. The Chairman of Metso's Board of Directors serves as the
Committee's expert member. The Nomination Committee prepares
proposals on the composition of the Board of Directors along with the
director remuneration for the next Annual General Meeting and
presents its proposal to the company's Board of Directors.
Shares, options and share capital
At the end of December, 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 70,131
Metso shares held by a limited partnership consolidated in Metso's
consolidated financial statements. Together these represent 0.09
percent of all the shares and votes. The average number of shares
outstanding in 2008, excluding Metso shares held by the company, was
141,595,026.
Metso's Annual General meeting on April 2, 2008 decided to decrease
the share premium reserve and the legal reserve. The decreased
amounts were transferred to the invested non-restricted equity as of
August 7, 2008.
In August, Metso's Board of Directors decided to cancel the remaining
100,000 year 2003A stock options. Following this and earlier
cancellations and share subscriptions there are no options
outstanding or available from any of Metso's option programs for
subscription of shares in Metso Corporation.
Metso's market capitalization, excluding Metso shares held by the
company, was EUR 1,207 million on December 31, 2008.
Share ownership plans
Metso has a share ownership plan for years 2006-2008. The maximum
number of shares to be allocated in the incentive plan is 360,000
Metso Corporation shares.
The 2007 share ownership plan comprised 86 Metso executives,
including the entire Executive Team. At the end of March 2008, 67,657
shares were distributed as rewards, corresponding to approximately
0.05 percent of all Metso shares. Members of the Executive Team
received 15,763 shares.
Metso's Board of Directors decided in February on the number of
shares to be allocated for 2008 plan and the criteria for earning
them. The potential reward from the plan will be based on the
operating profit of Metso and its business areas in 2008. In 2008,
the share ownership plan will cover a maximum of 130,000 Metso
shares, corresponding to 0.09 percent of all Metso shares. Metso's
entire Executive Team is covered by the 2008 plan, and a maximum of
27,500 shares has been allocated to Executive Team members. The
maximum reward from the plan is limited to each person's annual
salary. The payment of rewards will be decided during the first
quarter of 2009.
In October, Metso's Board approved a new, share-based incentive plan
for the Metso Group management, Metso Share Ownership Plan 2009-2011
(SOP 2009-2011). The plan includes one three-year earnings period,
which will begin on January 1, 2009 and will end on December 31,
2011. The plan was initially targeted to about 100 key managers, out
of which 88 decided to participate. The plan requires participants'
personal investment in Metso shares and the participants have
committed to invest in about 55,000 shares. The rewards to be paid on
the basis of the plan will correspond to a maximum total of
approximately 376,000 Metso shares. The shares to be transferred in
possible rewards are Metso shares obtained in public trading, and
therefore, the SOP 2009-2011, will have no diluting effect on the
share value.
REPORTING SEGMENTS
As of December 1, 2008, Metso's businesses were reorganized into
three reporting segments: Mining and Construction Technology,
consisting of Mining and Construction business lines, Energy and
Environmental Technology, consisting of Power, Automation and
Recycling business lines and Paper and Fiber Technology, consisting
of Paper, Fiber and Tissue business lines. These financial statements
are prepared based on the new operating structure.
Mining and Construction Technology
+-------------------------------------------------------------------+
| EUR million | Q4/08 | Q4/07 | Change | 2008 | 2007 | Change |
| | | | % | | | % |
|----------------+-------+-------+--------+--------+-------+--------|
| Net sales | 717 | 683 | 5 | 2,586 | 2,330 | 11 |
|----------------+-------+-------+--------+--------+-------+--------|
| Net sales of | 296 | 254 | 17 | 1,078 | 960 | 12 |
| services | | | | | | |
| business | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| % of net | 42 | 37 | | 42 | 41 | |
| sales | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| Earnings | | | | | | |
| before | | | | | | |
| interest, tax | | | | | | |
| and | | | | | | |
| amortization | | | | | | |
| (EBITA) | 91.9 | 99.4 | -8 | 361.2 | 323.0 | 12 |
|----------------+-------+-------+--------+--------+-------+--------|
| % of net | 12.8 | 14.6 | | 14.0 | 13.9 | |
| sales | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| Operating | 91.3 | 98.6 | -7 | 358.4 | 319.8 | 12 |
| profit | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| % of net | 12.7 | 14.4 | | 13.9 | 13.7 | |
| sales | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| Orders | 339 | 705 | -52 | 2,709 | 2,776 | -2 |
| received | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| Order backlog | | | | 1,492 | 1,496 | 0 |
| at end of | | | | | | |
| period | | | | | | |
|----------------+-------+-------+--------+--------+-------+--------|
| Personnel at | | | | 11,259 | 9,754 | 15 |
| end of period | | | | | | |
+-------------------------------------------------------------------+
Net sales of Mining and Construction Technology grew by 11 percent on
the comparison period and were EUR 2,586 million (the growth was 16%
at comparable exchange rates). Both of the segment's business lines
increased net sales over the previous year. Net sales of the services
business were at a good level and grew by 12 percent (19% at
comparable exchange rates). The services business accounted for 42
percent of the net sales (41% in 2007).
The operating profit in 2008 increased by 12 percent and was EUR
358.4 million, or 13.9 percent of net sales (EUR 319.8 million and
13.7%). Strong volume growth and the favorable development of the
services business improved profitability. However, in the fourth
quarter profitability weakened because of a slowdown in net sales
growth while fixed costs continued to increase.
The value of orders received in 2008 was EUR 2,709 million (EUR 2,776
million in 2007). The decrease was due to the impact of exchange
rates. The value of new orders was on par with the previous year in
the Mining business line and slightly down in the Construction
business line. The last quarter of 2008 was clearly the weakest in
terms of orders received. The volume of orders received from emerging
markets was at the previous year's level, and they accounted for 50
percent of the new orders (49%). Orders received increased in
Asia-Pacific by close to 30 percent. Among the largest orders
received during the year were those received for grinding equipment
to Minera Petaquilla S.A.'s copper mine in Panama, minerals
processing equipment to China Metallurgical Group in Australia, and
grinding equipment to Metallurgical Company Norilsk Nickel in Russia.
The order backlog remained at the previous year's level and totaled
EUR 1,492 million at the end of December (EUR 1,496 million on Dec
31, 2007). Slightly over 10 percent of orders in the order backlog
are subject to uncertainties, related to delivery schedules.
