SECURITIES AND EXCHANGE COMMISSION

FORM 20-F/A
(Amendment No. 1)

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

OR

þ    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2004

OR

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

OR

o    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report

METSO CORPORATION
(Exact name of Registrant as specified in its charter)

The Republic of Finland
(Jurisdiction of incorporation or organization)

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

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

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, 2004: 136,250,545

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.

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

TABLE OF CONTENTS

(i)

(ii)

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:

     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 31, 2004, which was €1.00 = U.S.$1.3538 (U.S.$1.00 = €0.7387). On March 29, 2005, the noon buying rate for the euro was €1.00 = U.S.$1.2913 (U.S.$1.00 = €0.7744).

FINANCIAL AND OTHER INFORMATION

     Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in Finland (“Finnish GAAP”), which differ in certain significant respects from generally accepted accounting principles in the United States (“U.S. GAAP”). For a discussion of the principal differences between Finnish GAAP and U.S. GAAP, see Note 30 to our audited consolidated financial statements as of and for the years ended December 31, 2003 and 2004, and income statement data for each of the years in the three-year period ended December 31, 2004, included elsewhere in this annual report. See also “Item 5. Operating and Financial Review and Prospects—Principal Differences between Finnish GAAP 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.

(iii)

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:

     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.

(iv)

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 Finnish GAAP, which differs in certain significant respects from U.S. GAAP. A reconciliation to U.S. GAAP is set forth in Note 30 to our consolidated financial statements. For a discussion of the principal differences between Finnish GAAP and U.S. GAAP, see also “Item 5. Operating and Financial Review and Prospects—Principal Differences between Finnish GAAP 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 as of and for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 is a summary derived from our consolidated financial statements and should be read together with our consolidated financial statements and the notes thereto.

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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 euros 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 2005 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

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     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 2005 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

     Since July 1, 1999, our shares have been 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 a large extent, hedged our foreign currency denominated net assets of foreign subsidiaries through borrowings, currency derivatives and, to some extent, through receivables. Apart from forward foreign exchange contracts, options and currency swaps, as of December 31, 2004, we were not a 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

Business Cycles in the Global Economy and Customer Industries

     Business cycles in the global economy and our customer industries influence the demand for our products, our financial condition and results of operations, especially in the short-term. Metso Paper and Metso Automation are affected by the business cycles of the pulp and paper industry. In addition, Metso Automation is also affected by the business cycles of the power, oil and gas industries. Metso Minerals’ operations are dependent on the development of the mining, construction and civil engineering industries. Within the construction and civil engineering industries, the level of infrastructure investments is most significant for Metso Minerals. Management believes that, in the long-term, the effects of business cycles are reduced by the geographical diversity of our operations and the various customer industries served. Also, new equipment orders tend to be more affected by business cycles than the demand for rebuilds and process improvements as well as

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aftermarket operations, for which our large global installed base offers a strong platform. Although we have striven actively to reduce the risks of business cycles by growing our product life cycle related operations and long-term partnerships with our customers, as well as increasing the flexibility of our cost base through outsourcing and focusing on the manufacture and assembly 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.”

Competition

     Our competitors vary by business area and product. We aim to differentiate ourselves from competitors through quality, reliability, service and availability, as well as through our high level of technological know-how and long-term commitment to our customers. We aim for competitive advantage through continuous product development based on research and technology development (“RTD”) investments and cooperation with our customers. In addition, we seek to operate flexibly and cost-efficiently in an effort to ensure our competitiveness. While 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.

Project Activity

     Our operations consist partly of large project deliveries to the pulp and paper industry and the mining industry. These deliveries can involve project-specific risks concerning delivery schedules as well as equipment start-up, capacity and end-product quality. In some cases, project-specific risks may also arise from new technology included in the deliveries. Although the risks of individual projects are generally not significant compared to the magnitude of our business and we seek to reduce project-specific risks by exact sales contract terms, 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.

Raw Materials, Suppliers and Subcontractors

     Developments in the global economy or abrupt problems with deliveries by raw material producers can influence the prices and availability of raw materials that we use for our products. This may, in turn, affect our business by increasing our purchasing costs and/or lengthening delivery lead-times. Among key raw materials used by us are steel and scrap iron, the prices and availability of which may fluctuate and have an adverse effect on our operations. The global coverage of our businesses and suppliers is expected to reduce the effect of any local disturbances. We prefer long-term supply contracts in order to reduce the effects of short-term price volatility or availability issues. In addition, when possible, we seek to identify replacement suppliers in order to manage risks related to a single supplier. However, there are limitations to the availability of such actions. For example, a raw material used by Metso Minerals in manufacturing wear parts for crushers, virgin manganese, has its supply limited mainly to South Africa. Delivery problems facing local producers or political or legislative changes in South Africa can affect the availability of manganese, which could have an adverse effect on our Metso Minerals wear parts business. We seek to manage this risk by maximizing the use of recycled manganese. Changes in the prices of electricity, oil and metals may indirectly have a material adverse effect on our business, financial condition or results of operations, if these variations decrease the willingness of our customer industries to invest. See “Item 4. Information on the Company—Raw Materials.”

     Generally, our risks related to the purchase of raw materials have decreased because we have increasingly focused on manufacturing and assembling core components only. On the other hand, outsourcing increases the importance of, and risks related to, our suppliers and subcontractors. We purchase the majority of product components from our suppliers, for whom it is not necessarily possible to find alternative suppliers at short notice. Delivery problems of our subcontractors may also adversely affect our customer relationships and 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.

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Political, Economic and Legislative Changes in Developing Countries

     Both our operations and the operations of our customers are geographically widespread. We have our own manufacturing and suppliers based in many developing countries. Also, the demand for our new machinery and equipment is increasingly coming from countries in Asia and South America. Sudden political, economic and/or legislative changes in these countries could have a material adverse effect on our business, financial condition or results of operations. For example, China currently represents a significant portion of our business and, hence, any sudden adverse political, economic or legislative changes in China could, especially in the short-term, have a material adverse effect on our business, financial condition or results of operations. 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.

