Korjaus englanninkieliseen tiedotteeseen Metson IFRS:n mukaisista
Metson aikaisemmin tänään klo 13.30 lähettämään englanninkieliseen tiedotteeseen
IFRS:n mukaisista vuoden 2004 vertailuluvuista korjataan seuraavat kohdat taseen
Non-current liabilities held for sale korvataan sanoilla Liabilities for
sale. Lyhytaikaiset korolliset velat FAS:in mukaan 31.12.2004 olivat 51 milj.
euroa eivätkä 50 milj. euroa ja IFRS:n siirtymisen vaikutus - 1 milj. euroa, ei
0 milj. euroa. Korollinen nettovelka yhteensä FAS:in mukaan 31.12.2004 oli 529
milj. euroa eikä 528 milj. euroa ja IFRS:n siirtymisen vaikutus - 34 milj. euroa
eikä - 33 milj. euroa.
Metso on maailmanlaajuinen teknologiayhtiö, joka palvelee asiakkaita massa- ja
paperiteollisuudessa, kiven- ja mineraalienkäsittelyssä, energiateollisuudessa
sekä valituilla muilla teollisuudenaloilla. Metso-konsernin liikevaihto vuonna
2004 oli noin 4 mrd euroa, ja sillä on noin 23 000 työntekijää yli 50 maassa.
Metson osakkeet on noteerattu Helsingin ja New Yorkin pörsseissä.
Olli Vaartimo, varatoimitusjohtaja, Metso-konserni, puh. 0204 84 3010
Reijo Kostiainen, talousjohtaja, Metso-konserni, puh. 0204 84 3127
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
Metso will publish its first financial statements under International Financial
Reporting Standards (IFRS) for the year ending December 31, 2005. The interim
reports in 2005 will be prepared in accordance with the accounting and valuation
principles as defined by IFRS.
This release describes the options Metso has elected to apply out of the
alternatives offered for the transition phase by IFRS, together with the
preliminary effects of the principal changes to the accounting principles,
income statement and balance sheet.
The tables in this release present the consolidated balance sheet under Finnish
Accounting Standards (FAS) and IFRS as of the transition date January 1, 2004
together with the reconciliation of the consolidated net income and
shareholders' equity as of January 1, 2004 and December 31, 2004. Comparative
IFRS data is presented for the consolidated income statement and consolidated
balance sheet for the period ended December 31, 2004.
This release includes also Metsos accounting principles under IFRS.
This release is unaudited.
Application of certain exemptions as permitted by IFRS 1 'First-time adoption of
International Financial Reporting Standards'
1. Presentation of comparative data
As permitted by IFRS 1, Metso shall present for the year ending December 31,
2005, one year of comparative data for the income statement, balance sheet, cash
flow statement and shareholders' equity.
2. Business combinations
Metso has elected to apply the exemption allowing not to restate the business
combinations made prior to the transition date in accordance with IFRS 3
'Business Combinations'. Consequently, the Valmet-Rauma merger in 1999 remains
as a pooling-of-interest under IFRS. IFRS 3 would have allowed Metso to
recognize the merger as an acquisition of Rauma by Valmet. All acquisitions both
before and after the merger are presented according to FAS.
3. Post employment benefit obligations
Metso has elected the exemption to recognize the cumulative actuarial gains and
losses of defined pension plans in the transition balance sheet. The 10 percent
corridor approach (as defined in IAS 19 Employee benefits) is applied to
actuarial gains and losses arising after the transition date.
4. Property, plant and equipment
As of the transition date January 1, 2004 Metso shall value its property, plant
and equipment at cost less depreciation and impairment. Under FAS, Metso has not
made revaluations to its property, plant and equipment.
5. Intangible assets
As of the transition date January 1, 2004 Metso shall value its intangible
assets at cost less amortization and impairment. As of the transition date,
Metso does not hold intangible assets, which would qualify for derecognition
under IAS38 'Intangible Assets' or another standard of IFRS.
6. Cumulative translation differences
Metso will not apply the exemption option allowed by IFRS 1. Instead, Metso will
continue the reporting of the cumulative translation differences unchanged under
7. Share-based payments
Metso shall apply the transitional rules of IFRS 1 to the application of IFRS 2
'Share-based Payment' and does not apply IFRS 2 retrospectively. The impact of
the retrospective application of the standard would have been immaterial.
8. Financial instruments (IAS 32, IAS 39) January 1 December 31, 2004
As permitted by the transition rules of IFRS 1, Metso has elected not to restate
its comparative data for the year ended December 2004 in accordance with the
requirements of IAS 32 'Financial Instruments: Disclosure and Presentation' and
IAS 39 'Financial Instruments: Recognition and Measurement'. The hedge
accounting for financial assets and liabilities denominated in foreign currency,
commodity prices and interest rate risk remain as reported under FAS for the
year ended December 31, 2004.
The treasury stock held by Metso as of January 1, 2004 and December 31, 2004 has
not been deducted from the shareholders' equity but presented as a separate line
in the assets of the consolidated balance sheet under IFRS.
9. Insurance contracts
Metso shall apply the transitional rules of IFRS 1 in application of IFRS 4
'Insurance Contracts' and does not apply IFRS 4 retrospectively. The impact of
the retrospective application of the standard would have been immaterial.
Changes in accounting principles and their impact
According to IFRS 1, the first financial statements under IFRS are prepared
under the IFRS rules being in force as of December 31, 2005. However, the
disclosures in this release are prepared under the IFRS rules being in force as
of the date of this release.