Energy and Environmental Technology
+-------------------------------------------------------------------+
| EUR million | Q4/08 | Q4/07 | Change | 2008 | 2007 | Change |
| | | | % | | | % |
|-----------------+-------+-------+--------+-------+-------+--------|
| Net sales | 503 | 474 | 6 | 1,775 | 1,543 | 15 |
|-----------------+-------+-------+--------+-------+-------+--------|
| Net sales of | 117 | 97 | 20 | 404 | 347 | 16 |
| services | | | | | | |
| business | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| % of net | 23 | 21 | | 23 | 23 | |
| sales | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| Earnings before | 60.5 | 62.8 | -4 | 198.3 | 182.4 | 9 |
| interest, tax | | | | | | |
| and | | | | | | |
| amortization | | | | | | |
| (EBITA) | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| % of net | 12.0 | 13.2 | | 11.2 | 11.8 | |
| sales | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| Operating | 56.0 | 54.6 | 3 | 176.0 | 150.3 | 17 |
| profit | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| % of net | 11.1 | 11.5 | | 9.9 | 9.7 | |
| sales | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| Orders received | 341 | 367 | -7 | 1,658 | 1,884 | -12 |
|-----------------+-------+-------+--------+-------+-------+--------|
| Order backlog | | | | 1,204 | 1,337 | -10 |
| at end of | | | | | | |
| period | | | | | | |
|-----------------+-------+-------+--------+-------+-------+--------|
| Personnel at | | | | 6,357 | 5,857 | 9 |
| end of period | | | | | | |
+-------------------------------------------------------------------+
The net sales of Energy and Environmental Technology increased by 15
percent on the comparison period (18% at comparable exchange rates)
and were EUR 1,775 million. The growth originated from all business
lines, and the strongest growth was experienced in the Power business
line. The services business grew by 16 percent (20 percent at
comparable exchange rates). The services business accounted for 23
percent of the net sales, as was the case a year before (23% in
2007).
The operating profit increased by 17 percent on the previous year and
was EUR 176.0 million, or 9.9 percent of net sales (EUR 150.3 million
and 9.7% in 2007). Operating profit is burdened by the EUR 15 million
of amortization of intangible assets related to the acquisition of
the Power business (EUR 28 million in 2007). Operating profit in 2008
increased in the Automation business line owing to strong volume
growth and decreased slightly in the Recycling business line. Also
the operating profit of Power business line improved, but the
improvement was mainly due to the decrease in the amortization of
intangible assets.
The value of orders received fell by 12 percent from the comparison
period and totaled EUR 1,658 million. The decrease was due to the
Power and Recycling business lines. Orders received by the Automation
business line remained on the previous year's level. Major orders for
valves during the year included valve deliveries for the oil and gas
industry in Asia and the Middle East, of which the most significant
was the delivery for the Qatar Petroleum and Shell GTL
(gas-to-liquids) project in Qatar. Major system deliveries included
the large automation package for the Propapier paper plant in
Germany. The Power business line's major orders were the evaporation
plant to SCA Packaging's pulp and paper mill in Sweden, the
biomass-fired power boiler to Dalkia France SCA's combined heat and
power plant in France, and a multifuel-fired boiler to Stora Enso
Poland S.A.'s power plant in Poland. The order backlog amounted to
EUR 1,204 million at the end of the year, 10 percent below the level
at the end of 2007. Projects accounting for close to 20 percent of
the order backlog's total value are subject to uncertainties relating
to delivery schedules. These uncertain orders include pulp mill
orders for Zhanjiang Chenming in China and Aracruz in Brazil.
Paper and Fiber Technology
+-------------------------------------------------------------------+
| EUR million | Q4/08 | Q4/07 | Change | 2008 | 2007 | Change |
| | | | % | | | % |
|---------------+-------+-------+--------+--------+--------+--------|
| Net sales | 627 | 738 | -15 | 2,044 | 2,364 | -14 |
|---------------+-------+-------+--------+--------+--------+--------|
| Net sales of | 203 | 208 | -3 | 716 | 718 | 0 |
| services | | | | | | |
| business | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| % of net | 32 | 28 | | 35 | 30 | |
| sales | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| Earnings | 51.2 | 39.2 | 31 | 146.1 | 146.6 | 0 |
| before | | | | | | |
| interest, tax | | | | | | |
| and | | | | | | |
| amortization | | | | | | |
| (EBITA) | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| % of net | 8.2 | 5.3 | | 7.1 | 6.2 | |
| sales | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| Operating | 46.9 | 34.6 | 36 | 130.1 | 128.2 | 1 |
| profit | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| % of net | 7.5 | 4.7 | | 6.4 | 5.4 | |
| sales | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| Orders | 207 | 698 | -70 | 2,021 | 2,293 | -12 |
| received | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| Order backlog | | | | 1,434 | 1,553 | -8 |
| at end of | | | | | | |
| period | | | | | | |
|---------------+-------+-------+--------+--------+--------+--------|
| Personnel at | | | | 10,544 | 10,093 | 4 |
| end of period | | | | | | |
+-------------------------------------------------------------------+
Net sales of Paper and Fiber Technology decreased by 14 percent in
2008 and were EUR 2,044 million. Net sales decreased considerably in
the Paper and Fiber business lines. The net sales of the services
business were on a par with the comparison period (at comparable
exchange rates, the growth would have been about 3 percent),
accounting for 35 percent of net sales (30% in 2007).
Paper and Fiber Technology's EBITA for January-December was EUR 146.1
million, i.e. 7.1 percent of net sales (EUR 146.6 million and 6.2%).
The profitability improvement in the final quarter compared to the
same period last year was due to the successful deliveries of major
projects and the nonrecurring costs that were lower than the year
before.
The operating profit was EUR 130.1 million, i.e. 6.4 percent of net
sales (EUR 128.2 million and 5.4%), and it includes EUR 4 million in
amortization of intangible assets relating to the acquisition of the
Pulping business (EUR 8 million in 2007). The Paper and Tissue
business lines improved their operating profit slightly, while the
Fiber business line's operating profit decreased considerably
compared with the previous year.
The pulp and paper industry's demand for equipment and services
weakened considerably during the year. Orders received by the Tissue
business line were on a par with the comparison year, while those of
the Paper business line decreased. Orders received by the Fiber
business line increased in 2008, but include two pulp technology
projects with uncertain delivery schedules.
The value of orders received decreased 12 percent from the comparison
period and was EUR 2,021 million. The largest orders received during
the year were a papermaking line for Propapier in Germany, pulp mill
equipment for Zhanjiang Chenming in China, a pulp technology delivery
to Aracruz in Brazil, board making lines for Shandong Bohui in China
and Amcor in Australia, and a fine paper production line to Fujian
Nanping Paper Co. in China.
The final scope of the Zhanjiang Chenming pulp mill project is
currently being finalized. The customer of the Aracruz pulp mill
project has announced that it plans to resume the expansion project
in Brazil, as from the first half of 2011. Metso has done some work
relating to the project on the basis of the prepayment made by the
customer.
Metso is negotiating with both Zhanjiang Chenming and Aracruz
regarding project implementation schedules and the effects of
scheduling changes.
The order backlog at the end of December, EUR 1,434 million, was 8
percent lower than the order backlog at the end of 2007. About
one-third of the projects in the order backlog are subject to
uncertainties relating to delivery schedules, such as the pulp mill
orders mentioned above.
