Metso Corporation - Company Profile, Information, Business Description, History, Background Information on Metso Corporation

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Company Perspectives:

Metso is a leader in its core business areas, being particularly strong as a global supplier of equipment and processes for the forest industry. The main growth areas for Metso in the future will be minerals processing, process automation and flow control, and expert services and solutions in the maintenance and development of equipment and processes.

History of Metso Corporation

Metso Corporation, a leading worldwide manufacturer of forestry, pulping, and paper machinery, is the product of the mid-1999 merger of Valmet Corporation and Rauma Corporation. The company operates under the Valmet name in the areas of pulping and paper machinery; Metso's Timberjack unit is the world's leading maker of forest machines, with a global market share approaching 30 percent. Metso's other principal operating units are Neles Automation, a leading supplier of process automation and flow control equipment and systems; Nordberg, the world's leading designer and supplier of crushing, pulverizing, and screening systems for rock and similar materials, with principal customers in the mining, quarrying, and civil engineering sectors; and Valmet Automotive, a manufacturer of specialty cars on a contractual basis and the only automaker based in Finland. Metso derives 49 percent of its sales within Europe, 30 percent from North America, 15 from the Asia-Pacific region, four percent from South America, and the remaining two percent elsewhere. The company has manufacturing operations in 12 countries and offices in a total of 40 countries.

Valmet's Interwar Beginnings

Although Valmet was not incorporated until 1950, its story begins in the interwar period. After World War I, the Finnish government found it feasible to open industrial plants to make arms for the national defense forces. These factories--an airplane factory, a rifle factory, and a factory for manufacturing artillery guns--were run by separate boards of directors, each responsible to the Ministry of Defense. The factories' output was dependent on the national budget, and all orders for production came from the Ministry of Defense within the framework of the budget, decided by the national diet.

When the war between Finland and the Soviet Union ended in September 1944, the Finnish army had to be demobilized and all orders for arms from the arms factories were canceled. The defense factories found themselves in difficulties, as they were ordered to maintain their levels of employment and find new products to manufacture. The first solution to this almost impossible situation came from the articles of armistice which demanded that Finland deliver goods to the Soviet Union as war reparations. Finnish industries were obliged to fulfil this obligation, as were the government-owned arms factories. These factories were consequently transferred from the Ministry of Defense to the Ministry of Trade and Industry. At the same time, two small navy repair yards were transferred. It was apparent that the organization of the factories had to change. A law was passed, giving special status to the corporation about to be formed, as a compromise between a limited company and a state office. The new organization was named the State Metal Works (in Finnish, Valtion Metallitehtaat, shortened to VMT). Its governing bodies consisted of a large supervisory board, composed mainly of politicians, and a board of directors, consisting of executives from within the corporation. Lieutenant General Leonard Grandell, formerly an experienced officer in the General Staff, was temporarily nominated chairman of the board and chief executive officer. The final choice of chief executive officer was Yrjö Vesa, then deputy managing director of one of Finland's major enterprises in the shipbuilding and machinery industry, the Wartsila group. On February 15, 1947, he was appointed chairman and CEO of VMT.

VMT was assigned a large part of the war reparation program, mainly machinery that could not be supplied by existing private industries. The airplane factory had a particularly large engineering staff, as it had been producing airplanes of its own design. This engineering talent was utilized for the design of many of the items demanded by the Soviets. Very few of the items included in the reparations program, however, were suited for the commercial market.

Formation of Valmet: 1950

Experience soon showed that the form under which VMT operated was not flexible enough for commercial transactions. The Finnish government had to present to the parliament a bill requesting that the group be made a joint stock limited company. The articles of association were approved on November 15, 1950. The name Valmet Oy (Valmet Corporation) was given to the new company. The shares were held by the state, represented by the Ministry of Trade and Industry. The share capital was Fmk 1 billion.

Much of the structure of the old defense works was retained in the organization of the new corporation. The army and navy officers who had been in charge of the different factories remained and were nominated managing directors of divisions within the group.

