STATUS REPORT
GENERAL ECONOMIC CONDITIONS
In 2008, the development of the global economy was adversely affected by the financial market crisis. The US economy suffered from the crisis of the sub-prime market and the resulting collapse of the American mortgage market, leading to sustained weakness of the banking and financial system. As a result, private consumer spending and corporate investments declined substantially in the course of the year. The US economy slipped into the deepest recession since 1982. In order to counter a potential collapse of the financial system and to stimulate the economy, the US Federal Reserve Board (FED) reduced key interest rates in several steps to a range between zero and 0.25%, the lowest level of all times.
In Europe, the economic development was also considerably impacted by the financial turmoil and the slowdown of economic activity in most European countries. Private consumer spending declined substantially. Export-oriented companies in Europe suffered from the economic weakness in the USA and Asia. The European Central Bank (ECB) injected massive amounts of cash into the banking system to secure inter-bank liquidity and reduced key interest rates to 2.5%.
In Asia, economic activities have also slowed down in most countries. The Japanese economy slipped into a recession, and in China, the growth in most industrial sectors has significantly cooled down due to the slowdown in exports and the weakening of domestic consumption.
Source: OECD
BUSINESS DEVELOPMENT
Note: In accordance with IAS 19.93A, actuarial gains and losses for severance and pension provisions can be recognized in equity in the year in which they occur with no effect on income statement. Until now they were included directly in the income statement of the period. The Group has now used the option provided in IAS 19.93A. Prior periods have been adjusted accordingly pursuant to IAS 8. For the reference period 2007, personnel expenses of TEUR 2,764 and deferred taxes thereon of TEUR 1,072 were reclassified from income statement and recognized in equity with no effect on income statement.
Interest expenses resulting from severance and pension provisions are included in the consolidated income statement under the item ‘interest result.’ For 2007, an amount of TEUR 5,595 was reclassified from personnel expenses to interest result.
In addition, an adjustment was made retrospectively in accordance with IAS 8. As of December 31, 2007 the balance sheet item ‘Deferred tax assets’ changed from TEUR 56,982 to TEUR 58,882, ‘Liabilities for deferred taxes’ from TEUR 99,604 to TEUR 93,904, and ‘Provisions – current’ from TEUR 210,592 to TEUR 218,192. These changes have no effect on the income statement for 2007 and 2008.
Changes in consolidated companies/acquisitions
The following companies were not, or only partially, included in the consolidated financial
The following companies were not, or only partially, included in the consolidated financial
statements of the ANDRITZ GROUP in business year 2007:
- Sindus Human Technology: service company for the pulp and paper industry;
- Maerz Industrieofenanlagen GmbH: heat treatment plants and melting furnaces;
- Tigép Kft.: production of heavy machinery, especially for hydropower plants;
- Waplans Mekaniska Verkstads AB (remaining 60% share): service company for the hydropower and the pulp and paper industries;
- Certain assets of GE (General Electric Company) Energy: hydropower technology;
- GEHI (majority interest in the General Electric Hydro Inepar joint venture): hydropower technology;
- Kufferath: service company for the pulp and paper industry.
The first-time consolidation of the companies/business segments acquired in 2007 and 2008 was based on preliminary values.
Note: The following ANDRITZ business areas were renamed as of January 1, 2009:
- Rolling Mills and Strip Processing Lines, new name: METALS
- Hydro Power, new name: HYDRO
Sales
Sales of the ANDRITZ GROUP during 2008 amounted to 3,609.8 MEUR, an increase of 10.0% compared to last year (2007: 3,282.5 MEUR). In particular, the HYDRO and METALS business areas achieved strong increases in sales compared to the previous year. Organic growth of the Group in 2008 amounted to approximately 2.2%.
Sales of the ANDRITZ GROUP during 2008 amounted to 3,609.8 MEUR, an increase of 10.0% compared to last year (2007: 3,282.5 MEUR). In particular, the HYDRO and METALS business areas achieved strong increases in sales compared to the previous year. Organic growth of the Group in 2008 amounted to approximately 2.2%.
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Sales by region 2008 (2007) in % |
Sales by business area |
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Service sales as % of business area sales 2008 (2007)
Sales of the ANDRITZ GROUP 2004-2008
Order intake and order backlog
The order intake of the ANDRITZ GROUP amounted to 3,705.3 MEUR in 2008, thus being only slightly below the record high of last year (2007: 3,749.5 MEUR). The HYDRO, ENVIRONMENT & PROCESS, and FEED & BIOFUEL business areas showed a very favorable development and achieved increases in order intake compared to the previous year. The order intake of the PULP & PAPER business area, on the other hand, declined over the course of the year; the global economic crisis caused a significant decrease in order intake in this business area, especially during the fourth quarter of 2008.
The order intake of the ANDRITZ GROUP amounted to 3,705.3 MEUR in 2008, thus being only slightly below the record high of last year (2007: 3,749.5 MEUR). The HYDRO, ENVIRONMENT & PROCESS, and FEED & BIOFUEL business areas showed a very favorable development and achieved increases in order intake compared to the previous year. The order intake of the PULP & PAPER business area, on the other hand, declined over the course of the year; the global economic crisis caused a significant decrease in order intake in this business area, especially during the fourth quarter of 2008.