Product Liability

     We are occasionally involved in product liability claims typical for companies in comparable industries. These claims are covered by our insurance policy with coverage of up to €100 million (U.S.$135 million) per year, subject to applicable insurance conditions. As part of the global coverage, our North American subsidiaries carry local general and product liability policies, which cover claims up to an annual aggregate of €4 million (U.S.$5 million). We also seek to reduce product liability risks by improving product safety through RTD investments, automation and customer training as well as by applicable sales contract terms. Although management believes that our insurance coverage is currently adequate to cover the liability risks, we may be held responsible for damages beyond the scope of our insurance coverage, which could have a material adverse effect on our business, financial condition or results of operations.

Environmental Regulation

     Procedures to ensure compliance with applicable environmental protection laws and regulations as well as ISO 14001 compliant environmental systems are key tools in our environmental management. 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.”

Property and Liability Risks

     We manage our exposure to property, business interruption, transport and liability risks (general liability, product liability and management liability) through global insurance schemes. The insurance coverage consists of property, business interruption, transport and liability insurance schemes and their local applications. Our total risk bearing capacity is taken into consideration when setting the amount of deductibles. Our captive insurance company will bear risks to the extent that is financially sustainable. Although management believes that our insurance coverage is currently adequate to cover the liability risks, we may be held responsible for damages beyond the scope of our insurance coverage, which could have a material adverse effect on our business, financial condition or results of operations.

Liquidity

     Cash and committed revolving credit facilities are used to protect our short-term liquidity. We manage our liquidity by balancing the proportion of short-term and long-term loans as well as the average remaining maturity of long-term loans. We also manage risks in the availability of funds and pricing in the long-term by diversifying funding between money and capital markets and banks. Credit rating agencies assess our business and publish credit ratings. A lowering of credit ratings could raise the financing costs of possible new loans taken, 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 influence our financing costs, returns on financial investments and valuation of derivative contracts. We manage interest rate risks through the ratio of

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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 changes affect our business, although the geographical diversity of our operations decreases the significance of any individual currency. Exchange rate variations can have a direct effect on the prices of raw materials and production commodities purchased in non-domestic currencies and in the prices of end products for export, in which the invoicing currency is different from the currency of the manufacturing costs (transaction effect). More than one-half of our net sales originate from outside the euro zone. Alongside the euro, the most important currencies used in invoicing are the U.S. dollar and the Swedish krona. When the net sales and results of our subsidiaries outside the euro zone are translated into euro, they may increase or decrease because of exchange rate changes, even though no real change in such net sales or results has occurred (translation effect). Exchange rate movements may also affect our competitive position by weakening the cost competitiveness of our products as against those of our competitors’ products manufactured in another currency area.

     In accordance with our treasury policy, our operating units are required to hedge in full the currency exposures that arise 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 opportunities to adapt. We have operations in countries in which currency regulation affects hedging risks. The most important of these are Brazil and China. We conduct hedging operations in a centralized fashion 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. Future cash flows are hedged for periods, which do not normally exceed two years. Accordingly, the majority of future cash flows related to the order backlog are hedged.

     The equity of 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 in accordance with our treasury policy by using non-euro denominated loans and forward exchange agreements. Although 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 negatively affected by any depreciation of the euro against the investor’s functional currency. The value of dividends and other distributions paid in euro, and the value of the shares quoted on the Helsinki Stock Exchange in euro could decline as a result.

Credit Risks and Other Counterparty Risks

     Our operating units are primarily responsible for credit risks pertaining to sales activities. Our business areas determine the guidelines for delivery and payment terms granted to customers, their supervision and enforcement, which are then implemented at the business line and operating unit level. Our corporate treasury provides centralized services related to customer financing and seeks to ensure that the principles of our treasury policy are adhered to with respect to terms of payment and required collateral.

     When investing cash assets and making derivative contracts, our corporate treasury only accepts counterparties that fulfill the credit rating criteria defined in our treasury policy, or parties separately approved in advance by our board of directors. With respect to investments, derivative contracts and borrowing, we have set counterparty-specific limits to avoid risk concentrations.

     We have agreed on extended payment terms with selected customers in our businesses. In establishing credit arrangements, management is required to assess the creditworthiness of the customer and the timing of

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cash flows expected to be received under the arrangement. However, should the actual financial position of our customers or general economic conditions differ from our assumptions, we may be required to re-assess the ultimate collectibility of such trade credits, which 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 credit 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 on acceptable terms. Although the risks related to individual customers or other counterparties are generally not significant compared to the magnitude of our business and we seek to reduce customer risks by exact sales contract and payment terms and collaterals, there can be no assurance that we will be successful in managing the risks connected with our trade credit exposure, customer financing, risk concentrations and financial counterparties that we may from time to time have, which could have a material adverse effect on our business, financial condition or results of operations.

Major Shareholders May Exercise Their Influence to Detriment of Other Shareholders

     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 3100 Medlock, Bridge Road, Suite 250, Norcross, Georgia 30071.

History and Development of the Company

     Metso was created as the result of the merger of Valmet and 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, and during the 1950s 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 24, 2005, the Finnish State owned 11.5 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, Metso Corporation 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.

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

Strategy

     Our vision is to grow from a machine supplier into a provider of competitiveness for our customers. We aim to be a profitably growing and globally leading developer and provider of equipment, solutions and services for our customer industries. Our goal is to assist our customers in improving the productivity and competitiveness of their industrial processes throughout their life cycles.

