UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2006

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

METSO CORPORATION

(Exact name of Registrant as specified in its charter)

The Republic of Finland
(Jurisdiction of incorporation or organization)

P.O. Box 1220
FI-00101 Helsinki
Finland
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:		Name of each exchange on which registered:
Shares, nominal value €1.70 each, represented by American Depositary Shares		New York Stock Exchange, Inc.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Number of shares, nominal value €1.70 each, outstanding on December 31, 2006: 141,719,614

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ      No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o      No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorted period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer þ      Accelerated filer o      Non-accelerated filer o

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o      Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

 

 

TABLE OF CONTENTS

Page

INTRODUCTION		iii
PART I
Item 1. Identity of Directors, Senior Management and Advisers			1
Item 2. Offer Statistics and Expected Timetable			1
Item 3. Key Information			1
Selected Financial Data			1
Exchange Rates			3
Risk Factors			4
Item 4. Information on the Company			11
Organization			11
History and Development of the Company			11
Strategy			12
Corporate Structure			15
Business Summary			17
Discontinued Operations			31
Raw Materials			32
Seasonality			33
Dependence on Intellectual Property			33
Governmental Regulation and Environmental Matters			33
Property, Plants and Equipment			36
Significant Subsidiaries			38
Associated Companies and Joint Ventures			38
Item 4A. Unresolved Staff Comments			38
Item 5. Operating and Financial Review and Prospects			38
Business Overview			38
Key Management Issues			41
Recent Acquisitions and Divestments			43
Critical Accounting Policies			44
Results of Operations			49
Principal Differences between IFRS and U.S. GAAP			57
Liquidity and Capital Resources			57
Capital Expenditure			59
Research and Development			60
Foreign Currency Fluctuations			63
Inflation			63
New Accounting Standards			64
Off Balance Sheet Arrangements			65
Item 6. Directors, Senior Management and Employees			65
Board of Directors			65
Chief Executive Officer and Our Executive Team			68
Compensation of Directors and Officers			69
Audit Committee and Compensation Committee			70
Home Country Practices			70
Employees			71
Share Ownership			72
Authorizations for Board of Directors			73

Item 7. Major Shareholders and Related Party Transactions			74
Major Shareholders			74
Related Party Transactions			74
Item 8. Financial Information			75
Consolidated Financial Statements			75
Export Sales			75
Legal Proceedings			75
Dividend Policy			76
Significant Changes			76
Item 9. The Offer and Listing			77
Nature of Trading Market			77
Trading and Settlement on the Helsinki Stock Exchange			78
Regulation of the Finnish Securities Market			78
The Finnish Book Entry-Securities System			79
Item 10. Additional Information			80
Articles of Association			80
Material Contracts			83
Exchange Controls			83
Control of Foreign Ownership			83
Taxation			83
Documents on Display			89
Item 11. Quantitative and Qualitative Disclosures about Market Risk			89
Exchange Rates and Foreign Currency Exposure			89
Interest Rate Risk			90
Equity Price Risk			90
Commodity Price Risk			91
Item 12. Description of Securities Other than Equity Securities			91
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies			92
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			92
Item 15. Controls and Procedures			93
Item 16. [Reserved]			94
Item 16A. Audit Committee Financial Expert			94
Item 16B. Code of Ethics			94
Item 16C. Principal Accountant Fees and Services			94
Item 16D. Exemptions from the Listing Standards for Audit Committees			95
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			96
PART III
Item 17. Financial Statements			97
Item 18. Financial Statements			97
Item 19. Exhibits			98

INTRODUCTION

          In this annual report, the “Company,” “Metso Corporation,” “Metso,” “Group,” “we,” “us” and “our” refer to Metso Corporation or Metso Corporation and its consolidated subsidiaries, as the context may require. As used herein, the term “Finnish State” refers to the Republic of Finland.

CURRENCY PRESENTATION

          We have published our consolidated financial statements in euro for periods beginning on or after January 1, 1999. As used in this annual report:

	•		“euro,” “€” or “EUR” means the lawful currency of the member states of the European Union (the “EU”) participating in the EU’s Economic and Monetary Union;
	•		“U.S. dollar,” “U.S.$” or “USD” means the lawful currency of the United States of America;
	•		“pound sterling” or “GBP” means the lawful currency of the United Kingdom of Great Britain and Northern Ireland;
	•		“Canadian dollar” or “CAD” means the lawful currency of Canada;
	•		“South African rand” or “ZAR” means the lawful currency of the Republic of South Africa; and
	•		“Swedish krona” or “SEK” means the lawful currency of the Kingdom of Sweden.

          Unless otherwise stated, euro amounts have been translated into U.S. dollars at the noon buying rate in New York City for cable transfer in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York (the “noon buying rate”) on December 29, 2006, which was €1.00 = U.S.$1.3197 (U.S.$1.00 = €0.7577). On March 13, 2007, the noon buying rate for the euro was €1.00 = U.S.$ 0.7576 (U.S.$1.00 = €1.3199).

FINANCIAL AND OTHER INFORMATION

          Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the EU (herein referred to as “IFRS”), which differ in certain significant respects from generally accepted accounting principles in the United States (“U.S. GAAP”). There are no differences between IFRS as applied by Metso, and IFRS as adopted by the International Accounting Standards Board (“IASB”). For a discussion of the principal differences between IFRS and U.S. GAAP, see Note 39 to our audited consolidated financial statements as of and for the years ended December 31, 2004, 2005 and 2006, included elsewhere in this annual report. See also “Item 3. Key Information — Selected Financial Data” and “Item 5. Operating and Financial Review and Prospects — Principal Differences between IFRS and U.S. GAAP.”

          The financial information set forth in a number of tables herein has been rounded to the nearest whole number. Accordingly, in certain instances, the sum of the numbers in a column may not conform exactly to the total figure given for that column.

          As used herein, “Nordic countries” refers to Denmark, Finland, Iceland, Norway and Sweden. As used herein, “North America” refers to the United States and Canada. As used herein, “South America” refers to all countries in the American continents excluding the United States and Canada.

          We own or otherwise have rights to a substantial number of trademarks that we use in conjunction with our business. Some of these trademarks are referred to in this annual report.

FORWARD-LOOKING STATEMENTS

          Certain statements in this annual report, including but not limited to certain statements set forth under the captions “Item 3. Key Information,” “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects,” “Item 8. Financial Information” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and elsewhere are based upon the beliefs of our management as well as assumptions made by and information currently available to our management, and such statements may constitute “forward-looking statements” within the meaning of the Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Potential investors should note that many factors, some of which are discussed elsewhere in this annual report, could affect our future operations and future financial results and could cause future operations and future financial results to differ materially from those expressed in such forward-looking statements. Some of these factors are:

	•		operating factors, such as the continued success of our manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by our targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by our patents and other intellectual property rights, the availability of capital on acceptable terms,
	•		success of future acquisitions and restructuring and changes in our business strategy,
	•		industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for our products and the pricing pressures thereto, financial condition of the customers and competitors, the potential introduction of competing products and technologies by our competitors, and
	•		general economic conditions, such as rates of economic growth in our principal geographic markets or fluctuations in exchange and interest rates, and various other factors both referenced and not referenced in this annual report.

          Should one or more of these factors materialize, or should any assumptions of the management underlying such forward-looking statements prove to be incorrect, our actual operating results or financial condition and prospects could differ materially from those described herein as anticipated, believed, estimated or expected.

PART I

Item 1. Identity of Directors, Senior Management and Advisers.

          Not applicable.

Item 2. Offer Statistics and Expected Timetable.

          Not applicable.

Item 3. Key Information.

Selected Financial Data

          Our consolidated financial statements are prepared in accordance with IFRS, as adopted by the EU, which differs in certain significant respects from U.S. GAAP. There are no differences between IFRS applied by Metso, and IFRS as adopted by IASB. Until December 31, 2004, our consolidated financial statements were prepared in accordance with the Finnish Generally Accepted Accounting Principles (“FAS” or “Finnish GAAP”). When preparing our first financial statements under IFRS for the year ended December 31, 2005, we adjusted certain accounting and valuation methods applicable under Finnish GAAP in order to comply with IFRS. The comparative figures for the year ended December 31, 2004 are reconciled to reflect these adjustments, except for certain exemptions as permitted by IFRS 1 “First time adoption of IFRS.” A reconciliation of IFRS to U.S. GAAP is set forth in Note 39 to our consolidated financial statements included elsewhere in this document. For a discussion of the principal differences between IFRS and U.S. GAAP, see also “Item 5. Operating and Financial Review and Prospects—Principal Differences between IFRS and U.S. GAAP.” Our shares are traded on the New York Stock Exchange in the form of American Depository Shares (“ADSs”). Each ADS represents one of our shares. Per share data has been translated into U.S. dollars per ADS where appropriate.

          The selected financial data set forth below is a summary derived from our consolidated financial statements and should be read together with our consolidated financial statements and the notes thereto.

		For the year ended December 31,
		2004				2005				2006
		EUR				EUR				EUR
		(in millions, except per share data)
INCOME STATEMENT DATA
Amounts in Accordance with IFRS
Net sales			3,602				4,221				4,955
Operating profit			199				335				457
Financial income and expenses, net			(59	)			(43	)			(36	)
Profit on Continuing Operations before tax			140				292				421
Income taxes on Continuing Operations			18				(72	)			(11	)
Profit on Continuing Operations			158				220				410
Profit (loss) on Discontinued Operations, net of taxes			(14	)			17				—
Profit			144				237				410
Profit attributable to minority interests			1				1				1
Profit attributable to equity shareholders			143				236				409
Profit			144				237				410
Earnings per share from Continuing Operations (1)
Basic			1.16				1.57				2.89
Diluted			1.16				1.57				2.89
Earnings per share from Discontinued Operations(1)
Basic			(0.11	)			0.12				—
Diluted			(0.11	)			0.12				—

		For the year ended December 31,
		2004				2005				2006
		EUR				EUR				EUR
		(in millions, except per share data)
Earnings per share from Continuing and Discontinued Operations (1)
Basic			1.05				1.69				2.89
Diluted			1.05				1.69				2.89
BALANCE SHEET DATA
Amounts in Accordance with IFRS
Total assets			3,570				3,904				4,958
Cash and cash equivalents			372				323				353
Net interest bearing liabilities			495				289				454
Equity attributable to shareholders			990				1,285				1,468
OTHER DATA
Amounts in Accordance with IFRS
Net cash provided by (used in) operating activities			261				164				442
Net cash provided by (used in) investing activities			312				(90	)			(227	)
Net cash provided by (used in) financing activities			(332	)			(136	)			(179	)
Capital expenditures on fixed assets(2)			89				104				129
Cash dividends declared and paid per share (EUR )(3)			0.35				1.40				1.50
Cash dividends declared and paid per share (U.S.$)(3)(4)			0.47				1.66				1.98

		As of and for the year ended December 31,
		2002				2003				2004				2005				2006
		EUR				EUR				EUR				EUR				EUR
		(in millions, except per share data)
INCOME STATEMENT DATA
Amounts in Accordance with U.S. GAAP
Income (loss) from Continuing Operations			3				(196	)			57				178				380
Income (loss) from Discontinued Operations			19				(39	)			17				1				—
(Loss) Gain on disposal of Discontinued Operations			—				—				(72	)			18				—
Profit (loss)			22				(235	)			2				197				380
Basic and diluted earnings (loss) per share from Continuing Operations(1)			0.02				(1.44	)			0.42				1.27				2.68
Basic and diluted earnings (loss) per share from Discontinued Operations(1)			0.14				(0.29	)			(0.41	)			0.14				2.68
BALANCE SHEET DATA
Amounts in Accordance with U.S. GAAP
Total assets			4,520				3,996				3,697				4,055				5,077
Long-term liabilities			1,334				1,256				1,231				990				1,013
Shareholders’ equity			1,326				998				978				1,239				1,402

		Number of shares issued				Number of diluted shares
Year ended December 31,		and outstanding				issued and outstanding
2002		136,189,704				136,189,704
2003		136,189,704				136,189,704
2004		136,189,704				136,192,037
2005		139,639,425				139,665,197
2006		141,580,759				141,600,424

Exchange Rates

          We present our financial statements in euro. A portion of our revenues and expenses is denominated in euro and a portion is denominated in currencies other than the euro. The first table below sets forth, for the periods and dates indicated, the average, high, low and period-end noon buying rates for the euro expressed in euro per U.S. dollar. The second table below sets forth, for the periods and dates indicated, the average, high, low and period-end noon buying rates for the U.S. dollar expressed in U.S. dollars per euro.

          The average noon buying rates have been calculated based on the noon buying rate for the last business day of each month or portion of a month during the relevant period. We are providing this information solely for the reader’s convenience. These are not necessarily the rates we used in the preparation of the financial statements, and we make no representation that euro could have been converted into U.S. dollars at the rates shown or at any other rate for such periods or at such dates.

          The following tables set forth the noon buying rate for the euro for each of the previous five years, the period from the beginning of the year 2007 until the latest practicable date and for each of the last six months (expressed in euro per one U.S. dollar):

Euro per U.S. Dollar

Year		Average				High				Low				Period End
2002			1.0532				1.1636				0.9537				0.9537
2003			0.8783				0.9652				0.7938				0.7938
2004			0.8014				0.8474				0.7339				0.7387
2005			0.8065				0.8571				0.7421				0.8445
2006			0.7898				0.8432				0.7504				0.7577
2007 (through March 13)			0.7609				0.7750				0.7527				0.7576
Calendar Period		High				Low
2006
September			0.7906				0.7792
October			0.7999				0.7829
November			0.7871				0.7541
December			0.7649				0.7504
2007
January			0.7750				0.7527
February			0.7732				0.7549
March (through March 13)			0.7637				0.7576

          The following tables set forth the noon buying rate for the U.S. dollar for each of the previous five years, and the period from the beginning of the year 2007 until the latest practicable date and for each of the last six months (expressed in U.S. dollars per one euro).

U.S. Dollars per Euro

Year		Average				High				Low				Period End
2002		0.9495					1.0485				0.8594				1.0485
2003		1.1411					1.2597				1.0361				1.2597
2004		1.2478					1.3625				1.1801				1.3538
2005		1.2400					1.3476				1.1667				1.1842
2006		1.2661					1.3327				1.1860				1.3197
2007 (through March 13)		1.3142					1.3286				1.2904				1.3199
Calendar Period		High				Low
2006
September		1.2833					1.2648
October		1.2773					1.2502
November		1.3261					1.2705
December		1.3327					1.3073
2007
January		1.3286					1.2904
February		1.3246					1.2933
March (through March 13)		1.3199					1.3094

          Our shares are traded on the Helsinki Stock Exchange in euro. Fluctuations in the exchange rate between the euro and the U.S. dollar affect the U.S. dollar equivalent of the euro price of the shares on the Helsinki Stock Exchange and, as a result, are likely to affect the market price of our ADSs, which are traded on the New York Stock Exchange. We declare cash dividends in euro and then convert this amount to U.S. dollars for ADS holders. Therefore, exchange rate fluctuations will affect the U.S. dollar amounts that ADS holders receive.

          For a discussion of the effects of exchange rate movements on our operations, see “Item 5. Operating and Financial Review and Prospects—Foreign Currency Fluctuations.”

          Our foreign exchange risk management policy is focused on hedging foreign currency exposures related to firm sale and purchase commitments as well as net investments in foreign subsidiaries to the extent practicable. We have, to certain extent, hedged our foreign currency denominated net assets of foreign subsidiaries through borrowings and currency derivatives. Apart from forward foreign exchange contracts, options and currency swaps, as of December 31, 2006, we were not party to any other derivative foreign currency instruments. For a discussion of our foreign exchange risk management policy, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Exchange Rates and Foreign Currency Exposure.”

Risk Factors

          The following describes the risks that we have identified as being the most significant for our operations. We monitor these risks actively and seek to improve our procedures to minimize or mitigate any negative impact that these or other risk factors may have on our business, financial condition or results of operations.

          Effective internal controls are necessary for us to provide reliable financial reports. We devote significant attention to maintaining and improving procedures and controls in adherence with laws and regulatory requirements of jurisdictions where we operate. Our financial reporting is affected by changes in these regulations and the interpretations thereof.

          Despite our actions to manage and limit the effects of various risks, there can be no assurance that such risks, if materialized, will not have a material adverse effect on our business, financial condition or results of operations, or on the value of our shares and other securities.

Strategic Risks

     Business Development Risks

The long-term development of our business can be affected by business development risks related to new markets and business opportunities and also involve risks related to the Metso brand and values. In planning and implementing our business operations, we seek to take into consideration development potential, new products and technological solutions as well as the different life-cycle stages of our products and production plants and those of our customers. An important part of our business development is the expansion of our operations in emerging markets. One of the most important risks and opportunities identified is our challenge to grow Metso Minerals’ business in the Chinese markets.

          Business development risks also include the risks related to potential mergers and acquisitions, which we seek to take into account through the use of “Metso Acquisition Process” (MAP) and our thorough due diligence process. The business to be acquired should meet our strategic and financial criteria. We also seek to take into account the risks related to the business to be acquired, including product liability and environmental responsibility risks as well as reputation and personnel related risks.

          The development of personnel competence and the utilization of personnel potential are critical for the development of our business operations. Therefore, we conduct an annual assessment of management resources, mapping out key executives, their possible deputies and successors as well as the need for any new management resources.

          While our management believes that our procedures relating to business development, mergers and acquisitions, and management resource evaluations are effective, there can be no assurance that such procedures are successful. The success of any merger or acquisition is also dependent on our management’s ability to successfully integrate such companies to our existing operations. Therefore, any failure in our processes described above could have a material adverse effect on our business, financial condition or results of operations.

     Business Environment Risks

          Business cycles in the global economy and our customer industries influence the demand for our products as well as our financial condition and results of operations, especially in the short-term.

          Metso Paper and Metso Automation are affected by the development of the pulp and paper industry. The financial difficulties of especially North American and European paper and pulp manufacturers have affected the demand for Metso Paper’s and Metso Automation’s products in recent years, although the market situation has been favorable in certain emerging markets. Metso Automation is also affected by business cycles in the energy, oil and gas industry. Metso Minerals’ operations depend on developments in the construction industry and particularly on the level of infrastructure investments. Metso Minerals is also affected by business cycles in the mining industry.