The order backlog of the ANDRITZ GROUP amounted to 4,277.4 MEUR as of December 31, 2008, up 11.3% from the previous year (December 31, 2007: 3,843.3 MEUR). While the order backlog of the PULP & PAPER business area dropped, the HYDRO and METALS business areas were able to considerably increase their order backlogs over the previous year.
Order intake by region 2008 (2007) in %
Earnings
The ANDRITZ GROUP’s EBITA in 2008 amounted to 233.2 MEUR. This is an increase of 11.2% compared to 2007 (209.7 MEUR), showing a slightly stronger growth than sales. Thus, the Group’s EBITA margin increased to 6.5% in 2008 (2007: 6.4%). In the face of the global economic and financial crisis, provisions were made for restructuring and capacity adjustments. Without these measures, the EBITA margin for 2008 would have been 6.8%. In particular, the HYDRO and ENVIRONMENT & PROCESS business areas showed a favorable earnings and profitability development.
The ANDRITZ GROUP’s EBITA in 2008 amounted to 233.2 MEUR. This is an increase of 11.2% compared to 2007 (209.7 MEUR), showing a slightly stronger growth than sales. Thus, the Group’s EBITA margin increased to 6.5% in 2008 (2007: 6.4%). In the face of the global economic and financial crisis, provisions were made for restructuring and capacity adjustments. Without these measures, the EBITA margin for 2008 would have been 6.8%. In particular, the HYDRO and ENVIRONMENT & PROCESS business areas showed a favorable earnings and profitability development.
The financial result, at -8.1 MEUR, was lower than last year (2007: -0.1 MEUR). This is mainly due to value adjustments for securities in connection with the global financial crisis. The tax rate was 30.1% in 2008 (2007: 31.4%).
The net income after minorities amounted to 139.7 MEUR (2007: 134.5 MEUR).
Net worth position and capital structure
Total assets as of December 31, 2008 increased to 3,086.3 MEUR (December 31, 2007: 2,509.4 MEUR). This is mainly due to the first-time inclusion of the assets and liabilities of the companies acquired in 2008 and the successful issue of a public 150 MEUR corporate bond, in February 2008. This bond (tenor: seven years, fixed coupon: 5.25% p. a.) replaced the 100 MEUR corporate bond (tenor: six years, fixed coupon: 6.0% p. a.), which was redeemed at the beginning of June 2008.
Total assets as of December 31, 2008 increased to 3,086.3 MEUR (December 31, 2007: 2,509.4 MEUR). This is mainly due to the first-time inclusion of the assets and liabilities of the companies acquired in 2008 and the successful issue of a public 150 MEUR corporate bond, in February 2008. This bond (tenor: seven years, fixed coupon: 5.25% p. a.) replaced the 100 MEUR corporate bond (tenor: six years, fixed coupon: 6.0% p. a.), which was redeemed at the beginning of June 2008.
The equity ratio as of December 31, 2008 was 18.7% (December 31, 2007: 19.2%).
Liquid funds amounted to 821.8 MEUR as of December 31, 2008. The net liquidity increased to 408.9 MEUR and was thus significantly higher than at the end of last year (December 31, 2007: 246.5 MEUR).
Assets
Shareholders’equity and liabilities
Shares and shareholder structure – disclosure according to Article 243a of the
Austrian Business Code (Unternehmensgesetzbuch)
The capital stock of ANDRITZ AG as of December 31, 2008 amounted to 104,000,000 Euros. As a result, the proportionate amount of the capital is 2.00 Euros per no-par value share.
Austrian Business Code (Unternehmensgesetzbuch)
The capital stock of ANDRITZ AG as of December 31, 2008 amounted to 104,000,000 Euros. As a result, the proportionate amount of the capital is 2.00 Euros per no-par value share.
There are no limitations concerning the voting rights or the transfer of shares. Approximately 29% of the shares are held by Certus Beteiligungs-GmbH, whose Managing Director is Wolfgang Leitner, Chief Executive Officer of ANDRITZ AG.
At present, there is no authorized capital. On March 27, 2008, the Annual General Meeting of Shareholders authorized the Executive Board to buy back up to 10% of the total of shares of ANDRITZ AG, between October 1, 2008 and March 31, 2011. At the end of September 2008, the Executive Board of ANDRITZ AG decided to make use of this authorization and buy back shares between October 1, 2008 and March 31, 2011. There are no powers of the members of the Executive Board, especially regarding the possibility to issue or buy back shares, that do not result directly from legal stipulations.
As far as is known to the company, there are no holders of shares with special controlling rights. Employees exercise their voting rights directly. Furthermore, there are no stipulations regarding the appointment and removal of the members of the Executive Board and the Supervisory Board and modifications of the company’s Articles of Association that do not result directly from legal stipulations.