The most important task was to find products suitable for the different divisions and with good sales potential. After experimenting with many different products, Rautpohja Works, the former artillery gun factory in Jyväskylä, Finland, developed skills in papermaking-machinery production and dropped most of its other activities. Those that were maintained included heavy plate work, such as sluice gates for hydroelectric power plants and overhead cranes. Tourula Factory, the former rifle factory, had problems in finding suitable items for its existing machinery. After trying out many kind of consumer goods, which were later abandoned, Tourula finally switched to agricultural-tractor production. Jyskä Factory, the former artillery ignition fuse factory, specialized in making tools, bolts, and nuts on its automatic lathes, previously used for ignition fuses. The manufacturing of kilowatt-hour meters was also introduced. The airplane factories continued on a decreased scale to manufacture training aircraft for the Finnish Air Force, but diversified into the production of diesel locomotives. The straddle carriers demanded by the Soviet Union as war reparation continued to be produced, initially for sale to the Soviet Union, which seemed to have a huge demand for this kind of carrier, used in sawmills. The company's aeronautical expertise turned out to have other applications, and a department was created to supply equipment for industrial and office air conditioning. The instrument department of the airplane factory developed gradually into a versatile production unit for industrial control equipment.

The shipyards had more problems because they were equipped only for small ships, as included in the war reparation program. Gradually, standard ships for the maritime market were included in the program, but the size of the building beds was a limiting factor. The Soviet Union remained by far the biggest market for the yards.

Overcoming Various Problems: 1950s--70s

In 1953 financial problems started to haunt the newly founded company. To find solutions, the advisory board nominated a committee to study the situation, later to be followed by a state committee, nominated by parliament. The recommendations of this committee included a total reconstruction of the company and a change of top management. It was found that the company was under pressure from heavy debts, coming from overvaluing on their books the material inherited from the former defense factories, from selling ships at a loss to the Soviet Union, and from the excessive overhead costs of the organization. As a result of the need to strengthen the financial base of the company, the Bank of Finland and the National Pension Fund joined the company as minority shareholders.

In the spring of 1954, the chief executive, Yrjö Vesa, was released from his position as were the divisional managing directors. All industrial divisions were to report directly to the new CEO. In July of the same year an elderly industrialist, Baron G.W. Wrede, was nominated chief executive officer of Valmet. Even though his time with Valmet was short--he died on February 17, 1958--he and his staff managed to change the company into a commercially viable enterprise. During this time, the main operational divisions were established at the various factories.

After the death of Baron Wrede his deputy managing director, Aarne Härkönen, was nominated CEO. The operation of Valmet continued along the lines already established. The papermaking-machinery division strengthened its position by extending its sales to China, Italy, Poland, and the Soviet Union in addition to the home market. Important features of the early days of the Valmet machines were the differential drives and pick-up presses, the first of their kind in Europe. The first agricultural tractors, developed in the early 1950s, were small machines of only 20 horsepower. In 1956 Valmet launched a standard size 33-horsepower diesel-powered tractor, which was well received in the domestic market. The airplane factory developed into a supplier of diesel locomotives for the Finnish railroads, and also maintained departments for industrial trucks, air conditioning, and instrumentation. The shipyards, mainly supplying the Soviet market, had problems. The crisis of the 1950s had made Valmet careful not to accept orders at loss prices, and although the Soviet orders were large, there were long discussions over pricing. The latter part of the 1950s left Valmet's Helsinki yard without orders, simply because of disagreements on price. Fortunately for Valmet, the sudden boom in shipbuilding, caused by the Suez crisis in 1956, came to its rescue and the yards were kept open.

At the end of the 1950s, Valmet's management decided that the company had to strengthen its main divisions in order to survive when free trade seemed to be the environment of the future. The Valmet paper machines had a good share of many markets, but U.S. manufacturers still seemed to have the upper hand. They sold their machines the world over, even to Finland, while Valmet had not yet managed to export to the United States. To penetrate the North American market, Valmet and Tampella, another Finnish company in the field of papermaking machines, combined their efforts. The contracts for joint deliveries to two big companies, Boise Cascade in Louisiana and Eurocan in British Colombia, were the starting points.