          Our management believes that, in the long-term, the effects of business cycles are reduced by the geographical diversity of our operations and by the range of the customer industries we serve. Also new equipment orders tend to be more affected by business cycles than the demand for rebuilds and process improvements as well as aftermarket operations, the latter of which we are actively aiming to increase and for which our large global installed base offers a strong platform. Although we have actively striven to reduce the risks presented by business cycles through increasing our process life cycle-related operations and long-term cooperation with our customers, as well as increasing the flexibility of our cost base through outsourcing and focusing in our own operations on the assembly and manufacture of core components, there can be no assurance that business cycles will not continue to significantly affect the demand for our products, our business, financial condition or results of operations. See “Item 5. Operating and Financial Review and Prospects—Business Overview.”

     Market Risks

          Changes in the demand of our customer industries affect our operations. Such changes may be related to, for instance, strategy changes in our customer companies, product development and product requirements, or to environmental aspects. For example, certain of Metso Paper’s customers are increasingly focusing on their own core competencies – paper, board or pulp production – and, thus, outsourcing their mill servicing business. With these customers, Metso Paper’s objective is to enter into long-term service agreements that transfer the main responsibility for process maintenance to Metso Paper.

          Our competitors vary by business area and product. We aim to differentiate ourselves from competitors through quality, reliability, local presence and availability, as well as through providing high-level of technological competence and long-term commitment to our customers. We aim for a competitive advantage through continuous product development based on research and cooperation with our customers. In addition, we seek to operate flexibly and cost-efficiently in an effort to ensure our competitiveness. Our goal continues to be to increase our component manufacturing and assembly capacity in rapidly growing markets, such as China, India and Brazil. In these areas, we are also closely monitoring the products and services developed by new, local competitors. Although our main competitors are still European and North American companies certain Asian suppliers are providing solutions that are able to compete with their low prices. We protect our products and intellectual property rights related to our business through patents and trademarks. Inasmuch as certain of Metso Minerals’ products are being copied, the importance of the protection of our intellectual property rights has increased.

          While our management believes that our product and service range will keep pace with developing technologies and changing customer needs, there can be no assurance that new or enhanced products and technologies developed by current or future competitors will not reduce the competitiveness of our products, which could have a material adverse effect on our business, financial condition or results of operations. See “Item 4. Information on the Company—Business Summary” for a description of our significant competitors in each of our business areas.

     Technology Risks

          Our technology risks are related to technological competence and research and product development. The use of new technology may temporarily increase quality-related costs. In research and product development, we utilize our Metso Innovation Process (MIP), a project management model in which we create a business plan for the development of a new product or concept. We evaluate the profitability of the product or concept at different stages of the development process. In the business plan, we define the responsibilities and roles of all the functions that are involved in developing and launching the product (i.e.,service, sales, industrial design and marketing) from the very beginning of the development process. We also seek to determine the relevant aspects related to the product’s intellectual property rights and environmental impact.

          While our management believes that our procedures relating to research and technology development activities are effective and sufficient in light of our operations and strategy, there can be no assurance that the new or enhanced products and technologies will improve our competitiveness or that we manage to reduce the quality-related costs within Metso Paper as planned, or that the risks, if materialized, would not have a material adverse effect on our business, financial condition or results of operations.

     Political, Economic, Cultural and Legislative Trends

          Our operations and our customers’ operations are geographically widespread. Global political development, political unrest, terrorism and armed conflicts are risks to our operations. Our operations are also affected by cultural and religious factors and by legislation, particularly the environmental legislation of different countries.

          Amendments to the environmental legislation in different countries often take a long time. We monitor laws that are under preparation and make an effort to anticipate their impact on our own and our customers’ business. However, unanticipated legislative changes may adversely affect our business. More demanding environmental legislation may complicate the sales of our products and increase our costs, but it may also create opportunities to offer our customers new solutions that meet more stringent environmental standards.

          We have our own manufacturing and supplier networks in many developing countries. The demand for new machinery and equipment is increasingly coming from countries in Asia and South and Central America.

Sudden political, economic and/or legislative changes in these countries could have an adverse effect on our business, financial condition or results of operations. For example, China has a significant direct and indirect effect on our net sales and hence, any sudden political, economic or legislative changes in China could, especially in the short-term, have an adverse effect on our business, financial condition or results of operations. Our management believes that the risks related to these developing countries are reduced by our wide geographical and industry coverage as well as our more stable aftermarket operations in Europe and North America.

     Phenomena Related to Climate Change and Environment

          We believe that emissions from our own production are within the permit limits set by authorities. When planning our energy needs and products, we seek to take into account the risks related to climate change. In research and product development, we seek to take into consideration also rising energy prices and we seek to reduce the energy consumption of our new products. Furthermore, in order to control disease-related risks, we provide our personnel with vaccinations. Our main tools for environmental management are the processes seeking to ensure compliance with environmental legislation including our ISO 14001-compliant environmental systems.

          Although our management is not aware of any current environmental matters that could reasonably be expected to have a material adverse effect on our business, financial condition or results of operations, there can be no assurance that continued compliance with the existing or future environmental laws, and the costs associated therewith, will not have a material adverse effect on our business, financial condition or results of operations. See “Item 4. Information on the Company—Governmental Regulation and Environmental Matters.”

Operational Risks

     Organizational and Management Risks

          We continuously assess the human resources and organizational structures of our businesses. By doing so, we aim to ensure organizational efficiency and competence and to manage and avoid risks, such as unnecessary recruiting, an imbalance in the age structure of our personnel and a high personnel turnover rate.

          The most significant risk in terms of personnel structure is at Metso Minerals because, during an economic upturn, the availability of skilled new employees to replace those who are retiring or departing is limited. In a strong business cycle, there is a shortage of mining and maintenance engineers in particular. We seek to anticipate this issue in our successor and recruiting planning and we have enhanced awareness of the sector and the Company among potential recruits.

          Although we seek to take this issue into account, there can be no assurance that the risks related to the human resources and organizational structures of our businesses and, in particular, to the personnel structure at Metso Minerals, if materialized, will not have a material adverse effect on our business, financial condition or results of operations.

     Business Interruption Risks

          The risks associated with raw materials, the subcontractor and supplier network and customer relationship management are significant for our operations. We have approximately 20,000 active suppliers and subcontractors, and the 100 largest of them cover approximately one-fifth of our total procurement volume. Increasing global contract manufacturing not only challenges us to manage a functional procurement network, but it also requires us to assess the ways of operating, the quality and the local impact of our cooperation partners.

          During the past years, the largest increase in our procurement volumes has been in South and Central America and Asia. We believe that the significance of South and Central America and Asia will continue to grow due to the focused investments in these areas by our customers. Supply problems of our raw material suppliers can influence the price and availability of the raw materials used in our products. Thus, raw material procurement costs may increase and delivery lead times lengthen. The price and availability of steel and scrap iron, which are among the most important raw materials we use, can fluctuate and, thus, adversely affect our operations. Indirectly, changes in the prices of energy, oil and metals may have an adverse effect on our business, financial condition or results of operations, if the price fluctuations decrease our customers’ willingness to invest. See “Item 4. Information on the Company—Raw Materials.”

          The direct risks associated with raw materials procurement have decreased in recent years because our operations have increasingly focused on manufacturing and assembling core components. On the other hand, outsourcing has increased the importance of and the risks related to suppliers and subcontractors. On short notice, we may not be able to find alternative suppliers for some of our subcontractors. Disruptions in the deliveries by our subcontractors can have a negative effect on our customer relationships and our business.

          Although we have continued to build a global supplier network and signed long-term contracts with our major raw material suppliers and subcontractors in an attempt to limit the purchasing risks related to availability and pricing of product components, there can be no assurance that such risks, if materialized, will not have a material adverse effect on our business, financial condition or results of operations.

     Production, Process and Productivity Risks

          We seek to ensure that our production and other processes are as efficient as possible. To maintain production safety and productivity, we apply ISO 9001 quality management and ISO 14001 environmental management systems or similar processes in our most important production units. We develop product-specific safety guidelines, risk and environmental assessments, and we work in close cooperation with our customers. Even though we have evaluated that these risks do not currently pose a serious threat to our business operations, extensive disruptions in key production areas could have a material adverse effect on our business, financial condition or results of operations.

     Contract and Product Liability Risks

          We are occasionally involved in product liability claims typical for companies in comparable industries. The claims for compensation are covered by an insurance policy with coverage of up to EUR 150 million per year, subject to applicable insurance conditions. We aim to reduce product liability risks by improving product safety through investments in product development, automation and customer training and through detailed sales contract terms. Although we believe the current insurance coverage is adequate to cover liability risks, we may be liable for damages beyond those covered fully by our insurance, which could have a material adverse effect on our business, financial condition or results of operations.

     Profitability Risks

          One of our key targets is to conduct profitable business. However, in large-scale projects and equipment transactions, we are subject to the risk of failing to estimate the actual costs of a transaction accurately at the offer stage, and therefore we may be unable to determine the appropriate transaction price or assess whether the market price level or our cost competitiveness are sufficient for a profitable transaction.

          To manage risks related to pricing, we apply various quality systems, operating guidelines and profitability analyses that take into account the key factors of the transaction. In project and product pricing, we also use internal approval procedures in which pricing authorizations are linked to the value of the transaction and to any special risks. While our management believes that our procedures to mitigate such risks are adequate, there can be no assurance that these risks, if materialized, will not have a material adverse effect on our business, financial condition or results of operations.

     Information Security Risks

          Our operations are dependent on external, internal and integrated information technology services and solutions. We aim to use reliable information technology solutions and information security management to avoid exposure to data loss or compromising the confidentiality, usability or integrity of information. Significant interruptions in the global availability of services or compromising the confidentiality of business-critical information could have a material adverse effect on our business, financial condition or results of operations.

     Illegal Activities

          We aim to operate in compliance with laws and regulations but illegal activities, such as fraud, misconduct or criminal acts, can present a threat for us. To prevent illegal activities, Metso’s values and ethical principles have been a focus in our personnel training. Internal procedures, supervision, audits and other practical tools are intended to reduce the exposure to these risks. One of the practical tools is a reporting channel that enables an anonymous reporting of financial misconduct directly to corporate management via the Internet, email or by telephone. Even tough we consider the potential risks of illegal activity to be limited, this kind of

activity, even on a small-scale, could undermine our reputation and adversely affect our business, financial condition or results of operations.

     Project Activity Risks

          Our operations consist partly of large project deliveries to the pulp and paper industry and the mining industry. In 2006, the share of long-term project deliveries accounted for approximately 30 percent of our net sales. These deliveries can involve project-specific risks related to, for example, delivery schedules, equipment start-up, production capacity and end-product quality. In some projects, risks may also arise from new technology included in the deliveries. The risks of individual projects are generally insignificant considering the entire scope of our business. Our aim is to reduce project-specific risks by assessing risk potential already at the offer stage and by using detailed sales contract terms and quality management practices.

          Although we aim to reduce project-specific risks by assessing risk potential already at the offer stage, and by preparing for risks through the use of detailed terms and conditions in sales contracts and through quality management, there can be no assurance that such risks, if materialized, will not have a material adverse effect on our business, financial condition or results of operations.

     Crisis Situations

          We have a flexible crisis and hazard management organization in place. The primary goal of our crisis management is to secure the safety of our personnel. Because our own resources are limited and potential global catastrophes can exceed our ability to respond adequately to a threat, we regularly seek advice from consulting firms in crisis situations. Nevertheless, certain crisis situations, such as natural disasters, could have an adverse effect on our personnel, business operations, financial condition or results of operations.

Hazard Risks

          Hazard risks include occupational health and safety-related risks, environmental risks, fire and other disasters, natural events and premises security risks. We have taken precautions against hazard risks through occupational health and safety guidelines, certification principles, travel safety guidelines, rescue planning and premises security instructions. We have also sought to prepare for the materialization of risks in Metso’s insurance program. Although we have estimated that hazard risks are limited in light of our entire business scope, there can be no assurance that these risks, if materialized, would not have an adverse effect on our business, financial condition or results of operations.

Financial Risks

     Liquidity

          We use cash and revolving credit facilities to protect our short-term liquidity. We manage liquidity and financing costs also by balancing the proportion of short-term and long-term loans as well as the average remaining maturity of long-term loans.

          In the long-term, we seek to manage risks related to the availability and cost of financing by diversifying funding between money and capital markets and banks. Credit rating agencies assess our business and publish credit ratings. Changes in our credit ratings could affect the financing costs of possible new loans, which could have a material adverse effect on our business, financial condition or results of operations. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources” for a discussion of the possible impact of credit ratings downgrades.

     Interest Rate Risks

          Changes in market interest rates and interest margins may affect our financing costs, returns on financial investments and valuation of derivative contracts. We manage interest risks through the ratio of floating-rate to fixed-rate loans and the average length of interest rate periods. Additionally, we may use interest rate swaps and other derivative contracts.

          Although management believes that the measures we have taken to limit our exposure to interest rate risks are currently adequate, there can be no assurance that interest rate fluctuations will not have a material

adverse effect on our business, financial condition or results of operations. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Exchange Rates and Foreign Currency Exposure.”

     Currency Risks

          Exchange rate fluctuations affect our business, although the geographical scope of our operations decreases the significance of any individual currency. The impact of exchange rate fluctuations is directly visible in transactions in which the invoicing currency is different from the currency of the manufacturing costs (transaction effect). Approximately 60 percent of our net sales originate from outside the euro zone. In addition to the euro, the most important currencies we use in our invoicing include the U.S. dollar, the Swedish krona, the Canadian dollar and the Brazilian real. When translating the net sales and financial results of our subsidiaries outside the euro zone into euro, they may increase or decrease because of exchange rate changes, even though no real change in the net sales or results has occurred (translation effect). Exchange rate fluctuations may also weaken the cost competitiveness of our products compared to competitor products manufactured in other currency areas.

          In accordance with our treasury policy, our operating units are required to fully hedge the currency exposures arising from firm delivery and purchase agreements. In addition, the units can hedge anticipated foreign currency denominated cash flows by taking into account the significance of such cash flows, the competitive situation and other adjustment possibilities. We have operations in countries in which currency regulation affects the hedging of risks. The most important of these are Brazil and China. We conduct hedging operations in a centralized manner through our corporate treasury. We have set upper limits on the open currency exposures of the corporate treasury, calculated on the basis of their potential profit impact. These limits cover net exposures from transfers between units and items arising from financing activities. We hedge future foreign currency cash flows for periods normally not exceeding two years. Accordingly, the majority of future foreign currency cash flows related to the order backlog is hedged.

          The equity of our subsidiaries outside the euro zone is affected by exchange rate risks, which may lead to translation differences in our consolidated equity. We hedge these risks with respect to essential currencies and we use non-euro-denominated loans and forward exchange agreements. In addition, exchange rate risks can affect the returns of non-euro investors who have invested in our shares.

          Although our management believes that the measures we have taken to hedge our exposure to exchange rate fluctuations are currently adequate, there can be no assurance that exchange rate fluctuations will not have a material adverse effect on our business, financial condition or results of operations. For a discussion of our foreign exchange risk management policy, see “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Exchange Rates and Foreign Currency Exposure.”

          In addition, a non-euro investors’ base currency return on an investment in our shares may be affected by any change of the euro against the investor’s functional currency. The value of dividends and other distributions paid in euro and the value of the share quoted on the Helsinki Stock Exchange in euro could increase or decline as a result.

     Accounts Receivable Risks and Other Counterparty Risks

          Our operating units are primarily responsible for trade receivable risks related to commercial activities. Our business areas determine the delivery and payment terms granted to customers and their supervision and enforcement principles, which are then applied at the business line and unit level. Large projects also require corporate-level handling. Our corporate treasury provides centralized services related to customer financing and oversees compliance with the principles of our treasury policy with respect to terms of payment and the required collateral.

          We have agreed on extended payment terms with selected customers. When granting credit arrangements, we seek to assess the creditworthiness of the customer and the timing of the cash flows expected under the arrangement. However, if the actual financial position of our customers or the general economic situation differ from the expectations, we may have to reassess the ultimate collectibility of our trade receivables. This could result in a write-off of these balances in future periods and could have a material adverse effect on our business, financial condition or results of operations.

          Our ability to manage our trade receivables exposure, customer financing, risk concentrations and financial counterparty-related risks depends on a number of factors, including our capital structure, market

conditions affecting our counterparties, and our ability to mitigate exposure with acceptable terms. Risks related to individual customers or other counterparties are generally not significant compared to the magnitude of our business. We seek to reduce customer risks through precise sales contracts, payment terms and collateral, as well as by effective bid/quotation control procedures.

          When investing cash assets and making derivative contracts, we only accept counterparties that fulfill the credit rating criteria defined in our treasury policy or counterparties approved by our Board of Directors. With respect to investments, derivative contracts and borrowing, we have set counterparty-specific limits to avoid risk concentrations. However, there can be no assurance that we will be successful in managing the risks connected with our trade receivables exposure, customer financing, risk concentrations and financial counterparties, which could have a material adverse effect on our business, financial condition or results of operations.

Other Key Risks

     Internal Controls

          Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent and detect fraud. If we cannot provide reliable financial reports or prevent fraud, our financial results could be negatively affected. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the market price of our shares and other securities.

     Impact of Largest Shareholders

          Our largest shareholders can have a significant impact on matters voted on in our Annual General Meeting. As of March 13, 2007, the only party owning more than five percent of our share capital was the State of Finland (11.1 percent). The interests of our largest shareholders may not necessarily be aligned with the interests of our other shareholders.

          Significant matters to be voted on in the Annual General Meeting include approval of the financial statements, releasing management from liability, deciding on the use of distributable funds and payment of dividends, capital increases, amendments to our Articles of Association as well as electing members to our Board of Directors and auditors. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders” for a discussion of the impact of the ownership interest of the Finnish State in the Company.

Item 4. Information on the Company.

Organization

          Metso Corporation is a stock corporation organized in the Republic of Finland under the Finnish Companies Act. Metso Corporation’s registered office is located at Fabianinkatu 9A, P.O. Box 1220, 00101 Helsinki, Finland; telephone +358-20-484-100. Our agent for the U.S. federal securities law purposes is Metso USA, Inc., located at 2900 Courtyards Drive, Norcross, Georgia 30071, the United States.