The negative impact on shareholders' equity resulting from change in accounting
principles at transition date and at year-end 2004 was EUR 145 million and EUR
62 million, respectively.
1. Accounting for goodwill (IFRS 3, IAS 36)
IFRS requires goodwill and other intangible assets with indefinite useful life
acquired in a business combination to be carried after initial recognition at
cost less any accumulated impairment losses. Therefore, goodwill and other
intangible assets with indefinite useful life are not to be amortized and
instead must be tested for impairment annually.
In accordance with FAS, the amortization of goodwill totaled EUR 37 million and
the amortization of other intangible assets with indefinite economic useful
lives, as defined in IFRS, was EUR 2 million for the year ended December 31,
2. Post employment benefit obligations (IAS 19)
Under FAS, Metso has recognized pension expenses in accordance with local
accounting practices in countries where Metso operates.
Under FAS, the Finnish TEL (Employees' pension plan) was regarded as a defined
contribution plan. As of the transition date January 1, 2004, under IFRS, the
disability portion of the TEL was considered as a defined benefit plan requiring
the actuarial valuation of the liability.
Due to certain changes introduced in 2004, the Finnish TEL disability portion
will be classified as defined contribution plan. Out of the transition date
liability of EUR 61 million, EUR 57 million, net of taxes (EUR 80 million before
taxes), was recorded as income in the last quarter of 2004.
The impact of foreign defined pension benefit plans at transition date on
shareholders' equity was EUR 47 million, net of taxes.
3. Income taxes (IAS 12)
Under FAS, a deferred tax asset on unused tax losses can be recognized if the
management expects the entity to generate future taxable income. IAS 12 Income
taxes sets the criteria on the recognition of deferred tax asset arising from
the carryforward of unused tax losses and of deductible temporary differences.
When an entity has a history of recent losses, a deferred tax asset arising from
unused tax losses can only be recognized if there is convincing evidence that
sufficient taxable profit will be available against which the unused tax losses
can be utilized.
As of January 1, 2004, Metso will recognize, as a reduction of shareholders'
equity, a EUR 48 million lower deferred tax asset arising from temporary
differences and unused tax losses carried forward principally by its operations
in the United States. As of December 31, 2004, the deferred tax asset under IFRS
was EUR 42 million lower than under FAS.
4. Recognition of liabilities related to restructuring measures
Under FAS, costs related to restructuring measures are recognized when the
management has announced its decisions to implement a restructuring plan. Under
IFRS, the recognition of such costs can only take place when certain criteria
have been met, e.g. employee termination benefits are only recognized when the
representatives of employees or individual employees have been informed of the
intended measures in detail and the related compensation packages can be
As of the transition date, the provision for restructuring measures under FAS
was EUR 77 million and under IFRS EUR 37million. As at December 31, 2004, the
provisions were EUR 31 million under FAS and EUR 28 million under IFRS.
5. Revenue recognition (IAS 18)
When recognizing a sale, IFRS requires considering whether substantially all the
risks and rewards have been transferred to the buyer. If the seller retains
substantial risks, as in the case of certain repurchase commitments, the sale is
classified as a lease.
Due to the recognition of the previous years cumulative effect in the
transition date balance sheet, the observance of repurchase commitments under
IFRS rules increased Metso's net sales by EUR 23 million in 2004.
6. Nonrecurring operating income and expenses
Costs relating to restructuring measures and other nonrecurring items have been
reported as nonrecurring income and expenses under FAS. Under IFRS Metso will
report such items in other operating income and expenses, apart from loss or
gain on disposal of discontinued operations, which is reported separate from
7. Capitalization of development costs (IAS 38)
Under FAS, research and development costs are recognized as annual expenses.
Under IFRS, an intangible asset generated through development activity is
capitalized once the IAS capitalization criteria are met and amortized during
its expected economic life.
In accordance with IFRS, Metso has capitalized development costs of EUR 2
million to the balance sheet as of December 31, 2004.
8. Provisions (IAS 37)
Under IAS 37 'Provisions, contingent liabilities and contingent assets' a
provision is recognized when there is a present obligation, which arises from
past events and the settlement of which is expected to result in an outflow of
The difference between the fair value of a minority ownership in Valmet
Automotive and repurchase price commitment given to the minority owner has been
recognized as a provision, EUR 5 million, in the transition date balance sheet
as of January 1, 2004. Under FAS, Metso has recognized the amount in the income
statement for the year ended December 31, 2004, when the loss has become
9. Cash and cash equivalents
Cash and cash equivalents consist of cash in banks and other liquid investments
with an original maturity of ninety days or less.
Certain financial investments in the amount of EUR 47 million not meeting the
criteria of cash and cash equivalents under IFRS have been reclassified from
cash and cash equivalents under FAS into interest bearing receivables. Under
IFRS, cash and cash equivalents as at December 31, 2004 amounted to EUR 372
10. Net interest bearing liabilities
Certain foreign pension liabilities amounting to EUR 35 million as at January 1,
2004 and as at December 31, 2004 have, under FAS, been included in pension loans
and other interest bearing long-term loans. Under IFRS these amounts have been
reclassified as post employment benefit obligations which are non-interest
Certain pension related assets have also been reclassified from long-term
interest bearing receivables by offsetting them against post employment benefit
obligations. The amounts of such reclassifications were EUR 2 million as at
January 1, 2004 and as at December 31, 2004.
