Status report:
General economic conditions
While the global economy was negatively impacted by the economic and financial crisis in the first half of 2009, the economic environment stabilized again in the second half of the year in the main economic regions of the world.
In the USA, the economy recovered slightly as from the third quarter of 2009, following a very difficult first half of the year. Industrial production and, in particular, consumer spending, which is the main contributor to the US gross domestic product, developed favorably, mainly due to the government’s incentive program for the purchase of new fuel-efficient vehicles (‘Cash for Clunkers program’). The real estate market also showed the first signs of improvement. Nevertheless, the labor market remained in a difficult situation with over 10% unemployment.
In Europe, economic development was similar, although the economic recovery in the second half of the year was considerably more modest than in the USA in most of the member countries due to subdued consumer spending. Only highly export-oriented countries, such as Germany, showed significant recovery as a result of the economic revival in the emerging countries.
In Asia and in the other large emerging countries, the global economic crisis had significantly less impact than in the USA or Europe. After a decline in the first quarter of 2009, the Chinese economy recovered quickly, mainly supported by the stimulus program to revive the economy launched by the Chinese government, but also by the rising export figures. Similarly, the emerging countries in South America showed a substantial economic recovery in the second half of 2009.
Business development
Changes in consolidated companies/acquisitions
The following companies were not, or only partially, included in the ANDRITZ GROUP’s consolidated financial statements for the 2008 business year:
- Maerz Industrieofenanlagen GmbH: heat treatment plants and melting furnaces.
- 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 following company was included for the first time in the consolidated financial statement of the ANDRITZ GROUP in 2009:
- Rollteck: Design and manufacture of winders for the paper industry.
The initial accounting for the companies/businesses acquired in 2008 and 2009 was based on preliminary figures.
Sales
Sales of the ANDRITZ GROUP amounted to 3,197.5 MEUR in the 2009 business year, thus 11.4% below the record figure for the previous year (2008: 3,609.8 MEUR). While the HYDRO business area achieved a significant increase in sales, sales in the other business areas declined – particularly in PULP & PAPER – compared to the previous year.
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Sales by business area |
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Share of service sales in % of Group and business area sales
| 2009 | 2008 | |
| ANDRITZ-GROUP | 27% | 24% |
| HYDRO | 24% | 24% |
| PULP & PAPER | 41% | 32% |
| METALS | 3% | 3% |
| ENVIRONMENT & PROCESS | 28% | 24% |
| FEED & BIOFUEL | 56% | 50% |
| Service sales (Download size 28 KB) |
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Order intake
Despite the difficult economic conditions, order intake of the Group in 2009, at 3,349.3 MEUR, was only 9.6% below the very high level of the previous year (2008: 3,705.3 MEUR). This is mainly attributable to the very positive development by the HYDRO business area, where order intake rose by 9.8% to a new record level of 1,693.9 MEUR (2008: 1,543.4 MEUR). In contrast, the other business areas – particularly METALS – saw a decline in order intake compared to the previous year.
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Order intake by business area |
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Order intake by region |
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Order backlog
The order backlog of the ANDRITZ GROUP as of December 31, 2009 amounted to 4,434.5 MEUR, an increase of 3.7% compared to the previous year’s high level (December 31, 2008: 4,277.4 MEUR). While the order backlog of the HYDRO business area showed a strong increase, particularly the METALS business area recorded a decline.
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Order backlog by business area |
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Order backlog by region |
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Result
The EBITA of the Group amounted to 164.1 MEUR in the period under review, significantly below the reference figure for the previous year (2008: 233.2 MEUR). Profitability (EBITA margin) amounted to 5.1% (2008: 6.5%).
This decrease is largely due to expenses for capacity adjustments and operational restructuring – particularly in the PULP & PAPER business area – that were necessary due to the overall economic situation and amounted to approximately 29 MEUR, as well as to the decline in sales. Excluding these one-off expenses, the EBITA in 2009 amounts to 193.1 MEUR, equivalent to an EBITA margin of 6.0%. The adjustments and restructuring measures are expected to yield significant cost savings in the future that should have a positive impact on the operating results for 2010 and the years that follow.
In the reporting period, goodwill impairments of 7.9 MEUR (2008: 6.8 MEUR) were recognized, mainly attributable to the PULP & PAPER business area.
The financial result of the ANDRITZ GROUP amounted to 2.6 MEUR, thus well above the previous year’s figure (2008: -8.1 MEUR). This is largely due to price gains of sold money market funds, which had to be value adjusted in 2008 due to the global financial crisis.