After years of intensive marketing, Valmet became a worldwide market leader in papermaking machines. Many companies in the industry in other countries were assimilated into the Valmet group during this process. Another reason for the success was Valmet's research and development activity within this division. The company managed to invent new and superior products, such as new headbox and former designs. Its superior manufacturing techniques, which had already advanced in the artillery gun factory before Valmet was formed, also contributed to its success. Valmet developed a new material for suction rolls as well as a revolutionary machine for drilling the many holes required for these rolls.

Agricultural tractor production caused problems for Valmet as the market consisted only of the Finnish farming industry, and even there competition from major international competitors was fierce. Valmet had to find export markets or other means of increasing the weight of the division. As Valmet had experienced some success in exporting tractors to Brazil, the company found it advisable to enter that country as a locally based manufacturer to reinforce its position there. Thus Valmet do Brasil was established in 1960. Soon it developed into the second largest tractor factory in Latin America. Valmet was inspired by this success to try its luck in other markets. The most important step came in the 1970s when Valmet reached an agreement with the Swedish company Volvo to combine the efforts of the two companies in manufacturing agricultural tractors, leading eventually to Valmet's becoming the sole manufacturer of tractors in Scandinavia.

The airplane factory in Tampere, which had gradually developed into a diesel locomotive factory, was continuing to change shape. After the electrification of the Finnish state railroads had begun, locomotive manufacturing decreased. The making of equipment for increasing international container traffic became more important. By skillful development of harbor transport and loading equipment, based on the old straddle carriers for sawn timber developed for the Soviet war reparations, Valmet became a world leader in the modern business of large-container moving machinery. Only Japanese companies in the Far East were able to challenge Valmet in this field.

The airplane factory in Tampere never completely ceased its original business of building airplanes, but it changed its mode of operation. In 1958 the decision to equip the Finnish air forces with French jet trainers of the Fouga Magister type led to a long period of employment for Valmet's skilled workmen, building the planes under French license. Most of the airplane production was transferred to the Kuorevesi Factory. The little factory, established during World War II and hidden among dense Finnish forests, far from any city, thrived again. When the Fouga planes were built, the activity continued as Swedish Draken fighters and later English Hawk fighter trainers were assembled. The name of the Kuorevesi Factory was consequently changed to the Valmet Airplane Factory, and the old airplane factory in Tampere was renamed Valmet Tampere Works.

The instrument department of the Tampere Airplane Factory had been developed gradually into a versatile unit manufacturing control equipment for process industries. In 1973, the division received a new factory building in the vicinity of the Tampere Works and was renamed Valmet Instrument Factory, having an independent status equal to other divisions within the Valmet group. The factory had a prominent position as designer and supplier of pneumatic process control equipment. Its main customers were paper and pulp mills and power plants but other types of industry were also served. When electronics replaced the pneumatic control systems, Valmet gradually adapted its systems accordingly.

The shipyards had already been a major cause of financial problems for Valmet. In the early 1960s, Valmet's top management found that new problems were looming around the corner. The orders for the Soviet Union were unprofitable, and Härkönen, then president and chief executive officer, presented to the supervisory board a plan to cut down on Valmet's shipbuilding activities. It was based on the fact that Helsinki was a harbor, providing considerable ship repair work for a yard. Maintaining a yard for repair without new shipbuilding, however, was not feasible. Repair work was not steady, and new work evened out the flow. Therefore it was decided to concentrate all Valmet's shipbuilding activities in Helsinki and devote the Pansio Yard in Turku to other activities. Meanwhile, the Tampere Works had a problem in not having sufficient space available for its air conditioning activities. These were now transferred to Pansio. The former yard was thus divided into two units: a factory, fully specialized in industrial as well as office-building air conditioning, and a heavy steel manufacturing unit, making steel building frames and bridges as well as assisting the shipbuilding division. The structural change was intended to stop losses in Valmet's shipbuilding division and allow possibilities for growth in other, more promising lines of activity.