Metso's gearing, as at December 31, 2004 after the reclassifications was 49.7%
compared to 50.0% under FAS.
11. Non-current assets held for sale and discontinued operations (IFRS 5)
In accordance with IFRS, profit or loss on discontinued operations net of taxes
and the gain or loss on their disposal shall be presented in the income
statement separate from the continuing operations and the qualifying assets and
liabilities will be presented separate in the balance sheet. Intangible assets
and property, plant and equipment available for sale are not subject to
amortization or depreciation.
Metso reported Converting Equipment, Compaction and Paving business line
(Dynapac) and Drilling business line (Reedrill) as discontinued operations in
Financial instruments (IAS 32, IAS 39) from January 1, 2005
Financial assets, -liabilities and derivative financial instruments that are
used to hedge foreign currency, commodity prices and interest rate risks will be
classified, measured and recorded in accordance with IAS 39 in the opening
balance sheet as of January 1, 2005. Compared to FAS, the shareholders equity
will increase by approximately EUR 8 million, net of taxes, due to recognition
of derivative financial instruments at fair value.
During 2004, Metso entered into several transactions with existing lenders to
exchange EUR 344 million under its EUR 1 billion Euro Medium Term Note Program
for new bonds with lower interest rate and a longer term. Under FAS, Metso has
capitalized EUR 24 million of costs related to these transactions. Under IFRS,
part of these exchanges are considered as extinguishment of the original debt
resulting in EUR 1 million deduction of unamortized transaction costs to equity
as of January 1, 2005.
Under IFRS, interest bearing liabilities are initially recognized as proceeds
received, net of transaction costs incurred. In subsequent periods, they are
measured at amortized cost using the effective yield method. Transaction costs
and all other premiums or discounts included in the effective interest rate
calculation shall be amortized over the life of the bond.
Shares, classified as assets available-for-sale, will be fair valued to the
balance sheet as of January 1, 2005. Consequently, the value of listed shares
will increase by EUR 2 million.
Treasury stock of EUR 1 million held by Metso will be deducted from the assets
and shareholders equity as of January 1, 2005.
RECONCILIATION OF THE CONSOLIDATED STATEMENTS OF INCOME
FAS Effect IFRS
1-12/ of 1-12/
2004 tran- 2004
(In millions, except for per share EUR EUR EUR
Net sales 3,976 (244) 3,732
Cost of goods sold (2,959) 184 (2,775)
Gross profit 1,017 (60) 957
Selling, general and administrative (844) 29 (815)
Nonrecurring operating income and (25) 25 0
Other operating income and expenses, - (7) (7)
Reversal of Finnish pension liability - 80 80
Amortization of goodwill (37) 37 0
Operating profit 111 104 215
Financial income and expenses, net (62) - (62)
Profit on continuing operations before 49 104 153
Income taxes on continuing operations 21 (4) 17
Profit on continuing operations 70 100 170
Profit (loss) on discontinued - (26) (26)
Profit (loss) 70 74 144
Profit (loss) attributable to minority (1) - (1)
Profit (loss) attributable to equity 69 74 143
Earnings per share from continuing operations, EUR
Basic n/a n/a 1.25
Diluted n/a n/a 1.25
Earnings per share from discontinued operations, EUR
Basic n/a n/a (0.20)
Diluted n/a n/a (0.20)
Earnings per share from continuing and discontinued operations, EUR
Basic 0.51 0.54 1.05
Diluted 0.51 0.54 1.05
RECONCILIATION OF THE CONSOLIDATED BALANCE SHEETS
FAS Effect IFRS FAS Effect IFRS
Jan 1, of Jan 1, Dec 31, of Dec 31,
2004 transi- 2004 2004 transi- 2004
(In millions) EUR EUR EUR EUR EUR EUR
Goodwill 623 (128) 495 458 33 491
Other intangible assets 137 (40) 97 104 (10) 94
760 (168) 592 562 23 585
Property, plant and equipment
Land and water areas 80 (5) 75 65 5 70
Buildings and structures 329 (46) 283 257 (4) 253
Machinery and equipment 364 (24) 340 300 7 307
Assets under construction 37 - 37 19 - 19
810 (75) 735 641 8 649
Investments in associated 15 - 15 17 - 17
Available for sale 29 - 29 10 - 10
Treasury stock 1 - 1 1 - 1
Loan and other interest 20 2 22 17 (2) 15
Deferred tax asset - 130 130 - 159 159
Other non-current assets 29 (13) 16 48 (11) 37
94 119 213 93 146 239
Total non-current assets 1 664 (124) 1,540 1,296 177 1,473
Inventories 743 (114) 629 687 5 692
Trade and other receivables 862 (80) 782 792 (2) 790
Cost and earnings of 269 (57) 212 191 (1) 190
under construction in
Interest bearing receivables 10 - 10 6 47 53