There are no significant agreements in which the company participates that would become effective, change, or end in the event of a change in the control of the company following a takeover bid. According to the terms of the ANDRITZ corporate bond 2006-2013 issued in June 2006 and of the ANDRITZ corporate bond 2008-2015 issued in February 2008, all holders of a bond forming part of the issue shall, in the event of a change of control by a large new shareholder taking place and this change of control leading to a substantial impairment of the issuer’s ability to fulfill its obligations from the bonds forming part of the issue, be entitled to accelerate maturity of their bonds and to require immediate repayment at the nominal value plus any interest accumulated until the day of repayment.
Compensation agreements exist between the company and members of its Executive Board in the event of a change of control. No such compensation agreements exist for the members of the Supervisory Board or any employees.
Key financial figures of the ANDRITZ GROUP
| MEUR | 2008 | 2007* | +/- (in %) |
| Sales | 3,609.8 | 3,282.5 | + 10.0 |
| Return on sales1) (%) | 6.1 | 6.1 | - |
| EBITDA | 278.2 | 250.7 | + 11.0 |
| Earnings before interest and taxes (EBIT) | 218.5 | 200.9 | + 8.8 |
| Earnings before taxes (EBT) | 210.5 | 200.8 | + 4.8 |
| Net income | 147.0 | 137.8 | + 6.7 |
*restated
1) Earnings before interest and taxes/Sales
1) Earnings before interest and taxes/Sales
Key balance sheet ratios
| 2008 | 2007* | |
| Equity ratio2) (%) | 18.7 | 19.2 |
| Return on equity3) (%) | 36.5 | 41.7 |
| Return on investment4) (%) | 7.1 | 8,0 |
| Net liquidity5) (MEUR) | 408.9 | 246.5 |
| Net debt6) (MEUR) | -242.9 | -94.8 |
| Net working capital7) (MEUR) | 22.7 | 99.1 |
| Capital employed8) (MEUR) | 406.8 | 405.6 |
| Gearing9) (%) | -42.1 | -19.7 |
*restated
2) Total shareholders' equity/Total assets; 3) Earnings before taxes/Total shareholders’ equity; 4) Earnings before interest and taxes/Total assets; 5) Cash and cash equivalents plus Marketable securities plus Fair value of interest rate swaps minus Financial liabilities; 6)Interest bearing liabilities including Provisions for severance payments, pensions, and jubilee payments minus Cash and cash equivalents and Marketable securities; 7) Non-current receivables plus Current assets (excluding Cash and cash equivalents as well as Marketable securities) minus Other non-current liabilities and Current liabilities (excluding Financial liabilities and Provisions); 8) Net working capital plus Intangible assets and Property, plant, and equipment; 9) Net debt/Total shareholders’ equity
2) Total shareholders' equity/Total assets; 3) Earnings before taxes/Total shareholders’ equity; 4) Earnings before interest and taxes/Total assets; 5) Cash and cash equivalents plus Marketable securities plus Fair value of interest rate swaps minus Financial liabilities; 6)Interest bearing liabilities including Provisions for severance payments, pensions, and jubilee payments minus Cash and cash equivalents and Marketable securities; 7) Non-current receivables plus Current assets (excluding Cash and cash equivalents as well as Marketable securities) minus Other non-current liabilities and Current liabilities (excluding Financial liabilities and Provisions); 8) Net working capital plus Intangible assets and Property, plant, and equipment; 9) Net debt/Total shareholders’ equity
Risk management
ANDRITZ has a Group-wide risk management system whose goal is to identify nascent risks and to take counter-measures. This is an important element in the active risk management within the Group.
ANDRITZ has a Group-wide risk management system whose goal is to identify nascent risks and to take counter-measures. This is an important element in the active risk management within the Group.
Financial risks
The monitoring and management of financial risks are integral parts of the ANDRITZ GROUP’s accounting and controlling activities. Continuous controlling and regular reporting should raise the likelihood that major risks are identified at an early stage and counter-measures can be taken, if necessary. However, there is no guarantee that the monitoring and risk control systems are sufficiently effective.
The monitoring and management of financial risks are integral parts of the ANDRITZ GROUP’s accounting and controlling activities. Continuous controlling and regular reporting should raise the likelihood that major risks are identified at an early stage and counter-measures can be taken, if necessary. However, there is no guarantee that the monitoring and risk control systems are sufficiently effective.
The essential risks for the business development of the ANDRITZ GROUP in 2009 relate to the Group’s dependence on the general economic development and the development of the industries it serves, the receipt of major orders and adequate sales proceeds from the high order backlog. The persistent global financial crisis and substantial economic slowdown in the main economic regions of the world also constitute a serious risk for the ANDRITZ GROUP’s financial development during the 2009 business year. The global economic weakness might lead to delays in the execution of existing orders and to the postponement or cancellation of projects. Cancellations of existing contracts could adversely affect the ANDRITZ GROUP’s order backlog, which would in turn have a negative impact on the utilization of the Group’s manufacturing capacities.
For the majority of orders, the risk of payment failure by customers is reduced by bank guarantees and export insurances. Risks related to deliveries to countries with medium to high political risks typically are also insured to a large extent. Interest and exchange rate risks are limited and controlled by 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 monitored via monthly cash flow reports.