     Our operations are based on process know-how in the pulp and paper industry and rock and minerals processing industries, on the extensive installed base of machinery and equipment and on automation knowledge. These cornerstones have helped us to become the world’s leading supplier for the pulp and paper industry and rock and minerals processing industries. Our products and services combine control technology, process automation and advanced information and communications technology solutions with process know-how.

     Our customers are industrial companies that require their machine and equipment suppliers to show long-term commitment and assume increasing responsibility for delivered processes. Our customers’ investments are typically large and have long life cycles. These investments require sufficient returns, which can be enhanced by cooperation with the customer covering the entire life cycle of the process. Additionally, many of our customers operate in different parts of the world and expect their suppliers to be located close to them. Our strong global network enables us to serve our customers in all continents.

     Profitability is a requirement for all business areas to enable the development of the Company and utilization of the market potential. To achieve this goal, extensive efficiency improvement measures have been implemented within the Company in recent years. Our business areas are in different stages of development. In determining the strategic focus and profitability targets for each business area for 2005, the market situation, customer needs and profitability have been taken into consideration. Our overall financial targets for 2005 have been determined as an operating profit margin of six percent of net sales and return on capital employed of 12 percent.

     Metso Paper is renewing its business concept to correspond with customer needs. The flexibility required by fluctuating demand is being increased by adapting internal capacity and extending manufacturing cooperation with outside partners. Metso Paper’s financial target for 2005 is an operating profit margin of five percent of net sales. Metso Minerals is seeking to utilize the growth potential of its market and to further improve its organizational efficiency and product-specific profitability, and targets an operating profit margin of seven percent of net sales for 2005. Metso Automation is refocusing on achieving growth by launching new products and strengthening its market position in growing markets while targeting an operating profit margin of eight percent of net sales for 2005. All of Metso Ventures’ businesses are focusing on strengthening their competitiveness to achieve an operating profit margin of six percent of net sales for 2005.

Corporate Structure

     We are a global engineering company headquartered in Helsinki, Finland, and serve our customers in selected areas within the process industry. Our business areas are global in scope with operations in over 50 countries. Our principal production plants are located in Finland, Sweden, France, Italy, Germany, the United Kingdom, Canada, the United States, China, South Africa and Brazil. As of December 31, 2004, approximately 40 percent of our employees were based in Finland.

     Our operations are currently organized into the following four business areas:

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     The chart below depicts the current structure consisting of the four business areas described above:

     The current structure is a result of the restructurings described below:

     The earlier Metso Paper business area consisted also of Metso Panelboard before it was transferred to the Metso Ventures business area in March 2002. In November 2002, the Converting business, previously part of Metso Paper, was transferred to be reported under Discontinued Operations after a memorandum of understanding regarding its sale was signed. The divestment was completed in January 2004. In February 2003, Metso Paper’s operations were reorganized to include five business lines: Paper, Board, Tissue, Chemical Pulping and Mechanical Pulping. In October 2003, Metso Paper’s foundries located in Jyväskylä, Finland and Karlstad, Sweden were transferred to the Metso Ventures business area. In March 2004, Metso Paper combined the Chemical Pulping and Mechanical Pulping business lines into one Fiber business line.

     Since August 2002, the Metso Automation business area has consisted of two business lines: Process Automation Systems and Field Systems, which are supported by a North American business unit. Process Automation Systems combines two former business divisions, Paper Automation and Energy & Process Automation.

     After Svedala was acquired and integrated in 2001, Metso Minerals business area has consisted of four business lines: Crushing & Screening, Minerals Processing, Compaction & Paving, and Wear Protection, Service & Parts. In October 2002, a fifth business line called Recycling was created. In September 2003, Metso Minerals’ operations were divided into six business lines: Crushing & Screening, Minerals Processing, Wear Protection & Conveying, Compaction & Paving, Recycling, and Drilling. In June 2004, we divested the

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Compaction & Paving business and, in December 2004, the Drilling business. As a result, Metso Minerals currently consists of four business lines.

     Prior to the transfer of Metso Panelboard into Metso Ventures in 2002, the business area was comprised of Metso Engineering and Valmet Automotive. Since the transfer, the business area was reconstructured to comprise of four businesses: Metso Panelboard, Metso Drives, Metso Powdermet and Valmet Automotive. Metso Drives and Metso Powdermet were formerly part of Metso Engineering, similarly to Metso Works and Metso Hydraulics, which have now been sold. In October 2003, three foundries, two of which were formerly part of Metso Paper and one of Metso Minerals, were transferred to the Metso Ventures business area, creating a fifth business within the business area, called Foundries. On March 4, 2005, we announced the signing of an agreement to sell Metso Drives to the funds managed by private equity investor CapMan of Finland. Metso Drives Oy will be transferred to the ownership of the CapMan funds after the relevant regulatory approvals.

     The financial information as of and for the years ended December 31, 2002 and 2003 discussed in this annual report has been restated to reflect the changes in our structure described above. The Converting business has been reported as a separate segment under Discontinued Operations since November 2002 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 from the United States in December 2004. These divested businesses are also reported under Discontinued Operations.

Business Summary

Net Sales by Geographic Area

     In 2004, we had total net sales of €3,976 million (U.S.$5,383 million), of which approximately 88 percent were accounted for by exports from Finland and sales by international operations, and an operating profit of €111 million (U.S.$150 million). As of December 31, 2004, our total assets amounted to €3,578 million (U.S.$4,844 million), and we had 22,802 employees worldwide.

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

Metso Paper

     As a result of our restructurings described under “—Corporate Structure” above, the divested Converting business, or Metso Panelboard, and the operations of the two foundries that were transferred to Metso Ventures are no longer included in the Metso Paper business area.

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

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

     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.

Products and Services

     Paper. Metso Paper delivers new paper machines and production equipment as well as offers machine rebuilds and service. The product lines 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. Metso Paper’s paper machines are among the largest and fastest in the world. A typical paper machine costs between €50 million and €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).