Deferred tax asset 145 (145) 0 187 (187) 0
1,286 (282) 1,004 1,176 (143) 1,033
Cash and cash equivalents 130 (1) 129 419 (47) 372
Total current assets 2,159 (397) 1,762 2,282 (185) 2,097
Assets held for sale - 513 513 - - 0
TOTAL ASSETS 3,823 (8) 3,815 3,578 (8) 3,570
RECONCILIATION OF THE CONSOLIDATED BALANCE SHEETS
SHAREHOLDERS' EQUITY AND LIABILITIES
FAS Effect IFRS FAS Effect IFRS
Jan 1, of Jan 1, Dec 31, of Dec 31,
2004 tran- 2004 2004 tran- 2004
(In millions) EUR EUR EUR EUR EUR EUR
Share capital 232 - 232 232 - 232
Share premium 14 - 14 14 - 14
Legal reserve 228 - 228 228 - 228
Cumulative (76) (26) (50) (80) 32 (48)
Treasury stock 1 - 1 1 - 1
Other reserves 202 - 202 202 - 202
Retained earnings 681 (171) 510 386 (168) 218
Net profit (loss) (258) - (258) 69 74 143
for the period
Equity attributable 1,024 (145) 879 1,052 (62) 990
Minority interests 6 - 6 5 - 5
Total equity 1,030 (145) 885 1,057 (62) 995
Long-term debt 957 (29) 928 920 (35) 885
Post employment - 253 253 - 171 171
Deferred tax 22 10 32 8 8 16
Provisions - 31 31 -
Other long-term 139 (132) 7 128 (91) 37
Total non-current 1,118 133 1,251 1,056 53 1,109
Current portion 17 (1) 16 19 - 19
Short-term debt 295 - 295 31 - 31
Trade and other 1,175 (133) 1,042 1,072 (7) 1,065
Advances 147 27 174 219 8 227
Billings in 41 (12) 29 124 - 124
excess of cost
and earnings of
Total current 1,675 (119) 1,556 1,465 1 1,466
Liabilities held for - 123 123 - 0
Total liabilities 2,793 137 2,930 2,521 54 2,575
TOTAL SHAREHOLDERS' EQUITY AND 3,823 (8) 3,815 3,578 (8) 3,570
NET INTEREST BEARING LIABILITIES
Long-term interest bearing debt 957 (29) 928 920 (35) 885
Short-term interest bearing debt 312 (1) 311 51 (1) 50
Cash and cash equivalents (130) 1 (129) (419) 47 (372)
Other interest bearing assets (30) (2) (32) (23) (45) (68)
Total 1,109 (31) 1,078 529 (34) 495
RECONCILIATION OF THE CONSOLIDATED STATEMENTS IN SHAREHOLDERS' EQUITY
Sha- Sha- Le- Cumu- Trea- Other Re- To-
re re gal lative sury re- tai- tal
capi- pre- re- trans- stock ser- ned
tal mium ser- la- ves ear-
re- ve tion nings
(In millions) EUR EUR EUR EUR EUR EUR EUR EUR
Jan 1, 2004, 232 14 228 (76) 1 202 423 1,024
Efficiency - - - - - - 18 18
Deferred - - - 26 - - (73) (47)
Pensions - - - - - - (108) (108)
Other - - - - - - (8) (8)
Jan 1, 2004, 232 14 228 (50) 1 202 252 879
Dividends - - - - - - (27) (27)
Translation - - - (11) - - - (11)
Transfer of - - - 8 - - (8) 0
Deferred tax - - - 5 - - - 5
Other - - - - - - 1 1
Net profit - - - - - - 143 143
(loss) for the
Dec 31, 2004, 232 14 228 (48) 1 202 361 990
Dec 31, 2004 Dec 31, 2004
Earnings per share from continuing operations, n/a 1.25
Earnings per share from discontinued n/a (0.20)
Earnings per share from continuing and 0.51 1.05
discontinued operations, EUR
Equity/share, EUR 7.72 7.27
Return on equity (ROE), % 6.9 14.2
Return on capital employed (ROCE), % 5.7 10.4
Equity to assets ratio, % 32,7 30.9
Gearing, % 50.0 49.7
Average number of shares (thousands) 136,190 136,190
Formulas for calculation of key
Profit (loss) before tax
Average number of shares during
Equity attributable to
Number of shares at end of period
Return on capital employed (ROCE), %:
Profit (loss) on before tax x 100
+ interest and other financial expenses
Balance sheet total - non-interest bearing liabilities
(average for period)
Return on equity (ROE), %:
Profit (loss) x 100
Total equity (average for period)
Equity to assets ratio, %:
Total equity x 100
Balance sheet total - advances received
Net interest bearing liabilities x 100
BUSINESS AREA INFORMATION
Net sales by business area:
(Millions) EUR EUR
Metso Paper 1,559 1,559
Metso Minerals 1,343 1,366
Metso Automation 535 535
Metso Ventures 387 387
Intra Metso net sales (115) (115)
Continuing operations 3,709 3,732
Discontinued operations 267 -
Metso total 3,976 3,732
Operating profit (loss) by business area:
(Millions) EUR EUR
Metso Paper 11.1 48.0
Metso Minerals 84.3 105.2
Metso Automation 52.9 69.6
Metso Ventures (7.1) 10.5
Corporate Office and other (21.9) (18.3)
Continuing operations 119.3 215.0
Discontinued operations (8.4) -
Metso total 110.9 215.0
The operating profit under IFRS includes reversal of Finnish pension liability
as follows: Metso Paper EUR 40 million, Metso Minerals EUR 5 million, Metso
Automation EUR 14 million, Metso Ventures EUR 19 million and Corporate Office
EUR 2 million.
Preliminary Accounting Principles under International Financial Reporting
DESCRIPTION OF BUSINESSES
Metso is a global technology corporation, which designs, develops and produces
systems, automation solutions, machinery and equipment for process industries.