In order to further reduce the financial risks and to enhance the monitoring, control, and assessment of its financial and liquidity position, the ANDRITZ GROUP has continuously improved the treasury guidelines and information system.
The ANDRITZ GROUP’s position in terms of liquidity is very good; the Group has sufficient liquidity reserves and secure access to liquidity. The Group avoids dependence on one single or only a few banks. To ensure independence, no bank will receive more than a certain defined amount of the business in any important product (cash and cash equivalents, financial liabilities, financial assets, guarantees, and derivatives). Cash is invested in low-risk financial assets, such as government bonds, money market funds, or term deposits. Still, there is no guarantee that the monitoring and risk control systems are sufficiently effective. In addition, the financial market crisis and its effects have heightened the default risk of some issuers of securities as well as the price risk. Financial investments which were liquid until recently have become temporarily not or only partially tradeable.
Non-financial risks
In the manufacturing area, precise planning, high commitment, and flexibility of employees are essential factors to ensure short lead times and on-time production. Internally, ANDRITZ uses flextime contracts and a high portion of temporary workforce to cope with cyclical fluctuations and peaks in workload. In addition, handling of the outsourced business volume is continuously improved by efficient supplier management; the pool of suppliers is permanently enlarged with new, qualified companies.
In the manufacturing area, precise planning, high commitment, and flexibility of employees are essential factors to ensure short lead times and on-time production. Internally, ANDRITZ uses flextime contracts and a high portion of temporary workforce to cope with cyclical fluctuations and peaks in workload. In addition, handling of the outsourced business volume is continuously improved by efficient supplier management; the pool of suppliers is permanently enlarged with new, qualified companies.
ANDRITZ’s manufacturing strategy is based on a combination of in-house manufacture and purchase of manufacturing services to cope with peaks in workload and make optimum use of own manufacturing capacities. In accordance with this make-or-buy strategy, process-relevant key components for plants and products are mostly manufactured and assembled at ANDRITZ’s own workshops. Simple components, on the other hand, are purchased from qualified suppliers, who are subjected to regular quality checks and on-time performance monitoring.
In the Human Resources area, ANDRITZ has used a series of targeted measures to further strengthen its image as an attractive employer during the past few years. Interesting career opportunities, incentive plans, and focused management training programs are essential elements in attracting well-trained, highly qualified employees. High quality standards in the selection procedure, including several job interviews with different experts and managers, ensure that the most suitable candidates are hired.
Group-wide succession planning prevents fluctuations in management positions. Preparing and selecting the most suitable internal candidates ensures continuity in the staffing of global key positions.
The impact of variations in capacity utilization can be mitigated on the Group level by allocating orders to individual sites worldwide and locally by using temporary workforce.
Capex and cash flow
The Group’s investments in tangible and intangible assets amounted to 69.7 MEUR in 2008 (2007: 57.0 MEUR). Capital expenditure mainly focused on building and workshop modernizations.
The Group’s investments in tangible and intangible assets amounted to 69.7 MEUR in 2008 (2007: 57.0 MEUR). Capital expenditure mainly focused on building and workshop modernizations.
Cash flow from operating activities amounted to 255.0 MEUR, considerably up from the previous year (2007: 33.1 MEUR).
Key cash flow ratios
| MEUR | 2008 | 2007 |
| Cash flow from operating activities | 255.0 | 33.1 |
| Capital expenditure1) | 69.7 | 57.0 |
| Free cash flow2) | 187.5 | -19.6 |
| Free cash flow per share3) (EUR) | 3.6 | -0.4 |
1) Additions to Intangible assets and property, plant, and equipment; 2) Cash flow from operating activities minus Capital expenditure plus payments from the sale of Intangible assets and Property, plant, and equipment; 3) Free cash flow/Total number of ANDRITZ shares
Effects from exchange rates
Changes in exchange rates are hedged by forward rate contracts.
Changes in exchange rates are hedged by forward rate contracts.
Non-financial performance indicators
Manufacturing
To be able to process the large order backlog as of December 31, 2007 according to schedule, the purchase of manufacturing services was increased during the first half of 2008 – in addition to full utilization of the Group-wide manufacturing capacities. As a result of the global economic weakness, workload began to decrease in some segments, particularly PULP & PAPER, during the second half of 2008. In the HYDRO business area, on the other hand, the order backlog increased during the same period. To minimize the risk of sustained underutilization of the Group’s manufacturing capacities, an optimized cyclicality management concept was implemented during the past few years. It efficiently adapts the Group’s manufacturing units to changes in general conditions and capacity utilization. The acquisition of GE Energy’s hydropower activities in 2008 has enabled the Group to expand its manufacturing capacities in the HYDRO business area.
To be able to process the large order backlog as of December 31, 2007 according to schedule, the purchase of manufacturing services was increased during the first half of 2008 – in addition to full utilization of the Group-wide manufacturing capacities. As a result of the global economic weakness, workload began to decrease in some segments, particularly PULP & PAPER, during the second half of 2008. In the HYDRO business area, on the other hand, the order backlog increased during the same period. To minimize the risk of sustained underutilization of the Group’s manufacturing capacities, an optimized cyclicality management concept was implemented during the past few years. It efficiently adapts the Group’s manufacturing units to changes in general conditions and capacity utilization. The acquisition of GE Energy’s hydropower activities in 2008 has enabled the Group to expand its manufacturing capacities in the HYDRO business area.