The tax rate was 31.2% in the reporting period (2008: 30.1%).
The net income of the Group excluding non-controlling interests amounted to 96.8 MEUR in the reporting period (2008: 139.7 MEUR)
Financial key figures
| Unit | 2009 | 2008 | +/- | |
| Sales | MEUR | 3,197.5 | 3,609.8 | -11.4% |
| Return on sales1) | % | 4.6 | 6.1 | - |
| EBITDA | MEUR | 218.2 | 278.2 | -21.6% |
| Earnings before interest and taxes (EBIT) | MEUR | 147.1 | 218.5 | -32.7% |
| Earnings before taxes (EBT) | MEUR | 149.6 | 210.5 | -28.9% |
| Net income | MEUR | 102.9 | 147.0 | -30.0% |
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Total assets
The total assets of the ANDRITZ GROUP as of December 31, 2009 increased to 3,309.3 MEUR (December 31, 2008: 3,086.3MEUR). The equity ratio as of December 31, 2009 amounted to 20.0% (December 31, 2008: 18.7%).
Liquid funds (cash and cash equivalents plus marketable securities) amounted to 1,082.1 MEUR as of December 31, 2009 (December 31, 2008: 821.8 MEUR). The net liquidity (liquid funds plus fair value of interest rate swaps minus financial liabilities) increased to 677.9 MEUR, thus well above the value at the end of last year (December 31, 2008: 408.9 MEUR).
Key balance sheet ratios
| Unit | 2009 | 2008 | |
| Equity ratio1) | % | 20.0 | 18.7 |
| Return on equity2) | % | 22.5 | 36.5 |
| Return on investment3) | % | 4.4 | 7.1 |
| Net liquidity4) | MEUR | 677.9 | 408.9 |
| Net debt5) | MEUR | -505.3 | -242.9 |
| Net working capital6) | MEUR | -104.3 | 22.7 |
| Capital employed7) | MEUR | 285.9 | 406.8 |
| Gearing8) | % | -76.2 | -42.1 |
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Capex and cash flow
The Group’s investments in tangible and intangible assets amounted to 70.5 MEUR (2008: 69.7 MEUR) in 2009. Capital expenditure mainly focused on workshop modernizations.
The cash flow from operating activities amounted to 345.7 MEUR and was thus significantly higher than the previous year’s value (2008: 255.0 MEUR).
Key cash flow ratios
| Unit | 2009 | 2008 | |
| Cash flow from operating activities | MEUR | 345.7 | 255.0 |
| Capital expenditure1) | MEUR | 70.5 | 69.7 |
| Free cash flow2) | MEUR | 285.6 | 187.5 |
| Free cash flow per share3) (EUR) | EUR | 5.5 | 3.6 |
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Risk management
ANDRITZ has a Group-wide risk management system whose goal is to identify nascent risks and to take countermeasures. This is an important element in the active risk management within the Group.
Main characteristics of the internal controlling and risk management system for the invoicing process
The Executive Board is responsible for implementing a suitable internal controlling and risk management system for the invoicing process and financial reporting. For this purpose, the Executive Board has agreed on binding regulations and guidelines to be applied throughout the Group for the main business risks and in the financial reporting process.
The accounting department, which includes financial accounting, reports directly to the Executive Board. Suitable organizational arrangements ensure that the legal requirements to make complete, correct, timely, and orderly entries in the books and other records are met. The entire process from procurement to payment is subject to strict rules and guidelines that are intended to avoid any risks these processes may entail. These measures and rules include separation of functions, signature authorization matrices, and signatory powers for authorizing payments applying on a collective basis only and restricted to a small number of employees, as well as system-supported checks by the software in use (SAP).
By using a standardized, Group-wide financial reporting system, together with ad hoc reporting on major events, the Executive Board is informed constantly on all relevant issues. The Supervisory Board is informed in Supervisory Board meetings held at least once every quarter on the current business development, including operative planning and the medium-term strategy of the Group, with direct and immediate information being provided to the Supervisory Board in special cases. Internal control and risk management are among the topics dealt with in audit committee meetings.
Internal auditing, set up as a management administrative department, audits individual processes or Group companies according to an audit plan defined for each year.
Financial risks
Monitoring and management of financial risks are integral parts of the accounting and controlling activities within the ANDRITZ GROUP. Continuous controlling and regular reporting are intended to increase the likelihood of identifying major risks at an early stage and allow countermeasures to be taken if necessary. Still, 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 2010 relate above all to the Group’s dependence on the general economic development and on development of the industries it serves, to whether major orders are received and to the risks they entail, and to whether adequate sales proceeds are realized from the high order backlog. The persistent 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 2010 business year. The global economic weakness may lead to further 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 utilization of the Group’s manufacturing capacities.
