GLOBAL RESPONSIBILITY. Annual Report 2006

Annual Report 2006 GLOBAL RESPONSIBILITY KEY FIGURES 2002–2006 OF THE ANDRITZ GROUP (IFRS) GLOBAL RESPONSIBILITY Annual Report 2006 Financial Figur...
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Annual Report 2006

GLOBAL RESPONSIBILITY

KEY FIGURES 2002–2006 OF THE ANDRITZ GROUP (IFRS) GLOBAL RESPONSIBILITY Annual Report 2006

Financial Figures in MEUR 2006

2005

2004

2003

2002

Order Intake

2,891

1,975

1,837

1,394

1,300

Order Backlog as of 31.12.

3,397

1,696

1,439

1,054

904

Sales

2,710

1,744

1,481

1,225

1,110

EBITDA1)

194

131

115

84

81

EBITA2)

160

107

93

63

59

Operating Result (EBIT)

160

107

76

49

45

Earnings before Taxes (EBT)

166

110

77

49

46

Net Income

121

80

54

31

28

Cash flow from Operating Activities

143

237

208

5

76

46

27

29

21

23

10,215

5,943

5,314

4,771

4,601

593

308

276

279

293

Capital Expenditure3) Employees as of 31.12. (excluding apprentices) Fixed assets Current assets

1,780

1,083

877

688

617

Equity4)

415

329

277

239

229

Provisions

386

190

160

150

145

Liabilities

1,572

873

717

577

536

Balance sheet total

2,373

1,391

1,153

967

910

EBITDA margin (%)

7.2

7.5

7.8

6.9

7.3

EBITA margin (%)

5.9

6.1

6.3

5.1

5.3

EBIT margin (%)

5.9

6.1

5.1

4.0

4.1

Net Income/Sales (%)

4.5

4.6

3.6

2.5

2.5

ROE (%)5)

29.2

24.3

19.5

13.0

12.2

Equity Ratio (%)

17.5

23.6

24.0

24.7

25.2

EV6)/EBITDA

9.1

6.3

4.4

5.2

2.4

Depreciation/Sales (%)

1.3

1.4

1.5

1.7

2.0

Amortization/Sales (%)

0.0

0.0

1.1

1.2

1.2

Stock Exchange related Figures 2006

2005

2004

2003

2002

Earnings per share (EUR)

9.24

6.13

4.13

2.26

2.04

Dividend per share (EUR)

3.07)

2.0

1.4

1.0

0.9

Payout ratio (%)

32.5

32.6

34.3

44.2

44.1

Equity attributable to shareholders per share (EUR)

31.4

25.0

20.7

18.0

17.2

Market Capitalization as of end of period (MEUR)

2,135.9

1,207.1

729.3

493.4

298.9

Share price at year-end (EUR)

164.30

92.85

56.10

37.95

22.99

Highest closing price (EUR)

164.30

92.85

56.50

37.95

28.00

Lowest closing price (EUR)

92.50

56.59

35.00

21.00

19.40

Notes [1] EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization of goodwill [2] EBITA: Earnings Before Interest, Taxes, and Amortization of goodwill [3] Additions to tangible and intangible assets

[4] Equity: Total shareholders’ equity incl. minority interests [5] ROE (Return On Equity): Net Income/Equity [6] EV (Enterprise Value): Market capitalization based on year-end closing price minus net liquidity [7] Proposal to the Annual General Meeting

Financial Calendar 2007 01.03.2007 Results for 2006 29.03.2007 Annual General Meeting 02.04.2007 Ex-dividend 06.04.2007 Dividend payment

07.05.2007 Q1 2007 03.08.2007 H1 2007 07.11.2007 Q1-Q3 2007

Annual Report 2006

GLOBAL RESPONSIBILITY

KEY FIGURES 2002–2006 OF THE ANDRITZ GROUP (IFRS) GLOBAL RESPONSIBILITY Annual Report 2006

Financial Figures in MEUR 2006

2005

2004

2003

2002

Order Intake

2,891

1,975

1,837

1,394

1,300

Order Backlog as of 31.12.