Investments focused on new manufacturing technologies, automation, capacity adjustments at bottlenecks, the development of new capacities in the new markets of India, China, and Brazil, and on the systematic extension of the value-added chain.
Human Resources
The number of ANDRITZ GROUP employees amounted to 13,707 in 2008, a 14.1% increase compared to 2007 (12,016 employees). This growth mainly resulted from acquisitions of companies, recruitment of highly skilled workers and engineers in Europe, and staff increases in emerging markets to strengthen local presence and secure access to low-cost production. The establishment of the Global Human Resources function in 2008 will contribute to meeting the increasing demand for Group-wide coordination and planning of Human Resources activities. It will help to ensure smooth succession for key positions and offer attractive career and development opportunities for future managers.
The number of ANDRITZ GROUP employees amounted to 13,707 in 2008, a 14.1% increase compared to 2007 (12,016 employees). This growth mainly resulted from acquisitions of companies, recruitment of highly skilled workers and engineers in Europe, and staff increases in emerging markets to strengthen local presence and secure access to low-cost production. The establishment of the Global Human Resources function in 2008 will contribute to meeting the increasing demand for Group-wide coordination and planning of Human Resources activities. It will help to ensure smooth succession for key positions and offer attractive career and development opportunities for future managers.
Environmental protection
In 2008, ANDRITZ AG’s site in Graz, Austria once more received the Ökoprofit certificate of the City of Graz for special performance with regard to environmental protection standards and measures. For the first time, ANDRITZ received the award in gold because it had not only delivered excellent results in environmental protection but had also worked out environmental measures together with authorities and the local community. A new traffic concept was developed for the Graz location and implemented in close cooperation with the authorities and the local community. It achieved major improvements in terms of sound and exhaust gas emissions, saving a total of more than 20,000 kilometers and 15 tons of CO2. Energy consumption and CO2 emissions of the workshops have also been reduced substantially. The installation of a new gas annealing furnace – supplied by ANDRITZ Maerz – in the Graz workshop helped to save approximately 45,000 kWh of electricity and over nine tons of CO2 in the first six months of operation. This corresponds to a reduction in energy consumption of over 30%. Further major energy savings were achieved by installing a demand-driven compressor control, by reducing the cold-air inflow through the doors and by installing a new lighting system for the halls. Several staff briefings were held, especially for the ‘waste assignees’, with regard to waste management and fire prevention. The amount of waste in 2008 was reduced by about 15% in comparison with the previous year.
In 2008, ANDRITZ AG’s site in Graz, Austria once more received the Ökoprofit certificate of the City of Graz for special performance with regard to environmental protection standards and measures. For the first time, ANDRITZ received the award in gold because it had not only delivered excellent results in environmental protection but had also worked out environmental measures together with authorities and the local community. A new traffic concept was developed for the Graz location and implemented in close cooperation with the authorities and the local community. It achieved major improvements in terms of sound and exhaust gas emissions, saving a total of more than 20,000 kilometers and 15 tons of CO2. Energy consumption and CO2 emissions of the workshops have also been reduced substantially. The installation of a new gas annealing furnace – supplied by ANDRITZ Maerz – in the Graz workshop helped to save approximately 45,000 kWh of electricity and over nine tons of CO2 in the first six months of operation. This corresponds to a reduction in energy consumption of over 30%. Further major energy savings were achieved by installing a demand-driven compressor control, by reducing the cold-air inflow through the doors and by installing a new lighting system for the halls. Several staff briefings were held, especially for the ‘waste assignees’, with regard to waste management and fire prevention. The amount of waste in 2008 was reduced by about 15% in comparison with the previous year.
RESEARCH & DEVELOPMENT
In 2008, the ANDRITZ GROUP invested approximately 51.2 MEUR in research and development activities (2007: 45.4 MEUR). Including the expenditure for contract-related developments, the total R&D expenditure for new processes and products amounted to approximately 3% of sales. More than 300 people work in the Group’s research centers in Austria, Finland, France, Switzerland, and the USA to develop new processes and equipment and to expand ANDRITZ’s technological leadership.
The business areas’ R&D programs in detail:
In the HYDRO business area, hydraulic developments focused, inter alia, on low-pressure Francis turbines. Using Computational Fluid Dynamics (CFD) methods and model tests, a new hydraulic design was developed for the plant in Bemposta (head: 63.3 m, output: 193 MW), Portugal.
In the area of high-pressure Francis turbines, a new hydraulic design was developed for the Karcham Wangtoo project in India (head: 300 m, output: 255 MW). This new design enables complete coating of the blade channels as protection against sand abrasion. Due to the high sand content of the water, uncoated stainless steel runners would be abraded very rapidly. The new coating significantly extends the runner’s useful life.
A focus of the generator development during the year under review was optimization of vertical generators. Generators with a comparatively low capacity are now beginning to be the subject of a parameterized design system, which would allow carrying out the necessary optimizations.