The global financial and economic crisis may also necessitate complete or partial impairments of single goodwill created in the course of acquisitions if the business development goals cannot be reached. This may influence the earnings development of the ANDRITZ GROUP. In addition, there is always some risk that partial or full provisions will have to be made for some trade accounts receivable.
For the majority of orders, the risk of payment failure by customers is mitigated by means of bank guarantees and export insurance. 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 minimized and controlled by derivative financial instruments, in particular forward exchange contracts and swaps. Net currency exposure of orders in foreign currencies (mainly US dollar, Euro, and Swiss franc) 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 monitoring, control, and assessment of its financial and liquidity position, the ANDRITZ GROUP has continuously improved its treasury guidelines and information system.
The ANDRITZ GROUP’s position in terms of liquidity is very good; the Group has sufficient liquidity reserves and secures 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 largely invested in low-risk financial assets, such as government bonds, government-guaranteed bonds, investment funds to cover pension obligations, or term deposits. However, the financial market crisis and its effects have led to unfavorable price developments for various securities in which the Group has invested (e.g. money market funds, bonds), or made them non-tradeable. This could have an adverse effect on the ANDRITZ GROUP’s financial result or shareholders’ equity due to necessary depreciation or value adjustments. The crisis has also heightened the risk of default by some issuers of securities, as well as by customers.
Non-financial risks
In the manufacturing sector, 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 large contingent of temporary workforce to cope with cyclical fluctuations and peaks in workload. In addition, handling of outsourced business is improved continuously by efficient supplier management, and the pool of suppliers is constantly extended to include new, qualified companies.
The ANDRITZ manufacturing strategy is based on in-house manufacture of core components and purchase of additional manufacturing services. This strategy makes it easier to deal with variations in capacity utilization and ensures optimum use of own manufacturing capacities. In accordance with this make-or-buy strategy, process-relevant key components for ANDRITZ plants and products are mainly manufactured and assembled in the Group’s own workshops. Simple components, on the other hand, are largely purchased from qualified suppliers, who are subjected to regular quality checks and on-time performance monitoring.
In the Human Resources sector, interesting career opportunities, incentive plans, and focused management training programs are essential elements in attracting well-trained and highly qualified employees. High quality standards in the selection process guarantee that the most suitable candidates are recruited.
As part of succession planning, internal candidates for succession to key positions are identified on the basis of standardized performance and potential assessments in order to have candidates available in the short and medium-term to fill any posts becoming vacant.
Variations in capacity utilization can be compensated at Group level by allocating orders to certain sites worldwide and locally by using temporary workforce.
Impact of exchange rate fluctuations
Fluctuations in exchange rates are hedged by forward rate contracts.
Non-financial performance indicators
Manufacturing
Workload declined in 2009 in the business areas affected by the global economic weakness, particularly in the PULP & PAPER business area. Capacity adjustments were made at some manufacturing sites. In contrast, the HYDRO business area saw an increase in workload, and manufacturing capacities were extended in Europe, Asia, and South America as a result of targeted investments. To minimize the risk of sustained underutilization of the Group’s manufacturing capacities, an optimized cyclicality management concept was implemented over the past few years to adapt the Group’s manufacturing units efficiently to deal with changes in general conditions and capacity utilization.
Investments focused on new manufacturing technologies, automation, capacity adjustments at bottlenecks, development of new capacities in the growth markets of India, China, and Brazil, and on systematic extension of the supply chain.
Human Resources
At the end of 2009, the ANDRITZ GROUP had a total of 13,049 employees (a decrease of 4.8% compared with December 31, 2008: 13,707 employees).
Employees by region as of December 31, 2009 (December31, 2008) in %
Human Resources Management is responsible for the coordination and planning of Human Resources activities throughout the Group. Its main targets are to fill vacancies in key positions and to offer attractive career and development opportunities for future managers.
Environmental protection
In 2009, the ANDRITZ location in Graz, Austria once again received the Ökoprofit gold certificate awarded by the City of Graz for outstanding achievements in the field of environmental protection standards and measures. By implementing suitable measures, the amount of commercial waste was reduced by 32 t, which is a drop of almost 20% compared to 2008. In the business park, energy consumption for heating was reduced by 12,000 kWh/a by installing thermostatic valves. Thanks to an information campaign conducted throughout the site and suitable accompanying measures, consumption of compressed air and thus, production costs for compressed air were cut by one fifth compared to the previous year – in spite of rising energy costs. These two measures translate into reduced CO2 emissions of 20 t/a. Improvements of the pipework system led to a reduction of fresh water consumption by over 40%. 670 employees completed training courses on personal health and safety, safety at work, fire prevention, and environmental protection.