3,397

1,696

1,439

1,054

904

Sales

2,710

1,744

1,481

1,225

1,110

EBITDA1)

194

131

115

84

81

EBITA2)

160

107

93

63

59

Operating Result (EBIT)

160

107

76

49

45

Earnings before Taxes (EBT)

166

110

77

49

46

Net Income

121

80

54

31

28

Cash flow from Operating Activities

143

237

208

5

76

46

27

29

21

23

10,215

5,943

5,314

4,771

4,601

593

308

276

279

293

Capital Expenditure3) Employees as of 31.12. (excluding apprentices) Fixed assets Current assets

1,780

1,083

877

688

617

Equity4)

415

329

277

239

229

Provisions

386

190

160

150

145

Liabilities

1,572

873

717

577

536

Balance sheet total

2,373

1,391

1,153

967

910

EBITDA margin (%)

7.2

7.5

7.8

6.9

7.3

EBITA margin (%)

5.9

6.1

6.3

5.1

5.3

EBIT margin (%)

5.9

6.1

5.1

4.0

4.1

Net Income/Sales (%)

4.5

4.6

3.6

2.5

2.5

ROE (%)5)

29.2

24.3

19.5

13.0

12.2

Equity Ratio (%)

17.5

23.6

24.0

24.7

25.2

EV6)/EBITDA

9.1

6.3

4.4

5.2

2.4

Depreciation/Sales (%)

1.3

1.4

1.5

1.7

2.0

Amortization/Sales (%)

0.0

0.0

1.1

1.2

1.2

Stock Exchange related Figures 2006

2005

2004

2003

2002

Earnings per share (EUR)

9.24

6.13

4.13

2.26

2.04

Dividend per share (EUR)

3.07)

2.0

1.4

1.0

0.9

Payout ratio (%)

32.5

32.6

34.3

44.2

44.1

Equity attributable to shareholders per share (EUR)

31.4

25.0

20.7

18.0

17.2

Market Capitalization as of end of period (MEUR)

2,135.9

1,207.1

729.3

493.4

298.9

Share price at year-end (EUR)

164.30

92.85

56.10

37.95

22.99

Highest closing price (EUR)

164.30

92.85

56.50

37.95

28.00

Lowest closing price (EUR)

92.50

56.59

35.00

21.00

19.40

Notes [1] EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization of goodwill [2] EBITA: Earnings Before Interest, Taxes, and Amortization of goodwill [3] Additions to tangible and intangible assets

[4] Equity: Total shareholders’ equity incl. minority interests [5] ROE (Return On Equity): Net Income/Equity [6] EV (Enterprise Value): Market capitalization based on year-end closing price minus net liquidity [7] Proposal to the Annual General Meeting

Financial Calendar 2007 01.03.2007 Results for 2006 29.03.2007 Annual General Meeting 02.04.2007 Ex-dividend 06.04.2007 Dividend payment

07.05.2007 Q1 2007 03.08.2007 H1 2007 07.11.2007 Q1-Q3 2007

Europe

Americas Brazil

Austria

Graz (Headquarters of the Andritz Group) Linz Vienna Weiz

“Andritz’s solutions for heat recovery and energy generation are very compelling.”

Czech Republic Hradec Králové Praha Esbjerg

Helsinki Hollola Kotka Savonlinna Tampere Varkaus

France

Châteauroux Châtellerault Fontaine Gennevilliers Haguenau Saint Martin Le Beau Vélizy-Villacoublay

Canada

Kenneth Eriksson, President and Group Executive Officer, SCA Forest Products, Sweden Customer interview and detailed project description on pages 6–9

Denmark Finland

Barueri Curitiba Pomerode Porto Alegre São Paulo Serra Vinhedo

“Andritz VA TECH HYDRO met all the challenging targets we set for them.”

High Energy Recovery Boiler for SCA Östrand, Sweden

Chile

“we use the most advanceD equipment and treatment process in the world.”

Modernization of the Küblis hydropower station for Rätia Energie, Switzerland

Bretten-Gölshausen Cologne Hemer Kirchheim/Teck Krefeld Mettmann Ravensburg Regensburg Selb Senden

Gu Hong, General Manager, Qingyuan Hua Yan Water Industry, China Customer interview and detailed project description on pages 24–27

State-of-the-art processing lines for multi-functional feed factory of Koka, Croatia

Five large-capacity filter presses for the Suzhou Industrial Park

Great Britain Belper Hull Staffordshire

“Andritz impressively demonstrated the ability to deliver a complete project from design to start-up.”