     Board. Metso Paper delivers new board machines and production equipment as well as offers machine rebuilds and service. Metso Paper supplies 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 €30 million and €100 million and produces from 200,000 to more than 600,000 tons of board per year.

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     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. A typical tissue machine costs between €10 million and €35 million and produces from 10,000 to more than 70,000 tons of tissue per year.

     Fiber. Metso Paper delivers fiber lines, processes and production equipment as well as related aftermarket activities 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 complete capability and product offering for utilization of all different kind of recycled fibers for paper, board or tissue making. Metso Paper’s fiber business line includes all process equipment and service necessary for complete fiber plants. Metso Paper offers fiber producers technology that significantly reduces the environmental impact of their operations.

Markets and Customers

     Metso Paper’s products and services are sold to the pulp and paper industry throughout the world. Sales worldwide are handled through a network of 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 but may be as long as two years.

     Customers are located in a number of countries, primarily in Europe, North America and Asia. Metso Paper has major production facilities in Finland and Sweden, and a joint venture in China. Our internal production processes have been reorganized by creating a network of plants specializing in designated product areas and manufacturing processes in order to focus on development of specific technologies and expertise.

     As a major supplier to the pulp and paper industry, Metso Paper has most of the significant pulp and paper producers as 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 network of sales companies and sales representatives in the Nordic Countries, Western Europe, North America, South America, Asia and Australia. In addition, a marketing and sales team supports sales activities and develops marketing strategies in line with our customers’ needs.

Competition

     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 technology, availability of reference machines for comparative purposes, delivery time, price and service ability. Metso Paper competes for machine sales based on these five factors. 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 in the past three years. 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 is the other major producer, Voith Paper Group of Germany. Mitsubishi of Japan is also a competitor in paper machines. Metso Paper’s principal competitor in board making machine lines is Voith Paper Group. In tissue machines, the competitors include Andritz Corporation of Austria and Voith Paper Group, as well as Overmechanica, Recard, Toschi and Celli of Italy.

     Metso Paper’s principal competitors in the pulping industry are Andritz Corporation of Austria and Kvaerner Pulping of Norway. Competition within the pulping industry focuses on fiber quality and energy efficiency. In addition, environmental concerns affect competition as principal suppliers attempt to meet the

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increasing demand for environmentally friendly 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. Market leaders in the area of recycled fiber pulping include Voith Paper Group of Germany and Black Clawson of the United States.

     Competition in the aftermarket operations comes mainly from the principal global competitors mentioned above and from numerous smaller local or regional service providers. Customers also partly employ their own personnel to take care of the activities. Service, for example spare parts, is also often sold in conjunction with new paper and board machines or major rebuilds. Management believes that Metso Paper’s service operations benefit from synergies with Metso Paper products.

Recent Developments

     In December 2004, Metso Paper concluded an agreement to sell its production operations in Karhula, Finland, to Mesera Works Oy. According to the agreement, 105 workers transferred as existing employees to Mesera Works on January 1, 2005.

     In September 2004, Metso Paper completed the outsourcing process of its Jyväskylä plate fabrication. Metso Paper and Konepaja Häkkinen Oy of Finland signed a contract according to which the operation of the plate fabrication shop was transferred to a new company, Rautpohjan Konepaja Oy, a subsidiary of Konepaja Häkkinen Oy. According to the agreement, all 124 workers transferred as existing employees to Rautpohjan Konepaja on October 1, 2004.

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

Metso Minerals

     As a result of our restructurings described under “—Corporate Structure” and the acquisition of Svedala and its consequent integration with Metso Minerals, Metso Minerals’ operations are divided into four business lines: Crushing & Screening, Minerals Processing, Wear Protection & Conveying, and Recycling.

     Metso Minerals is globally a leading supplier in rock and minerals processing and in recycling systems for metals and construction materials. Aftermarket operations form an important part of Metso Minerals’ business, inasmuch as crushing and processing rock and minerals require spare and wear parts continuously. In addition, we provide different types of aftermarket activities for the life cycle of the equipment. Products are sold either through Metso Minerals’ own global sales organization or, in some product lines, through their own distributor network.

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

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

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Products and Services

     Metso Minerals offers total solutions for customers in the aggregates, mining, minerals processing, civil engineering, cement, metal recycling, bulk materials handling industries as well as related aftermarket activities through its four business lines. The product offering includes a wide variety of products with a large number of variations, types and models.

     Crushing & Screening. Metso Minerals’ Crushing and Screening business line offers equipment and solutions used in 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 recycling plants that are mostly focused on retreating demolition and building debris, as well as old concrete and other pavement materials. Within the aggregates industry, quarries and contract crushing are among its key customer groups.

     Minerals Processing. The Minerals Processing business line offers production processes for the mining industry and industrial minerals 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 & Conveying. Products in the Wear Protection and Conveying business line include grinding mill linings, screening media and other wear, impact, dust and noise protection products as well as conveyer belts and components.

     Recycling. The Recycling business line covers equipment and solutions needed for the recycling, crushing and sorting mainly of metals, such as metal shredders, shears, scrap shears and scrap baling presses.

Markets and Customers

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

     Customers include quarries, contract crushers, civil engineering companies and the mining and cement industries. Recycle crushing represents a new and growing sector due to the worldwide increase of legislation regulating the disposal of construction debris. The price of rock crushing plants typically ranges from €1 million to €5 million, although it may be as high as €15 million. The price of individual rock crushers ranges from €15,000 to €1 million. The price of a typical complete minerals processing plant delivery to mining industry ranges from €30 million to €100 million.

