Status report:
General economic conditions
The economic data and indicators for the world’s major economies published in the second quarter of 2010 confirmed continuing economic stabilization. However, the considerable national debt of some European countries, the weakness of the Euro, and the potential refinancing problems of several international banks represent substantial uncertainty factors with regard to the further development of the real economy.
In the USA, the economy continued to show stable development during the reporting period, although at a relatively low level. Economic data indicate that the recovery will continue to be weak in the coming months. The labor market in particular remains very tense, and the number of new jobs created was well below expectations during the reporting period. Due to the unchanged difficult situation in the labor market, no essential economic stimulus can be expected from private consumption, which is the largest contributor to the US gross domestic product. There was no change in key interest rates during the second quarter of 2010.
The modest economic recovery also continued in Europe during the reporting period. In most of the EU member states, however, the measures implemented to consolidate/lower budget deficits as well as the continuing difficult financial situation raise some doubts about the economic development in the future. Particularly, industrial investment activity will remain on a low level in view of this economic environment. Some support can be expected here from the weak Euro, which makes European export-oriented industries more competitive internationally.
The economies in Asia and the other large emerging economic regions continued their solid development during the reporting period.
Business development
Sales
In the second quarter of 2010, sales of the ANDRITZ GROUP amounted to 829.9 MEUR, which is an increase of 5.9% compared to last year’s reference period (Q2 2009: 784.0 MEUR). Significant increases in sales were achieved in the HYDRO (from 333.8 MEUR in Q2 2009 to 357.7 MEUR in Q2 2010: +7.2%), PULP & PAPER (from 232.1 MEUR in Q2 2009 to 262.3 MEUR in Q2 2010: +13.0%), ENVIRONMENT & PROCESS (from 81.0 MEUR in Q2 2009 to 88.8 MEUR in Q2 2010: +9.6%), and FEED & BIOFUEL (from 28.5 MEUR in Q2 2009 to 37.0 MEUR in Q2 2010: +29.8%) business areas. Only in the METALS business area sales declined (108.6 MEUR in Q2 2009 versus 84.1 MEUR in Q2 2010).
In the first half of 2010, sales of the Group amounted to 1,562.2 MEUR, thus only slightly below the level of the previous year’s reference period (H1 2009: 1,574.1 MEUR). While sales in the HYDRO, PULP & PAPER, and FEED & BIOFUEL business areas increased compared to last year, they declined in the other business areas.
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Sales by business area |
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Sales by region |
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Share of service sales of Group and business area sales in %
| H1 2010 | H1 2009 | Q2 2010 | Q2 2009 | |
| ANDRITZ GROUP | 29 | 27 | 31 | 28 |
| HYDRO | 24 | 24 | 26 | 25 |
| PULP & PAPER | 42 | 40 | 42 | 40 |
| METALS | 8 | 3 | 13 | 4 |
| ENVIRONMENT & PROCESS | 31 | 28 | 28 | 28 |
| FEED & BIOFUEL | 45 | 57 | 45 | 58 |
| Share of service sales of Group and business area sales in % (Download size 33 KB) |
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Order intake
Order intake of the ANDRITZ GROUP in the second quarter of 2010 amounted to 1,395.3 MEUR – the highest quarterly number ever achieved in the company’s history. The order intake has thus almost doubled compared to the previous year’s reference period (Q2 2009: 731.3 MEUR).
In the HYDRO business area, order intake, at 758.6 MEUR in the second quarter of 2010, rose by 57.9% compared to last year’s reference figure (Q2 2009: 480.3 MEUR). This increase is mainly due to the receipt of some major orders (Ilisu, Turkey; Lower Mattagami, Canada).
Also in the PULP & PAPER business area, order intake developed highly satisfactorily. Order intake amounted to 408.6 MEUR, thus almost tripling compared to the low level of last year’s reference period (Q2 2009: 138.1 MEUR). This significant increase of order intake, albeit compared to the very low level of last year’s reference period, was mainly due to the receipt of some major modernization/refurbishment orders.
The order intake for the METALS business area amounted to 98.9 MEUR, thus increasing substantially compared to the very low figure in the second quarter of 2009 (21.7 MEUR).
A very good development of order intake was also noted in the ENVIRONMENT & PROCESS business area: At 92.7 MEUR in the second quarter of 2010, order intake was 34.9% higher than in the reference period of the previous year (Q2 2009: 68.7 MEUR).
The FEED & BIOFUEL business area recorded an order intake in the amount of 36.5 MEUR, thus showing a significant increase of 62.2% compared to the previous year’s reference figure (Q2 2009: 22.5 MEUR).
In the first half of 2010, order intake of the ANDRITZ GROUP amounted to 2,303.7 MEUR and was thus 34.5% higher than in the previous year’s reference period (H1 2009: 1,712.7 MEUR). While the METALS business area showed a slight decrease of order intake, order intake of all other business areas significantly rose compared to last year’s reference period.
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Order intake by business area |
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Order intake by region |
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Order backlog
Order backlog of the ANDRITZ GROUP as of June 30, 2010 amounted to 5,384.9 MEUR, thus increasing compared to the reference value as of June 30, 2009 (4,426.9 MEUR: +21.6%) and as of December 31, 2009 (4,434.5 MEUR: +21.4%).
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Order backlog by business area as of |
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Order backlog by region as of |
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Earnings
Earnings (EBITA) of the ANDRITZ GROUP amounted to 54.2 MEUR in the second quarter of 2010, thus many times higher compared to the very low level in the previous year’s reference period (Q22009: 12.8 MEUR), which was impacted by restructuring expenses of approximately 24 MEUR. Excluding these restructuring expenses, earnings increased by 46.1%. Profitability (EBITA margin) significantly increased to 6.5% in the second quarter of 2010 (Q2 2009: 1.6%; 4.7% excluding restructuring expenses). All business areas not only achieved a significant improvement of earnings in absolute terms but also in terms of profitability.