Italy Schio

Netherlands Den Helder Geldrop Rotterdam

Annealing and pickling lines for stainless steel supplied to LISCO, China

Dragutin Drk, Chairman and CEO of Vindija Group, Croatia Customer interview and detailed project description on pages 28–31

Norway

Colombia

Bogotá

Mexico

Mexico City Morelia

USA

Alpharetta Arlington Bellingham Canonsburg Charlotte Decatur Glens Falls Houston Janesville Lakeland Lakewood Lenexa Muncy Pell City Roswell San Leandro Scott Depot Spartanburg Springfield Tualatin Walpole

Venezuela

Caracas Estado Carabobo

Jevnaker

Asia

Poland Warsaw

China

Romania Bucharest Cisnadie

“Andritz’s strength is that they think from the customer’s side to offer the best service.”

Russia

Moscow St. Petersburg

Slovakia

Li Pi Hsien, Chairman, Lianzhong Stainless Steel Corporation, China Customer interview and detailed project description on pages 18–23

Humenné Spišská Nová Ves

Foshan Beijing Shanghai

India

Bangalore Chennai Faridabad Mandideep New Delhi

Indonesia

Jakarta

Spain

Iran

Barcelona Madrid

Tehran

Sweden

Japan

Hedemora Karlstad Örnsköldsvik Stockholm Växjö Vallentuna

Tokyo

Malaysia

Selangor

Philippines

Laguna

Switzerland

Singapore

Bülach Kriens Vevey Wohlen Zurich

Singapore

Turkey

Kavaklidere

Ukraine Kiev

ImprINT

Concepcion Santiago

Karl Heiz, President of Rätia Energie, Switzerland Customer interview and detailed project description on pages 12–15

Germany

Brantford Edmonton Lachine Nanaimo Prince George Richmond Saskatoon Stoney Creek Terrace

Important customer project, showcased in the Annual Report 2006

Sales office

Production site

ANDRITZ – GLOBAL RESPONSIBILITY

Andritz AG Stattegger Strasse 18 8045 Graz, Austria Phone: +43 316 6902 0 Fax: +43 316 6902 415 [email protected] www.andritz.com

Taiwan

Taipei

Thailand

Bangkok

Vietnam

Ho Chi Minh City

Australia Dandenong Africa

South Africa

Durban Edenvale Sandtown

For information please contact: Dr. Michael Buchbauer Corporate Communications/Investor Relations [email protected] Phone: +43 316 6902 2979 Fax: +43 316 6902 465 Editor: Dr. Michael Buchbauer Design and Concept: sectiond Printed by: Druckerei Bösmüller

ANDRITZ Annual Report 2006

Europe

Americas Brazil

Austria

Graz (Headquarters of the Andritz Group) Linz Vienna Weiz

“Andritz’s solutions for heat recovery and energy generation are very compelling.”

Czech Republic Hradec Králové Praha Esbjerg

Helsinki Hollola Kotka Savonlinna Tampere Varkaus

France

Châteauroux Châtellerault Fontaine Gennevilliers Haguenau Saint Martin Le Beau Vélizy-Villacoublay

Canada

Kenneth Eriksson, President and Group Executive Officer, SCA Forest Products, Sweden Customer interview and detailed project description on pages 6–9

Denmark Finland

Barueri Curitiba Pomerode Porto Alegre São Paulo Serra Vinhedo

“Andritz VA TECH HYDRO met all the challenging targets we set for them.”

High Energy Recovery Boiler for SCA Östrand, Sweden

Chile

“we use the most advanceD equipment and treatment process in the world.”

Modernization of the Küblis hydropower station for Rätia Energie, Switzerland

Bretten-Gölshausen Cologne Hemer Kirchheim/Teck Krefeld Mettmann Ravensburg Regensburg Selb Senden

Gu Hong, General Manager, Qingyuan Hua Yan Water Industry, China Customer interview and detailed project description on pages 24–27

State-of-the-art processing lines for multi-functional feed factory of Koka, Croatia

Five large-capacity filter presses for the Suzhou Industrial Park

Great Britain Belper Hull Staffordshire

“Andritz impressively demonstrated the ability to deliver a complete project from design to start-up.”