Marketing

     In order to service its local markets and customers, Metso Minerals’ marketing is subdivided into six market areas: Europe, Southern Africa, North and Central America, South America, Asia-Pacific and China. Metso Minerals has a number of sales companies in Europe, South America, Southern Africa, Asia and Australia. Metso Minerals’ sales network offers the full range of products to the relevant industries. Metso

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Minerals supports its sales operations in North America through its own distribution and a network of local distributors.

Competition

     Competition in Metso Minerals’ industries is fragmented, with few global manufacturers and numerous small, regional and local manufacturers. We believe that our competitive advantages include our global operations network, which allows us to meet the increasingly global needs of our customers, and the wide product range we offer. In crushing and screening, our major competitors are Astec, Extec, Komatsu, Sandvik and Terex. In mining and minerals processing, our major competitors include Baker Process, Dorr-Oliver, Heyl&Patterson, FFE, Krupp-Polysius, Larox, Mann-Takraf and Outokumpu, depending on the product line and particular industry segment. In wear protection products and conveyor belts, our major competitors include Bridgestone, Goodyear, Rubber Engineering, Steinhaus/Isenmann, TipTor and Tyler/Polydeck. In recycling, our major competitors include Henschel and Newell-Riverside.

Recent Developments

     On December 31, 2004, the Drilling business line, which operated under the Reedrill name, was divested and transferred to Terex Corporation from the United States. The business had only limited strategic connections with other businesses of Metso Minerals.

     On June 30, 2004, we divested the Compaction & Paving business line to Altor, a Nordic private equity investor. Our construction and paving equipment business operated as an independent business under the Dynapac name and had relatively limited synergies with the other businesses within Metso Minerals.

     In 2003, we announced several restructuring initiatives as part of our corporate wide efficiency improvement program. Some of these actions were completed during the year 2004. These included the closure of our crusher manufacturing site at Milwaukee, Wisconsin, in June 2004, the closure of our screen manufacturing unit in Ketsch, Germany in May 2004, and the closure of our pump manufacturing unit in Colorado Springs, Colorado, in May 2004. The decision to close our Keokuk, Iowa plant has also been made as one of the final initiatives of the program and is scheduled to be completed during the first half of 2005.

     For a description of the recent acquisitions and divestments, see “Item 5. Operating and Financial Review and Prospects—Recent Acquisitions and Divestments.”

Metso Automation

     Following the restructuring of our operations in August 2002, our Metso Automation business area operates through two business lines: Process Automation Systems and Field Systems. See “—Corporate Structure” for a further explanation of our corporate restructuring.

     Metso Automation designs, develops, manufactures and maintains a wide range of technologically advanced 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, such as 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 production plants in Finland, the United States and Mexico, as well as a manufacturing joint venture in China. Metso Automation’s global sales operations are handled through a worldwide distribution network including local distributors and Metso Automation sales companies in 36 countries.

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

Products and Services

     Metso Automation’s Process Automation Systems provides automation and information management application networks and systems and supporting life cycle services. Field Systems provides various industries with flow control solutions, automated and manual control valves and positioners, as well as specialty analyzers.

  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. The most recent innovation is DNAuse, a new metsoDNA user environment for more efficient decision-making. DNAuse integrates information and knowledge as one efficient framework containing process information, history, reports, supporting knowledge and team experiences.

     In addition, key products of the Process Automation Systems business line are Sensodec systems for paper machine runnability and condition monitoring, and the PaperIQ and PaperLab systems for paper quality management as well as IQInsight for paper machine wet end moisture measurement and DNAforesight for web break management system. In 2004, Metso Automation expanded its line of advanced profilers to cover new lines and rebuilds of paper, tissue and board machines.

  Field Systems

     The Field Systems business line develops field systems for various industries, including pulp and paper, power, oil and gas, as well as smart, embedded measurement and control solutions, sensors and analyzers for special applications.

     The product offering of the Field Systems 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 Field Systems business line also develops and manufactures 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.

     Field Systems’ product offering for the pulp and paper industry includes Kajaani analyzers, sensors and sampling devices for sophisticated fiber and stock property measurements, 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.

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Customer Support Services

     Metso Automation has customer service units in 36 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. The Expert center in Tampere, Finland, which was opened in 2001, can monitor online the performance of customers’ pulp and paper mills. 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. In 2002, the second Expert center was opened in Atlanta, Georgia. The third Expert center for power and process industry customers was opened in Tampere, Finland, in 2003.

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:

     The principal customers of the Process Automation Systems business line and the Field Systems business line are in the pulp and paper industry as well as in the power, energy, and oil and gas industries. In the pulp and paper industry the customers of the Metso Automation business area and the Metso Paper business area 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 the Metso Automation business area 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.

Competition

     The process automation industry is highly competitive throughout the world. The principal competitors of Metso Automation are process automation and control companies, many of which are divisions of large multinational companies, such as ABB Automation, Emerson Process Management, Honeywell Automation and Control Solutions, Invensys, Siemens A&D, Voith Paper Automation and Yokogawa. The principal factors affecting competition include device and system reliability and availability, application expertise, technological advancement, ease of configuration and customization, engineering support, price, customer support availability, reputation and references. Management believes that Metso Automation is among the leading suppliers worldwide of special measurement and automation systems for the pulp and paper industry.

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     Competition in the field systems area, especially in valve industry, is characterized by a large number of participants, many of which specialize in limited niche areas. Key competitors include Emerson, Flowserve and Spectris. 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 December 2004, Metso Automation decided to close its valve production factory in Chihuahua, Mexico. The closure is scheduled to take place by the end of August 2005.

     For a description of the recent acquisitions and divestments, see “Item 5. Operating and Financial Review and Prospects—Recent Acquisitions and Divestments.”

Metso Ventures

     The Metso Ventures business area comprises five business lines: Metso Panelboard, Metso Drives, Foundries, Metso Powdermet and Valmet Automotive. Metso Panelboard, formerly part of Metso Paper, was transferred to the Metso Ventures business area in March 2002. The Foundries business line was created in October 2003, when two foundries that were formerly part of Metso Paper and one foundry formerly part of Metso Minerals were transferred to the Metso Ventures business area. See “—Corporate Structure” for a further explanation of our corporate restructuring.