Research & development
In 2009, the ANDRITZ GROUP invested approximately 49.2 MEUR in research and development activities (2008: 51.2 MEUR). Including contract-related developments, the total expenditure for new processes and products amounted to approximately 3% of sales. More than 300employees work in the Group’s research centers in Austria, Finland, France, Switzerland, and the USA to develop new processes and equipment and to extend ANDRITZ’s technological leadership.
The business areas’ research and development programs in detail:
HYDRO
A major focus of the business area’s research and development in 2009 was the optimization of hydraulic and electrical equipment for the worldwide highest performing bulb turbines and generators running in large hydropower stations.
In addition, the business area is active in improving the smooth running properties of turbine runners, both at low partial load and at overload. Due to the know-how on the simulation of dynamic processes and practical experience with numerous maximum-capacity generators, substantial progress was made that was also put to the test successfully in practice.
In the large pumps sector, activities focused on project-related, further hydraulic development of existing runners and distributors. This resulted in significant improvements in efficiency and cavitation behavior. A new generation of process pumps was developed in standard centrifugal pumps and the medium-consistency pumps were optimized successfully.
PULP & PAPER
A major focus of the PULP & PAPER business area’s research and development activities in 2009 was on supporting customers to achieve sustainable production with higher capacities as well as higher energy-efficiency. The business area is also developing new technologies to generate green energy and for the production of biofuels which will further reduce/minimize greenhouse gas emissions.
The enhancement of low-effluent and chemical recovery systems to lower environmental impact continued. Technology development in evaporation focused on producing highly efficient, effluent-minimizing evaporation systems. White liquor plant development is further reducing gaseous emissions and cleaning solid wastes to reduce their pollutant portion.
R&D activities in the area of fiberlines continued to concentrate on lowering the investment cost per ton of pulp produced, as well as further increasing the capacities to more than 5,000 t/d.
Electricity generation in pulp mills has become a very important issue for the entire pulping industry due to the rising energy costs. With ANDRITZ High Energy Recovery Boilers (HERB), pulp mills can maximize electricity generation from black liquor. Research and development focused mainly on the further enhancement of electricity output.
The business area’s R&D activities also continued to focus on new products for biomass handling and biomass power generation, especially on combustion and emission behaviors of different biomass feedstocks.
Waste-To-Power systems (WTP) is a newly created unit within ANDRITZ PULP & PAPER to develop technologies to produce energy out of paper mill residuals (mainly sludge and rejects from wastepaper recycling processes). The main benefits of WTP are derived from the reduced volume of waste going to landfills and an increase in the amount of energy generated by the mill.
The business area is also developing technologies for bioethanol production from non-food based raw materials such as wood and agricultural waste.
METALS
Research and development of the METALS business area concentrated on improvement and further development of products. A new roller seal was developed, for instance, for the stainless steel annealing furnace sector. This allows a very economical process management, particularly with the increasing demand nowadays for longer length furnaces.
In addition, the process for regeneration of used mixed acid from stainless steel pickles was optimized. The target is a totally effluent-free pickling system and regeneration process by using an evaporator for the rinsing water.
A further focus concentrates on dezincification of new scrap produced in car manufacturing. Although this scrap is high-grade material, the zinc coating on the surface means that it can only be further processed at the expense of the quality, thus resulting in markdowns in price. In a process developed by ANDRITZ METALS, the scrap comes into contact with a liquid from zinc production. The zinc content in the liquid thus increases, and the enriched liquid is eventually delivered back to the zinc manufacturer. After cleaning and drying, the dezinctified scrap can be used for more sophisticated applications, for example in the foundry industry.
ENVIRONMENT & PROCESS
The research and development activities of the Separation Technologies division focused on value analysis programs for products. These can be used either to achieve a cost reduction of around 20% on customer projects or to enhance unit performance also by around one-fifth – with no increase in costs. A value analysis project, e.g., resulted in the development and patenting of a cylindrical-conical screen bowl centrifuge that enables an increase in throughput of 20-30% compared to conventional cylindrical centrifuges – with virtually unchanged space and energy requirement.
