Change in consolidated companies/
acquisitions

The following companies were included for the first time in the Group’s financial accounts for 2005: Lenser Filtration (manufacturer of filter elements for solid/liquid separation in filter presses), Universal Dynamics Group (automation services and software company), and Lynson AB (manufacturer of grinding machines for the steel industry).

In November 2005, Andritz announced to acquire a 60% stake in the Paper and Nonwoven Business Areas of Eduard Küsters Maschinenfabrik GmbH & Co. KG, Germany. Forty percent of the joint company will be held by Jagenberg, owner of Küsters since summer 2005. Andritz will assume the industrial leadership of the joint company, which is expected to be included in the Group’s financial accounts during the First Quarter of 2006.

Sales at record level

Sales of the Andritz Group in 2005 reached another record high. As a result of the high Order Backlog as of the end of 2004 and the successful development of the companies acquired during the last few years, Group Sales increased by 17.8% to 1,744.3 MEUR (2004: 1,481.3 MEUR). In particular, the Rolling Mills and Strip Processing Lines and Environment and Process Business Areas increased their Sales significantly compared to 2004.

First-time consolidated companies contributed approximately 19.6 MEUR to the Group’s total Sales in 2005. Organic Sales growth of the Group, therefore, was approximately 16.4%.

Sales by Region 2005 (2004) in %

Record Order Intake and Order Backlog

Order Intake of the Andritz Group showed another strong development in 2005, reaching a new record high. At 1,974.6 MEUR, it surpassed the very high level achieved last year (1,837.0 MEUR) by 7.5%. In particular, the Rolling Mills and Strip Processing Lines and the Environment and Process Business Areas showed a very high growth of Order Intake. Order Intake of the Pulp and Paper Business Area was down compared to the very high level in 2004, which was influenced by the receipt of a very large order for supply of a new pulp mill to Chile.

Order Intake of first-time consolidated companies amounted to approximately 20.0 MEUR in 2005.

The Group’s Order Backlog also reached a new record amount. At 1,695.6 MEUR, it was significantly up compared to the end of 2004 (31.12.2004: 1,439.2 MEUR), providing a solid basis for the business development in the coming Quarters.

Order Intake by Region 2005 (2004) in %

Order Intake of the Andritz Group (MEUR)

Significant increase in Earnings

As a result of Sales growth and continued cost optimizations, Earnings before Interest, Taxes, and Amortization of Goodwill (EBITA) increased to 107.0 MEUR during 2005 (2004: 92.8 MEUR). The EBITA margin, at 6.1%, was slightly lower than in 2004 (6.3%). Due to the application of IFRS 3, which prohibits the amortization of goodwill from 2005, Earnings before Interest and Taxes (EBIT) surged over proportionally to 106.7 MEUR (2004: 76.1 MUER).

The financial result, at 3.4 MEUR, also increased compared to 2004 (0.5 MEUR). This was due to higher income from interest as a consequence of the higher average cash level in 2005. The tax rate in 2005, at 27%, was positively influenced by a one-off tax again resulting from the resolution of the provision for severance payment in connection with the Austrian tax reform.

Net Income amounted to 80.2 MEUR (2004: 54.0 MEUR).

Key financial figures of the Andritz Group

MEUR	2005	2004	Change   in %
Sales	1,744.3	1,481.3	+17.8%
EBITDA	130.9	115.4	+13.4%
EBIT	106.7	76.1	+40.2%
Earnings before Taxes	110.0	76.6	+43.6%
Net Income after Taxes	80.2	54.0	+48.5%

key-figures-andritz-group.htm

Net worth position and capital structure

The balance sheet total as of 31.12.2005 rose by 20.6% compared to the end of 2004, primarily as a result of increased order processing, leading to an increase in net working capital.  

At 383.9 MEUR, net liquidity (cash and cash equivalents minus interest-bearing financial liabilities) as of 31.12.2005 increased significantly compared to the reference date of last year (31.12.2004: 219.6 MEUR). The equity ratio as of 31.12.2005 was 23.6% (31.12.2004: 24.0%).

Key financial ratios

	2005	2004
Equity ratio (in %)	23.6	24.0
Net liquidity (in MEUR)	383.9	219.6
Capital employed 1) (in MEUR)	21.1	131.9
Gearing2)	-116.8	-79.3

financial-ratios-2.htm

Risk management and treasury

As a global company serving a variety of different markets and customers, the Group is subject to certain general and industry-specific risks. These risks mainly relate to the industries the Group serves (e.g., uncertainty of future contracts, volatility of incoming orders, customer concentration, etc.), the Group’s business (e.g. currency exposure, competitive position, legal proceedings, etc), and to major orders (e.g., payment risks, liabilities and performance of projects, cost overruns, etc.). Andritz has a long-established Group-wide management steering committee whose main task is to identify nascent risks early and to take counter-measures. This is an important element in the active risk management within the Group.

The monitoring and management of financial risks are integral parts of Andritz’s Group-wide accounting and controlling activities. Continuous controlling and regular reporting should secure to identify major risks at an early stage and to take counter-measures, if necessary.

For most of the orders, the risk of payment failure by customers is reduced by bank guarantees and export insurances. Risks for deliveries in countries with medium to high political risks typically are also insured.  Interest and exchange rate risks are limited and controlled by using derivative financial instruments, in particular forward exchange contracts and swaps. Net currency exposure of orders in non-Euro currencies, mainly US dollars, British pounds, and Swedish crowns, is hedged by forward contracts. Cash flow risks are minimized by the Group’s cash management system which controls cash in- and outflows of all relevant Andritz affiliates.  It also monitors the Group’s cash pooling activities in order to optimize net financing income.

Capex and Cash flow

Investments in tangible and intangible assets, which amounted to 26.7 MEUR in 2005 (2004: 29.4 MEUR), encompassed the implementation of a new pilot plant for complete systems for recycling wastepaper in Graz, the construction of new buildings for Andritz affiliates in Brazil and China, as well as modernizations of some machines and systems at some of the Group’s production sites.  

Cash flow from operating activities amounted to 237.3 MEUR, up compared to last year (2004: 208.0 MEUR). For further detailed information about the cash flow please see the consolidated cash flow statement of the consolidated financial statement 2005.

Effects from exchange rates

Changes in exchange rates are hedged by forward rate contracts.

Non-financial performance indicators

Manufacturing
Workload in most of the Andritz production sites was very high during 2005. Despite the high volume of orders, all projects were handled and processed within the specified times. Temporary workers and outsourcing were used to cope with peaks in workload. At several production sites, steps to increase competitiveness have been successfully introduced. This encompassed, among other things, improved production processes and material flows, and further automation of manufacturing processes.

Human Resources
Continuous training and further development of working skills of all Andritz employees once again were the main goals of Human Resources activities in 2005. All relevant vacancies within the Andritz Group were well filled with highly qualified candidates. Recruiting activities are ongoing to secure future staff requirements and to support internal growth of the Andritz Group.

Environmenal issues
Efforts on environmental protection and the economical use of natural resources once again played an important role in Andritz’s business activities in 2005. Minimizing the use of media and the impact of production on the environment are the main goals. At all major sites of the Andritz Group, the focus of environmental efforts in 2005 was placed on further optimization of the waste management systems and measures to save even more energy. For example, at the Graz production site, the amount of industrial waste was reduced by another 10%, and electricity consumption was further optimized. Regular training for Andritz’s personnel ensures that all employees are aware of the importance of protecting the environment in their daily work.