In the first half of 2010, EBITA of the Group amounted to 97.9 MEUR (H1 2009: 56.5 MEUR). EBITA margin rose to 6.3% (H1 2009: 3.6%; 5.1% excluding restructuring expenses).
The financial result of the ANDRITZ GROUP in the first half of 2010 amounted to 3.6 MEUR and was thus well above the reference value for the previous year (H1 2009: -2.9 MEUR) which was impacted by depreciation of money market funds in the first quarter of 2009 as a result of the global financial crisis.
Net income of the Group (excluding non-controlling interests) amounted to 67.3 MEUR in the first half of 2010, thus more than doubling compared to the reference figure for the previous year (H1 2009: 32.5 MEUR).
Net worth position and capital structure
Total assets of the Group increased to 3,750.1 MEUR as of June 30, 2010 (December 31, 2009: 3,309.3 MEUR); the equity ratio amounted to 19.6% (December 31, 2009: 20.0%).
Liquid funds (cash and cash equivalents plus marketable securities) amounted to 1,340.0 MEUR as of June 30, 2010 (December 31, 2009: 1,082.1 MEUR). Net liquidity (liquid funds plus fair value of interest rate swaps minus financial liabilities) increased to 932.8 MEUR, thus also substantially higher than at the end of last year (December 31, 2009: 677.9 MEUR). This increase is mainly due to advance payments for some major orders.
In addition to the high net liquidity of more than 900 MEUR, the ANDRITZ GROUP has extensive long-term credit and surety lines for performance of contracts, down payments, guarantees, etc. at its disposal.
- Credit lines: 227 MEUR, thereof 64 MEUR utilized
- Surety lines: 4,176 MEUR, thereof 2,270 MEUR utilized
Assets
Shareholders' equity and liabilities
Employees
As of June 30, 2010, the number of ANDRITZ GROUP employees amounted to 13,457, thus only slightly above the reference value of last year (June 30, 2009: 13,397 employees). The increase compared to the value as of December 31, 2009 (13,049 employees) is mainly due to the acquisition of companies.
Employees by region as of June 30, 2010 (June 30, 2009) in %
Major risks during the remaining months of the financial year and risk management
The ANDRITZ GROUP has a long-established Group-wide risk management system whose goal is to identify nascent risks early and to take countermeasures, if necessary. This is an important element of active risk management within the Group. 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 2010 relate above all to: the Group’s dependence on the general economic development and the development of the industries it serves; whether major orders are received and the risks they entail; and 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, but individual payment failures can have a substantial negative impact on earnings development of the Group. 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, Canadian dollar, and Swiss franc) is hedged by forward contracts. Cash flow risks are monitored via monthly cash flow reports.
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). Nevertheless, if one or more banks were to become insolvent, this would have a considerable negative influence on earnings development and shareholders’ equity of the ANDRITZ GROUP.
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 may lead 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.
For further information on the risks for the ANDRITZ GROUP, see the ANDRITZ annual financial report 2009.
Effects from exchange rates
Changes in exchange rates are hedged by forward rate contracts.
Information pursuant to Article 87 (4) of the (Austrian) Stock Exchange Act
During the first half of 2010, no major business transactions were conducted with related persons and companies.
Significant events after June 30, 2010
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.
Outlook
Leading economic experts expect no major changes in economic environment in the most important regions of the world for the remaining months of 2010. While the economies in the emerging markets, particularly China and South America, should continue their very robust development, economic development in the USA and Europe is expected to remain at a more moderate level. A strong and sustained recovery is not expected in these two economic regions for 2010.
Based on the prevailing economic environment and the current project activity in ANDRITZ’s relevant markets, the expectations of the ANDRITZ GROUP for its economic development in the coming quarters have not changed. Continuing positive market development is expected for the HYDRO business area in the coming months. Also in the PULP & PAPER business area, a stable project activity is expected in the course of the year, particularly for greenfield plants in the emerging markets. The ENVIRONMENT & PROCESS and the FEED & BIOFUEL business areas should also see satisfactory development. In the METALS business area, the generally moderate project activity is expected to continue.
The ANDRITZ GROUP continues to expect sales in 2010 to remain unchanged or slightly up compared to the full year of 2009. Cost savings resulting from the restructuring measures initiated in 2009 should have a positive impact on the net income.
If, however, the global economy weakens again in the coming months, a negative impact can be expected on the order intake, as well as on the future development of sales and earnings of the ANDRITZ GROUP. This may create a need for further restructuring measures that will affect the 2010 earnings development accordingly.
Declaration pursuant to Article 87 (1) of the (Austrian) Stock Exchange Act
We hereby confirm that, to the best of our knowledge, the condensed interim financial statements of the ANDRITZ GROUP drawn up in compliance with the applicable accounting standards provide a true and fair view of the asset, financial, and earnings positions of the ANDRITZ GROUP, and that the status report for the first half of 2010 provides a true and fair view of the asset, financial, and earnings positions of the ANDRITZ GROUP with regard to the important events of the first six months of the financial year and their impact on the condensed interim financial statements of the ANDRITZ GROUP, and with regard to the major risks and uncertainties during the remaining six months of the financial year, and also with regard to the major business transactions subject to disclosure and concluded with related persons and companies.
Graz, August 9, 2010
The Executive Board of ANDRITZ AG
Wolfgang Leitner Franz Hofmann Karl Hornhofer Humbert Köfler Friedrich Papst
(President &
CEO)