The Thermal Processes division focused its research and development work on biomass, concentrating primarily on increasing the value of biomass fuels and on the drying of biomass. Based on the positive experience gained with installed sawdust dryers, drying technology is now being extended to other biomass fractions, such as bark, rejects, or sludge from the pulp and paper industry. In addition, the through-air process used successfully in sawdust dryers and the alternative process arrangement with circulating air will be developed further; by using circulating air and heat recovery, a savings of up to 20% can be made in the thermal energy required.
Development work on a biological and physical-chemical process for treating exhaust air with the goal to reduce odor and TOC (total organic carbon) emissions from sludge drying plants continued successfully. Pilot tests showed that the non-thermal treatment processes available commercially cannot reliably guarantee the TOC content required by law in some countries. Thus, in borderline cases, the only alternative is to use exhaust air treatment processes with thermal post-combustion.
FEED & BIOFUEL
The FEED & BIOFUEL business area – together with the ENVIRONMENT & PROCESS business area – continued focusing its R&D activities on programs to increase the value of biomass fuels.
Additionally, the business area implemented a new test line for biomass milling and pelletizing in order to conduct research and development work in the area of solid biofuel/renewable energy generation. The line will also be used for customer-specific trials to optimize process characteristics for new raw materials, as well as for operator training purposes.
Outlook
According to recent forecasts by leading economic experts, the economic situation in the relevant regions is expected to stabilize further over the next few months; however, a substantial economic recovery is not expected for 2010.
Based on the prevailing economic environment and the current project activity in the relevant markets, the ANDRITZ GROUP’s expectations for its economic development in the coming quarters have not changed.
In the HYDRO business area, favorable development of project activity is also expected to continue in 2010. There are a number of projects in the realization phase, both in the modernization sector for existing hydropower plants and in construction of new hydropower stations. As a result of the high average age of the installed base, investment activity in Europe and North America will continue to focus on modernization, rehabilitation, and capacity increases for existing plants. Small power stations and pumped storage power stations should also continue to see a high level of 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 rapid economic growth in these regions and the increased utilization of renewable energy sources to cover the steeply rising demand for electric power are the main factors driving this market.
In the PULP & PAPER business area, the moderate project activity is expected to continue in 2010 – at least in the first half of the year. Although a number of projects have been announced for the construction of greenfield pulp mills – most of them based on existing plantations – and for the modernization of existing mills, delays are nevertheless expected for the award of new contracts and execution of recent orders due to the financial and economic crisis. However, only when the global pulping industry achieves a sustainable high utilization of capacities and the tight financial markets return to normal, a significant increase in project activity can be expected.
The METALS business area expects the low investment activity to continue in 2010, both in the carbon steel and stainless steel sectors. Many international steel manufacturers have cut their capital expenditure plans in view of the financial and economic crisis and due to the low capacity utilization resulting from the lack of demand. Nevertheless, selected projects are expected to be awarded in some regions, similar to 2009.
In the ENVIRONMENT&PROCESS business area, project activity for sludge dewatering equipment should develop satisfactorily in 2010. A slight rise in investment activity is also expected in the course of the year for industrial applications – for instance, in the petrochemical, food, and agricultural sectors. Some recovery can also be expected for municipal sludge drying plants during the year.
In the FEED & BIOFUEL business area, the animal feed sector should develop satisfactorily in 2010. In the aquatic feed and pet food areas, project activity is also expected to develop solidly. The market for wood and biomass pelleting equipment should continue its positive development that started in the fourth quarter of 2009.
On the basis of these expectations and the order backlog of more than 4.4 billion Euros at the end of 2009, the ANDRITZ GROUP expects sales in 2010 to remain unchanged or slightly up compared to the full year of 2009. Due to the cost reductions as a result of the restructuring measures initiated in 2009, the net income should be influenced positively. If, however, the global economy weakens again, a negative impact on the future sales and earnings developments of the ANDRITZ GROUP could be expected. As a consequence, there may be a further need for restructuring that will affect the 2010 earnings development accordingly.
Significant events after December 31, 2009
The status of the global economy and the financial markets did not change substantially in the period between the date of the balance sheet and publication of this report.
Shares and shareholder structure
Disclosure according to Article 243a of the Austrian Business Code (Unternehmensgesetzbuch – UGB)
The capital stock of ANDRITZ AG as of December 31, 2009 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, President and 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 up to 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.
Graz, February 25, 2010
The Executive Board of ANDRITZ AG
Wolfgang Leitner Franz Hofmann Karl Hornhofer Humbert Köfler Friedrich Papst
(President &
CEO)