Aarne Härkönen, president and CEO of Valmet, died on October 19, 1964. Olavi J. Mattila, then secretary of state for trade policy in the Ministry of Foreign Affairs, was nominated CEO. His term was to start at the beginning of 1965. Under his leadership, the structural changes at Valmet continued. The group was to consist of the following independently led divisions, which eventually became separate subsidiary companies: Valmet Paper Machinery; Valmet Tractors; Valmet do Brasil; Valmet Transportation Equipment; Valmet Instruments; Valmet Defence Equipment (later renamed Valmet Aviation Industries after other defense articles, such as assault rifles, were transferred to another company, in which Valmet did not have a majority holding); and Valmet Shipbuilding.

Valmet Shipbuilding was reestablished with the construction of a large modern shipyard unit in Vuosaari, east of Helsinki. The new management did not accept the decision of its predecessors to cut down on shipbuilding and thus reversed the strategy. However, the large new Vuosaari shipyard, completed in 1974, was only temporary. In 1986, under new management, Valmet and the Finnish engineering company Wartsila, the largest shipbuilder in Finland, agreed to form two new companies: Valmet Paper Machinery Inc., in which Wartsila became a minority shareholder by transferring its paper manufacturing units to the new company, and Wartsila Marine Industries Inc., a shipbuilding company into which Valmet came as a minority shareholder, transferring its yards to the new company. Soon after the takeover, Wartsila Marine closed the Vuosaari yard, ending Valmet's direct involvement in shipbuilding, although the company maintained a 30 percent stake in Wartsila Marine.

Meanwhile, in 1968 Valmet entered the field of automobile production through a joint venture with Saab-Scania AB of Sweden, with the partners establishing a car plant in Uusikaupunki, Finland. Production of the Saab 96 began in November 1969.

Restructuring, Flotation: 1980s

Valmet experienced another financial crisis in 1981. Mattila retired as CEO and was replaced by Matti Kankaanpää, formerly managing director of Valmet Paper Machinery and, since 1980, of Valmet, under the leadership of Mattila as chairman. The crisis was solved by changes in structure and dropping of unprofitable divisions. The company concentrated on its main lines of activity, with emphasis on becoming leaders or at least prominent players in each of these fields of activity. This policy led to many acquisitions and in some cases to divestments, such as the manufacturing of rolling stock and of elevators.

To improve the public image of the company and erase the image of state-owned enterprise, Kankaanpää decided to make Valmet a public company by floating it on the Helsinki Stock Exchange. In late 1988 Valmet acquired nearly 10,000 new shareholders, many of them employees of Valmet. This reduced the Finnish State's ownership position from 100 percent to 80 percent.

In 1989 Wartsila Marine went bankrupt, forcing Valmet to take a Fmk 360 million writeoff on its stake in the company. This in turn led to a pretax loss of Fmk 267.8 million (US$67 million) for the year.

Prelude to a Merger: 1990s

A recessionary climate in the early 1990s led to additional losses: Fmk 290 million in 1990 and Fmk 692 million (US$152 million) the following year. Valmet soon returned to profitability, but, in anticipation of additional stock offerings aimed at further reducing the state's stake, the company made a number of restructuring moves. In 1992 Valmet gained full control of the Uusikaupunki auto assembly plant, then in September 1995 changed its name to Valmet Automotive. In April 1994 Valmet sold its Transmec transportation division, with the exclusion of the power transmission unit, and its tractors division to Sisu, a Finnish machinery and engineering firm, for Fmk 600 million (US$107.8 million). The following January the company merged its Valmet-Tampella unit with its paper machinery operations to form the Paper and Board Machinery group. Twelve months later Valmet completed its exit from the field of aviation with the sale to the Finnish State of its stake in a firm involved in aircraft parts manufacturing and aircraft maintenance. Valmet also completed one major acquisition during this period, paying Fmk 725 million (US$144 million) for Atlas Converting Equipment plc, a U.K. maker of converting machinery used in the packaging and paper industries for paper, film, and aluminum foil handling.