In the fourth quarter, the segment commenced measures to adjust
capacity to the decreased machine and equipment demand in the pulp
and paper industry. The change in the market situation has escalated
further as a result of the global financial crisis. The planned
measures are intended to secure the competitiveness of the business
by streamlining the operational and cost structure of operations.
Valmet Automotive
Valmet Automotive's net sales in 2008 totaled EUR 65 million. The
operating loss was EUR 3.5 million, or 5.4 percent of net sales.
During the year, Valmet Automotive produced an average of 87 vehicles
(in 2007, 110 vehicles) per day. At the end of December, Valmet
Automotive employed 783 people (789 employees at December 31, 2007).
In November, Valmet Automotive and the U.S. company Fisker Automotive
signed a cooperation agreement on the manufacture of Fisker Karma
cars in Finland. Production is planned to start in the final quarter
of 2009, and the first cars will be delivered to North America. The
annual production is projected to be 15,000 cars. Valmet Automotive's
current assembly contract with Porsche will continue until 2012.
Events after the review period
Metso and Wärtsilä completed the joint venture transaction
Metso and Wärtsilä completed the transaction combining Metso's Heat &
Power business (a business unit within Metso Power) and Wärtsilä's
Biopower business into a joint venture named MW Power Oy. The
transaction was closed on January 1, 2009. Metso owns 60 percent and
Wärtsilä 40 percent of MW Power Oy. An order backlog of approximately
EUR 116 million was transferred with Wärtsilä Biopower Oy to the
joint venture. The consolidated annual pro forma net sales of the
company were approximately EUR 130 million and the number of
employees about 200.
Metso sold its composites manufacturing business in Oulu, Finland
Metso sold its composites manufacturing business and related assets
in Oulu, Finland to xperion Oy. The divestment was concluded on
January 1, 2009. The divestment does not have a material effect on
Metso, and a small profit was recognized from the sale. Annual net
sales of the divested business have been less than EUR 5 million. The
entire personnel of 21 people transferred to xperion Oy. The sold
business was part of the Paper business line.
Metso adjusts its Finnish units serving the paper industry
In January 2009, Metso started personnel negotiations regarding
employee reductions in its Finnish units serving the paper industry.
The employee reduction is estimated to affect a total of 900-1,200
employees. Approximately 4,700 employees work in the units subject to
the personnel negotiations. The possible reduction in the number of
units and the consolidation of operations into bigger units will be
examined as part of the negotiations.
The aim is to conclude the personnel negotiations involving the Paper
business line and the Process Automation Systems business unit of the
Automation business line by mid-March. The employee reductions are
expected to take place during April-September of this year.
As a result of the adjustments, the annual expenses of the businesses
in question are estimated to decrease by EUR 40-50 million. The cost
reductions are estimated to be realized in full starting in 2010. The
nonrecurring expenses caused by the adjustments and recognized in
2009 are estimated to be EUR 10-20 million.
Moody's revised Metso's rating outlook to negative
In January, Moody's Investor Service confirmed Metso's Baa2 long-term
credit rating and changed the outlook from stable to negative.
Smurfit-Stone Container Corporation files for Chapter 11 bankruptcy
Smurfit-Stone Container Corporation, one of Metso's Paper and Fiber
Technology's customers in North America, announced on January 26,
2009 that it has filed a voluntary petition for reorganization under
Chapter 11. Metso estimates that maximum credit risk related to
receivables from Smurfit-Stone is about EUR 3 million.
Metso's Nomination Committee proposes seven members to the Board
The Nomination Committee established by Metso's Annual General
Meeting proposes to the next Annual General Meeting, which will be
held on March 31, 2009, that the number of Board members is seven.
The Nomination Committee proposes that from the current Board members
Maija-Liisa Friman, Christer Gardell, Arto Honkaniemi, Yrjö Neuvo,
Jaakko Rauramo and Jukka Viinanen be re-elected. Jukka Viinanen is
proposed to be elected as Chairman of the Board and Jaakko Rauramo as
Vice Chairman. It is also proposed that Ms. Pia Rudengren shall be
elected as a new member of the Metso Board. Matti Kavetvuo, present
Chairman of the Board, has informed that he is not available for
re-election.
The Nomination Committee proposes the following annual fees to be
paid: Chairman of the Board EUR 92,000, Vice Chairman of the Board
EUR 56,000 and other Board members EUR 45,000. In addition, a fee of
EUR 600 per meeting is paid to all members for the Board and Board
committee meetings they attend. The travel expenses and daily
allowances will be paid according to company's travel policy. The
fees are proposed to remain unchanged compared to 2008.
The Nomination Committee notes that a personnel representative will
participate as an external expert in the Metso Board meetings in the
next Board term within the limitations imposed by Finnish law. The
new Board will invite the personnel representative as its external
expert in its organizing meeting after the Annual General Meeting.
The members of the Nomination Committee were Pekka Timonen
(Chairman), Lars Förberg, Mikko Koivusalo, Harri Sailas and Matti
Kavetvuo as the Committee's expert member.
Short-term outlook
As a result of the uncertainty in the financial markets and the
slowdown of global economic growth, Metso's operating environment is
expected to be demanding in 2009. Metso's customers are cautious in
their decisions to invest, which will especially affect the demand
for Metso's new equipment and project business.
Mining companies are expected to make substantial cuts in their
investment plans compared with the peak investment levels of recent
years and further limit their production during the year. Based on
the strong product and services offering, the demand for Metso's
mining equipment is expected to be satisfactory in 2009. In the
construction industry, the demand for equipment relating to
aggregates production is estimated to be weak at least during the
first half of the year. Many countries have introduced stimulus
measures relating to infrastructure development, which, at some
point, are expected to have a positive effect on the demand for
construction industry products. The demand for Mining and
Construction Technology's services business is expected to be
satisfactory.
The demand for power plants utilizing renewable energy sources is
expected to be satisfactory in Europe and North America in 2009. The
goals set for the use of renewable energy sources and the efforts to
secure and increase energy self-sufficiency are expected to boost the
demand for these power plants. The demand for Metso's automation
products is expected to be satisfactory in 2009. The demand for
metals recycling equipment is expected to be weak, owing to the low
demand of scrap metal and reduction in steel production. Demand for
services business in Energy and Environmental Technology is expected
to be satisfactory.
The demand for paper, pulp and fiber lines is expected to be weak in
2009. The delivery schedules of some large paper and board machine
and fiber line projects in the order backlog have been prolonged. In
the pulp and paper industry, low capacity utilization rates are
expected to weaken the demand for Metso's services business,
particularly in North America and Europe.
Metso's total net sales in 2009 are estimated to exceed EUR 5
billion. Metso's order backlog is over EUR 4 billion, out of which
about EUR 3 billion is scheduled for 2009. Metso's services business
volumes are expected to remain satisfactory in 2009.
The focus of Metso's management has shifted from growth to
profitability and cash flow. The aim is to quickly adjust the
capacity and the cost structure to correspond with the demand.
