STATUS REPORT
General economic conditions
During the first quarter of 2008, the global economy continued to be negatively influenced by the subprime market crisis in the USA and the resulting collapse of the home mortgage market. In addition, increasing liquidity problems of many banks and investment houses, especially in the USA, further impacted international money markets. Both private consumer spending and capital expenditure by companies in the USA continued to decline. To encounter a recession, the Federal Reserve Bank (FED) cut key interest rates in three steps from 4.25 to 2.25% during the first quarter of 2008, and injected massive amounts of cash liquidity into the money market to avoid a liquidity crunch.
Contrary to the USA, the economic development in Euroland remained on a relatively solid level in the first quarter of 2008. Despite the first signs of an economic slowdown, the European Central Bank (ECB) kept key interest rates unchanged because of inflation worries resulting from the strong Euro against the U.S. dollar and the high crude oil prices.
In Asia, economic activities remained quite strong, with China and India showing continued good economic growth during the first quarter of 2008.
Source: OECD
Business development
Sales
In the first quarter of 2008, sales of the Andritz Group amounted to 750.9 MEUR, a slight increase of 2.7% compared to the reference quarter of last year (Q1 2007: 730.9 MEUR). Several projects, especially in the Pulp & Paper, Rolling Mills & Strip Processing Lines as well as the Environment & Process business areas, have been in their initial processing stages, thus making only low sales contributions during the reporting period. The Hydro Power business area achieved a significant increase in sales.
Sales by region in % Q1 2008 (Q1 2007)
Sales by business area in % Q1 2008 (Q1 2007)
Earnings
The Group’s earnings before interest and taxes (EBIT) amounted to 42.8 MEUR. This is an increase of 11.5% compared to the first quarter of 2007 (38.4 MEUR), with EBIT showing a stronger growth than sales. As a result, the Group’s EBIT margin increased to 5.7% in the first quarter of 2008 (Q1 2007: 5.3%). In particular, the Pulp & Paper, as well as the Hydro Power business areas showed a favorable development of margins.
Net income excluding minority interests amounted to 30.2 MEUR, exceeding last year’s reference quarter by 6.0% (Q1 2007: 28.5 MEUR).
Order intake and order backlog
Order intake of the Group developed very favorably during the first quarter of 2008. At 1,195.7 MEUR, it surpassed the high level of last year’s reference period (Q1 2007: 1,031.0 MEUR) by 16.0%. Especially the Hydro Power, Rolling Mills & Strip Processing Lines, and Pulp & Paper business areas increased their order intakes considerably compared to the reference period of last year. Organic growth of the order intake in the first quarter of 2008 was 9.3%.
Order backlog as of March 31, 2008 amounted to 4,321.4 MEUR, an increase of 17.9% compared to the value at the reference date of last year (March 31, 2007: 3,664.5 MEUR). Thus, the Andritz Group has a solid visibility with regard to sales for the coming months.
Order intake by region in % Q1 2008 (Q1 2007)
Net worth position and capital structure
The net worth position and capital structure of the Andritz Group as of March 31, 2008 was influenced by the issue of a public 150 MEUR corporate bond, which was successfully placed on February 18, 2008. The bond has a tenor of seven years and is endowed with an annual fixed coupon rate of 5.25%. This bond supersedes the Andritz corporate bond 2002-2008 (total volume 100 MEUR) that will mature in June 2008.
As a result, total assets increased to 2,746.8 MEUR as of March 31, 2008 (December 31, 2007: 2,507.5 MEUR), the equity ratio decreased to 16.3% (December 31, 2007: 19.2%).
Net liquidity (cash and cash equivalents, and marketable securities, minus financial liabilities) amounted to 303.1 MEUR as of March 31, 2008, thus higher compared to the level as of the end of last year (December 31, 2007: 246.5 MEUR).
Acquisition
In March 2008, Andritz acquired 100% of MAERZ Industrieofenanlagen GmbH, Düsseldorf, Germany, from Hochtemperatur GmbH, a company of Deutsche Beteiligungs AG. With annual sales of approximately 50 MEUR and approximately 40 employees, MAERZ (now Andritz MAERZ) is one of the world’s leading companies for furnaces and heat treatment plants. The service and product portfolio comprises engineering, know-how, and process technology for heat treatment plants for the steel industry, as well as melting/refining plants, including planning, design, supply, erection, and commissioning.
Major risks during the remaining months of the financial year and risk management
As a global company serving a variety of different markets and customers, the Group is subject to certain general and industry-specific risks in all of its business areas. The major risks for the business development of the Andritz Group during the remaining months of the financial year 2008 mainly relate to the industries served by the Group and their dependence on the general economic development, to the Group’s business, major orders, and the conversion of the substantial backlog into sales. For detailed information on the major risks for the Andritz Group, see the Andritz annual report 2007.
Andritz has a long-established Group-wide risk management system whose main task is to identify nascent risks early and to take countermeasures. 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 increase the probability that major risks are identified at an early stage and countermeasures are taken, if necessary.
For most of the orders, the risk of payment failure by customers is reduced by bank guarantees and export insurances. Risks related to deliveries in countries with medium to high political risks typically are also insured to a large extent. Interest and exchange rate risks are mitigated and controlled by using derivative financial instruments – in particular, forward exchange contracts and swaps. Net currency exposure of orders in non-Euro currencies – mainly U.S. dollars and British pounds – is frequently hedged by forward rate contracts. Cash flow risks are monitored by monthly cash reports. However, there is no guarantee that the monitoring and risk control systems are sufficiently effective.
Information pursuant to Article 87 (4) of the (Austrian) Stock Exchange Act
During the first quarter of 2008, no major businesses with related persons and companies were concluded.
Effects from exchange rates
Changes in exchange rates are hedged by forward rate contracts.
Outlook for the Andritz Group
Project activity in all relevant markets for the Andritz Group (pulp, hydropower, steel, environmental and feed technologies) remains at a high level; in the pulping area, several large projects are expected to be decided during the second half of 2008. In all business areas, business has developed favorably, and – based on the current economic environment – is expected to continue favorably during the coming quarters.
Based on the figures for the first quarter of 2008, the mix of orders of the existing backlog, and the expected solid development of Andritz’s relevant markets, Andritz confirms its financial guidance for 2008 and expects Group sales to reach approximately 3.5 billion Euros and profitability (EBITA margin) to increase.
Significant events after March 31, 2008
At the beginning of May 2008, Andritz and General Electric Company (GE) reached an agreement for the purchase of certain assets of GE Energy’s Hydro business. As part of the transaction, Andritz will acquire GE Energy’s hydro power technology and certain other assets, including engineering and project management resources, research and development capabilities, and specialized generator component production facilities in Canada.
Declaration pursuant to Article 87 (1) of the (Austrian) Stock Exchange Act
The Executive Board of Andritz AG herewith declares that both the condensed financial statements drawn up in compliance with the applicable accounting standards and the status report for the first quarter of 2008 present fairly, in all material respects, the financial position of the Group as of March 31, 2008, and its financial performance and its cash flows for the financial period January 1, to March 31, 2008.
The Executive Board of Andritz AG
Graz, May 7, 2008
Total assets as of March 31, 2008: 2,746.8
Employees by region in % Q1 2008 (Q1 2007)
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.