  Metso Panelboard

     Metso Panelboard designs and supplies globally entire production lines and individual equipment for the panelboard industry for manufacturing fiberboard, particleboard and oriented strand board. It also provides start-up, optimization, spare part and maintenance services for these lines. 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.

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

  Competition

     Metso Panelboard’s main competitors in complete production lines are G. Siempelkamp Group and Dieffenbacher-Group. Significant competitors in equipment supplies are Andritz Group and Pallmann.

  Markets and Customers

     Metso Panelboard has its main operations in Finland, Sweden and Germany and sells its products globally. The main markets are Europe and Asia-Pacific, followed by South America and North America. Customers are producers of wood-based panels. Some of the main customers are Finsa Group, Georgia Pacific, Ikea, International Paper, Kronospan Group, Masisa Group, Pfleiderer Group and Sonae Group.

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

  Marketing

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

  Recent Developments

     During the summer of 2004, Metso Panelboard combined the operations of its German units in Willich and Hannover. This restructuring was part of our corporate wide efficiency improvement program initiated in 2003. As a result, the number of employees was reduced by one-third.

  Metso Drives

     Metso Drives designs, manufactures and sells gears and related aftermarket services for the pulp and paper industry, power generation and rock and minerals processing.

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

  Products and Services

     Metso Drives manufactures and sells special and modular gear units for process and power generation industries. Examples include paper machine drives, grinding mill drives and wind turbine gears. Metso Drives also provides comprehensive service for the entire life cycle of gears.

  Markets and Customers

     Metso Drives has operations in Finland, Sweden, Germany, Canada and the United States, with Europe being the principal market area for Metso Drives. Its key customers are in the pulp and paper industry worldwide and the energy production industry in Europe and North America. Major customers also include

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Metso Paper and Metso Minerals. Customers within Metso accounted for approximately one-fifth of Metso Drives’ net sales in 2004.

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

  Marketing

     Mechanical drives for the process and power generation industries, as well as related services, are sold individually through the sales network of Metso Drives. In industrial gears, Metso Drives has a global sales and marketing agreement with the German-based SEW Eurodrive GmbH.

  Competition

     The demand for Metso Drives’ products is dependent on process industry investments and the construction of new wind power plants. Metso Drives’ market position varies according to the industry served. Flender in Germany is the market leader in wind turbine gears. Other key competitors in the industry are Lohmann in Germany and Hansen in Belgium.

  Recent Developments

     On March 4, 2005, we announced the signing of an agreement to sell Metso Drives to funds managed by a Finnish private equity investor, CapMan. The debt-free price for the divestment is estimated to be approximately €98 million. Metso Drives Oy and its foreign subsidiaries are expected to be transferred to the ownership of the CapMan funds after the relevant regulatory approvals.

  Foundries

     Foundries within Metso Ventures consist of three foundries. Two iron foundries, located in Jyväskylä, Finland and Karlstad, Sweden, were previously part of Metso Paper and one steel foundry, located in Tampere, Finland, was 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:

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  Products and Services

     Foundries manufacture and sell both steel and iron industrial castings such as steel castings for rock crushers, paper machine rolls, crusher frames, crusher wear parts, hydro turbines and other engineering industry components. The combined annual capacity of Foundries is approximately 50,000 tons of steel and iron castings.

  Markets and Customers

     Foundries have operations in Finland and Sweden where their principal market is. The key customers are various engineering companies as well as wind and hydro turbine manufacturers. Major customers also include Metso Paper and Metso Minerals. Approximately two-fifths of Foundries’ 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:

  Marketing

     Industrial castings are sold both by our own sales people and 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 Central Europe. Competition also comes from foundries located elsewhere in the world, increasingly in lower-cost countries. As a result, Foundries are increasingly focusing on technologically more demanding castings.

  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. 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:

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  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 Boxster S cars for Dr. Ing.h.c.F.Porsche AG. Valmet Automotive’s current contract with Dr. Ing.h.c.F.Porsche AG is based on a cooperation agreement signed on October 24, 2001, with car production expected to continue until 2011. 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 very 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 in Germany, Magna Steyr in Austria, and Bertone and Pininfarina in 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 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

     Due to the expiration of an agreement with Saab Automobile in April 2003 that provided for a second car model to be produced at the factory, Valmet Automotive does not currently have a sufficient order backlog to employ its entire personnel. Manufacture of new generation of Porsche Boxster cars commenced in the third quarter of 2004. As a result, car-making volumes started to increase in the fourth quarter of 2004. Some of the personnel previously laid off were called back to work. At the end of the year 2004, slightly more than 750 persons were working and approximately 400 continued to be temporarily laid off.

     In November 2001, ThyssenKrupp Automotive AG of Germany acquired a ten percent minority holding in Valmet Automotive with an option to acquire the remaining 90 percent by the end of 2003. In December 2003, ThyssenKrupp Automotive informed us that it would not use its option. In June 2004, ThyssenKrupp Automotive AG further informed that it would not acquire additional shares of Valmet Automotive, and that it would also give up its ten percent minority shareholding in the car manufacturer. On December 15, 2004, we reacquired ThyssenKrupp’s ten percent minority shareholding.

  Metso Powdermet

     Metso Powdermet designs, subcontracts the manufacture of and delivers machine parts based on powder metallurgy and other corresponding manufacturing techniques. It also advises our other businesses in issues related to materials technology. Metso Powdermet’s current main external project involves supplying powder metallurgy parts for the particle accelerator of the European Organization for Nuclear Research, or CERN, located in Switzerland. This project will continue until 2005.

