2005 was another successful year for the Andritz Group. Sales and Net Income, Order Intake, and Order Backlog reached new record levels, topping the very good numbers achieved in 2004.

Despite unchanged fierce competition, we won a number of major orders, enabling us to further expand our leading position in many areas.

In the Pulp and Paper Business Area, we succeeded in further consolidating our market position, especially because of the very successful installation of the pulp mill at Veracel, Brazil, which started up in May 2005 ahead of schedule and since then has won recognition by international experts and customers. The successful Veracel start-up was one major reason why we received two very important orders for greenfield pulp mills in 2005: for Metsä Botnia we will supply the entire process equipment for a new pulp mill in Uruguay, and for Suzano Bahia Sul we will deliver woodyard and fiberline for the new pulp line to be built at the Mucuri mill, Brazil. Another important milestone for the Pulp and Paper Business Area was the acquisition of the majority stake in the Paper Division of Küsters in November 2005. Küsters' successful dewatering and finishing technology opens up a wide potential for service and rebuilds in the pulp and paper industries. In the area of tissue machines, the first TAD tissue machine with innovative Andritz technology was successfully put into operation. The quality of the tissue produced is excellent.

In the steel sector, we also extended our global market position, especially in China. Major orders were won as well in India and Europe, increasing the Order Intake of the Rolling Mills and Strip Processing Lines Business Area to a record level in 2005.

The Environment and Process Business Area concluded the past business year with a record Order Intake. One of the decisive factors was the very good development of the companies purchased in 2004 (Bird Machine, NETZSCH Filtration, and VA TECH WABAG’s Fluidized Bed Drying Systems). Order Intake, Sales, and Earnings of these companies developed much better than originally expected, thus contributing positively to the Business Area’s excellent performance in 2005.  We have a strong commitment to these newly acquired companies. The long-term goal is to further expand the business activities of these companies, thus giving the former owners the confidence that their companies will continue to thrive and grow as part of Andritz.  

A further strengthening factor was the acquisition of Lenser Filtration, a company specializing in the manufacture of filter elements. This purchase provides Andritz with capabilities to offer its filter press customers complete solutions under one roof. Environment and Process now has an extensive product range and the sufficient size to continue its growth, mainly organically.

In the Feed Technology Business Area, the restructuring measures introduced in 2004 to improve profitability were successfully concluded. As a result, a significant improvement of Earnings and a 10% organic growth in Order Intake were achieved in 2005. Our goal for 2006 is to make an evaluation of further growth potentials in this Business Area. Apart from potential acquisitions, the focus will be placed on further organic growth, with the regional expansion and introduction of new products as main factors. We also see many possibilities in biomass systems, especially wood pellet systems.

In 2005, we also strengthened our competitive position in the automation area.  By acquiring Universal Dynamics Group (UDG), we significantly broadened our product range for the pulp and paper industries.

UDG offers the innovative software product BrainWave^® – a predictive control system to optimize processes during operation – ideally complementing the software tools of IDEAS Simulation, which are used to simulate complete processes before start-up of the mills. The result is a very fast and smooth start-up. Andritz Automation software and services have been successfully used or will be used for many greenfield pulp mills in Brazil, Uruguay, Chile, Japan, Finland, and China. On a medium to long term basis, we plan to also offer these software tools to our customers in the Rolling Mills and Strip Processing Lines and the Environment and Process Business Areas.

From today’s point of view, we expect project activity to remain satisfactory in 2006 for all our relevant industries, with competition, however, to remain very tough. In the Pulp and Paper Business Area, one or two greenfield pulp mills might be decided in the southern hemisphere, as well as some capacity enlargements and modernizations of existing mills. We also expect good project activity in the northern hemisphere, mostly outside of North America. In the steel sector, the capital investments are likely to remain focused on China, although the general level of project activity will decrease in comparison with the very high level achieved in 2005. Also, project activity in India is expected to increase.

For 2006, it is our goal to continue our strategy to acquire companies with complementary products and technologies. We still see a number of opportunities for completing our product offering for each of our Business Areas. Research and Development will also remain an essential focus, as we want to secure and extend our technology expertise and competitive position for each area. The target is to offer products that increase our customers’ profitability and satisfaction, while fulfilling the most stringent environmental standards.

The latter plays a very important role with regard to our declared goal for sustainability, where we are concentrating our activities on the further development of our technologies, with the goal to even better fulfill and understand the developing needs of our customers. This results in essential technological contributions to our customers’ success. Due to standardization of the core processes, Andritz equipment basically fulfills the same environmental requirements no matter where it is delivered. Meeting these requirements is an absolute must, because most of our buyer regions, including the so-called emerging nations, have implemented comprehensive environmental regulations such as mandatory environmental impact studies.

A consequence of Andritz’s global success with customers is the fact that thousands of jobs in the company itself and with its sub-suppliers are secured, and the numer of new jobs is constantly increasing, also in countries with emerging economies. A further effect is the transfer of technology and management experience to the typically ambitious and well-educated workforce in these countries.

The Managing Board of Andritz AG wants to thank all employees for their contributions and performance during the past year. The Board also wishes to thank all Andritz customers, business partners, and shareholders for the confidence placed in us. For 2006, we will do our utmost to continue the success of the Company.

The Managing Board
Graz, March 2006