The main customer industries are the pulp and paper, mining, construction and
energy industries. Metsos operations are divided into four business areas:
Metso Paper, Metso Minerals, Metso Automation and Metso Ventures. Metso Ventures
is comprised of Metso Panelboard, Metso Drives, Foundries, Metso Powdermet and
In January 2004, Metso divested its Converting Equipment group to a Swiss
company, Bobst Group. In June 2004, Metso divested the Dynapac compaction and
paving equipment group, previously part of Metso Minerals, to Altor, a Nordic
private equity investor. In December 2004, Metso divested the Reedrill rock
drilling equipment business, previously part of Metso Minerals, to the U.S.
company Terex Corporation. Divested businesses mentioned above are presented as
Discontinued operations separate from Continuing operations.
BASIS OF PRESENTATION
Beginning from 2005, the consolidated financial statements, prepared in
accordance with International Financial Reporting Standards ("IFRS"), including
International Reporting Standards ("IAS") and Interpretations issued by the
International Accounting Standards Board ("IASB"), include the financial
statements of Metso Corporation (the Parent Company) and its subsidiaries
(together with the Parent Company, Metso or the Company).
Until December 31, 2004, the consolidated financial statements have been
prepared in accordance with the Finnish Generally Accepted Accounting Principles
(FAS), which differs in certain respects from IFRS. When preparing the 2005
financial statements of Metso, the management will adjust certain accounting and
valuation methods applicable in Finnish GAAP to comply with IFRS. The
comparative figures of 2004 have been restated to reflect these adjustments. As
permitted by IFRS 1 "First-time Adoption of International Financial Reporting
Standards", Metso has applied certain transitional exemptions to the comparative
year financial statements.
However, the disclosures in this release are prepared under the IFRS rules being
in force as of the date of this release.
Metso Corporation was formed in 1999 as a result of the merger of Rauma
Corporation and Valmet Corporation. The merger was consummated on July 1, 1999
and is accounted for by the pooling-of-interests method under FAS. As permitted
by IFRS 1, the merger has not been restated in accordance with IFRS 3 "Business
The financial statements are presented in millions of euros, except for share
and per share amounts.
USE OF ESTIMATES
The preparation of financial statements, in conformity with IFRS, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
The financial statements are prepared under the historical cost convention,
except for assets and liabilities classified as financial assets and liabilities
at fair value through profit or loss, derivatives and available for sale
financial assets, which are recognized at fair value.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Parent Company
and each of those companies in which it owns, directly or indirectly through
subsidiaries, over 50 percent of the voting rights or in which it is in a
position to govern the financial and operating policies of the entity. The
companies acquired during the financial period have been consolidated from the
date that Metso acquired control. Subsidiaries sold have been included up to
their date of disposal.
All intercompany transactions are eliminated as part of the consolidation
process. Minority interests are presented separately before net profit (loss).
They are also shown separately from shareholders equity and liabilities on the
consolidated balance sheets.
Acquisitions of companies are accounted for using the purchase method. The cost
of an acquisition is measured at fair value over the assets given up, shares
issued or liabilities incurred or assumed at the date of acquisition including
any costs directly attributable to the acquisition. The excess acquisition cost
over the fair value of net assets acquired is recognized as goodwill (see
The equity method of accounting is used for investments in associated companies
in which the investment provides Metso the ability to exercise significant
influence over the operating and financial policies of the investee company.
Such influence is presumed to exist for investments in companies in which
Metsos direct or indirect ownership is between 20 and 50 percent. Under the
equity method, the share of profits and losses of associated companies is
included in the consolidated statements of income. The share of the result of
associated companies is presented separately in the income statement. Metsos
share of post-acquisition retained profits and losses of associated companies is
reported as part of investments in associated companies in the consolidated
FOREIGN CURRENCY TRANSLATION
Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the date of the transactions. At the end of the accounting period,
unsettled foreign currency transaction balances are valued at the rates of
exchange prevailing at the balance sheet date. Trade flow related foreign
currency exchange gains and losses are treated as adjustments to sales and
purchases. Foreign exchange gains and losses associated with financing are
entered as a net amount under financial income and expenses.
The income statements of foreign subsidiaries (i.e., outside the Euro area) are
translated into euro at the average exchange rates for the financial year and
the balance sheets are translated at the exchange rate of the balance sheet
date. The resulting translation differences are recorded directly to equity.
When Metso hedges the equity of its foreign subsidiaries with foreign currency
loans and with financial derivatives, the translation difference is adjusted by
the currency effect of hedging instruments and recorded in equity, net of taxes.
DERIVATIVE FINANCIAL INSTRUMENTS
As permitted by the transitional rules of IFRS 1, Metso has elected not to apply
the dispositions of IAS 39 Financial instruments: Recognition and measurement,
to the comparative financial statements of the year ended December 31, 2004.
Metso uses a variety of derivative financial instruments, mainly forward
exchange contracts, and a limited number of interest rate, currency and cross-
currency swaps as well as currency options, interest rate futures and commodity
contracts, as part of an overall risk management policy. These instruments are
used to reduce the foreign currency, interest rate and price risks relating to
existing assets, liabilities, firm commitments, forecasted sales and estimated
consumption of raw materials.