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     Metso Powdermet’s net sales totaled €7 million, €10 million and €11 million in 2002, 2003 and 2004, respectively. As of December 31, 2004, Metso Powdermet had 23 employees.

Discontinued Operations

     On June 30, 2004, after approval of the competition authorities, Metso completed the divestiture of its Compaction & Paving business, Dynapac, to Altor, a Nordic private equity investor. Dynapac was excluded from Metso Minerals results from July 1, 2004 and is reported as a separate entity under Discontinued Operations for the years 2002 and 2003 and in 2004 until its sale.

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

     In November 2002, we signed a memorandum of understanding with Bobst Group SA of Switzerland concerning the divestment of our Converting business. After the required competition authority approvals were received, the sale was completed on January 30, 2004. Based on this development, Converting business was excluded from Metso Paper in 2002 and is reported as a separate entity under Discontinued Operations for the years 2002 and 2003 and in 2004 until its sale. See “—Corporate Structure” for a further discussion of our corporate restructuring.

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

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 U.K. 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.

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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, even if long-term supply agreements are typically only 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 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.

     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 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 our Metso Mineral’s Crushing & Screening business line. 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 8,500 patents and 3,500 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 2004, our employees filed approximately 620 invention disclosures. We sought protection in the form of patents for approximately 220 new 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”), an owner or operator of property may become liable for the costs of remediation or removal 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

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responsible for all or a portion of remedial and investigation costs at offsite disposal locations. There are currently no CERCLA claims pending against us. In addition to the specific matters described below, Metso Minerals Industries, Inc., previously Nordberg Inc., a company belonging to the Metso Minerals business area, has certain environmental concerns typically associated with old industrial facilities, such as potential asbestos in building materials, lead paint, and storing of oil, solvents and paint.

     Metso Minerals Industries Inc. has 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, Metso Minerals Industries Inc. is jointly and severally liable for the clean-up costs of such sites. With respect to Hunt landfill site, Metso Minerals Industries Inc., together with the other named PRPs, has entered into a consent decree with the U.S. government pursuant to which Metso Minerals and such other parties have agreed to cover the clean-up costs of the Hunt site, which had been estimated to be in the range of U.S.$13 million to U.S.$22 million. Metso Minerals Industries Inc. has a 6.3 percent share of the clean-up costs and is also covered by an indemnification agreement with a previous owner of Nordberg. Construction at the Hunt site was completed in 1996 and Metso Minerals has paid a total of approximately U.S.$0.4 million for the clean-up costs. Additional work at the Hunt site may be required at an estimated cost to Metso Minerals Industries, Inc. of approximately U.S.$0.2 million. Efforts are ongoing to contact appropriate regulatory agencies to determine the extent, if any, of additional work required. With respect to the Muskego site, there is an administrative order in place, with a total estimate of U.S.$15 million for design and clean-up costs, of which the share of the previous owner and Metso Minerals is expected to be at the level of the already paid U.S.$125,000. No activities at the Muskego site have occurred since 1996. Management estimates that Metso Minerals’ maximum remaining liability with respect to the Hunt and Muskego sites will not exceed the currently established reserve of U.S.$267,000, and that the reserve for the remediation costs of the two landfill sites will be sufficient for any remaining liability due to above reasons and the fact that no activity on these sites has occurred for several years.

     In furtherance of the planned closure and sale of the Metso Minerals’ Milwaukee, Wisconsin, manufacturing facility, a Phase II Environmental Assessment (“ESA”) was commenced in early 2004 and completed in April of that year. The ESA indicated the existence of soil and groundwater contamination at the facility, the existence of which was communicated to the Wisconsin Department of Natural Resources (“WDNR”) in May 2004. The WDNR notified Metso Minerals Industries Inc. by letter dated May 10, 2004 of its investigation and cleanup responsibilities under applicable law. In October 2004, Metso Minerals Industries Inc. entered into a contract with an environmental consulting and remediation firm to clean up the property for all identified matters in accordance with applicable law for a fixed price. Metso Minerals Industries Inc. also purchased environmental insurance consisting of remediation cost cap insurance in the amount of U.S.$3.3 million and a 10-year, U.S. $10 million in third party pollution legal liability coverage for unknown matters, subject to standard exclusions. The cost of the basic remediation of U.S.$1.1 million has been fully funded. The entire insurance premium of approximately U.S.$425,000 has also been paid by Metso Minerals Industries Inc. On January 31, 2005, this property was sold with the purchaser accepting assignment of the remediation contract, including the potential responsibility for any additional payments thereunder as well as Metso Minerals Industries Inc.’s insured status under the insurance policy. Formal assignment of the insurance policies is expected in the first quarter of this year. Notwithstanding assignment, Metso Minerals Industries Inc. will remain an additional insured party under the third party pollution legal liability portion of the insurance policy and shares the responsibility for up to one-half of the U.S.$250,000 deductible should there be any claims.

     As a result of the acquisition of Svedala, Metso Minerals has two sites with certain environmental concerns. The first is a former manufacturing site in Mt. Olive, New Jersey, which Svedala acquired in 1992. The company acquired by Svedala operated this site from 1955 to 1987. With the closing of manufacturing operations in 1987, the New Jersey Industrial Site Recovery Act triggered an environmental assessment. Both soil and groundwater contamination was identified. The source of most of the contamination was traced back to prior owners and operators of the property, which had been an industrial site since the early 1900s. All known contaminated soil has been removed and the State of New Jersey Department of Environmental Protection (“NJDEP”) has issued a “No Further Action” letter regarding the soil contamination. Metso Minerals has sold the site in Mt. Olive in December 2003. However, liabilities for ground water contamination issues were retained by Metso Minerals. In addition to the prior remediation activities at the site, Metso Minerals conducted a baseline ecological evaluation of the property as required by the NJDEP. The basic purpose of such evaluation was 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 an environmental consultant retained by us. There can be no assurance that the NJDEP agrees with such recommendation. However, taking into account (i) that we have purchased a pollution legal liability insurance policy for the site,

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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 liability arising out of the final evaluation to be material. The estimated reserve required for the remediation measures relating to the ground water contamination and the completion of the baseline evaluation is U.S.$620,000.