History and Development of the Company

          Metso was created as the result of the merger of Valmet Corporation (“Valmet”) and Rauma Corporation (“Rauma”) in July 1999. The new combined company was initially given the name Valmet-Rauma Corporation. The name was changed to Metso Corporation in August 1999.

          Valmet traces its origins back to the industrial plants established in the 1920s and 1930s to meet the needs of the Finnish Armed Forces. These industrial plants were joined to form a conglomerate, which was formally incorporated as a limited liability company in 1950. During the 1950s, it began to broaden its product range to accommodate the demands of a market economy. Valmet delivered its first paper machine in 1953. From its establishment in 1950 until its initial public offering in 1988, Valmet was wholly owned by the Finnish State and other Finnish State entities. As of March 13, 2007, the Finnish State owned 11.1 percent of the outstanding share capital of Metso Corporation.

          Rauma’s business groups were formed from a number of companies with long operating histories brought together as a result of a series of strategic acquisitions by a Finnish engineering group Rauma-Repola Oy. In 1990, Rauma-Repola merged with United Paper Mills, a Finnish forest products company. The new company was called Repola Oy and was one of the largest industrial conglomerates in Finland. Its engineering division was organized as Rauma and its forest products division was organized as UPM. In 1996, Repola and Kymmene Corporation, a Finnish forest products company, merged to create a new company called UPM-Kymmene. As a result, Rauma became a majority owned subsidiary of UPM-Kymmene. In 1997, following a secondary offering of Rauma shares, distribution of shares as dividends, and the redemption of shares by Rauma, UPM-Kymmene’s ownership in Rauma was reduced to 34.5 percent. In March 2005, UPM-Kymmene sold the remainder of the shares of Metso Corporation held by it.

          In September 2001, we acquired Svedala, a global supplier of products and services for the rock and mineral processing industry based in Sweden. Svedala was integrated in the Metso Minerals business area. A public offer to acquire all the shares in Svedala was made in June 2000, and the acquisition was completed on September 14, 2001 after the competition authorities of the European Union and the United States gave their approval to the acquisition.

          On December 29, 2006, we completed the acquisition of the Pulping and Power businesses from Aker Kvaerner ASA of Norway (“Aker Kvaerner”). The acquired Pulping and Power businesses were consolidated into our balance sheet as at December 31, 2006, but they do not have a material impact on our income statement in 2006. The acquired businesses are currently being integrated to Metso Paper and we expect the acquisition to significantly improve our capabilities as a full-scope supplier to the pulp and paper industry. We also envisage promising business opportunities in the power industry and biomass technology.

          For a discussion of recent developments, see “Item 5. Operating and Financial Review and Prospects—Recent Acquisitions and Divestments.”

Strategy

          Since 2005, we have implemented our strategy of profitable growth, and as a result, our management’s focus has shifted from restructurings to profitable growth. This strategy was further specified in 2006. Our goal is to fully exploit the opportunities offered by the favorable market situation, to increase our aftermarket business and to secure continuous growth and sustainable profitability over business cycles. At the same time, we are continuing measures to improve profitability, particularly in those businesses where profitability is weaker than our targeted levels.

          Our purpose, engineering customer success, combines our strong engineering know-how and our customers’ success. Customer satisfaction is the prerequisite for our growth. Our customers are industrial companies that expect their machinery and equipment suppliers to show long-term commitment and to assume responsibility for delivered processes. Our customers’ investments are typically large and have long life cycles. Investments should yield a sufficient return on capital, which can be enhanced by cooperation between us and our customers throughout the process life cycle. Our customers operate globally and expect their suppliers to be present locally. Our strong network enables us to serve our customers on all continents. We strive to produce increasingly competitive and efficient solutions, equipment and services, based on close customer cooperation, technology and process expertise. Our strengths also include well-known product brands and a good reputation.

          Our long-term vision is to become the industry benchmark. For us, becoming the industry benchmark means that our solutions best meet our customers’ needs, we are the market and technology leader in the chosen industries, we are the leading company in operational excellence, we are the preferred employer and we generate the best shareholder value in our peer group.

          Our long-term strategic goals are based on our purpose statement, values and ethical principles. Strategic goals form the roadmap that guides us towards our vision. The strategic goals relate to improving customer satisfaction, strengthening market position and boosting operational efficiency. Our strategic goals in customer satisfaction include solutions that meet the needs of our customer the best throughout the process life cycle, a customer-oriented approach in all operations and a strong local presence globally as well as leading technology. Operational excellence includes continuous improvement in productivity and quality, world-class business, management and people processes, profitability and growth exceeding our peers and providing a great place to work. These strategic goals create a permanent foundation for the establishment of our shorter-term management agendas.

Management Agenda

          Our management agenda for the years 2007-2009 defines the strategic focus areas and priorities to attain profitable growth. We believe that our growth will support the sustainable profitability development and strengthen our market leadership position. To maintain sustainable performance over business cycles, our focus is especially on growing the aftermarket business and on establishing a more global and flexible operating model.

          Our goal is to fully exploit the growth opportunities provided by the favorable market situation in our customer industries, especially in the mining, metal recycling and energy industries, by developing and providing customers with leading, reliable solutions. Our goal is to develop the aftermarket business in all business areas and to strengthen our market position in emerging markets. We intend to also use complementary acquisitions to strengthen our market and technology leadership and, thus, support our growth strategy.

          Our goal is to continue actions to improve and maintain strong profitability over business cycles and to reduce the volatility of earnings. For example, we are aiming to strengthen our presence in emerging markets throughout the value chain. We aim to further enhance our productivity, quality and cost competitiveness by developing our business infrastructure, support functions and management processes throughout Metso.

          Our goal is to transform from a product-oriented company to a more service-oriented company. Among other things, this will require that the status of the aftermarket business is strengthened throughout Metso and the best possible competencies are used to develop aftermarket business concepts and new service products. We aim to also use complementary acquisitions to strengthen local services close to our customers as well as our product and service offering in the aftermarket business.

          Our goal is to develop our global competence base in a manner that our customers all over the world will have access to local, high-quality solutions. In the emerging markets, for example, this will mean strengthening our procurement, production, engineering, customer support and aftermarket operations.

          Our strategy of profitable growth and our transformation into a more service-oriented company requires new strategic initiatives and innovations. We will actively develop our management and employee compensation systems to encourage all our employees to actively participate in the strategy implementation and motivate them to pursue these common goals.

          Our business area management agendas form a basis for action plans and programs that will be implemented during the strategy period and that target the continuous improvement of our competitiveness and profitability.

Financial Targets

          Our progress in implementing the profitable growth strategy is reflected against the financial targets, among other indicators. As a result of our positive financial development and the continued favorable market situation, we increased our financial targets in October 2006. The following new financial targets, which concern Metso as a whole, replaced the previous targets set in 2005.

          We target annual net sales growth of more than 10 percent on average. Growth is sought to be attained both organically and through value-enhancing complementary acquisitions. Major acquisitions with a significant impact on our operations, such as the acquisition of the Pulping and Power businesses, will be an addition to this 10 percent growth target. Our previous target was to grow our net sales by approximately 10 percent each year with one-half of the growth being organic and the remainder through complementary acquisitions. Our current

profitability target is an operating profit margin (EBIT-%) of more than 10 percent compared to our previous target of operating profit margin of 9 percent (to be reached by the end of 2008). From our customer’s perspective, it is strategically important for us to regain and retain a solid investment grade credit rating status. Consequently, our target is that our key financial indicators, capital structure and cash flow metrics, support a solid credit rating. Therefore metrics such as, gearing (i.e., the ratio of net interest bearing liabilities to shareholders’ equity) and free cash flow (calculated as operating cash flow minus capital expenditures on fixed assets plus proceeds from sale of fixed assets) among others, are monitored.

          Our increased financial targets indicate that we currently have the ability and the resources to invest in growth, without compromising the continuous improvement of our current operations. The development phase and business environment of our business areas differ from each other and therefore the management agendas vary by business area.

          Metso Paper’s most important goal is to ensure profitability improvement and growth in the aftermarket business. The successful integration of the Pulping and Power businesses as a part of Metso is also of utmost importance. Achieving these goals requires continuous development and market launch of innovative products, services and business concepts that bring added value to our customers. Simultaneously, we will continue to focus on reducing our quality costs, improving the productivity of our current operations as well as expanding our manufacturing presence and sourcing network globally.

          Metso Minerals’ focus in upcoming years is to fully exploit the good demand in the mining, construction and metal recycling industries. The goal is also to continue to strengthen the market position in emerging markets, to increase delivery capacity and to invest in securing technology leadership. A particular emphasis in research and development is the engineering of new concepts and products related to life cycle services. Metso Minerals’ new customer-oriented operating model supports the achievement of these goals. Since the beginning of 2007, the business lines have been restructured according to three main customer segments – Construction, Mining, and Recycling. The change was carried out to make customer service more efficient and to ensure good profitability also in weaker business cycles than today.

          Metso Automation aims to grow net sales while ensuring sustainable profitability. The goal is also to achieve a stronger presence in the emerging markets and growth in the aftermarket business. In order to better serve our selected customer industries, Metso Automation is expanding its product offering with an efficiently managed research and development portfolio and strong research and development investments. Growth opportunities are also being pursued by expanding Metso Automation’s supplier base.

Outlook for 2007

          The overall market situation for the Company is expected to remain favorable in 2007. The overall market outlook for Metso Paper is expected to be satisfactory in 2007. The demand for new fiber and tissue lines as well as related rebuilds and aftermarket services is expected to slightly soften from the good level in 2006, except for South America and Asia where the markets for new fiber lines are expected to remain good. The demand for new paper and board machines, as well as rebuilds and aftermarket services is expected to remain satisfactory also in 2007. The strong demand is expected to continue in Asia. The demand for power production solutions, especially related to biomass utilization, is expected to remain excellent.

          Metso Minerals’ markets for both new equipment and aftermarket services are expected to remain excellent in mining and metal recycling. In the mining industry, the trend is towards large equipment and projects. The demand for Metso Minerals’ new equipment for the construction industry is expected to soften from excellent to good in 2007. This is mainly due to the leveling-off of North American aggregates demand. On the other hand, the demand for aftermarket services within construction segment is expected to continue excellent due to the active spare and wear part markets for the installed base.

          The demand for Metso Automation’s process automation systems for the pulp and paper industry is estimated to get slightly stronger. The demand for flow control systems is expected to continue to be good in the pulp and paper industry and excellent in the power, oil and gas industry. The markets for process automation systems in the power industry are expected to continue to be good.

          Based on our strong order backlog, continuing favorable market situation and expanded business scope, we estimate that Metso’s net sales in 2007 will increase by more than 20 percent on 2006, and the operating profit is estimated to clearly improve. It is estimated that the operating profit margin in 2007 will be slightly below Metso’s target, which is over 10 percent. This is primarily due to the high first-year amortization

of intangible assets, integration costs and only partially materializing synergy benefits related to the acquisition of the Pulping and Power businesses.

          The estimates concerning Metso’s net sales and operating profit do not include changes resulting from any future acquisitions or divestitures.

Corporate Structure

          We are a global engineering and technology corporation headquartered in Helsinki, Finland. We serve our customers in the pulp and paper industry, rock and minerals processing, the energy industry and selected other industries. Our business is global in scope and we have operations in over 50 countries. Our principal production plants are located in Brazil, China, Finland, France, Germany, India, Italy, South Africa, Sweden, the United Kingdom and the United States. As of December 31, 2006, approximately 36 percent of our employees were based in Finland.

Organization until December 31, 2006

          Until December 31, 2006, our operations were organized into the following four business areas. The financial information for the years ended December 31, 2006, 2005 and 2004 is presented according to these four business areas in this annual report.

	•		Metso Paper designs, develops and delivers processes, machinery, equipment and related know-how and aftermarket services to the pulp and paper industry. Metso Paper’s offering extends over the entire life cycle of the process covering new lines, rebuilds and various aftermarket services. Until December 31, 2006, Metso Paper operated under five business lines: Fiber, Paper and Board, Finishing, Tissue and Service. The business lines are supplemented by regional functions in Asia-Pacific, Europe, North America and South America.
	•		Metso Minerals designs, develops and manufactures equipment and total solutions as well as aftermarket solutions for rock and minerals processing industries. It operated through its four business lines until December 31, 2006: Crushing and Screening, Minerals Processing, Wear Protection and Conveying and Recycling.
	•		Metso Automation designs, develops and supplies both process automation and field solutions for automation and information management in selected process industries. Metso Automation’s operations cover the three principal areas of process automation: (1) automation and information management application networks and systems and life cycle services, (2) flow control solutions, automated and manual control valves, and (3) process measurement solutions and analyzers. Metso Automation operated through its two business lines, Process Automation Systems and Field Systems and a separate North American business unit until the business lines were reorganized as of October 1, 2006. After the reorganization, the business lines within Metso Automation are: Process Automation Systems and Flow Control.
	•		Metso Ventures main businesses until December 31, 2006 were: Metso Panelboard, Foundries, Metso Powdermet and Valmet Automotive. Metso Panelboard develops and supplies complete production lines for the panelboard industry. Foundries manufacture castings for various engineering industry needs. Metso Powdermet develops materials technology and component solutions for our customer industries and us. Valmet Automotive is an independent contract manufacturer of specialty cars.

          Our current corporate structure is a result of the restructurings described below.

          In November 2002, the Converting business, previously part of Metso Paper, was transferred under Discontinued Operations after a memorandum of understanding regarding its sale was signed. The divestment was completed in January 2004. In March 2004, Metso Paper’s operations were divided into four business lines: Fiber, Paper, Tissue and Board. Since the beginning of 2006, Service and Finishing businesses were separated into own business lines, and Metso Paper operated, until December 31, 2006, under five business lines: Fiber, Paper and Board, Finishing, Tissue and Service.

           Following the divestiture of the Compaction & Paving business in June 2004 and the Drilling business in December 2004, Metso Minerals was organized into four business lines.

          Since August 2002, Metso Automation had operated through its two business lines: Process Automation Systems and Field Systems and a separate North American business unit until it business line organization was reorganized as of October 1, 2006. The business lines within Metso Automation currently are: Process Automation Systems and Flow Control.

          Until April 2005, Metso Ventures comprised of five businesses: Metso Panelboard, Metso Drives, Foundries, Metso Powdermet and Valmet Automotive. Metso Drives was sold to the funds managed by private equity investor CapMan of Finland in April 2005.

          The financial information as of and for the years ended December 31, 2006, 2005 and 2004 and discussed in this annual report reflects the changes in our structure described above. The Converting business has been reported as a separate segment under Discontinued Operations until its final divestment to Bobst Group SA of Switzerland in January 2004. We completed the divestiture of our Compaction & Paving business to Altor, a Nordic private equity investor, in June 2004 and our Drilling business to Terex Corporation of the United States in December 2004. In April 2005, we completed the divestiture of Metso Drives to funds managed by CapMan. These divested businesses are also reported under Discontinued Operations.

Organization as of January 1, 2007

          As of January 1, 2007, and following the completion of the acquisition of the Pulping and Power businesses on December 29, 2006, the business lines of Metso Paper currently are: Fiber, Paper and Board, Finishing, Tissue, Service, Power and Panelboard. The acquisition of the Pulping and Power businesses brought a new customer industry for Metso Paper, and thus, we now also serve the power segment in addition to the pulp and paper industry. Panelboard was moved under Metso Paper in connection with the dismantling of Metso Ventures at the end of 2006.

          As of January 1, 2007, Metso Minerals’ operations were organized according to the three core customer segments: Construction, Mining and Recycling.

          Metso Ventures business area was dismantled on January 1, 2007. The decision was based on integrating the business operations of MetsoVentures into our core businesses now that the major restructuring programs are completed. Two of Metso Ventures’ three foundries were transferred under Metso Paper and one under Metso Minerals. Metso Panelboard became part of Metso Paper, Metso Powdermet Oy was transferred to Metso Minerals and Metso Powdermet AB was divested to Sandvik AB of Sweden. As of January 1, 2007, Valmet Automotive will be reported as a separate financial holding unit of Metso Corporation.

          The chart below depicts our current structure consisting of the three business areas:

          As a part of our strategy process in 2005, we studied various alternative corporate structures, including the potential separation of Metso Minerals. In August 2005, our Board of Directors decided to commission a more detailed feasibility study to assess these alternatives.

          In February 2006, our Board of Directors decided that the current structure of Metso would be kept intact. The principal reasons for the decision of the Board of Directors were the rapid sales and profitability growth in Metso Minerals and Metso Automation together with good growth opportunities provided by a favorable market outlook, as well as the ongoing positive development of Metso Paper including the potential acquisition of Aker Kvaerner’s Pulping and Power business. Our Board of Directors considered it important that our management focuses on the execution of the profitable growth strategy launched in August 2005. Our Board of Directors continues to believe that the current Metso structure provides for now the best potential for further creation of shareholder value.

Business Summary

Net Sales by Geographic Area

          In 2006, we had total net sales of EUR 4,955 million (USD 6,539 million), of which approximately 94 percent accounted for sales by international operations and by exports from Finland, and an operating profit of EUR 457 million (USD 603 million). As of December 31, 2006, our total assets amounted to EUR 4,958 million (USD 6,543 million), and we had 25,678 employees worldwide. Our total assets and headcount as at December 31, 2006, also include the Pulping and Power businesses acquired from Aker Kvaerner.

          The following table sets forth our total net sales by geographic area for the three most recent years:

		Year ended December 31,
		2004				2005				2006
		(EUR in millions)
Finland			312				352				341
Other Nordic countries			301				484				283
Other European countries			888				1,064				1,378
North America			757				889				1,012
South and Central America			286				485				685
Asia-Pacific			829				735				991
Rest of the world			229				212				265
Total			3,602				4,221				4,955

Metso Paper

          As a result of our restructurings described under “—Corporate Structure” above, Metso Paper’s operations were divided into five business lines until December 31, 2006: Fiber, Paper and Board, Finishing, Tissue and Service. As of January 1, 2007, following the completion of the acquisition of the Pulping and Power businesses on December 29, 2006, Metso Paper’s business lines currently are: Fiber, Paper and Board, Finishing, Tissue, Service, Power and Panelboard.