Metso's profitability is expected to be satisfactory in 2009. Free
cash flow is expected to improve considerably on 2008 owing to the
measures aimed at releasing working capital.
The net sales and profitability estimates are based on Metso's
current market outlook and business scope.
Board of Director's proposal for the distribution of profit
The Parent Company's distributable funds totaled EUR 1,017,111,051.25
on December 31, 2008, of which the net profit for the year was EUR
361,829,353.31.
The Board proposes to the Annual General Meeting that the dividend of
EUR 0.70 per share be distributed for the year ended on December 31,
2008. The Board is further proposing to the Annual General Meeting to
authorize the Board to pay at its discretion an additional dividend
later in the year 2009 in the amount not exceeding 0.68 euro per
share should the Metso's financial position support the distribution
of such additional dividend (in 2007, an ordinary dividend of EUR
1.65 per share and an extra dividend of EUR 1.35 was paid).
It is proposed that the record date for the payment of the dividend
will be April 3, 2009 and that the dividend will be paid on April 15,
2009. All the shares outstanding on the dividend record date will be
entitled to a dividend, except for the treasury shares held by the
Parent Company.
Annual General Meeting 2009
The Annual General Meeting of Metso Corporation will be held at 3
p.m. on Tuesday, March 31, 2009 at Helsinki Fair Centre (Messuaukio
1, 00520 Helsinki, Finland).
Helsinki, February 4, 2009
Metso Corporation's Board of Directors
The Financial Statements Review is unaudited
CONSOLIDATED STATEMENTS OF
INCOME
EUR million 10-12/2008 10-12/2007 1-12/2008 1-12/2007
Net sales 1,839 1,896 6,400 6,250
Cost of goods sold -1,371 -1,453 -4,733 -4,702
Gross profit 468 443 1,667 1,548
Selling, general and
administrative expenses -282 -256 -1,043 -972
Other operating income and
expenses, net 3 -8 11 1
Share in profits of
associated companies 1 1 2 3
Operating profit 190 180 637 580
% of net sales 10.3% 9.5% 10.0% 9.3%
Financial income and
expenses, net -35 -8 -89 -33
Profit before taxes 155 172 548 547
Income taxes -43 -49 -158 -163
Profit 112 123 390 384
Profit attributable to
minority interests 0 3 1 3
Profit attributable to
equity shareholders 112 120 389 381
Profit 112 123 390 384
Earnings per share, EUR 0.79 0.85 2.75 2.69
CONSOLIDATED STATEMENT OF RECOGNIZED INCOME
AND EXPENSE
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007
Cash flow hedges, net of tax -24 -3 -33 -2
Available-for-sale equity investments,
net of tax -9 -3 -19 22
Currency translation on subsidiary net
investments -37 -16 -49 -29
Net investment hedge gains (losses), net
of tax -8 -2 -11 -2
Defined benefit plan actuarial gains
(losses), net of tax -22 -1 -22 -1
Other 0 1 0 2
Net income (expense) recognized directly
in equity -100 -24 -134 -10
Profit 112 123 390 384
Total recognized income (expense) for the
period 12 99 256 374
Total recognized income (expense)
attributable to minority interests 0 3 1 3
Total recognized income (expense)
attributable to equity shareholders 12 96 255 371
Total recognized income (expense) for the
period 12 99 256 374
CONSOLIDATED BALANCE SHEET
ASSETS
EUR million Dec 31, 2008 Dec 31, 2007
Non-current assets
Intangible assets
Goodwill 778 772
Other intangible assets 254 251
1,032 1,023
Property, plant and equipment
Land and water areas 58 54
Buildings and structures 239 216
Machinery and equipment 366 315
Assets under construction 63 49
726 634
Financial and other assets
Investments in associated companies 14 19
Available-for-sale equity investments 18 45
Loan and other interest bearing
receivables 8 5
Available-for-sale financial investments 5 5
Derivative financial instruments 0 3
Deferred tax asset 174 144
Other non-current assets 26 19
245 240
Total non-current assets 2,003 1,897
Current assets
Inventories 1,606 1,410
Receivables
Trade and other receivables 1,146 1,256
Cost and earnings of projects under
construction in excess of advance billings 362 374
Loan and other interest bearing receivables 9 2
Available-for-sale financial assets - 0
Derivative financial instruments 48 18
Tax receivables 23 30
1,588 1,680
Cash and cash equivalents 314 267
Total current assets 3,508 3,357
TOTAL ASSETS 5,511 5,254
SHAREHOLDERS' EQUITY AND LIABILITIES
EUR million Dec 31, 2008 Dec 31, 2007
Equity
Share capital 241 241
Share premium reserve - 77
Cumulative translation differences -136 -76
Fair value and other reserves 490 456
Retained earnings 849 910
Equity attributable to shareholders 1,444 1,608
Minority interests 9 7
Total equity 1,453 1,615
Liabilities
Non-current liabilities
Long-term debt 1,089 700
Post employment benefit obligations 191 177
Provisions 36 37
Derivative financial instruments 8 1
Deferred tax liability 45 41
Other long-term liabilities 4 1
Total non-current liabilities 1,373 957
Current liabilities
Current portion of long-term debt 101 22
Short-term debt 245 97
Trade and other payables 1,189 1,291
Provisions 218 222
Advances received 479 637
Billings in excess of cost and earnings
of projects under construction 323 331
Derivative financial instruments 82 16
Tax liabilities 48 66
Total current liabilities 2,685 2,682
Total liabilities 4,058 3,639
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 5,511 5,254
NET INTEREST BEARING LIABILITIES
Long-term interest bearing debt 1,089 700
Short-term interest bearing debt 346 119
Cash and cash equivalents -314 -267
Other interest bearing assets -22 -12
Total 1,099 540
CONDENSED CONSOLIDATED CASH FLOW
STATEMENT
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007
Cash flows from operating activities:
Profit 112 123 390 384
Adjustments to reconcile profit to net cash
provided by operating activities
Depreciation and amortization 36 38 138 148
Interests and dividend income 15 6 57 32
Income taxes 43 49 158 163
Other 16 -8 34 -4
Change in net working capital -140 -123 -437 -286
Cash flows from operations 82 85 340 437
Interest paid and dividends received -25 -17 -49 -29
Income taxes paid -49 -34 -154 -114
Net cash provided by (used in)
operating activities 8 34 137 294
Cash flows from investing activities:
Capital expenditures on fixed assets -55 -49 -255 -159
Proceeds from sale of fixed assets 2 3 10 16
Business acquisitions, net of cash
acquired -13 -8 -44 -55
Proceeds from sale of businesses, net
of cash sold - 0 12 9
(Investments in) proceeds from sale
of financial assets 1 0 7 13
Other - - -7 -
Net cash provided by (used in)
investing activities -65 -54 -277 -176
Cash flows from financing activities:
Share options exercised - 0 - 0
Dividends paid - - -425 -212
Net funding 132 29 621 -5
Other - - 15 15
Net cash provided by (used in)