Through these moves, Valmet achieved additional operational focus, emerging with five main groups in its organizational chart by the late 1990s. In addition to the Paper and Board Machinery, Converting Equipment, and Power Transmission groups, the two other groups were: Automation, a producer and servicer of process automation systems for the paper and other industries; and Valmet Automotive, which continued to assemble cars, particularly specialty models, on a contractual basis. In the automotive sector, Valmet began production of the Porsche Boxster in September 1997 and of the Saab 9-3 Convertible in early 1998. Meantime, in a reflection of the company's growing international profile, Valmet stock was listed on the New York Stock Exchange for the first time in May 1996. Further stock offerings reduced the Finnish State's stake in Valmet to 58.6 percent in 1994 and to 20 percent in June 1996. For 1998, Valmet's last full year of operation before its merger with Rauma, the company posted net sales of Fmk 11.65 billion (US$2.3 billion) and net income of Fmk 675 million (US$133 million).

Brief History of Rauma

The history of Rauma Corporation began in 1942 with the founding of Rauma-Raahe Oy from a combination of several sawmills and timber companies. In 1945 Rauma-Raahe entered the shipbuilding arena with the purchase of a shipyard in the town of Rauma, located on Finland's west coast, where ships had been built since at least the 16th century.

Rauma-Raahe was involved in the first large merger in Finnish business history, when Repola-Viipuri Oy and Lahti Oy merged with the company in 1951 to form Rauma-Repola. The new firm continued its involvement in the timber processing and shipbuilding industries, but also expanded during the 1950s into the manufacture of pulp industry and metallurgical machinery. In 1970 Rauma-Repola diversified further through the acquisition of Lokomo Oy, a firm founded in 1915 and headquartered in Tampere, Finland. This purchase broadened Rauma-Repola's array of industrial machinery to include crushers, excavators, road graders, cranes, and forest machines.

During the late 1980s and early 1990s, Rauma-Repola made a number of major acquisitions, which both strengthened and broadened the company's existing business groups. These purchases also formed the backbone of the Rauma Corporation that emerged in the 1990s. The acquisition of U.S.-based Jamesbury in 1988 built upon the previously acquired Neles of Finland; the two firms were merged as Neles-Jamesbury, a leading maker of industrial valves and control systems. Also purchased in the late 1980s were Nordberg Inc. of the United States and France's Bergeaud, which combined under the Nordberg name to comprise a global power in the rock crushing equipment for the mining and construction industries. Timberjack Corporation, a leading North American producer of timber harvesting machinery, was added in 1989 in a deal worth about US$120 million. Finally, Rauma-Repola, through a series of transactions ending in 1991, gained full control of Sweden-based Sunds Defibrator Industries AB, one of the leading makers of pulp machinery in the world. By this time, Rauma-Repola had exited from the shipbuilding industry.

On January 1, 1991, Rauma-Repola merged with United Paper Mills Inc. (UPM), a Finnish forest products company, to form Repola Corporation, a private company. A new subsidiary was created, Rauma Corporation, which housed the combined operation's metals and engineering operations and which operated independently of its parent with its own board of directors and executive board. Rauma was comprised of four main business groups: Timberjack, Sunds Defibrator, Nordberg, and Neles-Jamesbury. Rauma-Repola's forest products activities were subsumed within a new UPM unit, which was also set up as a subsidiary of Repola. In June 1995 Repola sold about 25 percent of Rauma through an initial public offering, with Rauma's stock being listed on the Helsinki and New York stock exchanges.

The following May, two of Finland's three biggest forestry groups, Repola and Kymmene Corporation merged to form UPM-Kymmene Corporation, the number one forestry firm in Europe. Wishing to focus on its core forest products operations, UPM-Kymmene reduced its stake in Rauma to 34.5 percent by the end of 1998 through secondary offerings. In 1997, meanwhile, Neles-Jamesbury's name was changed to Neles Controls. Rauma reported net income of Fmk 418 million (US$82 million) on sales of Fmk 10.32 billion (US$2.03 billion) for 1998.