          Metso Paper is one of the world’s leading suppliers of equipment and machinery for the pulp and paper industry. Metso Paper provides machines for the production of paper of all printing grades, board and tissue. We develop and deliver, rebuild and service paper, board and tissue machines, paper finishing machines and related air systems. We also develop and deliver equipment and designs plants for the production of chemical and mechanical pulp and recycled fiber as well as provide service to the plants. Spare and wear parts supply, process improvements and optimization are central to our aftermarket activities. Process improvements are expected to be an increasingly important source of revenue as pulp and paper mills strive to enhance process efficiency and meet higher environmental standards. Our customer service activities include start-up assistance, training, corrective, preventive and predictive maintenance programs as well as operations support.

          The following table sets forth certain financial data regarding Metso Paper for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel data)
Net sales(1)			1,559				1,702				1,947
Operating profit(2)			48				91				110
Capital employed(3)			323				329				617
Gross capital expenditure, excluding business acquisitions			33				34				48
Research and development			50				51				60
Order backlog(3)			946				1,267				2,139
Personnel(3)			8,660				8,201				10,867

Products and Services

          Fiber. Metso Paper delivers environmentally sound fiber lines, processes and production equipment as well as related aftermarket services for both the chemical and mechanical pulping technologies. Chemical pulp is used for high-quality paper products primarily due to its strength, printability and ability to maintain brightness. Mechanical pulp is used primarily for newsprint and magazine papers and certain paperboard grades. Metso Paper has the capability and product offering for utilization of all different kinds of recycled fibers for paper, board or tissue making. Metso Paper’s Fiber business line includes process equipment and service necessary for complete fiber plants. Metso Paper offers fiber producers technologies that significantly reduce the environmental impact of their operations.

          Paper & Board. Metso Paper delivers new paper and board machines and production equipment as well as offers machine rebuilds and service. Paper machines delivered by Metso Paper are among the largest and fastest in the world. A typical paper machine costs between EUR 50 million and EUR 100 million and produces from 200,000 to more than 400,000 tons of paper per year. These machines are designed to meet specific customer needs and are used to produce fine paper (for office stationery), newsprint, supercalendered and coated paper (for magazines and similar publications) and coated base papers (for brochures and art purposes). Metso Paper supplies board-making machines for all board and packaging grades, the most important grades being corrugated board, linerboard, folding boxboard and liquid packaging board. A typical board machine costs between EUR 30 million and EUR 100 million and produces from 200,000 up to 700,000 tons of board per year. Some very extensive delivery scopes and subsequent contract prices may substantially exceed the amounts described above.

          Finishing. Metso Paper supplies surface treatment systems, air systems and roll finishing systems for paper and board manufacturing. The products also include new machines, machine rebuilds and service for coating, calendering, winding and roll handling, and chemical handling equipment for paper mills. Coaters and calenders are used to give base papers certain properties, such as gloss or matt finishes and opacity. Winders are used to cut large paper rolls to smaller sizes to fit printing machines. Roll handling machines consist of roll wrapping and conveyor systems.

          Tissue. Metso Paper delivers new tissue machines and production equipment as well as offers machine rebuilds and service. Metso Paper produces machines for manufacturing various types of tissue papers and continues to be a leading supplier of Thru-Air ™ technology for tissue production. During the past two years, Metso Paper has also successfully launched a more cost competitive Advantage DCT product concept for smaller tissue paper operations. A typical tissue machine costs between EUR 7 million and EUR 35 million and produces from 10,000 to more than 70,000 tons of tissue paper per year.

          Service. Metso Paper provides a full portfolio of services and specialist support to the pulp and papermaking industry. The service includes spare part consumables, roll services, mill site services and mill maintenance. The aim is to support customer mills in maintaining production line competitiveness throughout the lifetime of the machinery.

          Following the completion of the acquisition of the Pulping and Power businesses from Aker Kvaerner on December 29, 2006, the business lines of Metso Paper currently are: Fiber, Paper and Board, Finishing, Tissue, Service, Power and Panelboard. The acquisition of the Pulping and Power businesses brought a new customer industry for Metso Paper, and thus, we now serve also power generation in addition to pulp and paper industry. Panelboard was moved under Metso Paper in connection with the dismantling of Metso Ventures at the end of 2006.

          Metso Power delivers fluidized bed combustion solutions and chemical recovery equipment for the pulp and paper industry and power producers. Metso Power has designed and manufactured the world’s largest chemical recovery units and biomassfired fluidized bed boilers.

          For a discussion about Metso Panelboard’s products and services, see “—Metso Ventures-Metso Panelboard” below.

Markets and Customers

          The following table sets forth the breakdown of Metso Paper’s net sales by geographic area for the three most recent years:

		Year ended December 31,
		2004				2005				2006
		(Percent of total net sales)
Finland			12				12				9
Other Nordic countries			10				20				6
Other European countries			17				19				28
North America			19				19				17
South and Central America			5				7				12
Asia-Pacific			32				21				26
Rest of the world			5				2				2
Total			100				100				100

          Changes in pulp and paper consumption, price trends in pulp and in different paper and board grades, investments by the pulp and paper industry, capacity utilization of manufacturers and reorganizations in their production structures, as well as changes in environmental legislation and in energy and raw material prices affect Metso Paper’s customers’ business.

          Metso Paper’s products and services are sold to the pulp and paper industry throughout the world. Worldwide sales are handled through a network of our own sales companies, offices and local representatives. Orders typically require substantial down payments with the balance paid in installments. Project delivery times depend on the size and nature of the project and may be as long as two years.

          Metso Paper’s customers are located in a number of countries. In recent years, the new paper machinery market has been the most active in China and pulp mill market in South America and South East Asia. Metso Paper has major production facilities in Finland, Sweden and China as well as a joint venture in China. We also have an assembly facility in Brazil.

          As a major supplier to the pulp and paper industry, most of the significant pulp and paper producers are Metso Paper’s customers. Customers include large North American-based international groups, such as Georgia-Pacific, International Paper, Kimberly-Clark, Procter & Gamble and Weyerhaeuser; European producers, such as M-real Corporation, Norske Skog, SCA, Stora Enso and UPM-Kymmene; and South American producers, such as Arauco and Suzano; as well as various companies located in Asia, such as April, Asian Pulp and Paper, Daishowa Paper, Hansol Oji, Shandong Chenming Paper Holding, Shandong Huatai Paper and Sun Paper Industry Group.

Marketing

          Customer agreements for Metso Paper products are generally the result of extensive negotiation and coordination with our customers. Service and component sales are made on a continuous basis by regional service locations. Metso Paper has an extensive global network of sales companies and sales representatives. In addition, a centralized marketing and sales team supports sales activities and develops marketing strategies in line with our customers’ needs.

Competition

          Competition within the pulping industry focuses on fiber quality and energy efficiency and recently also increasingly on complete plant delivery capability. In addition, environmental concerns affect competition as principal suppliers attempt to meet the increasing demand for environmentally friendly ways to produce fiber. Within chemical pulping, the environmental focus is on totally chlorine-free and elemental chlorine-free production processes whereas in mechanical pulping, focus is on recycled fiber production processes. Following the completion of the acquisition of Aker Kvaerner’s Pulping and Power businesses on December 29, 2006, Metso Paper’s principal competitors in the pulping industry are Andritz Corporation of Austria, Groupe Laperrière & Verreault Inc. (“GL&V”) of Canada and Voith Paper Group of Germany. The leading companies in the area of recycled fiber pulping technology include Voith Paper Group and Black Clawson Converting Machinery of the United States. See “—Recent Developments” below and “Item 5. Operating and Financial Review and Prospects - Recent Acquisitions and Divestments” for more details.

          In the paper machine industry, machinery is designed to meet specific customer needs. Paper, board and tissue machines are sold on the basis of machine performance and technology, the supplier’s process know-how, delivery time, price, service availability, long-term customer relationships and availability of reference machines for comparative purposes. Metso Paper competes for machine sales based on these seven factors. In the aftermarket business, the key competitive factors in particular are local presence and operations near the customer, expertise, price, availability and technology.

          Our management believes that, based upon aggregate production capacity of paper machines sold, Metso Paper has been the world’s leading producer of large paper machines. Our management also believes that we occupy a strong position in the large paper machine rebuild markets as a result of our large installed base, advanced technologies and leading position in the new paper machine market.

          Metso Paper’s principal competitor in large paper machines and board making machine lines is the other major producer, Voith Group. Mitsubishi Corporation of Japan is also a competitor but mainly in unit machines rather than total large production lines. In the finishing business, (i.e., in the delivery of calenders, coaters and air

systems), the main competitors include Voith Group and Kusters of Germany. In tissue machines, the competitors include Voith Group, Toscotec S.p.A. and Celli S.p.A. of Italy. Competition in the aftermarket and service business comes partly from the principal global competitors Voith Group and Andritz Corporation but mainly from numerous smaller local or regional service providers, such as Stowe Woodward Inc. of the United States. Customers also partly employ their own personnel to take care of the service activities. Service, for example initial spare parts, is often sold in conjunction with new paper and board machines or major rebuilds. Our management believes that Metso Paper’s service operations benefit greatly from synergies with other Metso Paper business lines, which have the process and product knowledge.

          Following the completion of the acquisition of the Pulping and Power business, our management believes that Metso is also a significant participant in the power generation industry. Critical competitive factors in Metso Power’s operations include the supplier’s process know-how, life-cycle costs, technology and cost-efficiency. There are only a few significant global competitors in the chemical recovery and fluidized bed boiler technology we represent, but our solutions compete also with other power production technologies. Metso Power’s principal competitors include Andritz Corporation and Austrian Energy & Environment AG of Austria, Babcock & Wilcox of the United States, Mitsubishi Corporation of Japan and HDP of Spain.

Recent Developments

          On December 29, 2006, we completed the acquisition of the Pulping and Power businesses from Aker Kvaerner. The acquired Pulping and Power businesses were consolidated in our balance sheet as at December 31, 2006, but they do not have a material impact on our income statement in 2006. The estimated acquisition price is EUR 341 million including EUR 6 million costs related to acquisition and EUR 52 million acquired net cash. Following the acquisition, we now have an enhanced position to serve our customers in complete turn-key pulping projects and customers in the power side, especially in the environmentally-sound, bio-fuel based power generation solutions.

          On December 29, 2006, we also completed the divestment to GL&V of a so-called remedy package related to the acquisition of Aker Kvaerner’s Pulping and Power businesses. The remedy package was comprised of the following Metso’s and Aker Kvaerner’s overlapping areas: Kvaerner Pulping’s pulp washing, oxygen delignification and bleaching businesses as well as Metso’s batch cooking business and its licensing back to Metso. The clearance for the acquisition of the Pulping and Power businesses received from the European Commission on December 12, 2006 was conditional on the divestment of the remedy package.

          On December 14, 2006, we acquired the remaining 35 percent minority interest of Metso-SHI Co., Ltd. of Japan from Sumitomo Heavy Industries. The company had represented Metso Paper and Metso Automation on the Japanese markets. The value of the transaction was EUR 2 million.

          On September 19, 2006, we agreed to acquire the business operations of Svensk Pappersteknik AB of Sweden to strengthen our aftermarket business. The acquired business was transferred to Metso on October 1, 2006 and it is included in Metso Paper as from that date.

          On August 31, 2006, after the relevant regulatory approvals from the Chinese authorities were received, we completed the acquisition of a Chinese paper machine manufacturer Shanghai-Chenming Paper Machinery Co. Ltd. at a cash price of EUR 12 million and debt assumed EUR 19 million. The company is consolidated into Metso Paper as from September 1, 2006. The company’s new name is Metso Paper Technology (Shanghai) Co., Ltd.

Metso Minerals

          As a result of our restructurings described under “— Corporate Structure” above and the acquisition of Svedala in 2001 and its subsequent integration with Metso Minerals, Metso Minerals’ operations were divided into four business lines: Crushing and Screening, Minerals Processing, Wear Protection and Conveying, and Recycling. As of January 1, 2007, Metso Minerals is organized into three business lines: Construction, Mining and Recycling.

          Metso Minerals is the global market leader in rock and minerals processing equipment and in metal recycling systems. Along with solid technology expertise, our competitive strengths include in-depth knowledge of our customer processes, a product and service portfolio encompassing the entire process, and the largest

installed machine base in the sector. Its global manufacturing, maintenance and sales network allow it to be highly responsive to our customer needs.

          Currently, the principal production plants of Metso Minerals are located in Brazil, China, Finland, France, Germany, India, South Africa, Sweden and the United States.

          The following table sets forth certain financial data regarding Metso Minerals, continuing operations (excluding the Compaction & Paving business and the Drilling business divested in 2004) for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel data)
Net sales(1)			1,366				1,735				2,174
Operating profit(2)			105				177				286
Capital employed			712				895				949
Gross capital expenditure			24				55				66
Research and development			9				11				13
Order backlog			560				852				1,254
Personnel			8,048				8,521				9,170

Products and Services

          Metso Minerals is a leading global supplier of rock and minerals processing solutions and metal recycling systems. Aftermarket operations form an important part of Metso Minerals’ business, because crushing and processing rock and minerals require spare and wear parts continuously. In addition, we provide different types of aftermarket services for the life cycle of the equipment. Products are sold either through Metso Minerals’ own global sales organization or, in some product lines or markets, through a third party distributor network.

          Crushing and Screening. Metso Minerals’ Crushing and Screening business line offers equipment and solutions for rock and minerals’ crushing and classifying. It specializes in the design of entire crushing and screening plants, supplying not only stationary plants but also an increasing number of track and wheel-mounted mobile units. In addition, it supplies individual crushers, screens, feeders and conveyors as well as wear and spare parts. Furthermore, its offering includes complete, stationary or mobile recycling plants that are focused on retreating demolition and building debris, as well as old concrete and pavement materials. Within the aggregates industry, quarries and crushing contractors are among our key customer groups. Mining industry has also been an increasingly important customer segment because the whole minerals liberation process is initiated by rock size reduction through crushing and screening.

          Minerals Processing. Metso Minerals’ Minerals Processing business line offers minerals liberation processes for the mining and minerals industries as well as related products, such as grinding mills, enrichment and pyro processing equipment and slurry pumps. The business line also offers equipment for bulk materials handling, such as stackers and reclaimers, and other products needed in loading and unloading barges, ships and railcars. Furthermore, its offering includes aftermarket services, such as expertise in optimizing existing plants through automation, plant audits, plant upgrades, replacement parts and maintenance.

          Wear Protection and Conveying. Metso Minerals’ Wear Protection and Conveying business line’s products includes grinding mill linings, screening media and other wear, impact, dust and noise protection products as well as conveyer belts and components. The products are primarily used for wear protection of products sold by our Crushing and Screening and Minerals Processing business lines.

          Recycling. Metso Minerals’ Recycling business line offers equipment and solutions needed for the recycling and sorting of scrap metals, such as metal shredders, shears, scrap shears and scrap baling presses.

Markets and Customers

          The following table sets forth the breakdown of net sales of Metso Minerals’ continuing operations (excluding the Compaction & Paving business and the Drilling business divested in 2004) by geographic area for the three most recent years:

		Year ended December 31,
		2004				2005				2006
		(Percent of total net sales)
Finland			2				3				2
Other Nordic countries			9				7				6
Other European countries			29				25				25
North America			23				23				23
South and Central America			13				19				18
Asia-Pacific			14				15				17
Rest of the world			10				8				9
Total			100				100				100

          Metso Minerals’ customers in the construction industry comprise of quarries, project-based crushing and screening operations and contractors. Additionally, customers include engineering and consulting firms. In 2006, approximately 37 percent of Metso Minerals’ deliveries was to the civil engineering industry. Metso Minerals’ customers in the mining sector include mines and companies processing industrial minerals, which quarry, process and transport ores and minerals, as well as mining sector contractors and engineering and consulting firms. The mining sector accounted for approximately 51 percent of Metso Minerals’ deliveries in 2006. The Recycling business line focuses on the metal recycling industry, which includes scrap iron recycling, the car industry, the aluminum industry and foundries. Approximately 12 percent of Metso Minerals’ deliveries went to metal recycling customers in 2006.

          The mining and metal recycling industries’ willingness to invest is affected by for example changes in the balance of supply and demand for metals and in the prices for metals and minerals. The increased buying power and industrial production in emerging markets has increased demand for mining and metal recycling industry products, and our management estimates that this structural change will have a positive effect on demand also in the long term. The level of road network and other infrastructure investments affects the demand for aggregates and the development of the entire construction industry. The metal recycling industry’s demand is affected by the demand for scrap metal and metal prices. The demand for metal recycling equipment is also affected by the degree of recycling infrastructure development in various countries. Furthermore, the use of electric arc furnaces utilizing large amounts of scrap metal as the raw material for making steel is increasing.

          The price of rock crushing plants typically ranges from EUR 1 million to EUR 5 million, although it may be as high as EUR 15 million. The price of individual rock crushers ranges from EUR 15,000 to EUR 1 million. The price of a typical complete minerals processing plant delivery to the mining industry ranges from EUR 30 million to EUR 100 million.

Marketing

          In order to service our local markets and customers, Metso Minerals’ marketing is divided into eight market areas: Europe, Southern Africa, North America, South America, Asia-Pacific, China, India, and International. Metso Minerals has a number of sales companies in Europe, South America, Africa, Asia and Australia. Metso Minerals’ sales network offers the full range of products to the customer industries. Metso Minerals supports its own sales operations through a network of local third party distributors.

Competition

          Competition in Metso Minerals’ business is fragmented, with a few global manufacturers in new machines and completed production plants and small, regional and local manufacturers for lighter equipment. We believe that our competitive advantages include long-term customer relationships, global presence, machine performance and durability, solid technology and service expertise, knowledge of our customer’s entire production process, reliable delivery and an extensive base of installed equipment. The competitive arena in the aftermarket business is more fragmented compared to equipment sales. In addition to the wide base of installed machinery, local customer service supported by a global network of experts as well as the supply and high-quality of spare and wear parts are critical in the aftermarket business.

          In the construction industry, our major competitors are Terex Corporation and Astec of the United States as well as Sandvik AB of Sweden. In the mining industry, our major competitors include FLSmidth & Co. A/S of Denmark, Thyssen Krupp AG of Germany and Outokumpu Technology Corporation of Finland depending on the product line and particular industry segment. In recycling, our major competitors include Henschel and SWB of Germany and Newell-Riverside Inc. of the United States.