financing activities 132 29 211 -202
Net increase (decrease) in cash and
cash equivalents 75 9 71 -84
Effect from changes in exchange rates -17 -3 -24 -2
Cash and cash equivalents at
beginning of period 256 261 267 353
Cash and cash equivalents at end of
period 314 267 314 267
Free cash flow
EUR million 10-12/2008 10-12/2007 1-12/2008 1-12/2007
Net cash provided by
operating activities 8 34 137 294
Capital expenditures on
maintenance investments -32 -37 -118 -112
Proceeds from sale of
fixed assets 2 3 10 16
Free cash flow -22 0 29 198
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Cu- Eq-
mu- uity
la- at-
tive tri-
Share trans- Fair but- Mi-
pre- la- value Re- able nor-
mi- tion and tain- to ity To-
Share um ad- other ed share- in- tal
capi- re- just- re- earn- hold- ter- eq-
EUR million tal serve ments serves ings ers ests uity
Balance at Jan 1,
2007 241 77 -45 432 739 1,444 6 1,450
Net income
(expense)
recognized
directly in equity - - -31 20 1 -10 - -10
Net profit for the
period - - - - 381 381 3 384
Total recognized
income (expense)
for the period - - -31 20 382 371 3 374
Dividends - - - - -212 -212 - -212
Share options
exercised 0 0 - - - - - -
Redemption of own
shares - - - - - - - -
Share-based
payments, net of
tax - - - 5 - 5 - 5
Other - - - -1 1 0 -2 -2
Balance at Dec 31,
2007 241 77 -76 456 910 1,608 7 1,615
Balance at Jan 1,
2008 241 77 -76 456 910 1,608 7 1,615
Net income
(expense)
recognized
directly in equity - - -60 -52 -22 -134 - -134
Net profit for the
period - - - - 389 389 1 390
Total recognized
income (expense)
for the period - - -60 -52 367 255 1 256
Dividends - - - - -425 -425 - -425
Share options
exercised - - - - - - - -
Redemption of own
shares - - - - - - - -
Share-based
payments, net of
tax - - - 4 - 4 - 4
Decrease and
transfer of share
premium and legal
reserve - -77 - 77 - - - -
Other - - - 5 -3 2 1 3
Balance at Dec 31,
2008 241 - -136 490 849 1,444 9 1,453
KEY RATIOS
1-12/2008 1-12/2007
Earnings per share, EUR 2.75 2.69
Equity/share at end of period, EUR 10.19 11.36
Return on equity (ROE), %) 26.0 25.4
Return on capital employed (ROCE) before tax, % 23.2 26.1
Return on capital employed (ROCE) after tax, % 17.3 19.0
Equity to assets ratio at end of period, % 30.9 37.7
Gearing at end of period, % 75.7 33.4
Free cash flow 29 198
Free cash flow/share 0.20 1.40
Cash conversion, % 7 52
Gross capital expenditure (excl. business
acquisitions) 255 159
Business acquisitions, net of cash acquired 44 55
Depreciation and amortization 138 148
Number of outstanding shares at end of period
(thousands) 141,624 141,487
Average number of shares (thousands) 141,595 141,460
ACQUISITIONS
Acquisitions in 2008
In October Metso acquired G & F Beltline Services Pty Ltd, a
provider of conveyer belt line installations and maintenance
services based in Australia. The acquisition price was approximately
EUR 6 million and EUR 2 million thereof was allocated to intangible
assets being the fair value of Beltline's customer base. Goodwill of
EUR 3 million arose from the acquisition. The company was integrated
into Metso's Mining and Construction Technology segment on October
15, 2008.
In September Metso acquired PSP Slévárna in Czech Republic. The
company is a producer of finished manganese wear parts. The
transaction was valued at about EUR 6 million whereof EUR 2 million
was allocated to property, plant and equipment representing their
fair values. The company was transferred into Metso's ownership on
October 1, 2008 and was integrated into the Mining and Construction
Technology segment.
In September Metso also acquired from Finnish Fastpap Oy Ab its
paper quality control business comprising the manufacturing and
final assembly of measuring scanners used in Metso's Quality Control
Systems as well as after sales services. The unit was combined into
the Energy and Environmental Technology segment on October 1, 2008.
In September Metso increased its ownership in associated company
Valmet-Xi'an Paper Machinery Co. Ltd in China. Metso's holding
increased from 48.3% to 75% and the company was consolidated into
Metso's balance sheet in September. The cash paid for the
incremental portion was EUR 5 million and the value of the
previously held investment in associated companies was EUR 6
million. The company held a cash balance of EUR 13 million. A
goodwill of EUR 1 million was recognized in the transaction.
Metso acquired in June Mapag Valves GmbH, a German manufacturer of
butterfly valves which was combined into the Energy and
Environmental Technology segment. The debt-free acquisition price
was EUR 36 million, of which EUR 10 million was allocated to
intangible assets, representing the fair values of the acquired
technology, customer base and order backlog. The excess purchase
price of EUR 10 million represents goodwill associated to Metso's
improved market position in new and rapidly growing industrial
markets.
In May, Metso acquired Kemotron A/S, a Danish manufacturer of
advanced measurement systems mainly to the pulp, paper and chemical
industry. The purchase price was about EUR 3 million and the company
was combined into the Energy and Environmental Technology segment.
The acquired businesses contributed net sales of EUR 32 million and
net profit of EUR 0 million for the period from their acquisition to
December 31, 2008. Had these acquisitions taken place on January 1,
2008, Metso's net sales and net profit would have increased by EUR
55 million and EUR 1 million, respectively.
Summary information on acquisitions made in 2008 is as follows:
Fair value
EUR million Carrying amount allocations Fair value
Intangible assets 0 12 12
Property, plant and equipment 10 3 13
Inventories 24 - 24
Trade and other receivables 18 - 18
Deferred tax liabilities -1 -4 -5
Minority interests -3 - -3
Other liabilities assumed -24 - -24
Non-interest bearing net
assets 24 11 35
Cash and cash equivalents
acquired 13
Pre-acquisition investment in
associated companies
(Valmet-Xi'an) -6
Debt assumed -11
Purchase price -48
Goodwill 17
Purchase price settled in cash -48
Settlement of acquired debt -9
Cash and cash equivalents
acquired 13
Net cash outflow on
acquisitions -44
Acquisitions in 2007
Metso acquired North American metal recycling provider, Bulk
Equipment Systems and Technologies Inc (B.E.S.T. Inc), on March 30,
2007 and it was consolidated into the Energy and Environmental
Technology segment. The acquisition price was approximately EUR 9
million, of which EUR 3 million was allocated to intangible assets,
representing the fair values of the acquired customer base, brands,
technology and order backlog. The excess purchase price of EUR 7
million represents goodwill associated to Metso's improved position
in the North American metal recycling market.