Also with the goal of optimization, a concept for flexible coupling of the plate stacking to the rotor was developed for a specific generator type. This design solution will result in significant cost savings.
Based on a comprehensive value anaysis for turbo generators, a further prototype of the new series was successfully tested in 2008. Extensive real-time recordings of approximately 1,100 measuring points allowed precise calibration of the finite element method and the CFD models applied. The findings of these tests have been practically applied to a further prototype of this new turbo generator series.
Parameterized CFD models were also developed for radial fans, as they had been for axial fans, in the aim to permit comparatively rapid and reliable calculation of the characteristic curves. In-depth CFD analyses for fresh oil feed to bearings have led to efficiency increases. A design for spring-supported bearings for large generators has enlarged the spectrum of potential designs.
An essential focus of the research and development work related to automation for hydropower stations. Following optimizations to 250 SCALA (the leading SCADA system for control rooms and operator stations including the smallest displays), an extensive development project was started in 2008 in the high-end range with the goal of achieving an all-around system and safety solution for groups and cascades of power stations. In addition, a hydro-energetic overall optimization of hydropower cascades is performed on the basis of mathematical models. These automation developments have become necessary because of the rising number of widely spread hydropower parks incorporating a large number of single stations. This is a consequence of the liberalization of the energy market and of mergers of energy generation companies.
The research and development work for large pumps focused on the hydraulic development of existing hydraulic designs for impellers and distributors. This has led to significant improvements in efficiency and cavitation behavior. In addition, a development project for a concrete spiral pump with high specific speed for large flow rates was started and successfully completed. In the area of centrifugal pumps, the focus was on efficiency improvements of the existing product series with the goal of further reducing the energy costs for end users.
The PULP & PAPER business area is focusing its R&D activities on both new greenfield plants and plants that are already in use (brownfield plants). Activities are focused on optimization of energy, raw materials, and effluents; upgrades of existing products to improve their energy efficiency and reliability; and new products which will continue to maximize production while lowering investment and operating costs.
ANDRITZ technologies that support the drive for sustainable production considerably reduce waste of energy, chemicals, water, and fibers. This is also evident in the development of new systems which efficiently process both wood and plantation fibers and systems which maximize energy efficiency. Considerable effort is being employed to effectively utilize biomass as an energy source. Advanced control systems for all pulp and paper mill processes are being developed and tested.
The increasing importance of environmental performance and the push towards full utilization of renewable resources has prompted the Wood Processing Division to focus on the development of wood processing systems for biomass handling and processing.
Technology development in the Fiberline Systems division continues to focus on lowering the investment cost per ton of pulp produced, which is being accomplished through process simplification, increased unit capacities, standardization, and modularization. In terms of scale and capacity, the 5,000 t/d single fiberline is already a reality. To lower the environmental impact, less chemicals are now required for cooking and bleaching, and fresh water consumption has been reduced. Simplified process design and improved equipment efficiencies are also consuming less energy.
The Chemical Systems division is further developing technologies for environmental sustainability and increased capacities of pulp mills. In terms of capacity, a new lime kiln has been commissioned with a capacity of 1,000 t/d. The application of centrifuge technology for dregs dewatering and washing is gaining acceptance, which minimizes the volume of dregs in landfills. A new front-end technology for lime kilns, LimeFlash™, is now in operation to considerably boost the throughput that can be achieved from existing conventional or LMD kilns.
Due to rising energy costs, the Recovery Systems divisions has seen an increase in the demand for advanced biomass-fired power boilers which are suited for bark, forest residues, and short-rotation small trees. The first biomass gasification plant using Carbona technology to produce fuel gas is now in operation in Denmark; ANDRITZ’s affiliate Carbona is a specialist in gasification systems. Applications for lime kiln fuel gas production (to replace oil/natural gas) are ready for the market. Development of pressurized gasifiers for liquid biofuels continues. Other gasifier applications under development include upgrading of the steam parameters in recovery boilers and integrated gasification combined-cycle plants for improved electrical efficiency. High Energy Recovery Boilers (HERB) at pulp mills increase electricity generation from black liquor. As mills continue to close their chemical circulation loops to reduce emissions and generate more electricity, chloride removal is becoming more important. The new leaching-based chloride removal process by ANDRITZ PULP & PAPER offers a lower cost alternative to ash re-crystallization. Technology development in the evaporation business is aimed at producing highly efficient, low (or zero) effluent evaporation systems. These environmentally friendly evaporators and related technologies ensure low energy consumption and minimal raw material losses.
The focus of the Pulp Drying Systems division is on increasing production capacity of drying lines to the target of 600 t/d per meter working width to cover the needs of pulp mills of the future that will produce 1.5 million t/y or more in a single line. This requires new forming and pressing concepts, improved heat transfer within the airborne dryer, and operating speeds of the cutter/layboy in excess of 300 m/min. For the finishing line, the target is to increase the production rate and improve equipment availability.