Italy Schio

Netherlands Den Helder Geldrop Rotterdam

Annealing and pickling lines for stainless steel supplied to LISCO, China

Dragutin Drk, Chairman and CEO of Vindija Group, Croatia Customer interview and detailed project description on pages 28–31

Norway

Colombia

Bogotá

Mexico

Mexico City Morelia

USA

Alpharetta Arlington Bellingham Canonsburg Charlotte Decatur Glens Falls Houston Janesville Lakeland Lakewood Lenexa Muncy Pell City Roswell San Leandro Scott Depot Spartanburg Springfield Tualatin Walpole

Venezuela

Caracas Estado Carabobo

Jevnaker

Asia

Poland Warsaw

China

Romania Bucharest Cisnadie

“Andritz’s strength is that they think from the customer’s side to offer the best service.”

Russia

Moscow St. Petersburg

Slovakia

Li Pi Hsien, Chairman, Lianzhong Stainless Steel Corporation, China Customer interview and detailed project description on pages 18–23

Humenné Spišská Nová Ves

Foshan Beijing Shanghai

India

Bangalore Chennai Faridabad Mandideep New Delhi

Indonesia

Jakarta

Spain

Iran

Barcelona Madrid

Tehran

Sweden

Japan

Hedemora Karlstad Örnsköldsvik Stockholm Växjö Vallentuna

Tokyo

Malaysia

Selangor

Philippines

Laguna

Switzerland

Singapore

Bülach Kriens Vevey Wohlen Zurich

Singapore

Turkey

Kavaklidere

Ukraine Kiev

ImprINT

Concepcion Santiago

Karl Heiz, President of Rätia Energie, Switzerland Customer interview and detailed project description on pages 12–15

Germany

Brantford Edmonton Lachine Nanaimo Prince George Richmond Saskatoon Stoney Creek Terrace

Important customer project, showcased in the Annual Report 2006

Sales office

Production site

ANDRITZ – GLOBAL RESPONSIBILITY

Andritz AG Stattegger Strasse 18 8045 Graz, Austria Phone: +43 316 6902 0 Fax: +43 316 6902 415 [email protected] www.andritz.com

Taiwan

Taipei

Thailand

Bangkok

Vietnam

Ho Chi Minh City

Australia Dandenong Africa

South Africa

Durban Edenvale Sandtown

For information please contact: Dr. Michael Buchbauer Corporate Communications/Investor Relations [email protected] Phone: +43 316 6902 2979 Fax: +43 316 6902 465 Editor: Dr. Michael Buchbauer Design and Concept: sectiond Printed by: Druckerei Bösmüller

ANDRITZ Annual Report 2006

Europe

Americas Brazil

Austria

Graz (Headquarters of the Andritz Group) Linz Vienna Weiz

“Andritz’s solutions for heat recovery and energy generation are very compelling.”

Czech Republic Hradec Králové Praha Esbjerg

Helsinki Hollola Kotka Savonlinna Tampere Varkaus

France

Châteauroux Châtellerault Fontaine Gennevilliers Haguenau Saint Martin Le Beau Vélizy-Villacoublay

Canada

Kenneth Eriksson, President and Group Executive Officer, SCA Forest Products, Sweden Customer interview and detailed project description on pages 6–9

Denmark Finland

Barueri Curitiba Pomerode Porto Alegre São Paulo Serra Vinhedo

“Andritz VA TECH HYDRO met all the challenging targets we set for them.”

High Energy Recovery Boiler for SCA Östrand, Sweden

Chile

“we use the most advanceD equipment and treatment process in the world.”

Modernization of the Küblis hydropower station for Rätia Energie, Switzerland

Bretten-Gölshausen Cologne Hemer Kirchheim/Teck Krefeld Mettmann Ravensburg Regensburg Selb Senden

Gu Hong, General Manager, Qingyuan Hua Yan Water Industry, China Customer interview and detailed project description on pages 24–27

State-of-the-art processing lines for multi-functional feed factory of Koka, Croatia

Five large-capacity filter presses for the Suzhou Industrial Park

Great Britain Belper Hull Staffordshire

“Andritz impressively demonstrated the ability to deliver a complete project from design to start-up.”