On June 27, 2007, Metso acquired Mecanique et Dépannage Industries
s.a.r.l. (MDI), a French company supplying maintenance services to
the paper industry. The purchase price was less than EUR 1 million.
The company became part of Metso's Paper and Fiber Technology.
Metso's Paper and Fiber Technology acquired on July 18, 2007 a UK
based service provider Bender Holdings Limited with its subsidiaries.
The purchase price was EUR 16 million, net of cash acquired. EUR 10
million was allocated to intangible assets, representing the fair
values of acquired technology, customer base and existing long-term
contracts. The excess purchase price of EUR 6 million is goodwill
related to Metso's improved position in the worldwide market for
services to pulp and paper industry.
Metso strengthened its metal recycling business by acquiring Mueller
Engineering Inc. in the USA on October 31, 2007 when the company was
consolidated into the the Energy and Environmental Technology.
Mueller Engineering is a shredder plant service provider specializing
in servicing the drive motors and related equipment critical to the
functioning of the shredder. The purchase price was EUR 6 million, of
which EUR 3 million was allocated to intangible assets representing
the fair values of acquired customer base, technology and order
backlog and the remaining EUR 4 million represents goodwill arising
from the leading market position gained on metal recycling plant
services in North America.
Had these acquisitions taken place on January 1, 2007, Metso's net
sales and net profit would have increased by EUR 26 million and EUR 3
million, respectively.
Summary information on acquisitions made in 2007:
Fair value
EUR million Carrying amount allocations Fair value
Intangible assets 0 16 16
Property, plant and
equipment 2 - 2
Inventories 2 - 2
Trade and other
receivables 8 - 8
Deferred tax
liabilities -1 -5 -6
Other liabilities
assumed -7 - -7
Non-interest bearing
net assets 4 11 15
Cash and cash
equivalents acquired 4
Debt assumed -1
Purchase price -36
Goodwill 18
Purchase price settled
in cash -36
Cash and cash
equivalents acquired 4
Cash outflow on
acquisitions -32
ASSETS PLEDGED AND CONTINGENT
LIABILITIES
EUR million Dec 31, 2008 Dec 31, 2007
Mortgages on corporate debt 4 9
Other pledges and contingencies
Mortgages 1 2
Pledged assets 0 0
Guarantees on behalf of associated
company obligations - -
Other guarantees 9 11
Repurchase and other commitments 6 8
Lease commitments 152 142
NOTIONAL AMOUNTS OF DERIVATIVE FINANCIAL
INSTRUMENTS
Dec 31,
EUR million Dec 31, 2008 2007
Forward exchange rate contracts 1,460 1,387
Interest rate swaps 168 143
Option agreements
Bought 12 -
Sold 12 -
The notional amount of electricity forwards was 635 GWh as of
Dec 31, 2008 and 356 GWh as of Dec 31, 2007.
The notional amount of nickel forwards to hedge stainless steel
prices was 258 tons as of Dec 31, 2008 and 396 tons as of Dec 31,
2007.
The notional amounts indicate the volumes in the use of
derivatives, but do not indicate the exposure to risk.
EXCHANGE RATES USED
Dec 31,
1-12/2008 1-12/2007 Dec 31, 2008 2007
USD (US dollar) 1.4726 1.3797 1.3917 1.4721
SEK (Swedish krona) 9.6833 9.2647 10.8700 9.4415
GBP (Pound sterling) 0.8023 0.6873 0.9525 0.7334
CAD (Canadian dollar) 1.5656 1.4663 1.6998 1.4449
BRL (Brazilian real) 2.6711 2.6623 3.2441 2.5949
REPORTING SEGMENTS
NET SALES
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007 Change, %
Mining and Construction
Technology 717 683 2,586 2,330 11
Energy and Environmental
Technology 503 474 1,775 1,543 15
Paper and Fiber Technology 627 738 2,044 2,364 -14
Valmet Automotive 13 21 65 85 -24
Group Head Office and other - - - - -
Group Head Office and others
total 13 21 65 85 -24
Intra Metso net sales -21 -20 -70 -72
Metso total 1,839 1,896 6,400 6,250 2
OTHER OPERATING INCOME (+) AND EXPENSES
(-), NET
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007
Mining and Construction
Technology -0.6 4.7 3.9 8.1
Energy and Environmental
Technology -0.6 1.7 -1.2 0.9
Paper and Fiber Technology -0.6 -14.4 2.7 -10.4
Valmet Automotive 0.0 0.0 0.0 0.0
Group Head Office and other 4.8 0.0 5.2 2.5
Group Head Office and others
total 4.8 0.0 5.2 2.5
Metso total 3.0 -8.0 10.6 1.1
SHARE IN PROFITS OF ASSOCIATED COMPANIES
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007
Mining and Construction
Technology 0.0 0.3 0.1 0.3
Energy and Environmental
Technology 0.3 0.4 1.2 1.7
Paper and Fiber Technology 0.5 0.3 1.2 0.8
Valmet Automotive - - - -
Group Head Office and other - - - -
Group Head Office and others
total - - - -
Metso total 0.8 1.0 2.5 2.8
OPERATING PROFIT (LOSS)
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007 Change, %
Mining and Construction
Technology 91.3 98.6 358.4 319.8 12
Energy and Environmental
Technology 56.0 54.6 176.0 150.3 17
Paper and Fiber Technology 46.9 34.6 130.1 128.2 1
Valmet Automotive -2.5 0.9 -3.5 8.0 -144
Group Head Office and other -1.6 -9.0 -23.8 -26.5 -10
Group Head Office and others
total -4.1 -8.1 -27.3 -18.5 48
Metso total 190.1 179.7 637.2 579.8 10
OPERATING PROFIT (LOSS), % OF
NET SALES
10-12/ 10-12/ 1-12/ 1-12/
% 2008 2007 2008 2007
Mining and Construction
Technology 12.7 14.4 13.9 13.7
Energy and Environmental
Technology 11.1 11.5 9.9 9.7
Paper and Fiber Technology 7.5 4.7 6.4 5.4
Valmet Automotive -19.2 4.3 -5.4 9.4
Group Head Office and other n/a n/a n/a n/a
Group Head Office and others
total n/a n/a n/a n/a
Metso total 10.3 9.5 10.0 9.3
EBITA
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007 Change, %
Mining and Construction