Metso does not hold nor issue derivative financial instruments for trading
Financial derivatives are initially recognized in the balance sheet at cost and
subsequently measured at their fair value on each balance sheet date. Gains and
losses on derivatives qualifying for hedge accounting are recognized in
accordance with the type of underlying being hedged. At inception, the financial
derivatives are designated either as hedges of forecasted transactions and firm
commitments (cash flow hedge), or as fair value hedges of recognized assets or
liabilities, or as hedges of net investments in foreign currency denominated
subsidiaries or financial derivatives not meeting the hedge accounting criteria
Metso uses principally forward exchange contracts to mitigate the currency risk
on certain commercial assets (receivables) and liabilities (payables) and firm
commitments (orders). The currency portion of derivatives qualifying for hedge
accounting is designated at inception as a hedge with respect to the hedged item
or group of items with similar characteristics. The hedge effectiveness is
tested quarterly both prospectively and retrospectively. The effective currency
portion of the derivatives is recognized in the hedge reserve of shareholders'
equity and recorded through net sales concurrently with the hedged item. The
interest portion of the derivatives is reported under other operating income and
Financial derivatives not qualifying for hedge accounting, which have been
contracted to mitigate risk arising from the commercial activity, are recognized
at fair value in other operating income and expenses.
Metso hedges its net foreign investments in certain currencies to reduce the
effect of exchange rate fluctuations. The hedging instruments are mainly foreign
currency loans and forward exchange contracts, and to some extent cross-currency
swaps. Both realized and unrealized exchange gains and losses measured on these
instruments are recorded, net of taxes, in a separate component of equity
against the translation differences arising from consolidation to the extent
that these hedges are effective. The hedge effectiveness is tested quarterly
both prospectively and retrospectively. The interest portion of derivatives is
recognized under financial income and expenses, net.
Currency and cross-currency swaps are used to hedge foreign currency denominated
loans. The translation differences arising from the derivative instruments are
recorded concurrently with the translation difference of the underlying loans.
The interest portion of these instruments is recognized at fair value in
financial income and expenses, net. Metsos exposure to interest rate risks,
arising from interest bearing receivables and loans, is managed through interest
rate swaps and interest rate futures. The net of interest payable and receivable
on the swaps is accrued and recorded in interest and other financial expenses to
match the interest income/expense on the related underlying hedged items. Under
cash flow hedge, the market valuation of interest for the remaining period is
recognized, to the extent it is effective, in the hedge reserve as of the
balance sheet date.
Metso has entered into electricity futures to reduce the effects of the
volatility of the electricity prices of its units located in Finland. The
futures are fair valued quarterly and the change in fair value is recognized in
other income and expenses.
Marketable debt securities, e.g., bonds, commercial papers and time deposits,
are included in other long-term investments when their maturity, at the time of
their inception, exceeds one year. Bonds and commercial papers are fair valued
at balance sheet date and the change in fair value is recognized in financial
income and expenses, net. Time deposits and investment funds classified as held-
to-maturity investments are measured at amortized cost using the effective yield
AVAILABLE FOR SALE INVESTMENTS
Ownership in shares of listed companies is classified as available-for-sale
investments and carried at fair value. The fair value is based on closing prices
as of the respective balance sheet date. Unrealized gains and losses arising
from changes in fair value are recognized in the fair value reserve of
shareholders' equity. Gains and losses realized at disposal and potential
impairment are recorded in the income statement and the accumulated change in
fair value previously recorded in fair value reserve of shareholders' equity is
As permitted by IFRS1 'First-time adoption of International Financial Reporting
Standards', Metso has elected not to apply the dispositions of IAS39 for the
comparative year ended December 31, 2004, ownership in listed shares remains
recorded at historical cost and is adjusted in the balance sheet of January 1,
CAPITALIZATION OF TRANSACTION COSTS RELATED TO ISSUANCE OR EXCHANGE OF DEBT
Transaction costs arising from issuance or exchange of debt instruments are
included in the book value of the debt and amortized using the effective yield
method over the remaining period of the modified liability provided the new
conditions obtained through the exchange do not substantially differ from those
of the original debt. The assessment of whether the conditions are substantially
different is based on a comparison of the discounted present value of the cash
flows under the new terms and the present value of the remaining cash flows of
the original financial liability. Should the difference be less than ten
percent, the conditions are not considered to be substantially different.
Revenues from goods and services sold are recognized, net of sales taxes,
discounts and foreign exchange differences, when substantially all the risks and
rewards of ownership are transferred to the buyer, or when legal title of the
goods and responsibility for shipment has transferred to the buyer. The transfer
of risk takes place either when the goods are shipped or made available to the
buyer for shipment, depending on the delivery clause of the contract. The credit
worthiness of the buyer is verified before engaging into a sale. However, should
a risk of non-payment arise after revenue recognition, a provision for non-
collectibility is established.
Percentage-of-completion method: Sales and anticipated profits under long-term
engineering and construction contracts are recorded on a percentage-of-
completion basis. The measurement is done either by units of delivery, which are
based on predetermined milestones and on the realized value added (contract
value of the work performed to date) or by the cost-to-cost method of
accounting. Estimated contract profits are recorded in earnings in proportion to
recorded sales. In the cost-to-cost method, sales and profits are recorded after
considering the ratio of accumulated costs to estimated total costs to complete
each contract. In certain cases, subcontractor materials, labor and equipment,
are included in sales and costs of goods sold when management believes that
Metso is responsible for the ultimate acceptability of the project. Changes to
total estimated contract costs and losses, if any, are recognized in the period
in which they are determined.
If the conditions of a sales contract with repurchase commitment indicate that
the transfer of risks and rewards has not taken place at initial delivery of
equipment and transfer of ownership, the revenue is deferred. The income on the
transaction is recognized as a lease until the expiry of the resale right.
