LETTER FROM THE MANAGING BOARD
Ladies and Gentlemen, Dear Shareholders, Dear Employees,
All in all, the 2006 business year developed very favorably for the Andritz Group. We increased all relevant financial figures, with Order Intake, Order Backlog, Sales and Net Income reaching record levels. Despite strong competition in all of our relevant markets, all Business Areas maintained or expanded their good market position, and were able to win many important orders. In addition to strong organic growth, we continued our successful strategy of acquiring companies with complementary technologies. We purchased the remaining 40% stake in Küsters, which is a leading supplier of calendering technologies for the pulp, paper, and nonwoven industries, and we acquired Pilão, a successful Brazilian manufacturer of low-consistency refiners, and plates. Through these acquisitions, we are further extending the range of products and services we can offer our pulp and paper customers, thus providing a good basis for future growth.
Acquisition of VA TECH HYDRO
By far the most important event for us in 2006 was the acquisition of VA TECH HYDRO. With VA TECH HYDRO, Andritz now ranks among the world’s top three suppliers for electromechanical equipment and services for hydropower stations. This acquisition ideally complements Andritz’s product portfolio. We have been active in the water turbine business for over 130 years. From 1949 to 1999, we were licensees of Sulzer-Escher Wyss. When Sulzer was acquired by VA Technologie AG in 1999, we successfully continued our water turbine business as an independent, although small, supplier. Now, with the acquisition of VA TECH HYDRO, we are able to extend a familiar field of activity into a truly global business in a growing market, with renewable resources such as hydropower being in much demand.
VA TECH HYDRO employs approximately 3,000 employees at major sites in Austria, Germany, Switzerland, and India. Other affiliates are located in France, Italy, Spain, Norway, Canada, the USA, Mexico, and Brazil. Immediately after the financial closing of the transaction at the end of May 2006 joint teams started several integration projects which will be executed during the next few quarters. The medium-term goal for VA TECH HYDRO is an increase of the EBIT margin to the Group target level of 7%.
We will use our extensive network of manufacturing sites and sales offices to strengthen VA TECH HYDRO’s position in markets with strong growth in electricity consumption and availability of hydropower resources. We also see good opportunities for further expanding the rapidly growing pumps business, both in the pulp and paper industry and other selected industries.
New organizational structure and Managing Board for the Pulp and Paper Business Area
As of January 1, 2007, the Pulp and Paper Business Area was reorganized in order to further increase our efficiency in greenfield and brownfield projects, as well as in large rebuilds. The Business Area is now organized into two segments: Capital Equipment and Service. The goal is to further improve coordination between the different product groups and to offer our customers comprehensive local service. The new organization is an important step to better fulfill the needs of our customers, thereby enhancing our market position.
At the beginning of October 2006, the Supervisory Board of Andritz AG appointed Karl Hornhofer and Humbert Köfler, who have served as Divisional Managers in the Pulp and Paper Business for many years, as new Members of the Managing Board as of January and April 2007, respectively. They follow Bernhard Rebernik, who will retire at the end of March 2007 after 15 years on the Managing Board as he reaches the age of 65, and Markku Hänninen, who became a member of the Supervisory Board of the Finnish subsidiary Andritz Oy as of the beginning of 2007.
Outlook for 2007 and goals
Our successful acquisitions, strong internal growth, and dedicated work of our employees and management teams have resulted in extraordinary growth of the Andritz Group over the past few years. The goal for us now is to increase profitability while continuing to take advantage of an active investment climate in virtually all of our customer segments, and to acquire businesses if they fit into our medium-term strategy. The target is to reach a Group EBIT margin of 7% in 2008. Approaching this challenging goal will likely be the primary task for our Business Areas in 2007 and 2008.
In the coming years, we will strive for continued growth via organic expansion by launching new products and technologies, as well as by complementary acquisitions. In all of our Business Areas, we still see opportunities for the acquisition of businesses for which the Andritz Group can provide a good home and strong base for a successful future. At the same time, we will focus on increasing our Earnings and profitability. Sufficiently high Earnings and a reasonable level of profitability are important conditions for a secure future for the company and our employees.
The Managing Board of Andritz AG would like 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 2007, we will do our utmost to serve our customers well and continue the success of the Company.
The Managing Board
Graz, March 2007