Recent Developments

          On September 19, 2006, we agreed to acquire the business operations of Svensk Gruvteknik AB of Sweden to strengthen our aftermarket business. The acquired business was transferred into Metso on October 1, 2006 and it was included in Metso Minerals from that date.

          In January 2006, Metso Minerals’ industrial and office facility in Colorado Springs, Colorado, the United States, was sold to Charter Holdings Inc.

          In October 2005, our rubber manufacturing operation in Keokuk, Iowa, the United States, was discontinued and the facility was sold to the local management.

          In August 2005, we acquired Texas Shredder, Inc., a supplier of metal shredder products located in San Antonio, Texas, the United States. The sellers were a group of private investors led by Capital Southwest Corporation, a venture capital investment company. The acquisition price was approximately EUR 14 million.

          In November 2004, Metso Minerals’ Crushing and Screening business line decided to centralize its North American warehouse, logistics and customer service operations to Columbia, South Carolina and to strengthen its manufacturing capabilities in the United States. The value of the investment was approximately EUR 5 million. In addition to a service center, the Columbia facility also includes an assembly line for mobile screens and crushing plants. The renewed plant consists of 203,000 square feet of production and office space on 40 acres of land and it was fully operational in late 2006.

Metso Automation

          Metso Automation operated through its two business lines: Process Automation Systems and Field Systems and a separate North American business unit until its business line organization was changed as of October 1, 2006. Currently, Metso Automation operates through two global business lines: Process Automation Systems and Flow Control. See “—Corporate Structure” above for a further explanation of our corporate restructurings.

          Metso Automation designs, develops, manufactures and maintains a wide range of technologically advanced process industry field devices and analyzers as well as process automation and information management applications and solutions. Metso Automation’s products are used to measure, monitor and control industrial processes in the pulp and paper as well as power, energy, and oil and gas industries. Metso Automation also specializes in several industry-specific automation applications and provides system integration services. Metso Automation is also one of the world’s leading manufacturers and suppliers of control and automated valves for the process industries in a large and fragmented global market. Metso Automation’s devices, applications, solutions and services are designed to improve customer process performance and profitability by increasing productivity, quality, process availability and eco-efficiency.

          Metso Automation has major manufacturing plants in Finland and the United States as well as a manufacturing joint venture in China. Metso Automation’s four supply centers are located in Finland, France, Brazil and China. Metso Automation’s global sales operations are handled through a worldwide distribution network including local distributors and Metso Automation sales companies in 34 countries.

          The following table sets forth certain financial data regarding Metso Automation for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel data)
Net sales(1)			535				584				613
Operating profit(2)			69				81				87
Capital employed			135				125				149
Gross capital expenditure			6				11				9
Research and development			31				29				29
Order backlog			176				179				276
Personnel			3,267				3,169				3,352

Products and Services

          Metso Automation’s Process Automation Systems business line offers its customers process industry measurement systems and equipment as well as application networks and solutions for managing automation, production quality and information. Life cycle services support the product offering. The Flow Control business line focuses on control valves and smart flow control solutions for the process industry as well as aftermarket and support services.

     Process Automation Systems

          The Process Automation Systems business line develops and maintains process automation technology for the pulp and paper industry as well as the power, energy, and oil and gas industries. The business line’s principal product is metsoDNA, or Dynamic Network of Applications. The metsoDNA solution offers flexible scalability and easy integration and compatibility with a plant’s other systems. MetsoDNA is based on the free networking of knowledge and information, control automation and embedded field control applications. The concept was first introduced in 1999, and it is constantly being developed by adding new industry and user-specific applications for process and information management, quality management, production tracking and asset management. The latest novelty, metsoDNA CR launched in 2006, is a single platform for all control, information management and communication purposes, thus eliminating the need to learn and support several systems. It combines the machine, process, quality and drive controls, as well as information management applications.

          In addition, key products of the Process Automation Systems business line are Sensodec systems for paper machine runnability and condition monitoring, and the PaperIQ Plus and PaperLab systems for paper quality management.

          The product offering of the Process Automation Systems business line for the pulp and paper industry also includes Kajaani analyzers, sensors and sampling devices for sophisticated fiber and stock property measurements for a paper machine wet end management, and a wide selection of shear force, microwave and optical transmitters and sampling devices for pulp consistency measurements. Metso Automation is a leading global supplier of pulp and paper specialty analyzers, consistency transmitters and control valves.

     Flow Control

          The Flow Control business line develops, manufactures and supplies control, on-off and emergency shutdown (ESD) valves, accessories, intelligent devices and software products.

          The product offering of the Flow Control business line in the area of flow control valves covers a range of valves, including simple shut-off valves to complex control and automated valves and intelligent valve controllers. The business line also supplies industrial ball valves, butterfly valves and actuators, serving the process industries, commercial heating, ventilation and air conditioning, and original equipment manufacturer markets. The product names used for our valves are Neles and Jamesbury. The Flow Control business line also develops and manufactures intelligent digital positioners and actuators. A positioner transmits information to an

actuator, which in turn operates a valve. Positioners and actuators are key components of control valves, and Metso Automation typically sells these components with their associated valves as a single unit.

Customer Support Services

          Metso Automation has customer service units in 34 countries. These units, together with local representatives, form an extensive global service network that is also supplemented with remote control solutions. Integration of customers’ systems through communication networks with Metso’s global online service systems enables operations in accordance with our life cycle business concept. Metso Automation’s three expert centers, two in Finland and one in the United States, can monitor online the performance of customer’s pulp and paper mills as well as power and process plants. In addition to fast diagnosis and problem solving, the service is designed to improve process availability and performance, resulting in higher efficiency and product quality.

Markets and Customers

          The following table sets forth the breakdown of Metso Automation’s net sales by geographic area for the three most recent years:

		Year ended December 31,
		2004				2005				2006
		(Percent of total net sales)
Finland			19				20				20
Other Nordic countries			4				4				3
Other European countries			27				25				22
North America			28				28				29
South and Central America			4				4				6
Asia-Pacific			14				15				15
Rest of the world			4				4				5
Total			100				100				100

          The principal customers of Metso Automation operate in the pulp and paper industry as well as in the power, energy, and oil and gas industries. In the pulp and paper industry as well is in power sector, the customers of Metso Automation and Metso Paper are, in many cases, the same pulp and paper companies and mills.

Marketing

          Metso Automation’s devices, applications and solutions are sold individually, as upgrades and add-ons to existing systems, as integrated systems and as parts of the new machinery or process equipment installations. Automation applications and solutions are primarily sold by Metso Automation’s own worldwide sales organization. Metso Automation also markets conventional valve technology through distributors in North America.

          Management believes that Metso Automation is well positioned to develop innovative, technologically advanced and competitively priced products for customers within the pulp and paper industry through its coordinated operations with Metso Paper. In certain cases, particularly when customers purchase complete pulp or paper machine lines, Metso Automation’s systems are sold jointly with Metso Paper. However, in many cases, pulp and paper machinery customers purchase automation systems, measurement devices and control valves separately. Furthermore, Metso Automation can leverage the pulp and paper expertise also in power, energy, oil and gas industries.

Competition

          The process automation industry is highly competitive throughout the world. The principal competitors of Metso Automation are major, multinational process automation and control system companies, such as ABB Group of Switzerland, Emerson Electric Co. and Honeywell International Inc. of the Unites States, Invensys Plc. of the United Kingdom, Siemens AG of Germany, Voith Group and Yokogawa Group of Japan.

          The principal factors affecting competition include reliability and usability of equipment and systems, applications expertise, technical development, ease of installation and configuration, price, availability of

customer support, reputation, long-term customer relationships and references. Our management believes that Metso Automation is among the leading suppliers worldwide of special measurement and automation systems for the pulp and paper industry.

          Competition in the flow control area, especially in valve business, is characterized by a large number of participants, many of which specialize in a narrow product sector or application area. Key competitors include Emerson Electric Co., Flowserve Corporation, Dresser, Inc. of and Samson International, Ltd. of the United States. Our management believes that Metso Automation has a leading position in the supply of control valves to the pulp and paper industry worldwide.

Recent Developments

          In October 2006, Metso Automation opened a new valve service center in St. Petersburg, Russia.

          In September 2006, Metso Automation expanded its valve assembly plant in Shanghai, China.

          In May 2006, Metso Automation opened a new valve service center in Concepcion, Chile.

          In August 2005, Metso Automation closed its valve manufacturing factory in Chihuahua, Mexico.

Metso Ventures

          The Metso Ventures business area comprised four business lines until December 31, 2006: Metso Panelboard, Foundries, Metso Powdermet and Valmet Automotive. Metso Ventures was dismantled on January 1, 2007. Two of the three foundries were transferred under Metso Paper and one under Metso Minerals. Metso Panelboard was transferred under Metso Paper and Metso Powdermet AB was sold to Sandvik AB. See “—Corporate Structure” above for a further explanation of our corporate restructurings.

Metso Panelboard

          Metso Panelboard designs and supplies both entire production lines and individual equipment for the panelboard industry for producing medium density fiberboard (MDF), particle board and oriented strand board (OSB) as well as supporting aftermarket services. Products are developed to use a wide mixture of wood and fiber raw materials. The industry trend is to increasingly use low cost industrial wood residues, such as sawdust and recycled wood, as the main raw material source and, in some cases, non-wood natural fibers can replace wood fibers.

          Metso Panelboard is seeking growth in developing markets, such as China, Eastern Europe, Russia and South America. It is also aiming to increase the relative share of its aftermarket operations, particularly in Europe and North America, where it has a large base of installed machinery.

          The following table sets forth certain financial data regarding Metso Panelboard for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel data)
Net sales(1)			104				112				115
Operating loss(2)			(1	)			(3	)			(23	)
Capital employed			(14	)			16				(6	)
Gross capital expenditure			1				1				0
Research and development			3				3				3
Order backlog			32				50				42
Personnel			264				281				282

     Competition

          Metso Panelboard’s main competitors in complete production lines are G. Siempelkamp Group and Dieffenbacher-Group of Germany. Significant competitors in equipment supplies also include Andritz Corporation of Austria and Pallmann of Germany.

     Markets and Customers

          Metso Panelboard’s engineering and supply operations are located in Finland, Sweden and Germany and products are sold globally. The main markets are Europe and Asia-Pacific, followed by South America as well as North America. Metso Panelboard has supplied its customers with over 900 panelboard production lines. Customers are panelboard manufacturers for the furniture and construction industry. Approximately 70 percent of the panelboard produced with equipment supplied by Metso Panelboard is used in furniture production. The main customers include Finsa Group of Mexico, Masonite Vanachai of Thailand, Krono Group of Switzerland, Masisa S.A. of Argentina, and Sonae Group of Portugal.

          The following table sets forth the breakdown of Metso Panelboard’s net sales by geographic area for the most recent three years:

		Year ended December 31,
		2004				2005				2006
		(Percent of total net sales)
Finland			0				0				0
Other Nordic countries			2				4				2
Other European countries			35				57				29
North America			4				5				12
South and Central America			5				5				25
Asia-Pacific			51				29				20
Rest of the world			3				0				12
Total			100				100				100

     Marketing

          Products are marketed globally through Metso Panelboard’s sales network and sales agents. Our management believes that our ability to supply complete lines and our large installed base of machinery provide an advantage in the wood-based panel industry.

     Recent Developments

          In connection with dismantling of the Metso Ventures business area on January 1, 2007, Metso Panelboard became part of Metso Paper.

     Foundries

          Foundries within Metso Ventures consisted of three foundries: two iron foundries, located in Jyväskylä, Finland and Karlstad, Sweden, which were previously a part of Metso Paper; and one steel foundry, located in Tampere, Finland, which was previously a part of Metso Minerals. Foundries manufacture castings for customers in several engineering industry segments.

          The following table sets forth certain financial data regarding Foundries for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel data)
Net sales(1)			75				82				95
Operating profit(2)			7				5				5
Capital employed			25				30				35
Gross capital expenditure			3				6				4
Research and development			0				0				0
Order backlog			28				45				51
Personnel			587				618				657

     Products and Services

          Foundries’ main products are castings, such as cylinders and rolls, ship’s engine blocks, crusher frames, crusher wear parts and consumables, wind turbine gear parts and propeller hubs.

          The combined annual capacity of Foundries is approximately 50,000 tons of steel and iron castings. Metso Paper and Metso Minerals also have foundries as part of their own operational structure and these foundries are mainly specialized on casted wear parts or consumables.

     Markets and Customers

          Foundries have operations in Finland and Sweden where their principal market is. The key customers include various engineering companies as well as wind and hydro turbine manufacturers. Major customers also include Metso Paper and Metso Minerals. Approximately 40 percent of Foundries’ net sales are derived from customers within Metso.

          The following table sets forth the breakdown of Foundries’ net sales by geographic area for the most recent three years:

		Year ended December 31,
		2004				2005				2006
		(Percent of total net sales)
Finland			70				72				71
Other Nordic countries			17				17				17
Other European countries			7				3				7
North America			3				4				3
South and Central America			1				1				0
Asia-Pacific			2				3				2
Rest of the world			0				0				0
Total			100				100				100

     Marketing

          Industrial castings are sold both by our own sales people and by sales agents.

     Competition

          The demand for the products of Foundries is dependent on equipment sales of its customers for which the castings are used. There is a wide range of competing foundries both in the Nordic countries and continental Europe. Competition comes also partly from foundries located elsewhere in the world, increasingly in lower-cost countries. As a result, Foundries are increasingly focusing on technologically more demanding castings.

     Recent Developments

          In connection with dismantling of the Metso Ventures business area on January 1, 2007, two of Metso Ventures’ three foundries were transferred under Metso Paper and one under Metso Minerals.

     Valmet Automotive

          Valmet Automotive is an independent contract manufacturer of high-quality specialty cars with production facilities in Uusikaupunki, Finland. The production facilities consist of a body shop, paint shop, assembly shop and product development center. The production is done on a consignment basis, and Valmet Automotive is compensated for the assembly of each vehicle. Valmet Automotive is not required to purchase inventory, and its customers are billed partially in advance so as to limit Valmet Automotive’s working capital requirements. Our management estimates that the Uusikaupunki facilities have the capacity, given certain modifications and increased manpower, to assemble up to 100,000 cars per year.

          The following table sets forth certain financial data regarding Valmet Automotive for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel and vehicle
		data)
Net sales			40				78				109
Operating profit(1)			(13	)			6				12
Capital employed			24				30				23
Gross capital expenditure			12				8				2
Research and development			2				1				1
Approximate number of vehicles assembled			10,051				21,233				32,393
Personnel			763				1,068				1,013

     Products and Services

          Valmet Automotive produces and develops demanding specialty cars and can supply total niche car projects to OEMs (original equipment manufacturers).

     Markets and Customers

          Valmet Automotive’s current products are the Porsche Boxster and the Porsche Cayman cars for Dr. Ing.h.c.F.Porsche AG of Germany. Valmet Automotive’s current contract with Dr. Ing.h.c.F.Porsche AG is based on a frame agreement signed on October 24, 2001, with car production expected to continue at least until 2011 unless terminated by either party for certain specific reasons set forth in the frame agreement. Valmet Automotive continuously seeks a new car model to add to its production line to improve the capacity utilization of the plant.

     Competition

          Specialty cars of the type produced by Valmet Automotive are designed for limited customer segments and production is to an increasing extent subcontracted to external manufacturers. Valmet Automotive is one of the principal manufacturers of convertibles and contract manufacturers of specialty cars in Europe. Valmet Automotive’s principal competitors are Karmann of Germany, Magna Steyr of Austria, and Bertone and Pininfarina of Italy.

          Management believes that Valmet Automotive’s principal competitive advantages are its high-quality and cost-efficiency, the competence of its personnel and its good readiness and flexibility to manufacture new products. In December 2003, Valmet Automotive was granted one of the first ISO/TS 16949 quality certificates in the car industry.

     Recent Developments

          Following the dismantling of the Metso Ventures business area on January 1, 2007, Valmet Automotive will be reported as a separate financial holding unit under Corporate Office and other.

          Valmet Automotive’s 2006 production volume was about one-and-a-half times higher than in 2005. General uncertainty in the car markets, however, started to reflect also on Valmet Automotive’s production towards the end of 2006. Valmet Automotive announced that its production volumes would be decreased from approximately 150 cars per day in November 2006 to approximately 100 cars per day by April 2007. After the personnel negotiations that had begun in early November 2006, Valmet Automotive gave notice to 222 people in December 2006. After the reductions to be implemented in spring 2007, the personnel of the car manufacturing facility in Uusikaupunki will be approximately 800.

     Metso Powdermet

          Metso Powdermet designed, subcontracted the manufacture of and delivered machine parts based on powder metallurgy and other corresponding advanced manufacturing techniques. It also advised our other businesses in issues related to materials technology. Metso Powdermet’s main external project in recent years involved supplying powder metallurgy parts for the particle accelerator of the European Organization for Nuclear Research, or CERN, located in Switzerland. The project was completed in spring 2006. The need for new material solutions has grown since increased process speeds and efficiencies are placing more stringent demands in the strength and durability of machine parts. Additionally, wear and spare part solutions that are more durable and cost-efficient are being developed for the needs of the service and aftermarket business.

          Metso Powdermet’s net sales totaled EUR 13 million in 2006, compared to EUR 14 million in 2005 and EUR 11 million in 2004. As of December 31, 2006, Metso Powdermet had 15 employees.

     Recent Developments

          Following the decision to dismantle Metso Ventures business area, the business of Metso Powdermet AB in Sweden was sold to Sandvik AB of Sweden in December 2006 for EUR 13 million. Metso recorded a tax-free sales gain of EUR 10 million from the divestment. The resources of Metso Powdermet Oy of Finland were transferred to a new Metso Materials Technology unit, which is part of Metso Minerals.

Discontinued Operations

          In 2006, there were no businesses reported under Discontinued Operations.

          On April 8, 2005, we completed the divestiture of Metso Drives to funds managed by CapMan. Metso Drives, previously part of Metso Ventures, is reported as a separate entity under Discontinued Operations.