Trade-ins: Sales, against which trade-ins are accepted, are recorded at contract
price. Any reduction between the agreed trade-in price and its recorded value in
the inventory is recognized in cost of goods sold concurrently with the sale.
SHIPPING AND HANDLING COSTS
The Company includes shipping fees billed to customers in revenues and shipping
costs incurred in cost of sales.
RESEARCH AND DEVELOPMENT
Research and development costs are mainly expensed as incurred. Research and
development costs comprise salaries, administration costs, depreciation and
amortization of property, plant and equipment and intangible fixed assets.
Development costs meeting specific capitalization criteria are capitalized and
amortized during the expected economic life of the underlying technology.
MAINTENANCE, REPAIR AND RENEWALS
Maintenance, repairs and renewals are charged to expense as incurred. However,
major betterments are capitalized and depreciated over their expected useful
PENSIONS AND COVERAGE OF PENSION LIABILITIES
Metso has several different pension schemes in accordance with local conditions
and practices in countries where it operates. In certain countries, the pension
schemes are defined benefit plans with retirement, disability, death, other post
retirement benefits, such as health services, and termination income benefits.
The retirement benefits are usually based on the number of service years and the
salary levels of the last service years. The schemes are generally funded
through payments to insurance companies or to trustee-administered funds as
determined by periodic actuarial calculations.
In addition, certain companies within Metso have multi-employer pension
arrangements and defined contribution pension schemes. The contributions to
defined contribution plans and to multi-employer and insured plans are charged
to the income statement concurrently with the payment obligations.
In the case of defined benefit plans, the liability arising from the plan is the
present value of the defined benefit obligation as of the balance sheet date,
adjusted by the fair value of the plan assets and by the unamortized portion of
the actuarial gains and losses and of past service cost. Independent actuaries
calculate the defined benefit obligation. It is based on the projected unit
credit method and is discounted to present value of the estimated future cash
flows using the interest rates approximating the terms of the pension
engagement. The cost of providing retirement and other post retirement benefits
to the personnel is charged to income concurrently with the service rendered by
the personnel. Actuarial gains and losses arising from experience adjustments,
changes in actuarial assumptions and amendment to plans are recognized over the
average remaining service years of the employees.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation
and impairment losses, if any. Land and water areas are not depreciated.
Depreciation is calculated on a straight-line basis over the expected useful
lives of the assets as follows:
Buildings and structures 15 40 years
Machinery and equipment 3 20 years
Expected useful lives are reviewed at each balance sheet date and if they differ
significantly from previous estimates, the remaining depreciation periods are
Metso reviews property, plant and equipment to be held and used by the company
for impairment whenever events and changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Impairments of property,
plant and equipment and capital gains and losses on their disposal are included
in operating profit (loss). A previously recognized impairment on property,
plant and equipment is reversed only if there has been a change in the estimates
used to determine the recoverable amount, however not to an extent higher than
the carrying amount, which would have been recorded had no impairment been
recognized in a prior year.
Intangible assets are stated at cost less accumulated amortization and
impairment loss, if any. Intangible assets having indefinite useful life are not
amortized, but tested annually for impairment.
Amortization is calculated on a straight-line basis over the expected useful
lives of the assets as follows:
Patents and licenses 5 10 years
Computer software 3 5 years
Other intangibles 3 12 years
The carrying value of goodwill for each business area is reviewed annually or,
more frequently, if the facts and circumstances, such as declines in sales,
operating profit or cash flows or material adverse changes in the business
climate, suggest that its carrying value may not be recoverable. The testing is
performed at the cash generating unit level, which in Metso is one level below
the segment level. The annual testing may be waived if there has not been
significant changes to the assets and liabilities of the cash generating unit,
if in the previous testing the fair value clearly exceeded the carrying values
tested, and if the likelihood that the current fair value would be less than the
current carrying value of the cash generating unit is remote. Metso uses
discounted cash flow analysis to assess the fair value of goodwill. Previously
recognized impairment loss on goodwill is not reversed even if there is an
improvement in circumstances having initially caused the impairment.
A discontinued operation results from a management's decision and commitment to
dispose of a separate business for which the related assets, liabilities and
operating results can be distinguished operationally and for financial reporting
purposes. When specific criteria for the held for sale classification has been
met, the long-lived assets are recorded at lower of carrying value or fair value
less cost to sell, long-lived assets subject to depreciation or amortization are
no longer amortized. The assets and liabilities of a disposal group classified
as held for sale are presented in the balance sheet separate from assets and
liabilities related to continued operations. The results of discontinued
operations, net of taxes and the gain or loss on their disposal are presented
separate from continuing operations in the income statements.
CAPITALIZATION OF INTEREST EXPENSES
The interest expenses of self-constructed investments are capitalized in Metsos
financial statements. The capitalized interest expense is amortized over the
estimated useful life of the underlying asset.
Rental expenses for operating leases are expensed as incurred. Acquisitions of
property and equipment under capital lease arrangements are recorded in fixed
assets and depreciated over their expected useful lives.
Treasury stock (Own shares)
As permitted by the transitional rules of IFRS 1, Metso has elected not to
present comparative financial statements for the year 2004 in compliance with
the dispositions of IAS 32 Financial instruments: Disclosure and presentation.
Treasury stock held by Metso is valued at reacquisition price and they have been
deducted from shareholders' equity as of January 1, 2005. Own shares have been
deducted from the number of shares outstanding and the share capital for the
calculation of per share and other performance related indicators.