     The second site with environmental concerns is a former manufacturing property in Danville, Pennsylvania. Both soil and groundwater are contaminated with oil from the manufacturing process. In conjunction with the state of Pennsylvania, an approved remediation plan has being developed. Some soil remediation has already been completed. Two additional areas of concern are being investigated and possibly remediated. An U.S.$1.2 million reserve is our best estimate of potential remediation costs at this time.

     Metso Minerals, through its Reedrill business that was divested on December 31, 2004, was earlier identified as a PRP in two CERCLA sites. At one of the sites, liability has been assumed by a predecessor company. Regarding the other site, Metso Minerals (Svedala) has responded in March 2000 to a request for information and identified predecessor companies as the potentially responsible parties. To date, no response by the U.S. Environmental Protection Agency (“EPA”) has been received.

     Metso Minerals Industries Inc. may become subject to remedial costs relating to an old industrial facility in Colorado Springs, Colorado, which was used in foundry and test laboratory operation. The site is for sale. Phase I level evaluations do not suggest any environmental conditions of any major concern. However, in mid-2004, an area of stained soil identified in the Phase I was evaluated and determined to be contaminated with hazardous materials and, thereafter, excavated and disposed of in accordance with applicable regulations. Additional Phase II level evaluations are likely depending on the requirements of potential purchasers. A reserve of approximately U.S.$420,000 exists to account for the anticipated Phase II costs and the purchase of environmental insurance.

     Since 1992, Metso Minerals Industries Inc. has been monitoring the groundwater at its Keokuk, Iowa facility after the removal of contaminated soil and pursuant to a plan of natural attenuation of affected groundwater, under the direction of the Iowa Department of Natural Resources (“IDNR”). In November 2004, the IDNR advised that monitoring requirements for most of the compounds being tested for were eliminated. However, IDNR also stated that there had been insufficient attenuation of certain chlorinated compounds and directed Metso Minerals Industries Inc. to prepare a work plan that would enhance the degradation of these compounds. Metso Minerals Industries Inc. accepted a bid for the investigation, delineation and preparation of a work plan. A reserve of U.S.$100,000 was established for estimated costs associated with near-term compliance with IDNR investigation requirements.

     In October 2004, the Kansas Department of Health and Environment (“KDHE”) advised Metso Minerals Industries Inc. that an alleged predecessor, McNally Pittsburg Manufacturing Corporation, had disposed of foundry sand at a location where the soil now contains lead and chromium. The KDHE has invited participation in a voluntary cleanup program, failing which administrative action will be taken. Metso Minerals Industries Inc. has retained local legal counsel to investigate the scope of potential liability, if any, and has reserved U.S. $100,000 for estimated legal fees and investigation costs.

     Metso Panelboard, part of the Metso Ventures 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 site has not been contaminated. Consequently, a third party conducted environmental studies and assessed the site. The completed report of the results was sent to OVAM (Belgian environmental authority) for acceptance during the fall of 2004. The studies indicate that groundwater has been polluted by chlorinated hydrocarbons but that soil has not been polluted. The use of the chemicals in the groundwater ended at site in 1989. The precautionary measures to prevent the spreading of this historical pollution started in January 2005. A cleaning plan can be presented for acceptance to OVAM after the completed report has been accepted. 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 €0.8 million.

     Environmental awareness and environmentally focused technology solutions are an essential part of our competitiveness. We develop solutions that improve eco-efficiency of our customers’ industrial core processes. Our objective is to reduce the environmental impact of products and processes throughout their life cycle.

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     In June 2000, we signed the International Chamber of Commerce (“ICC”) Business Charter for sustainable development, which compliments the environmental management principles of our own environmental policy. We expect that our most significant production sites will comply with ISO14001 environmental management systems in the future. In 2004, the ISO14001 certification was granted to three Metso sites, and the current amount of sites with the certification is 33. By the end of 2004, the ISO14001 systems covered 59 percent of our production activity. When systems currently under development will be certified, 78 percent of our production activity will be covered. In 2004, we were selected for the sixth time as a component in Dow Jones Sustainability Index World (“DJSI”) for the period 2004-2005. We also feature in the European sustainability index, DJSI STOXX. We have also been reselected for FTSE4Good corporate social responsibility index. In addition, we have been included in several smaller sustainability indices.

     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 2004. No major non-compliance situations were observed. Minor clean up, monitoring or investigation activities are being carried out at several sites as indicated above. However, we anticipate that these cases do not result in material financial consequences for us. Management is not aware of any other current environmental matters that could reasonably be expected to have a material adverse effect on our 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, 2004, our principal manufacturing facilities included the following:

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     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. During 2001, we changed a number of the names of our subsidiaries by eliminating the reference to Valmet, Nordberg, Neles and other predecessor entities, except for Valmet Automotive Oy and the subsidiaries that already contain the Metso name. Our significant subsidiaries, as defined in Rule 1-02(w) of Regulation S-X, are as follows, each of which is wholly-owned by Metso Corporation:

Associated Companies

     We currently own 35.8 percent of Allimand S.A., which, as of December 31, 2004, had an equity value of approximately €5 million; 48.3 percent of Valmet-Xian Paper Machinery Co. Ltd., which had an equity value of approximately €7 million; 50.0 percent of Shanghai Neles-Jamesbury Valve Co. Ltd., which had an equity value of approximately €3 million; and 48.2 percent of Avantone Oy, which had an equity value of approximately €1 million.

Item 5.  Operating and Financial Review and Prospects.