          On June 30, 2004, we completed the divestiture of our Compaction & Paving business, Dynapac, to Altor, a Nordic private equity investor. Dynapac was reclassified from Metso Minerals to Discontinued Operations.

          On December 31, 2004, the Drilling business of Metso Minerals, Reedrill, was divested and transferred to Terex Corporation of the United States. The business line was excluded from Metso Minerals and was reported as a separate entity under Discontinued Operations for the year ended December 31, 2004.

          On January 30, 2004, we completed the divestiture of the Converting business of Metso Paper to Bobst Group SA of Switzerland. Converting business was reported as a separate entity under Discontinued Operations for the year 2004 until its sale. See “—Corporate Structure” above for a further discussion of our corporate restructurings.

          The following table sets forth certain financial data regarding Discontinued Operations for the three most recent years:

		As of and for the year ended December 31,
		2004				2005				2006
		(EUR in millions, except personnel data)
Net sales			397				26				—
Operating profit(1)			3				17				—
Capital employed			80				—				—
Gross capital expenditure			6				0				—
Research and development			10				1				—
Order backlog			53				—				—
Personnel			897				—				—

Drives

          The products of Metso Drives included power transmission solutions and gears for paper, pulp, minerals processing as well as for wind turbine and other industries. In addition to new equipment, it also provided expert services, spare parts and consumables.

Dynapac

          The products in the Compaction & Paving business, under the Dynapac product brand, included pavers, planers, rollers, light compaction equipment and concrete machinery. In addition to new equipment, the business also provided expertise through services, such as spare and wear parts as well as maintenance.

Drilling

          The Drilling business, under the Reedrill and Texoma product brands, offered equipment and services for drilling. The offering included track- and wheel-mounted drills and rotary drills for surface mining and excavation, multi-boom jumbo-drills for underground excavation and soil drilling equipment.

Converting

          Converting consisted of operations of Italian Valmet Rotomec (“Rotomec”) and United Kingdom based Atlas Converting plc (“Atlas”). Converting offered a wide range of machines for the packaging and printing industries.

          Rotomec specialized in rotogravure and flexo printing machines and special coating and laminating machines for packaging. Rotomec produced packaging industry machines for various materials, such as paper, board, aluminum and plastic sheets. Rotomec also produced printing machines for the production of wallpaper and interior furnishing materials. Atlas specialized in slitter rewinders and vacuum-metallizing equipment for the treatment of paper, film and aluminum foil for the converting industry. Its products were mainly used in the film and packaging industries.

Raw Materials

          Each of our business areas procures the raw materials and subcomponents required for its operations from a network of multiple subcontractors and suppliers. We typically have long-term relationships with our network of suppliers, although long-term supply agreements are primarily used for certain key raw materials. No business area is dependent on a single supplier, and we emphasize the need to identify and monitor replacement suppliers in the event that a particular supplier is unable to meet our requirements. We manufacture internally many core components that are required for our operations.

          The types of raw materials and subcomponents that we use vary widely within each of our business areas. The most important include various mechanical and electrical components, subassemblies for Metso Paper and Metso Minerals as well as hardware, software and computer applications for Metso Automation. In addition, steel and other metals and minerals are required for Metso Paper’s and Metso Minerals’ operations.

We have long-term supply agreements for the delivery of these key materials, with pricing terms following the prevailing market prices. However, we are not dependent on any single supplier and may procure these raw materials and subcomponents from multiple sources, including the open market. In addition, certain of our business areas require special raw materials. For example, Metso Paper requires rubber, polyurethane, composite and hard coatings in the production of paper machines, including roll covers. Also, Metso Minerals requires manganese, which is a mineral of limited global supply, in the production of castings for various wear parts. Also, Foundries within Metso Ventures requires scrap iron. No individual supplier or supply agreement is material to our operations.

          See “Item 3. Key Information—Risk Factors” for a discussion of the risks associated with our reliance on suppliers and subcontractors to procure raw materials and subcomponents.

Seasonality

          Seasonal variations affect, to a relatively limited extent, our net sales. This limited impact is mainly due to seasonality in our customers’ operations. Due to the timing and purchasing decisions in certain of our customer segments, deliveries and sales to such customer segments are typically higher in the fourth quarter and lower during the first quarter than during the other quarters of the year. This applies to all of our business areas. However, large projects, which for us are pulp and paper or mining related, tend to have long delivery timetables and are recognized as sales each quarter based on the percentage of completion. Weather conditions provide an additional reason for some seasonality especially in Metso Minerals’ business for the civil engineering industry. As customers in the northern hemisphere make required machinery investments to construct roads in the region’s summer months, this typically increases deliveries in the second quarter of the year.

Dependence on Intellectual Property

          We aim to create value through our ownership of intellectual property rights, which include Metso brand, patents, utility models, design protections, trademarks, copyrights and domain names. We emphasize our systematic intellectual property management and harmonized, corporate-wide practices. Attention is also paid to avoid infringements of the intellectual property rights of others.

          We seek to manage our intellectual property rights portfolios in a way that supports both competitiveness and technology leadership in our businesses. For example, our patent portfolio, including approximately 7,500 patents and approximately 2,900 pending applications, is regularly evaluated, screened and developed with current and future business needs and possibilities in mind to raise the value/cost ratio of the portfolio.

          In 2006, our employees filed approximately 710 invention disclosures. We sought protection in the form of new priority patents for more than 210 inventions relating to the products and services of all our business areas.

Governmental Regulation and Environmental Matters

          Our operations are subject to various local laws of the countries in which we operate, including the United States federal, state and local environmental laws and regulations. Under various environmental laws, including the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), a current or former owner or operator of property may become liable for the costs of remediation of certain hazardous substances on its property, regardless of whether the owner or operator knew of, or was responsible for, the release of such substances. In addition, a generator of hazardous substances may be responsible for all or a portion of remedial costs at offsite disposal locations.

          Metso Minerals Industries, Inc. or its predecessors (“MMII”) have been named, together with a number of other parties, as a potentially responsible party (“PRP”) for the remediation of two Wisconsin landfills (Hunt and Muskego), which have been designated as superfund sites under CERCLA. As a PRP, MMII is jointly and severally liable for the clean-up costs of such sites. With respect to Hunt landfill site, MMII, together with the other named PRPs, has entered into a consent decree with the United States government pursuant to which MMII and such other parties have agreed to pay the clean-up costs. MMII has a 6.3 percent share of the clean-up costs and has paid USD 406,250 for its share. Construction of the selected remedy for the Hunt site was completed in 1996. Remaining obligations at the site relate to maintenance and monitoring of the selected

remedy and provide reporting to government agencies. Based on advise from environmental consultants and amounts remaining in applicable generator trusts and related accounts, no additional contribution is contemplated. With respect to the Muskego site, there is an administrative order in place, and no activities at the Muskego site have occurred since 1996. Management estimates that MMII’s maximum remaining liability, including remediation liability, with respect to the Hunt and Muskego sites will not exceed the currently established reserve of USD 267,000.

          MMII also has four sites at which it is undertaking environmental investigations and/or other remediation under applicable U.S. State law and regulatory oversight.

          The first is a former manufacturing site in Mt. Olive, New Jersey in the United States, which Metso sold in December 2003. Among other liabilities, now resolved, liabilities for certain groundwater contamination issues were retained by MMII. In addition to this work, MMII was also required by the New Jersey Department of Environment Protection (“NJEDEP”) to conduct a baseline ecological evaluation of the property. The basic purpose of such evaluation is to determine whether site-related contamination presents a risk to or has impacted environmentally sensitive areas within or adjacent to the property. Such evaluation, together with a recommendation that no further ecological evaluation or testing be conducted at the site, was submitted to the NJDEP by MMII’s prior environmental consultant. NJDEP has yet to respond, and there can be no assurance that the NJDEP agrees with such recommendation. MMII has retained a new environmental consultant to continue with all work at the site – both with regard to the groundwater and the baseline evaluation. A remedial work plan has been submitted to NJDEP regarding the groundwater and work has commenced. However, taking into account (i) that we have purchased a pollution legal liability insurance policy for the site, which generally covers, subject to standard exclusions, clean-up costs, bodily injury and property damage for pre-existing and unknown pollution conditions, and (ii) that extensive prior remediation activities at the site have already been conducted, we do not anticipate any ultimate liability at the site to be material. The estimated reserve required for the remediation measures relating to the groundwater contamination and the completion of the baseline evaluation process stands today at USD 440,000.

          The second site is a former manufacturing property in Danville, Pennsylvania. Both soil and groundwater are contaminated with various contaminants from the historic manufacturing processes. In conjunction with the state of Pennsylvania Department of Environmental Protection (“PADEP”), an approved remediation plan was developed and some soil was remediated. MMII retained new environmental consultant. Areas of concern, including a neighboring parcel, are being investigated for probable remediation pursuant to a PADEP-approved plan. USD 953,000 has been reserved for estimated remediation costs.

          The third site is MMII’s former manufacturing facility in Pittsburg, Kansas. The Kansas Department of Health and Environment (“KDHE”) has advised MMII that the soil and groundwater at the site and soil at a nearby foundry sand disposal location allegedly used by an MMII predecessor contains various contaminants. MMII has reviewed the KDHE consultant report on the manufacturing site and disputes the findings with regard to the concentrations of contaminants. Nevertheless, in lieu of an enforcement action by the KDHE, MMII has entered a KDHE voluntary cleanup program relative to the manufacturing site and has commenced work pursuant to a KDHE-approved plan. As to the foundry sand site, i.e., the fourth site, MMII has been notified by KDHE of its intent to seek cleanup by MMII on a voluntary or involuntary basis. MMII has retained the same legal and environmental consultants it is using in the factory site. Initial review of KDHE findings is that foundry sand alleged to have been place by its predecessor company does not contain the contaminants complained of. Approximately USD 285,000 has been reserved for estimated legal fees and investigation and remediation costs for both the plant and the foundry disposal sites.

          MMII, through its Reedrill business that was divested on December 31, 2004, was earlier identified as a PRP in a CERCLA site for which it may be allegedly responsible. MMII responded in March 2000 to an EPA request for information and identified predecessor companies as the potentially responsible parties. To date, no response by EPA has been received.

          Metso Panelboard, currently part of the Metso Paper business area, has previously owned a site with certain environmental concerns. The site, located in Belgium, was owned by Constructiewerkhuizen De Mets N.V., a company divested in 2001. Pursuant to the sale agreement, we are required to provide the purchaser with an environmental certificate by the Belgian authorities, to the effect that the soil at the so-called New Workshop site has not been contaminated. Consequently, a third party conducted environmental studies and assessed the site. OVAM (Belgian environmental authority) accepted the descriptive soil study in the fall of 2005. The study included 13 phases in total and indicated that groundwater has been polluted by chlorinated hydrocarbons but that soil has not been polluted. The use of the chemicals found in the groundwater ended at site in 1989. The

precautionary measures to prevent the spreading of this historical pollution with the flow of groundwater started in January 2005. A pilot testing for cleaning method is presently pending at the site and is expected to be completed in the spring 2007. Thereafter, the cleaning plan will be presented for acceptance to OVAM. In accordance with the conditions of the sale agreement, we have estimated that our remaining responsibility for remediation costs will be limited to the currently established reserve of EUR 0.7 million.

          Metso Automation USA Inc. has been involved with the remediation of the former Hammel Dahl site in Warwick, Rhode Island, the United States. This remediation has involved both air sparging and excavation to remove soil contamination by chlorinated hydrocarbons and various non-aqueous petroleum liquids. We are currently monitoring groundwater in a number of test wells. Based on the latest results, we have discussed terminating our activities with the Rhode Island Department of Environmental Management (“RIDEM”) and expect a decision on this in the near future. We do not anticipate significant future costs unless RIDEM changes the requirements significantly.

          We strive to help our customers to achieve better environmental performances with our products and services. Our product development aims to also anticipate the changing environmental requirements in our customer industries. Best practices for life cycle design and environmental design support these development projects. The environmental impacts of our own production operations are limited.

          In 2006, we signed the United Nations Global Compact initiative, in which we have been approved as a member. By supporting this initiative, we commit to voluntarily working to advance human rights, labor standards, the environment, and anticorruption. We have also endorsed the International Chamber of Commerce (“ICC”) Business Charter for sustainable development in 2000, which compliments the environmental management principles of our own environmental policy.

          The key tools for our environmental management are the ISO14001-compliant environmental systems. We target that our most significant production sites comply with such systems in the future. In 2006, the ISO14001 certification was awarded to Metso Paper Beloit Service Center in the United States, and currently a total of 37 sites have such a certification. By the end of 2006, the ISO14001 systems covered 55 percent of the production value of our continuing operations. When systems currently under development will be certified, 73 percent of our production activity will be covered.

          In 2006, Metso was included on the following sustainability indexes: Dow Jones STOXX Sustainability Index, FTSE4GOOD Index, Ethibel Sustainability Index, ASPI Eurozone Index, Nordic Sustainability Index, SIX/GES Ethical Index Nordic and Kempen/SNS Smaller Europe SRI Index.

          We are committed to full compliance with all applicable national and international laws, regulations and generally accepted practices. Our environmental reporting procedure covers operating sites with significant environmental impacts. To our best knowledge, overall compliance with site-level permit conditions was proper in 2006. No major non-compliance situations were observed. Minor clean up, monitoring or investigation activities are being carried out at several sites as indicated above. In 2006, we recognized provisions of EUR 3 million in our financial statements relating to potential soil remediation requirements. However, our management anticipates that these cases do not result in material financial consequences for us and is not aware of any other current environmental matters that could reasonably be expected to have a material adverse effect on our business, financial condition or results of operations.

Property, Plants and Equipment

          Our principal executive offices are located at Fabianinkatu 9 A, Helsinki, Finland.

          As of December 31, 2006, our principal office and manufacturing facilities included the following:

		Owned or
Location of Facility		Leased		Size (sq.ft)				Principal Activities
Metso Corporation
Helsinki, Finland		Owned			86,920			Corporate head office
Metso Paper
Jyväskylä, Finland		Owned			1,057,948			Large-sized Paper Machines
Järvenpää, Finland		Owned			622,596			Paper Finishing Machines
Valmet-Xian, Xi’an, China(1)		Leased			533,890			Paper and Board Machines, Foundry, Air Drying Systems
Shanghai, Jiading, China		Owned			436,049			Paper and Board Machines, Foundry
Sundsvall, Sweden		Owned			424,417			Pulping Machinery
Karlstad, Sweden		Owned			421,224			Board and Tissue Machines
Laem Chabang, Thailand		Owned			312,524			Service Center
Karlstad, Sweden		Owned			243,176			Large-sized Cooking Machines
Karlstad, Sweden		Leased			193,884			Large-sized Cooking Machines
Valkeakoski, Finland		Owned			199,652			Mechanical Pulping, Refiner Segments, Stock Preparation Equipment and Systems
Gothenburg, Sweden		Leased			192,582			Environmental and Energy Technology Processes
Appleton, Wisconsin, United States		Owned			144,000			Finishing Products, Roll Service
Turku, Finland		Leased			140,567			Air Drying Systems
Columbus, Mississippi, United States		Owned			149,079			Roll Covering
Aiken, South Carolina, United States		Owned			127,700			Roll Covering
Turku, Pansio, Finland		Leased			125,938			Air Drying Systems
Neenah, Wisconsin, United States		Owned			111,360			Roll Covering
Cernay, France		Leased			110,312			Roll Covering
Clarks Summit, Pennsylvania, United States		Owned			110,000			Roll Covering
Curitiba, Brazil		Leased			107,670			Service Center for Cooking and Fiberlines, Small Parts for Recovery and Power Boilers
Pfungstadt, Germany		Owned			95,488			Service Center
Tampere, Finland		Leased			91,386			Roll Factory
Gorizia, Italy		Owned			89,179			Air Drying Systems
Biddeford, Maine, United States		Owned			88,000			Tissue Air Drying Systems, Tissue Process Services for Paper Machines
Beloit, Wisconsin, United States		Leased			86,800			Service Center
Oulu, Finland		Owned			82,258			Roll Covering
Hollola, Finland		Owned			77,149			Roll Handling
Hagfors, Sweden		Owned			70,865			Refiner Segments
Järvenpää, Finland		Leased			68,049			Paper Finishing Machines
Montreal, Canada		Leased			65,459			Service Center, Components
Federal Way, Washington, United States		Owned			62,683			Roll Covering
Como, Italy		Leased			54,311			Paper and Board Machine Rebuilds
Thunder Bay, Canada		Leased			50,908			Air Drying Systems
Wuxi, China		Owned			50,388			Service Center
Melbourne, Australia		Owned			49,060			Service Center
Corbehem, France		Leased			48,450			Roll Covering
Shanghai, P.R. China		Leased			43,670			Logistics Center
Sorocaba, São Paulo, Brazil		Owned			47,371			Service Center
Sävsjö, Sweden		Owned			47,901			Steam and Hot Water Boilers