Share options granted to Metso's key personnel are fair valued as of the grant
date and recognized in the shareholders equity, wherefrom they are amortized
through income under personnel expenses over the vesting period of the options.
However, as permitted by the transitional rules of IFRS 1, Metso has elected not
to apply the dispositions of IFRS2 Share-based payments to the comparative
financial statements of the year ended December 31, 2004.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in banks and other liquid investments
with original maturity of ninety days or less.
Inventories are stated at the lower of historical cost calculated on an average
cost basis or net realizable value. Historical costs include purchase costs as
well as transportation and processing costs. The costs of finished goods include
direct materials, wages and salaries plus social costs, subcontracting and other
direct costs. In addition, production costs include an allocable portion of
production and project administration overheads. Net realizable value is the
estimated amount that can be realized from the sale of the asset in the normal
course of business after allowing for the costs of realization.
Inventories are shown net of a reserve for obsolete and slow-moving inventories.
A reserve is established and a corresponding charge is taken to income in the
period in which the loss occurs based upon an assessment of technological
obsolescence, turnover and related factors.
Trade-in equipment received is recorded as inventory at the lower of cost or net
ACCOUNTS RECEIVABLE AND SECURITIZATION
Accounts receivable are recognized at original invoice amount to customers net
of allowance for doubtful receivables. The allowance is recorded on the basis of
periodic reviews of potential non-recovery of receivables by taking into
consideration individual customer credit risk, economic trends in customer
industries and changes in payment terms. Bad debts are written off when official
announcement of receivership, liquidation or bankruptcy is received confirming
that the receivable will not be honored. If extended payment terms exceeding one
year are offered to customers, the invoice amount is discounted to its present
value and interest income is recognized over the credit term.
Metso sells certain receivables through arrangements with third party financial
institutions. If specific criteria are met, including legal isolation from the
Company, these receivables are removed from Metsos books, and a gain or loss on
sale of the receivables is recorded.
An accrual is made for expected warranty costs. The adequacy of this accrual is
reviewed periodically based on an analysis of historical experience and
anticipated probable warranty liabilities.
A provision for restructuring is recognized only after management has developed
and approved a formal plan to which it has committed. Employee termination
benefits are only recognized when the representatives of employees or individual
employees have been informed of the intended measures in detail and the related
compensation packages can be reliably estimated. The costs included in a
provision for restructuring are 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 Metso or a penalty
incurred to cancel the contractual obligation. Restructuring costs also include
other costs incurred as a result of the plan, which are recorded separately
under other income and expenses, such as asset write-downs, environmental
liabilities and costs to transfer operations to new locations.
ENVIRONMENTAL REMEDIATION COSTS
Metso accrues for losses associated with environmental remediation obligations
when such losses are probable and reasonably estimable. Accruals for estimated
losses from environmental remediation obligations generally are recognized no
later than completion of the remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties are recorded as assets when their receipt is deemed probable.
Income taxes presented in the income statement consist of current and deferred
taxes. Current taxes include estimated taxes corresponding to the results for
the financial year of the companies, and adjustments of taxes for previous
A deferred tax liability or asset has been determined for all temporary
differences between the tax bases of assets and liabilities and their amounts in
financial reporting, using the enacted tax rates effective for the future years.
The deferred tax liabilities are recognized in the balance sheet in full, and
the deferred tax assets at their estimated realizable amounts. If an entity has
a history of recent losses, a deferred tax asset can only be realized if there
is convincing evidence that sufficient taxable profit will be available against
which the unused tax losses can be utilized.
No deferred tax liability has been recognized for undistributed earnings of
domestic subsidiaries (i.e., Finnish) since such earnings can be transferred to
the Parent Company without tax consequences. Metso does not provide deferred
income taxes on undistributed earnings of foreign subsidiaries, except in
situations where Metso has elected to distribute earnings of foreign
EARNINGS PER SHARE
Earnings per share are based on profit (loss) attributable to equity
shareholders. The amount is divided by the weighted average number of shares
outstanding during each period. The average number of own shares has been
deducted from the number of outstanding shares.
The diluted earnings per share are computed by applying the treasury stock
method, under which earnings per share data is computed as if the warrants and
options were exercised at the beginning of the period, or on the issuance, if
later, and as if the funds obtained thereby were used to purchase common stock
at the average market price during the period. In addition to the weighted
average number of shares outstanding, the denominator includes the incremental
shares obtained through the assumed exercise of the warrants and options.
The assumption of exercise is not reflected in dilutive earnings per share when
the exercise price of the warrants and options exceeds the average market price
of the common stock during the period. The warrants and options have a dilutive
effect only when the average market price of the common stock during the period
exceeds the exercise price of the warrants and options.
Olli Vaartimo Kati Renvall
Executive Vice President and CFO Vice President,
New York Stock Exchange
Metso kuuluu alallaan maailman johtaviin teollisuusyrityksiin. Tarjoamme laitteita ja palveluja luonnonvarojen kestävään käsittelyyn ja virtaukseen kaivos-, kivenmurskaus-, kierrätys- ja prosessiteollisuudessa. Ainutlaatuinen osaamisemme ja innovatiiviset ratkaisumme auttavat asiakkaitamme tehostamaan toimintaansa, vähentämään riskejä ja parantamaan kannattavuutta. Metsolla on yli 15 000 työntekijää yli 50 maassa.