Technology 91.9 99.4 361.2 323.0 12
Energy and Environmental
Technology 60.5 62.8 198.3 182.4 9
Paper and Fiber Technology 51.2 39.2 146.1 146.6 0
Valmet Automotive -2.6 1.0 -3.5 8.1 -143
Group Head Office and other -1.0 -8.5 -21.2 -24.7 -14
Group Head Office and others
total -3.6 -7.5 -24.7 -16.6 49
Metso total 200.0 193.9 680.9 635.4 7
EBITA, % OF NET SALES
10-12/ 10-12/ 1-12/ 1-12/
% 2008 2007 2008 2007
Mining and Construction
Technology 12.8 14.6 14.0 13.9
Energy and Environmental
Technology 12.0 13.2 11.2 11.8
Paper and Fiber Technology 8.2 5.3 7.1 6.2
Valmet Automotive -20.0 4.8 -5.4 9.5
Group Head Office and other n/a n/a n/a n/a
Group Head Office and others
total n/a n/a n/a n/a
Metso total 10.9 10.2 10.6 10.2
ORDERS RECEIVED
10-12/ 10-12/ 1-12/ 1-12/
EUR million 2008 2007 2008 2007 Change, %
Mining and Construction
Technology 339 705 2,709 2,776 -2
Energy and Environmental
Technology 341 367 1,658 1,884 -12
Paper and Fiber Technology 207 698 2,021 2,293 -12
Valmet Automotive 13 21 65 85 -24
Group Head Office and other - - - - -
Group Head Office and others
total 13 21 65 85 -24
Intra Metso orders received -11 -20 -69 -73
Metso total 889 1,771 6,384 6,965 -8
QUARTERLY INFORMATION
NET SALES
10-12/ 1-3/ 4-6/ 7-9/ 10-12/
EUR million 2007 2008 2008 2008 2008
Mining and Construction Technology 683 534 665 670 717
Energy and Environmental Technology 474 373 476 423 503
Paper and Fiber Technology 738 483 493 441 627
Valmet Automotive 21 23 19 10 13
Group Head Office and other - - - - -
Group Head Office and others total 21 23 19 10 13
Intra Metso net sales -20 -13 -20 -16 -21
Metso total 1,896 1,400 1,633 1,528 1,839
OTHER OPERATING INCOME (+) AND EXPENSES
(-), NET
10-12/ 1-3/ 4-6/ 7-9/ 10-12/
EUR million 2007 2008 2008 2008 2008
Mining and Construction Technology 4.7 5.5 -4.0 3.0 -0.6
Energy and Environmental Technology 1.7 0.6 -0.7 -0.5 -0.6
Paper and Fiber Technology -14.4 0.1 1.8 1.4 -0.6
Valmet Automotive 0.0 0.0 0.0 0.0 0.0
Group Head Office and other 0.0 -0.7 0.7 0.4 4.8
Group Head Office and others total 0.0 -0.7 0.7 0.4 4.8
Metso total -8.0 5.5 -2.2 4.3 3.0
SHARE IN PROFITS OF ASSOCIATED COMPANIES
10-12/ 1-3/ 4-6/ 7-9/ 10-12/
EUR million 2007 2008 2008 2008 2008
Mining and Construction Technology 0.3 0.0 0.1 0.0 0.0
Energy and Environmental Technology 0.4 0.2 0.3 0.4 0.3
Paper and Fiber Technology 0.3 0.4 0.3 0.0 0.5
Valmet Automotive - - - - -
Group Head Office and other - - - - -
Group Head Office and others total - - - - -
Metso total 1.0 0.6 0.7 0.4 0.8
OPERATING PROFIT
(LOSS)
EUR million 10-12/2007 1-3/2008 4-6/2008 7-9/2008 10-12/2008
Mining and
Construction
Technology 98.6 78.2 91.0 97.9 91.3
Energy and
Environmental
Technology 54.6 24.6 44.2 51.2 56.0
Paper and Fiber
Technology 34.6 24.9 23.8 34.5 46.9
Valmet Automotive 0.9 1.0 0.9 -2.9 -2.5
Group Head Office
and other -9.0 -9.1 -4.7 -8.4 -1.6
Group Head Office
and others total -8.1 -8.1 -3.8 -11.3 -4.1
Metso total 179.7 119.6 155.2 172.3 190.1
EBITA
EUR million 10-12/2007 1-3/2008 4-6/2008 7-9/2008 10-12/2008
Mining and
Construction
Technology 99.4 78.9 91.8 98.6 91.9
Energy and
Environmental
Technology 62.8 32.4 49.7 55.7 60.5
Paper and Fiber
Technology 39.2 29.9 28.1 36.9 51.2
Valmet Automotive 1.0 1.0 0.9 -2.8 -2.6
Group Head Office
and other -8.5 -8.5 -4.0 -7.7 -1.0
Group Head Office
and others total -7.5 -7.5 -3.1 -10.5 -3.6
Metso total 193.9 133.7 166.5 180.7 200.0
CAPITAL EMPLOYED
Dec 31, Mar 31, June 30, Sep 30, Dec 31,
EUR million 2007 2008 2008 2008 2008
Mining and Construction
Technology 1,004 1,067 1,120 1,226 1,230
Energy and Environmental
Technology 532 524 621 640 647
Paper and Fiber Technology 458 557 532 480 532
Valmet Automotive 21 22 22 23 21
Group Head Office and
other 419 533 496 390 458
Group Head Office and others
total 440 555 518 413 479
Metso total 2,434 2,703 2,791 2,759 2,888
ORDERS RECEIVED
EUR million 10-12/2007 1-3/2008 4-6/2008 7-9/2008 10-12/2008
Mining and
Construction
Technology 705 687 936 747 339
Energy and
Environmental
Technology 367 382 367 568 341
Paper and Fiber
Technology 698 433 441 940 207
Valmet Automotive 21 23 19 10 13
Group Head Office
and other - - - - -
Group Head Office
and others total 21 23 19 10 13
Intra Metso orders
received -20 -16 -23 -19 -11
Metso total 1,771 1,509 1,740 2,246 889
ORDER BACKLOG
Dec 31, Mar 31, June 30, Sep 30, Dec 31,
EUR million 2007 2008 2008 2008 2008
Mining and Construction
Technology 1,496 1,562 1,850 1,964 1,492
Energy and Environmental
Technology 1,337 1,331 1,253 1,402 1,204
Paper and Fiber Technology 1,553 1,494 1,441 1,931 1,434
Valmet Automotive - - - - -
Group Head Office and
other - - - - -
Group Head Office and others
total - - - - -
Intra Metso order backlog -45 -47 -50 -53 -42
Metso total 4,341 4,340 4,494 5,244 4,088
Dec 31, Mar 31, June 30, Sep 30, Dec 31,
PERSONNEL 2007 2008 2008 2008 2008
Mining and Construction
Technology 9,754 10,063 10,503 10,829 11,259
Energy and Environmental
Technology 5,857 5,957 6,311 6,317 6,357
Paper and Fiber Technology 10,093 9,892 10,089 10,661 10,544
Valmet Automotive 789 789 779 579 783
Group Head Office and
other 344 361 387 376 379
Group Head Office and others
total 1,133 1,150 1,166 955 1,162
Metso total 26,837 27,062 28,069 28,762 29,322
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.
Notes to the Financial Statements Review
This Financial Statements Review has been prepared in accordance with
IAS 34 'Interim Financial Reporting'. The same accounting policies
have been applied as in the annual financial statements. This
Financial Statements Review is unaudited.