		Owned or
Location of Facility		Leased		Size (sq.ft)				Principal Activities
Florence, Alabama, United States		Owned			40,000			Woodhandling
Valkeakoski, Finland		Leased			32,832			Mechanical Pulping, Refiner Segments, Stock Preparation Equipment and Systems
Metso Minerals
Sorocaba, São Paulo, Brazil		Owned			740,260			Rock Crushers, Vibrating Equipment, Castings, Rubber manufacturing
Isithebe, South Africa		Leased			602,140			Manganese Wear Parts
Mâcon, France		Owned			532,723			Rock Crushers and Vibrating Equipment
Tampere, Finland		Owned			510,990			Rock Crushers, Mobile Crushing Equipment
Düsseldorf, Germany		Owned			420,223			Metal Recycling Machines
Vereeniging, South Africa		Owned			330,386			Rock Crushers, Pave parts
Sala, Sweden		Owned			247,570			Slurry Pumps and Process Equipment
Trelleborg, Sweden		Leased			242,100			Rubber Manufacturing
Columbia, South Carolina, United States		Owned			203,000			Vibrating Equipment and Spare Parts
Viña del Mar, Chile		Owned			176,465			Wear Protection and Conveyors
Warrenton, Missouri, United States		Owned			150,000			Wire Screen Media Manufacturing
Clarksdale, Mississippi, United States		Leased			138,400			Conveyor Component Manufacturing
Newcastle, Australia		Owned			132,500			Vibrating Equipment and Spare Parts
York, Pennsylvania, United States		Owned			131,965			Mill Equipment and Parts
Kongsvinger, Norway		Leased			107,639			Conveyor Belts
Tampere, Finland		Owned			96,875			Conveyor Belts
Ersmark, Sweden		Owned			95,800			Rubber Manufacturing
Vicálvaro, Spain		Owned			80,000			Rock Crusher Spare Parts and Vibrating Equipment
Portland, Oregon, United States		Owned			70,968			Rock Crusher Service and Spare Parts
Ahmedabad, India		Owned			63,399			Castings and Parts for Rock Crushers and Pumps
Matamata, New Zealand		Owned			62,400			Rock Crushers and Spare Parts
Belleville, Canada		Owned			58,000			Idler Manufacturing
Dungannon, Northern Ireland		Owned			56,000			Mobile Screens
Bawal, India		Owned			53,819			Rock Crushers, Vibrating Equipment and Pumps
North Bay, Canada		Owned			55,000			Rubber Manufacturing
Perth, Australia		Owned			48,438			Rubber Manufacturing
Moers, Germany		Owned			47,361			Conveyor Belts
Tianjin, China		Owned			46,466			Rock Crushers
Evergem, Belgium		Leased			46,285			Conveyor Belts
San Antonio, Texas, United States		Owned			40,000			Office, Metal Recycling Machines
Gällivare, Sweden		Leased			37,674			Maintenance and Service Parts to Mines
Metso Automation
Helsinki, Finland		Leased			442,400			Office, Valve and Accessories Manufacturing and Testing
Tampere, Finland		Owned			323,300			Office, Automation Systems Manufacturing and Testing
Shrewsbury, Massachusetts, United States		Owned			175,000			Office, Valve and Accessories Manufacturing and Testing
Jin Qiao, Shanghai, China(1)		Owned			173,000			Office, Valve Manufacturing
Wai Gao Qiao, Shanghai, China		Leased			121,000			Office, Valve Manufacturing
Lithia Springs, Georgia, United States		Leased			78,125			Valve Assembly and Testing
Kajaani, Finland		Leased			73,800			Office, Specialty Analyzers Manufacturing and Testing
Lansdale, Pennsylvania, United States		Leased			72,100			Office, Control Systems Manufacturing
Metso Ventures
Uusikaupunki, Finland		Owned			1,216,000			Car Assembly

		Owned or
Location of Facility		Leased		Size (sq.ft)				Principal Activities
Karlstad, Sweden		Owned			526,258			Foundry
Jyväskylä, Finland		Owned			394,000			Foundry
Tampere, Finland		Owned			288,020			Foundry
Hannover, Germany		Leased			41,441			Office, Energy plants, press
Nastola, Finland		Leased			35,572			Office, Particleboard line machines
Sundsvall, Sweden		Leased			10,700			Office, MDF line machines

          Our management believes that the production capacity of each of our production plants is adequate and suitable for our current business needs and that suitable additional or alternative space would be available in the future, if necessary, on commercially reasonable terms.

Significant Subsidiaries

          The majority of our operating assets in Finland and outside of Finland are held through regional or divisional subsidiaries. As of December 31, 2006, our significant subsidiaries, as defined in Rule 1-02(w) of Regulation S-X, were as follows, each of which is wholly owned by Metso Corporation:

Company Name		Country of Incorporation
Metso Paper Oy		Finland
Metso Svenska AB		Sweden
Metso Belgium N.V.		The Netherlands
Metso USA Inc.		United States
Metso Minerals Oy		Finland

Associated Companies and Joint Ventures

          We currently own 35.8 percent of Allimand S.A., which, as of December 31, 2006, had an equity value of approximately EUR 5 million; 48.3 percent of Valmet-Xian Paper Machinery Co. Ltd., which had an equity value of approximately EUR 7 million; 50.0 percent of Shanghai Neles-Jamesbury Valve Co. Ltd., which had an equity value of approximately EUR 4 million; and 48.2 percent of Avantone Oy, which had an equity value of approximately EUR 0 million.

Item 4A. Unresolved Staff Comments.

          Not applicable.

Item 5. Operating and Financial Review and Prospects.

          The following discussion and analysis by our management concerning the financial condition and the results of operations of Metso should be read together with the consolidated financial statements included in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS, which differs in certain significant respects from U.S. GAAP. A reconciliation of the amounts of net income and shareholders’ equity reported under IFRS to the amounts determined under U.S. GAAP, and a discussion of the principal differences between IFRS and U.S. GAAP are set out in Note 39 to our consolidated financial statements, included elsewhere in this annual report.

Business Overview

Our Customers and Markets

          Our main customers operate in the pulp and paper, mining and construction as well as energy industries. Certain important trends apply to these industries, which have an effect on our operations. Service, refurbishment and rebuilds business, which is driven by the installed base of machinery and equipment, has

been growing especially in Europe and North America, where our customers have been focusing more on efficiency improvements for their existing processes rather than investing on new machinery or equipment. Demand for new machinery and equipment focuses on areas with strong economic growth and/or good availability of raw materials required, which supports demand for pulp and paper as well as mining and construction investments. Such areas include Asia and South America. Accordingly, we are in the process of adapting our own organization in Europe and North America by cutting new machine and equipment related resources and strengthening aftermarket and process service related resources, while, in the growing markets of Asia and South America, we have increased our new machine and equipment related resources.

          We operate in industry segments that are sensitive to business cycles. Our management believes that in the long-term, the effects of cyclical fluctuations are offset by the geographical scope of our operations, the wide range of customer industries we serve, and the more consistent aftermarket business, which accounts for more than one-third of our net sales. Also, our flexible operating model and cost structure as well as increased outsourcing in the production chain support our profitability through different business cycles.

          We have determined that the size of our global target markets is approximately EUR 37 billion. In our definition, our target markets cover the customer industries, or the parts of them, that use machines, equipment or services manufactured or supplied by Metso or our competitors. We estimate that the size of our target market in the pulp and paper industry is approximately EUR 14 billion, in the mining and construction approximately EUR 12 billion and the energy industry approximately EUR 11 billion.

          Based on studies of various independent research institutions, such as ARC, Freedonia Group, Pöyry Corporation and European Renewable Energy Council as well as our own analysis, our management estimates that the demand for all of our main products is growing. Looking ahead to 2014, the demand for machinery and equipment is projected to grow by approximately 9 percent annually in the mining industry and by approximately 7 percent annually in the power generation industry. The demand for distributed control systems and valves is projected to grow by over 5 percent annually and the demand for machines and equipment for construction and metal recycling by approximately 5 percent annually. The demand for pulp, paper and board machines and the related services is projected to grow by over 3 percent annually.

Business Drivers and Trends

          Metso Paper. We estimate that there will be fewer than ten new, wide paper machines commissioned in the world annually. On the other hand, the sizes and speeds of the machines have increased. The production capacities of new pulp mills have almost doubled during the last ten to 15 years as a result of advancements in equipment technology. In their investment decisions, our pulp and paper customers are emphasizing the return on their investment and are aiming to continuously reduce the operating and investment costs of production lines to secure their competitiveness. This has been the prevailing trend especially in Europe and North America. In addition to major capital investments, our customers are interested in smaller-scale rebuilds and process improvements and in maintenance services. We estimate that Metso Paper has delivered approximately one-half of the world’s paper machine capacity, approximately 40 percent of the pulping line and tissue machine capacity and about one-third of the board machine capacity. Metso Power, which is currently a part of Metso Paper, has delivered approximately 40 percent of the pulp industry’s recovery boilers and approximately one-quarter of the world’s industrial-sized bio- and multi-fuel fluidized bed boilers.

          Most of Metso Paper’s net sales continue to originate from the Nordic countries, Western Europe and North America. Demand for new machines and equipment used in the production of pulp, paper and board is, however, increasing faster than average in Asia and South America. The majority of the new pulp, paper and board mills are built for these growing markets. In recent years, over one-half of the world’s new paper and board production capacity has been built in China, where paper and board consumption is increasing as a result of the rising standard of living, the growing demand for printed material, and the growth in the manufacturing industry, which uses packaging materials. The focus of investments in Europe and North America is on rebuilding the aging machine and equipment base and on aftermarket services.

          New chemical pulping lines that use fast-growing, short-fiber eucalyptus and acacia trees from local plantations as a raw material are investment targets, especially in South America and Southeast Asia. Moreover, labor costs in South America are lower than in Europe and North America, and therefore pulp production is rapidly increasing in that region. China is also expected to increase its own pulp production as paper production in the area increases. India’s investments in paper and packaging material production are estimated to increase in upcoming years along with the country’s strong economic growth. Investments also in Russia, particularly in

the pulp industry, are estimated to grow along with the increasing utilization of the country’s vast forest resources.

          The consumption of packaging board is growing especially in China, where the lower cost levels have attracted consumer goods industry companies from Western countries and Japan. Recycled fiber is used increasingly as a raw material for board and paper and is imported to China mainly from the United States. The increasing demand for daily consumer goods in emerging markets requires an increase also in the production of interior packaging materials in these areas. Advancements in converting and printing methods related to packaging materials has led to higher quality requirements for board, which is reflected in the increased demand for board machine rebuilds. Particularly in Europe, the board machines are being rebuilt to produce thinner and lighter weight grades.

          Our management expects that the demand for tissue machines will grow particularly in emerging markets, especially in Asia. The demand on these markets has mainly concentrated on small and low-priced machines. Our management estimates that there will be a demand for the bigger Through-Air Drying (TAD) machines in the future, especially in North America.

          The demand for power boilers is developing favorably. In North America and Europe, the demand is increased by the rebuilding and replacement of old power production capacity with new multi-fuel solutions that are more efficient and environmentally friendly. The good demand is expected to continue in Asia due to strong economic growth.

          Metso Minerals. We estimate that Metso Minerals has supplied approximately 50 percent of the world’s grinding mills and metal crushers in use, 30 percent of the crushers and 5 percent of the screens. The recent strong growth in demand for new machines and equipment will also increase the growth opportunities for aftermarket services. Additionally, in many instances, mining customers have outsourced their maintenance operations to focus on their core businesses.

          The mining industry annually processes approximately 5 billion tons of metal ores and 3 billion tons of industrial minerals. The focus of mining industry investments is shifting to the southern hemisphere. In North America and Europe, the mining industry demand is weighted towards the aftermarket and service business, although certain new mining projects have also been launched in recent years as the result of high metal prices. The majority of Metso Minerals’ mining customers are engaged in the field of hard rock mining. The main metals mined by our customers are iron, copper and gold. Iron is produced the most in Australia and Brazil, copper in South America and the United States, and gold in South Africa.

          The most significant factor affecting the increasing demand for minerals has been the strong economic growth in China and other developing economies. Mining companies have tried to respond to the higher demand by increasing the production capacity of their existing mines and by initiating new mining projects. High mineral prices have also made previously unprofitable mining projects more attractive. However, the mining sector’s lack of resources, especially experienced project managers and engineering personnel, will stabilize the capacity growth for the longer term, and, in some cases, investment project schedules have been postponed. Our management expects that the good business cycle in the mining industry will continue also in the upcoming years.

          Crushed rock is the most commonly used raw material in the world. The construction industry, for example, uses approximately 20 billion tons of aggregates annually. GDP and population growth increase infrastructure construction, and thus, the demand for aggregates. Stricter environmental requirements limit the use of natural gravel and sand, but increase the use of crushed rock and also recycled aggregates. To increase operational flexibility and efficiency, customers are transitioning to the use of mobile crushing plants instead of stationary ones.

          Our management believes that the demand for aggregates will grow due to large-scale infrastructure investments. For example, the Chinese government is planning to build 50,000 kilometers of four-lane roads by 2020. Russia is planning to build 245,000 kilometers of new roads by 2025. The United States has allocated nearly USD 300 billion for the development of the country’s transportation infrastructure in 2004-2009. The new member countries of the European Union need an estimated 14,000 kilometers of highways, and the estimated cost of improving the entire European Union traffic network is EUR 600 billion. One of the infrastructure projects in India is the Golden Quadrilateral project connecting four major cities with 6,000 kilometers of highways. The cost estimate of this project is USD 50 billion. Additionally, India’s national

highways development program is planning to expand 10,000 kilometers of roadways into four-lane roads by 2012.

          The demand for scrap metal is expected to remain strong in the upcoming years due to high raw material prices and strong demand for refined metals. Steel companies are increasingly using scrap metal instead of virgin iron ore in their production. The demand for recycled scrap metal is expected to grow annually by approximately 5-6 percent.

          Metso Automation. New pulp and paper industry investments are focused mainly in Asia and South America. The aging machine and equipment base in Europe and North America is increasing the demand for performance-enhancing solutions and services for production lines. This is estimated to increase the importance of automation, for example, in preventive condition monitoring.

          The energy industry is in need of increased production capacity, both in growing and in emerging markets. Active investments in new production capacity and in modernizations to existing plants are estimated to continue. Good management of energy production and its environmental impact requires the application of diverse automation and flow control solutions in production. Various biofuels, like ethanol, are quickly emerging alongside fossil fuels. Growth in the production of biofuels is also expected to increase the demand for automation products, especially in valves.

          Demand for oil has continued to grow because of the increased consumption in emerging markets in particular, and the current oil refining capacity is insufficient in relation to the demand for end products. This has led to a sharp rise in the price of crude oil and petroleum products as well as to the construction of new refining capacity, particularly in the Middle East and Asia, and to the modernization of existing production plants. In its operations, Metso Automation takes into consideration also the increased safety and environment-related requirements of its customer industries.

          Aftermarket operations, including life cycle, expert and maintenance services to improve the performance of factories and plants, make up approximately one-quarter of Metso Automation’s business. In addition, a significant part of sales is similar to the aftermarket business, i.e., new equipment replaces previously delivered equipment.

Key Management Issues

Key Management Issues in 2006

          In 2006, the key issues in our management were to deliver strong net sales growth to support sustainable profit development and to strengthen our market leadership positions. We continued our efforts to further improve our competitiveness, productivity and operational quality as well as to enhance customer satisfaction. We also complemented our offering through complementary acquisitions. Furthermore, we put special emphasis on strengthening our sales, customer service, sourcing and manufacturing closer to our customers in emerging markets, such as China, India and South America. For a discussion of our strategy, see “Item 4. Information on the Company — Strategy.”

          In 2006, our orders received increased by 20 percent compared to 2005, with growth coming from all business areas. The growth in orders was proportionally strongest at Metso Minerals and Metso Automation. At the end of 2006, our order backlog was EUR 3,737 million, which included a EUR 727 million order backlog from the Pulping and Power businesses acquired from Aker Kvaerner. We estimate that approximately 80 percent of the order backlog will be delivered in 2007. With assumed stable demand for aftermarket services, we believe that this creates a good basis for the strong volume growth to continue.

          In 2006, our net sales increased by 17 percent for a second year in a row. Almost all of this growth was attained organically and was due both to the continuing good market situation and to strengthened competitiveness. The growth was attributable to all business areas, but was strongest at Metso Minerals. Our operating profit was EUR 457.2 million, or 9.2 percent of net sales. The improvement in profitability was mainly attributable to strong volume growth, especially at Metso Minerals. The selling, general and administrative costs were under strict control in spite of the strong growth in net sales. Gross margins improved during the year at Metso Minerals and Metso Automation. Due to the decreased proportion of aftermarket sales and certain low-margin project deliveries, Metso Paper’s gross margins declined in 2006.

          The Chinese paper machine factory that we acquired in August 2006 strengthens our competitiveness in Asia’s paper and board machine markets, and going forward, we will also be able to manufacture strategic core

components for paper machines at this Chinese factory. During 2006, we expanded our delivery capability by expanding Metso Minerals’ production facility in Tampere, Finland, by opening a new crushing and screening equipment factory in Columbia, South Carolina, in the United States and by increasing our foundry capacity in Brazil, South Africa, India and Finland. During 2006, we also increased the efficiency of procurements and outsourcing. Our procurement volumes have increased the most in South America and Asia. Our aim is to utilize global sources and countries with lower cost levels for our procurements.

          In line with our strategy, we made a few complementary acquisitions in 2006. The biggest acquisition was the acquisition of Aker Kvaerner’s Pulping and Power businesses that was completed on December 29, 2006. The acquisition enables us to deliver complete pulp mills, modernizations and maintenance services and to serve our new customers in the power industry. See “— Recent Acquisitions and Divestments” below.

          Our goal is to transform from a product-oriented company to a more service-oriented company, and to strengthen the position of the aftermarket business throughout Metso. In 2006, our aftermarket business volume increased by 10 percent to EUR 1.7 billion. The growth came from Metso Minerals, fuelled by the high utilization rates in the mining and construction industry. There was minimal growth in Metso Paper and Metso Automation’s aftermarket business. In order to strengthen our aftermarket business, in 2006, we acquired two companies in Sweden, Svensk Gruvteknik AB and Svensk Pappersteknik AB, that specialize in the aftermarket business and serve the mining and paper industry. Metso Paper also opened a roll services site in Borlänge, Sweden, and decided to expand the Wuxi service center in China. Metso Minerals focused on the development of customer service products. The aim is to improve the selling of services, and to ensure service quality and competitive production. Metso Automation opened two new valve service centers, one in Concepcion, Chile, and the other in St. Petersburg, Russia. Additionally, Metso Automation increased the number of service personnel both in growing and in developed markets.

          We upgraded our financial targets in October 2006. The increased financial targets indicate that we currently have the ability and the resources to fully invest in growth, without compromising the continuous improvement of current operations. At the same time, we also upgraded our dividend policy to state that at least 50 percent of our earnings per share will be distributed to our shareholders each year. For a discussion of our strategy, see “Item 4. Information on the Company—Strategy—Financial Targets,” and for a discussion of our dividend policy see “Item 8. Financial Information—Dividend Policy.”

          Even though the 2006 financial results were record setting for Metso, we continue to see opportunities to improve our performance. The main focus at Metso Paper is on improving profitability. Aftermarket development, continuous improvement of productivity and further cutting non-quality costs remain on our agenda as means to further boost our profitability. In Metso Minerals and Metso Automation, we will be investing in supply chain management and in securing our delivery capability to respond to the growth. In addition, we are continuing to strengthen our presence in emerging markets to secure our longer-term development. For a discussion of our strategy, financial targets and outlook for 2007, see “Item 4. Information on the Company—Strategy.”