Developments in the tissue machine segment of the Paper Machine division include the PrimeDry Steel, made of welded steel, which gives higher performance and is operationally safer than a cast iron Yankee. In the air engineering department, the focus is on energy savings. A new step in heat recovery from the exhaust of Yankee hoods (ReEvaporation) saves up to 25% primary steam by re-evaporating condensate in a heat exchanger using exhaust air.
R&D work in the Fiber Preparation Systems division focused on optimizing the new low-consistency pulping systems in wastepaper processing. This is a major step in improving system efficiency and reducing energy consumption.
One focus of the Mechanical Pulping Systems division’s R&D work is the testing of new wood species such as eucalyptus, acacia, birch, maple, and also annual plants such as bagasse, reed, or kenaf for mechanical pulping. This supports sustainable development in countries with different wood species or where wood is a rare resource. Further research is being conducted to reduce the effluent flows from all mechanical pulping systems and in the panelboard industry. The goal is to develop low-effluent mills and chemical recovery systems which reduce effluent pollution to the minimum. Minimizing energy consumption remains the main focus in the panelboard industry. In addition, there are ongoing investigations to produce high-quality fibers from annual plants as an alternative to wood chips and other wood by-products.
The main focus of development work in the Paper Finishing division has been on shoe rolls for pulp, paper, and tissue applications. For the tissue-making industry, a newly developed shoe roll – the smallest and fastest in the market – has been successfully installed and started up. In calendering technology, a value analysis study was completed. Cost reduction and acceleration of deliveries have been reached through modular calender design which achieves the same functionality as conventional units. A new design PrimeFeeder technology has been introduced that stabilizes the threading process and shortens the time it takes for a paper machine to reach full production after a sheet break.
In the automation area, SpectraVision™ optical sensors were introduced to measure fiber properties continuously without sampling. The sensor requires significantly less maintenance and eliminates the need for intense recalibration often required for competitive units. Advanced process control systems to achieve fully automated production lines were introduced for all process areas of pulp and paper mills. These systems are built using the BrainWave® model-predictive controller and the expertise of ANDRITZ technologists encapsulated into the ACE™ (Advanced Control Expert) products. The IDEAS training simulator was augmented using the new Instructor™ software to monitor the operator’s progress as he/she learns the new processes and to provide a certification process for operators.
The research and development activities of the METALS business area concentrated on new coating technologies using electrogalvanic and CVD processes (CVD: Chemical Vapor Deposition). Both processes were successfully demonstrated on a pilot scale.
In the stainless steel strip annealing and pickling area, a new, patented process was implemented for the first time. It uses the excess heat in the exhaust gas from the annealing furnace in catalytic denoxification (DeNOx process) of the mixed-acid pickling plant. This process significantly reduces energy consumption for the DeNOx process and reduces the nitrogen oxide content in the annealing furnace exhaust gas.
The global automotive industry produces over 25 million tons of scrap material when processing galvanized steel. The busines area has developed a process to recover the zinc from the scrap material. The zinc-free scrap is of high value to foundries. This process saves raw materials and reduces the environmental impact.
A high-pressure vacuum strip cleaning system has been developed for continuous strip processing plants with inline rolling mills. It features a very compact, low-priced design compared to conventional systems. Additionally, this system does without chemicals and is thus very environmentally friendly.
The Separation Technologies division of the ENVIRONMENT & PROCESS business area continued the programs to further enhance performance and/or reduce manufacturing costs for centrifuges; numerous new products with an improved cost/benefit ratio were successfully introduced to the market. This has further increased ANDRITZ’s market share even in very competitive markets. Promising results were achieved in large-scale tests to increase the throughput and dry contents achieved on centrifuges. Successful tests have continuously extended the applications for ANDRITZ centrifuges in the food industry. A quick-opening filter press for mining applications was developed and a patent filed; two such plants have been sold to customers in South America and Europe after successful long-time testing.
In the Thermal Process Technologies division, work to develop a reliable and environmentally friendly system to minimize odor and TOC (Total Organic Carbon) compounds in the offgas from sludge drying plants was continued. Selected technologies will be tested on a pilot-scale in early 2009 to obtain practical findings on their efficiency. Development work in biomass drying yielded the first successes soon after it had been started in 2007; the first two orders for the new belt dryer generation for biomass were won during the reporting period. Another development program in the field of biomass focused on increasing the value of biomass fuels through thermal pretreatment (torrefication). This treatment is aimed at increasing the energy density of biomass and making it insensitive to moisture. The pellets derived from torrefication are an ideal auxiliary fuel for power stations with coal dust firing. The Austrian research promotion agency (FFG – Forschungsförderungsgesellschaft) has granted subsidies for this project, which are now being used for research, development, and pilot testing by a consortium of which ANDRITZ is a member. The ANDRITZ Thermal Process Technologies division is focusing on the drying process, and the ANDRITZ FEED & BIOFUEL business area on the grinding and pelleting of the torrefied biomass fraction after the reactor. To meet the demand for ever more energy-efficient drying systems, a drying plant has been developed that energetically links two different ANDRITZ drying systems to achieve extraordinarily low thermal energy consumption. This DoubleDry technology combines a fluidized bed dryer and a belt dryer both of which are fed with sludge and produce dry granulate. The combined system reuses the residual heat from the fluidized bed dryer in belt drying thus making two-fold, and therefore maximum, use of the heat contained in the primary energy applied.