New accounting standards
IFRS 8
In November 2006, IASB issued IFRS 8 'Operating Segments' requiring
the company to adopt a 'management approach' to reporting on the
financial performance of its operating segments. Thus, the
information to be reported is the same management uses internally for
evaluating segment performance.
Metso will apply the standard for the financial year beginning on
January 1, 2009. The new standard does not affect the reporting
segment structure.
IAS 1 (Revised)
In September 2007, IASB published IAS 1 (Revised) 'Presentation of
Financial Statements'. The revised standard is aimed at improving
users' ability to analyze and compare the information provided in
financial statements. It requires all non-owner changes in equity
(comprehensive income) to be presented in one statement of
comprehensive income or in two statements, a separate income
statement and a statement of comprehensive income. However,
components of total comprehensive income are not permitted to be
presented separately in the statement of changes in equity.
IAS 1 (revised) was endorsed by the European Union in December 2008.
Metso adopted the statement of comprehensive income or statement of
recognized income and expenses in 2007 when it began recognizing the
actuarial gains and losses. The standard will be fully applied for
the financial year beginning on January 1, 2009.
IFRS 3 (Revised)
IASB has published IFRS 3 (Revised), 'Business combinations', which
maintains the requirement to apply the acquisition method to business
combinations, but with some significant changes such as expensing of
transaction costs. In addition, all payments to purchase a business
are to be recorded at fair value on the acquisition date, with some
contingent payments subsequently remeasured at fair value through
income. Goodwill may be calculated based on the parent's share of net
assets or it may include goodwill related to the minority interest.
Metso is currently evaluating the effects on its financial statements
but expects it to affect only future business combinations.
IFRS 3 (Revised), still subject to endorsement by the European Union,
becomes effective for annual financial statements for periods
beginning on or after July 1, 2009.
Provided the revision receives endorsement by the European Union,
Metso will apply the standard for the financial year beginning on
January 1, 2010.
IAS 23 (Amended)
IASB has published Amendment to IAS 23 'Borrowing Costs', which
requires an entity to capitalize borrowing costs directly
attributable to the acquisition, construction or production of a
qualifying asset as part of the cost of that asset. A qualifying
asset can be intended for its own use (self-constructed asset) or for
sale. The option of immediately expensing these borrowing costs will
be removed.
IAS 23 (revised) was endorsed by the European Union in December 2008.
Metso will apply the standard for the financial year beginning on
January 1, 2009. As Metso capitalizes interest costs on
self-constructed long-lived assets, the amendment does not impact
Metso's financial statements.
IAS 27 (Revised)
IASB has published IAS 27 (Revised), 'Consolidated and separate
financial statements'. The revised standard requires the effects of
all transactions with non-controlling interests to be recorded in
equity if there is no change in control. They will no longer result
in goodwill or gains and losses. The standard also specifies the
accounting when control is lost. Any remaining interest in the entity
is remeasured to fair value and a gain or loss is expensed. Metso
does not expect the standard to affect its financial statements.
IAS 27 (Revised) is effective for annual financial statements for
periods beginning on or after July 1, 2009. The standard is still
subject to endorsement by the European Union.
Provided the revision receives endorsement by the European Union,
Metso will apply the standard for the financial year beginning on
January 1, 2010.
IFRS 2 (Amended)
IASB published in January 2008 an amendment to IFRS 2 'Share-based
payments' clarifying the accounting of vesting conditions and
cancellations. Vesting conditions are limited to service and
performance conditions, other features are not vesting conditions and
only impact the grant date fair value. Cancellations whether by the
Company or by other parties are accounting for in similar way, Metso
does not expect the amendment to affect its financial statements.
IFRS 2 (revised) was endorsed by the European Union in December 2008.
Metso will apply the standard for the financial year beginning on
January 1, 2009.
Trading of Metso shares
The number of Metso Corporation shares traded on the NASDAQ OMX in
Helsinki Exchange in 2008 was 359,378,566 shares, equivalent to a
turnover of EUR 8,503 million. The share price on December 31, 2008
was EUR 8.52 and the average trading price for the period was EUR
23.66. The highest quotation during the review period was EUR 38.56
and the lowest EUR 7.74.
Metso's ADSs (American Depositary Shares) are traded in the United
States on the OTC market. At the end of the year, the closing price
of an ADS was USD 12.19. Each ADS represents one share.
Disclosures of changes in holdings
The Finnish State has on December 11, 2008 transferred all its shares
in Metso Corporation to the entirely state-owned Solidium Oy as a
capital contribution. The shares transferred to Solidium Oy include
15,695,287 Metso shares, which corresponds to 11.07 percent of the
paid up share capital and votes in Metso. After the transfer, there
are no Metso Corporation shares owned by the state.
On November 11, 2008 Marathon Asset Management LLP announced that the
funds they managed held 7,258,794 shares, which corresponds to 5.12
percent of the paid up share capital of Metso Corporation. Out of
this holding, Marathon Asset Management LLP was in possession of
5,545,225 shares and the voting authority represents 3.91 percent of
the total voting rights in Metso.
On April 15, 2008 UBS AG announced that the funds they managed held
7,274,140 Metso shares corresponding to 5.13 percent of the paid up
share capital and votes in Metso Corporation.
UBS AG announced that on April 18, 2008 the group holding in Metso
shares fell below the 5 percent threshold. The holding amounted to
7,072,425 shares, which corresponds to 4.99 percent of the paid up
share capital and votes in Metso Corporation.
Credit ratings
In November 2008, Standard & Poor's affirmed Metso's BBB long-term
and A-2 short-term credit ratings and changed the outlook from
positive to stable.
In April 2008, Standard & Poor's affirmed the BBB long-term credit
ratings for Metso and changed the outlook from stable to positive. At
the same time, the senior unsecured debt ratings were raised from
BBB- to BBB. The short-term A-2 ratings were affirmed.
At the end of 2008, Moody's Investor Service's long-term rating for
Metso was at Baa2 and the rating outlook was stable. In January 2009,
Moody's Investor Service confirmed Metso's Baa2 long-term credit
rating and changed the outlook from stable to negative.
Metso's Financial Reporting in 2009
The Annual Report for 2008 will be published during the week starting
on March 9, 2009. Metso will publish three interim reviews in 2009 as
follows: Interim Review for January - March 2009 will be published on
April 28, Interim Review for January - June 2009 on July 24 and
Interim Review for January - September 2009 on October 29
respectively.
Metso is a global supplier of sustainable technology and services for
mining, construction, power generation, automation, recycling and the
pulp and paper industries. We have over 29,000 employees in more than
50 countries. www.metso.com
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
Metso Corporation
Olli Vaartimo
Executive Vice President and CFO
Kati Renvall
Vice President, Group Communications
Distribution:
NASDAQ OMX Helsinki Ltd
Media
www.metso.com
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