Key Management Issues in 2005 and 2004

          In 2005, the key issues in our management were to secure continued positive profitability improvement in all our business areas as a result of the restructuring actions taken in 2003-2004 and to simultaneously exploit the favorable development in the market environment. In Metso Paper, we still continued our restructuring actions mainly during the first half of the year while in the other business areas the focus was clearly moved from restructuring to continuous improvement.

          In 2004, the key issues in our management were to improve the profitability of our business areas and strengthen our balance sheet. We continued to implement the corporate-wide cost restructuring program and launched a new, additional renewal program in Metso Paper. During the year, we made a few important structural decisions that further concentrated our operations around our future core by divesting three sizeable businesses. These divestments helped us in reaching our target of reducing our debt level. We also strengthened our balance sheet by concentrating on working capital management. After a couple of years of weak market conditions, the market situation in two of our business areas started to improve during the year 2004. Metso Minerals saw increased demand in the construction equipment business in North America and Asia while mining industry investments also clearly picked up. For Metso Automation, the power, energy, oil and gas segment saw a clear improvement.

          In June 2004, we launched a program for the renewal of Metso Paper’s business concept, which targeted to streamline the cost structure. The main locations affected by the measures were in the Finnish, Swedish and North American operations. The measures comprised personnel reductions in certain administrative and production functions, disposals of non-core sites and global reorganization of the Tissue business line. In 2005, nonrecurring costs of EUR 7 million were recorded relating to the business concept renewal program in addition to EUR 24 million recognized already in 2004. The program was completed during 2005. The annual savings generated by the business concept renewal program are estimated at more than EUR 43 million of which three-fourths materialized in 2005 and annual cost savings were fully visible in 2006.

          In June 2003, we launched a Metso-wide efficiency improvement program aiming to reach substantial cost savings. The plan included streamlining of sales and administrative organizations and closing down of production sites in the United States and Europe. The efficiency improvement program was completed in all our business areas during 2004. The program is estimated to have resulted in annual savings of slightly over EUR 100 million, which is in line with the original target. As a result of the efficiency improvement program, our personnel was reduced by approximately 2,000 persons. The costs of the program were approximately EUR 93 million, of which EUR 14 million was recorded in 2004.

Recent Acquisitions and Divestments

          The most significant development since the formation of Metso through the merger of Valmet and Rauma was our acquisition of Svedala in 2001 in order to build ourselves into a globally leading player in rock and minerals processing, alongside our similar position in the pulp and paper industry. In 2002-2003, we focused on developing our corporate structure further by divesting several businesses that were not considered integral parts of Metso. Following the launch of our new profitable growth strategy in August 2005, we have actively been looking for growth also through complementary acquisitions.

          The most significant of the recent complementary acquisitions is the acquisition of the Pulping and Power businesses from Aker Kvaerner that we completed on December 29, 2006. The acquired Pulping and Power businesses were consolidated in our balance sheet at December 29, 2006, but they do not have a material impact on our 2006 income statement. The estimate acquisition price is EUR 341 million including EUR 6 million costs related to acquisition and EUR 52 million acquired net cash, see Note 12 to our audited financial statements for further details. The acquisition cost exceeded the book value of the acquired business by EUR 384 million, of which EUR 154 million was allocated to following intangible assets: technology, customer relations and order backlog, in accordance with IFRS principles. The intangible assets will be annually amortized over their economic useful life, thereby reducing the operating result, but with no cash flow effect. The amortization of intangible assets resulting from the transaction is estimated to be EUR 37 million in 2007, EUR 20 million in 2008, and EUR 13 million thereafter. The rest of the transaction price, EUR 271, exceeding the fair value of the net assets acquired is goodwill, which is not amortized but subject to an annual impairment test.

          We estimate that the annual cost-based synergies to be derived from the Pulping and Power acquisition amount to EUR 20-25 million. We estimate that about one-third of this will be realized during 2007. We estimate that the one-time costs arising from the integration amount to approximately EUR 10 million and realized primarily during 2007. Our management estimates that the transaction will have a positive effect on our operating profit before the integration costs and on our cash flow from operating activities in 2007.

          On December 29, 2006, we also completed the divestment of the remedy package related to the acquisition of Aker Kvaerner’s Pulping and Power businesses to Canadian GL&V. The remedy package comprised of the following Metso’s and Aker Kvaerner’s overlapping areas: Kvaerner Pulping’s pulp washing, oxygen delignification and bleaching businesses as well as Metso’s batch cooking business and its licensing back to Metso. The clearance received from the European Commission on December 12, 2006 to the acquisition of the Pulping and Power businesses from Aker Kvaerner was conditional on the divestment of the remedy package.

          Had the acquisition of the Pulping and Power businesses from Aker Kvaerner occurred on January 1, 2006, our net sales would have increased by approximately EUR 600 million. The calculation of pro forma net income of the acquired businesses would be impracticable considering the effects of the acquisition cost.

          On December 14, 2006, we acquired the remaining 35 percent minority interest of Metso-SHI Co., Ltd. in Japan from Sumitomo Heavy Industries. The company had represented Metso Paper and Metso Automation on the Japanese markets. The transaction price was EUR 2 million.

          On December 29, 2006, we finalized the divestment of Metso Powdermet AB in Sweden to Sandvik AB. The transaction price was EUR 13 million and we recorded a tax-free sales gain of EUR 10 million from the divestment in 2006.

          On September 19, 2006, we agreed to acquire business operations of two Swedish companies Svensk Gruvteknik AB and Svensk Pappersteknik AB to strengthen our aftermarket business. The total purchase price was EUR 4 million. The acquired businesses were transferred to Metso on October 1, 2006 and they are included in the figures of Metso Minerals and Metso Paper from that date.

          On August 31, 2006, after the relevant regulatory approvals from the Chinese authorities were received, we completed the acquisition of a Chinese paper machine manufacturer Shanghai-Chenming Paper Machinery Co. Ltd. at a cash price of EUR 12 million and debt assumed of EUR 19 million. The company is consolidated into Metso Paper from September 1, 2006. The company’s new name is Metso Paper Technology (Shanghai) Co., Ltd.

          For the year ended December 31, 2006, the net sales of the businesses acquired in 2006, which have been included in Metso’s consolidated financial statements, amounted to EUR 6 million and their net loss was EUR 2 million. Had the acquisitions occurred on January 1, 2006, Metso’s net sales would have increased by EUR 15 million and net income would have decreased by EUR 8 million.

          In August 2005, we acquired Texas Shredder, Inc., a U.S. supplier of metal shredder products located in San Antonio, Texas. The sellers were a group of private investors led by Capital Southwest Corporation, a venture capital investment company. The total acquisition price was EUR 14 million. Texas Shredder is included in Metso Minerals’ figures from the beginning of September 2005.

          In 2005, we also made certain minor acquisitions in Spain to strengthen our aftermarket and maintenance services within pulp and paper industry. The acquired businesses are included in Metso Paper’s figures from the date of their acquisition.

          For the year ended December 31, 2005, the net sales of the businesses acquired in 2005, which have been included in Metso’s consolidated financial statements, amounted to EUR 23 million and their net income was EUR 1 million. Had the acquisitions occurred on January 1, 2005, our net sales for 2005 would have increased by EUR 38 million and there would have been no effect on our consolidated net income for 2005.

          In April 2005, we sold Metso Drives to the funds managed by private equity investor CapMan of Finland. The debt-free price of the divestment was approximately EUR 98 million.

          In December 2004, we sold our Drilling business to Terex Corporation of the United States. Drilling had net sales of EUR 75 million in 2004 and approximately 280 employees. The divestment value, which was based on the net asset value at closing, was approximately EUR 29 million.

          In June 2004, we divested our Compaction & Paving business that operated under the Dynapac brand name to Altor, a Nordic private equity investor. Dynapac had net sales of EUR 322 million in 2003 and approximately 1,800 employees. The transaction price was EUR 291 million net of cash sold.

          In January 2004, we sold the Converting business to Bobst S.A. of Switzerland. Converting had net sales of EUR 183 million in 2003 and approximately 800 employees. The final transaction price was EUR 68 million net of cash sold.

Critical Accounting Policies

          The preparation of our consolidated financial statements in accordance with IFRS requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our estimates and assumptions to be reasonable. However, actual results and the timing of the recognition of such amounts could differ from those estimates. We have identified the following critical accounting policies and estimates utilized by our management in the preparation of our consolidated financial statements.

          In some instances, accounting policies followed in accordance with U.S. GAAP (as reported in Note 39 to the financial statements) differ from those policies followed in accordance with IFRS. Where the difference in accounting policy is material and contains significant critical estimates, we have included a separate discussion of those policies below.

Trade Receivables

          Our policy is to maintain an allowance for bad debt based on the best estimate of the amounts that are potentially uncollectable at the balance sheet date. The estimates are based on a systematic, on-going review and evaluation performed as part of the credit risk evaluation process. As part of this evaluation, we take into account the history of collections, the size and compositions of the receivable balances, current economic events and conditions and other pertinent information.

          We believe that the accounting estimate related to the establishment of a reserve for credit losses is a critical accounting estimate because:

          (1) the evaluation is inherently judgmental, and requires the use of significant assumptions about expected customer default amounts that may be susceptible to significant change; and

          (2) changes in the estimates regarding the allowance for bad debts could have a significant impact on our financial statements.

Allowance for Inventory Obsolescence

          Our policy is to maintain an allowance for slow moving and obsolete inventory based on the best estimate of such amounts at the balance sheet date. The estimates are based on a systematic, on-going review and evaluation of inventory balances. As part of this evaluation, we also consider the composition and age of the inventory as compared to anticipated future needs.

          We believe that the accounting estimate related to the establishment of inventory obsolescence reserves is a critical accounting estimate because:

          (1) the evaluation is inherently judgmental, and requires the use of significant assumptions about the expected future sales composition, that may be susceptible to significant change; and

          (2) changes in the estimates regarding the allowance for inventory obsolescence could have a material impact on our financial statements.

Revenue Recognition

          We deliver complete installations to our customers, where the moment of signing a sales contract (firm commitment) and the final reception of a delivery by the customer can take place in different financial periods. In accordance with our accounting principles, we apply the percentage of completion method (“POC method”) for recognition of such long-term delivery contracts. In 2006, of our net sales amounting to EUR 4,955 million approximately 30 percent were recognized under the POC method, which is based on pre-determined milestones and where the revenue is recognized based on the estimated realized value added or on the cost-to-cost method. A projected loss on a firm commitment is recognized in income, when a contract becomes binding. The estimated revenue, the costs and profit, together with the planned delivery schedule of the projects are subject to regular revisions as the contract progresses to completion. Revisions in profit estimates are charged to income in the period in which the facts that give rise to the revision become known. Although we have significant experience using the POC method, the total costs estimated to be incurred on projects may change over time due to changes in the underlying project costs structures, which may ultimately affect the revenue recognized. Therefore, the POC method is not applied for sales where the final outcome of the project and related costs cannot be pre-established reliably.

Accounting for Income Taxes

          As part of the process of preparing our consolidated financial statements, we are required to estimate the income taxes in each of the jurisdictions and countries in which we operate. This process involves estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment

of items, such as deferred revenue and cost reserves, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent the recovery is not considered likely the deferred asset is adjusted accordingly.

          Significant management judgment is required in determining the provision for income taxes and the deferred tax assets. We have recorded net deferred tax assets of EUR 171 million as of December 31, 2006, net of unrecorded amount of EUR 15 million for uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of operating losses carried forward and deductible temporary differences for certain foreign subsidiaries and the final outcome of tax audits in some subsidiaries. The adjustment is based on our estimates of taxable income by country in which we operate, and the period over which the deferred tax assets will be recoverable based on estimated future taxable income and planned tax strategies to utilize these assets. In the event that actual results differ from these estimates, the deferred tax asset may need to be adjusted in coming financial years.

Allocation of Excess Purchase Price to Acquired Assets

          In accordance with our accounting principles, we have allocated excess purchase price to acquired assets and assumed liabilities. Whenever feasible, we have used as a basis for such allocations readily available market values to determine the fair value basis. However, when this has not been possible, as often is the case with non-current intangible assets and certain assets with no active markets or available price quotations, the valuation has been based on past performance of such asset and its intended future use in the acquirer’s business. The appraisals, which have been based on current replacement costs, discounted cash flows and estimated selling prices depending on the underlying asset, require management to make estimates and assumptions of the future use of these assets and their impact on our financial position. Any change in our future business priorities and orientations may affect the planned outcome of initial appraisals.

Impairment Testing

          The carrying value of identifiable intangible assets with indefinite economic life and goodwill is tested annually, or more frequently if events or changes in circumstances indicate that such carrying value may not be recoverable. The carrying values of property, plant and equipment and intangible assets, subject to depreciation and amortization, are reviewed for impairment whenever there are indications that their carrying values could exceed their value in use or disposal value if disposal is considered as a possible option. Triggering events for impairment reviews include the following:

	•		material permanent deterioration in the economic or political environment of our customers or of our own activity;
	•		significant under-performance relative to expected historical or projected future performance; and
	•		significant changes in Metso’s strategic orientations affecting the business plans and previous investment policies.

          The accounting policy related to the impairment tests is based on numerous estimates. The valuation is inherently judgmental and highly susceptible to change from period to period because it requires us to make assumptions about future supply and demand related to our individual business units, future sales prices and what cost savings will be achievable. The value of the benefits and savings expected to be realized as a result of the efficiency improvement program are inherently subjective. The fair value of the reporting units is determined using a derived weighted average cost of capital as the rate to discount estimated future cash flows. This rate may not be indicative of actual rates obtained in the market. A one percent increase in the discount rates applied for determining the fair values of the cash generating units would have reduced the total fair value of units tested by approximately ten percent and would not have indicated any impairment needs.

          Our accounting policy related to the annual impairment test for goodwill and other indefinite-lived intangibles is based on numerous estimates. We believe that the accounting estimates related to the recoverability of the carrying value of goodwill and intangible assets are critical accounting estimates because:

          (1) the valuation is inherently judgmental and highly susceptible to change from period to period because it requires us to make assumptions about future supply and demand related to our individual business units, future sales prices and what cost savings will be achievable;

          (2) the value of the benefits and savings that we expect to realize as a result of the efficiency improvement program are inherently subjective;

          (3) we determine the fair value of the reporting units using a weighted average cost of capital as the rate to discount estimated future cash flows. This rate may not be indicative of actual rates obtained in the market, if incremental borrowings are necessary; and

          (4) the impact of an impairment charge could be material to our financial statements.

          If we fail to meet our forecasted sales levels, fail to achieve our anticipated cost reductions, or if weak economic conditions prevail in our primary markets, the estimated fair values of our reporting units may be adversely affected, resulting in impairment charges.

          In the last quarter of 2006, subsequent to past under-performance of Metso Panelboard, reported under Metso Ventures, we concluded that an impairment risk of the carrying value of the goodwill related to this business existed. An updated cash flow analysis based on the changed circumstances resulted in an impairment charge of EUR 7 million.

U.S. GAAP

          Under U.S. GAAP, as a result of the adoption of SFAS 141 and SFAS 142, goodwill and certain intangible assets having indefinite lives are no longer subject to amortization. Their book values are tested annually for impairment, or more frequently, if facts and circumstances indicate the need. Fair value measurement techniques, such as the discounted cash flow method, are utilized to assess potential impairments. The testing is performed on the reporting unit level, which can be either an operating segment or one level below operating segment. In the discounted cash flow method, we discount forecasted performance plans to their present value. The discount rate utilized is the weighted average cost of capital for the reporting unit, calculated as the opportunity cost to all capital providers weighted by their relative contribution to the reporting unit’s total capital and the risk associated with the cash flows and the timing of the cash flows. Comparison methods (e.g., peer comparables) and other estimation techniques are used to verify the reasonableness of the fair values derived from the discounted cash flow assessments.

          U.S. GAAP requires the impairment test to be performed in two stages. If the first stage does not indicate that the carrying values of the reporting units exceed the fair values, the second stage is not required. When the first stage indicates potential impairment, the company has to complete the second stage of the impairment test and compare the implied fair value of the reporting units’ goodwill to the corresponding carrying value of goodwill.

          The two-stage impairment test of Metso Panelboard performed in the last quarter of 2006 resulted in an impairment charge of EUR 8 million under U.S. GAAP.

Reserve for Warranty Costs

          The warranty reserve is based on the history of past warranty costs and claims for machines and equipment under warranty. The typical warranty period is 12 months from the date of customer acceptance of the delivered equipment. For larger projects, the average warranty period is two years. For sales involving new technology and long-term delivery contracts, additional warranty reserves can be established on a case by case basis to take into account the potentially increased risk.

Restructuring Costs

          At times, we record restructuring provisions as a result of programs that are implemented throughout our operations. These provisions are recorded in order for us to summarize the impacts of the programs and separate these costs from our recurring operations. When the preliminary decisions are made to undertake restructuring activities, our management develops a formal plan and presents this to our Board of Directors for approval. Once the plan is approved, our management raises a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. The costs included in a provision for restructuring are only those costs that are either incremental and incurred as a direct result of the plan, or are the result of a continuing contractual obligation with no continuing

economic benefit to us, or a penalty incurred to cancel the contractual obligation. These costs are estimated based on numerous significant assumptions including, but not limited to, the following assumptions:

          (1) approximate termination costs for specific contracts, leases, etc.; and

          (2) estimated write-downs of asset values based on revised future cash flow projections.

          We believe that the calculation of the amount recorded as a restructuring cost is a critical accounting policy because:

	•		although management has devised a formal plan, the plan has not yet been fully implemented at the time the expense is recorded. There could be significant changes to the plan and associated costs upon completion of the measures included in the plan;
	•		the estimated reduction in capacity for specific manufacturing plants is based on our management’s anticipated future levels of production based on estimated future order intake. Final outcome could differ from projected amounts due to changes in the overall market conditions; and
	•		estimated write-downs of asset values are based on calculations that are inherently subjective. These calculations include assumptions of future cash flows to be generated from the assets, estimated growth rates and estimated discount rate of the future cash flows, as well as an overall assurance regarding the intended use of these assets.