The FEED & BIOFUEL business area developed a new-generation automation concept for its processing lines, which offers – besides process automation – process and raw material ingredients traceability.
A solution for increasing capacity from 6 to 10 t/h for medium-sized extruders, targeting the pet food and aquatic feed segments, was developed and successfully introduced to the market.
The business area is taking part – together with the ENVIRONMENT & PROCESS business area – in the development program aimed at increasing the value of biomass fuels through thermal pretreatment (torrefication).
OUTLOOK
The global financial crisis has resulted in a marked slowdown of the global economy and has impacted all areas and industries of the real economy. On the basis of the latest developments and the economic data published, economic experts predict that the economic crisis will continue far into the year 2009 or even into 2010.
In the HYDRO business area, the good development of project activity is expected to continue in 2009 despite the difficult economic conditions. To counter the effects of the economic weakness, many governments or government-related organisations are implementing investment programs in the fields of infrastructure and energy. Investment activity in Europe and North America will continue to concentrate on modernization, rehabilitation, and capacity increases of existing plants. Due to the relatively high average age of the installed base in these regions, there is large demand for the refurbishment of installed equipment. Small power stations and pumped storage power stations should also continue to see high project activity due to the necessity of securing grid stability.
In South America and Asia, many new hydropower projects are in the development and realization phases. The main reasons are the rapid economic growth in these regions and the increasing use of renewable energy sources to meet the rise in electricity demand and protect the climate.
The reduced project activity in the PULP & PAPER business area is expected to continue in 2009, mainly due to the significant decrease in pulp prices, downsizing of capacities in pulp and paper mills in the USA and Europe, and the effects of the international financial crisis, which impedes financing of some projects. While the number of projects announced for the construction of greenfield pulp mills – most of which are based on existing plantations – and for the modernization of existing mills is solid, delays are expected in the awards of new contracts and the execution of recent orders due to the financial and economic crisis. Thus, the business area’s order intake for 2009 could be lower than in 2008.
Compared to the extraordinarily high level of the past years, the METALS business area expects to see lower investment activity in 2009, both in the carbon steel and the stainless steel sector. A marked decline in investments is expected to occur in China, in particular.
In the ENVIRONMENT & PROCESS business area, the project activity for sewage sludge dewatering equipment should develop satisfactorily despite the difficult economic situation. Solid investment activity is also expected in industrial applications – for instance, in the petrochemical, food, and agricultural areas. In contrast, the project activity for sewage sludge drying equipment for municipal applications is expected to remain at a low level.
In the FEED & BIOFUEL business area, the animal feed sector should continue to develop satisfactorily; good project activity is anticipated in Eastern Europe, Russia, as well as Central and South America. In the aquatic feed and pet food sectors, project activity should also develop solidly. Investments in wood pelleting plants should also remain at a satisfactory level.
Due to the present economic situation and the continued uncertainty regarding the duration of the financial and economic crisis, it is hardly possible to give a reliable forecast of the effects of the crisis on the ANDRITZ GROUP’s business – especially where the development of the order intake is concerned. The HYDRO business area, as well as the ENVIRONMENT & PROCESS and FEED & BIOFUEL business areas, are likely to be less affected by the general economic conditions and should, therefore, be able to help mitigate the negative effects of the probable decline in order intake in the PULP & PAPER and METALS business areas.
Based on these conditions and the expected development of the project activity in the individual business areas, the ANDRITZ GROUP expects its sales in 2009 to decrease by approximately 15% compared to 2008; net income is also expected to decline versus 2008. Should the global economic and financial crisis further deteriorate in 2009 or extend into 2010, it will probably be necessary to make further provisions for restructuring, which would impact the earnings development in 2009.
Significant events after December 31, 2008
The global economic and financial crisis persisted between the balance sheet date and the publication of this report. This negative macroeconomic environment might have a negative impact on the business development of the ANDRITZ GROUP in the future.
The global economic and financial crisis persisted between the balance sheet date and the publication of this report. This negative macroeconomic environment might have a negative impact on the business development of the ANDRITZ GROUP in the future.
Graz, February 26, 2009
The Executive Board of ANDRITZ AG
Wolfgang Leitner 
Franz Hofmann Karl Hornhofer
Humbert Köfler Friedrich Papst
Disclaimer:
Certain statements contained in this report constitute ‘forward-looking statements.’ These statements, which contain the words ‘believe’, ‘intend’, ‘expect’, and words of similar meaning, reflect the Management’s beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. As a result, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to publicly announce the result of any revisions to the forward-looking statements made herein, except where it would be required to do so under applicable law.
Certain statements contained in this report constitute ‘forward-looking statements.’ These statements, which contain the words ‘believe’, ‘intend’, ‘expect’, and words of similar meaning, reflect the Management’s beliefs and expectations and are subject to risks and uncertainties that may cause actual results to differ materially. As a result, readers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to publicly announce the result of any revisions to the forward-looking statements made herein, except where it would be required to do so under applicable law.