Emergence of Metso, 1999

In November 1998 the boards of directors of Valmet and Rauma proposed a merger of the two companies, in yet another consolidation move, this one creating the world's largest supplier of pulp and paper equipment. The merger was approved by shareholders in January 1999 and by the European Union one month later. It closed on July 1, 1999, with the new company initially called Valmet-Rauma Corporation; it adopted the name Metso Corporation on August 24 of that year--"Metso" being the Finnish word for wood grouse, a bird familiar to Finns and symbolic of the company's ties to nature and the environment. Metso stock was listed on both the Helsinki and New York stock exchanges, and the company's two largest initial shareholders were UPM-Kymmene, with a 14.7 percent stake deriving from its interest in Rauma, and the Finnish State, with an 11.6 percent interest deriving from its stake in Valmet. Pertti Voutilainen, who had been chairman of Rauma, was named the first chairman of Metso; Matti Sundberg, president and CEO of Valmet, became CEO of Metso; and Heikki Hakala, president and CEO of Rauma, began serving as president of the newly merged company.

Metso began its existence with three main business groups. The Fiber and Paper Technology group included the Valmet paper machinery unit, the Valmet fiber processing machinery unit (formerly, Rauma's Sunds Defibrator unit), and a service unit providing paper and pulp machinery service. The Automation and Control Technology group comprised Neles Automation as well as the automation activities of Valmet. The Machinery group included the Timberjack and Nordberg operations of Rauma and the Valmet Automotive contract car manufacturing unit. Through the elimination of overlapping operations in the areas of corporate administration and distribution networks and from the benefits of economies of scale in procurement and component production, Metso hoped to saved approximately Fmk 400 million (US$80 million) per year. The company planned to reduce its personnel by about 2,000 persons, or about nine percent of its workforce, during 1999 and 2000.

Principal Operating Units: Fiber and Paper Technology (Paper Technology; Fiber Technology; Service); Automation and Control Technology; Machinery (Timberjack Forest Machines; Nordberg Crushing Systems; Metso Machine and Component Manufacturing; Valmet Automotive Car Manufacturing).

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Further Reference

Björklund, Nils G., Valmet: Asetehtaiden Muuntuminen Kansainvaliseksi Suuryhtioksi, Jyväskylä, Finland: Gummerus, 1990, 355 p.Brown-Humes, Christopher, "Finnish Units Form Biggest Forestry Group in Europe," Financial Times, September 12, 1995, p. 25.----, "Long Courtship Guarantees Steady Union," Financial Times, September 12, 1995, p. 29.----, "Repola to Float Stake in Engineering Subsidiary," Financial Times, June 2, 1995, p. 16.Burt, Tim, "Orders Tumble at Valmet and Rauma," Financial Times, December 31, 1998, p. 24.----, "Rauma and Valmet Announce Merger," Financial Times, November 18, 1998, p. 33.Causey, James E., "Wisconsin's Beloit Corp., Foe End Their Patent Disputes," Milwaukee Journal Sentinel, March 18, 1998."Further Structural Changes Sought to Improve Profitability," Timber Wood Products, December 12, 1998, p. 10.Kennedy, Carol, "A Green Business Goes Back to Its Roots," Director, December 1991, pp. 54--57."Lars Nasman," World Paper, June 1, 1995, p. 54.Lewis, Jane, "Valmet Aims for Unified Look," World Paper, July 1, 1994, p. 26.Tessieri, Enrique, "Birth of a Healthy Giant: Repola to Be Finland's Largest Quoted Company," Financial Times, November 15, 1990, p. 44."Timberjack: Serving All Segments of the Forest Products Industry," Wood Technology, October 1, 1990, p. 107."Valmet and Rauma to Merge," Pulp & Paper, January 1999, p. 21."Valmet's Orders Grow," World Paper, September 1, 1995, p. 28.Virtanen, Olli, "Finland Picks Valmet for First Partial Privatisation," Financial Times, August 3, 1988, p. 21.

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