Italy Schio

Netherlands Den Helder Geldrop Rotterdam

Annealing and pickling lines for stainless steel supplied to LISCO, China

Dragutin Drk, Chairman and CEO of Vindija Group, Croatia Customer interview and detailed project description on pages 28–31

Norway

Colombia

Bogotá

Mexico

Mexico City Morelia

USA

Alpharetta Arlington Bellingham Canonsburg Charlotte Decatur Glens Falls Houston Janesville Lakeland Lakewood Lenexa Muncy Pell City Roswell San Leandro Scott Depot Spartanburg Springfield Tualatin Walpole

Venezuela

Caracas Estado Carabobo

Jevnaker

Asia

Poland Warsaw

China

Romania Bucharest Cisnadie

“Andritz’s strength is that they think from the customer’s side to offer the best service.”

Russia

Moscow St. Petersburg

Slovakia

Li Pi Hsien, Chairman, Lianzhong Stainless Steel Corporation, China Customer interview and detailed project description on pages 18–23

Humenné Spišská Nová Ves

Foshan Beijing Shanghai

India

Bangalore Chennai Faridabad Mandideep New Delhi

Indonesia

Jakarta

Spain

Iran

Barcelona Madrid

Tehran

Sweden

Japan

Hedemora Karlstad Örnsköldsvik Stockholm Växjö Vallentuna

Tokyo

Malaysia

Selangor

Philippines

Laguna

Switzerland

Singapore

Bülach Kriens Vevey Wohlen Zurich

Singapore

Turkey

Kavaklidere

Ukraine Kiev

ImprINT

Concepcion Santiago

Karl Heiz, President of Rätia Energie, Switzerland Customer interview and detailed project description on pages 12–15

Germany

Brantford Edmonton Lachine Nanaimo Prince George Richmond Saskatoon Stoney Creek Terrace

Important customer project, showcased in the Annual Report 2006

Sales office

Production site

ANDRITZ – GLOBAL RESPONSIBILITY

Andritz AG Stattegger Strasse 18 8045 Graz, Austria Phone: +43 316 6902 0 Fax: +43 316 6902 415 [email protected] www.andritz.com

Taiwan

Taipei

Thailand

Bangkok

Vietnam

Ho Chi Minh City

Australia Dandenong Africa

South Africa

Durban Edenvale Sandtown

For information please contact: Dr. Michael Buchbauer Corporate Communications/Investor Relations [email protected] Phone: +43 316 6902 2979 Fax: +43 316 6902 465 Editor: Dr. Michael Buchbauer Design and Concept: sectiond Printed by: Druckerei Bösmüller

ANDRITZ Annual Report 2006

Mission and Company Profile

003

GLOBAL RESPONSIBILITY Global responsibility is an integral part of Andritz’s business activities. It is reflected in the daily work of our employees and in our management principles and systems. We see sustainability and environmental protection as decisive factors in our partnership with customers, suppliers, and shareholders.

Vision World market leader for high-tech production systems and services for pulp, paper, steel, and other specialized industries. Company Profile The Andritz Group is a global market leader in the supply of customized plants, systems, and services for the pulp and paper industry, the steel industry, and other specialized industries (solid/liquid separation, feed, and biofuel). It is also one of the leading global suppliers of turnkey electromechanical equipment and services for hydropower plants. Headquartered in Graz, Austria, the Group has about 10,000 employees worldwide. It man­ufactures and sells its products and services globally. The Group is regarded as a technology leader in each of its Business Areas, with full-line capabilities in critical process areas. In addition, Andritz offers comprehensive services including the supply of replacement parts, the man­ufacture­ of engineered wear products, and the provision of technical support services, which help customers optimize production and reduce overall costs.

ANDRITZ Annual Report 2006

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Global Responsibility

ANDRITZ, a responsible supplier and partner

The Andritz Group has shown strong growth during the last several years. Wolfgang Leitner, President and CEO of the Andritz Group, talks about the challenges of growing a sustainable global business and the responsibilities vis-à-vis its various stakeholders. Can you summarize the keys to Andritz’s growth? In the last decade, Andritz has emerged as a truly global supplier. Sales – based on complementary acquisitions and internal growth – have increased by more than 14% annually, and we have achieved a solid and stable profitability. A key factor to this success is our strategy of complementary acquisitions which extends the range of products and services we can offer our customers. Another factor is our active R&D, which helps customers better achieve their profitability, sustainability, and environmental goals. This increasing focus on sustainability introduces new responsibilities for us. What are these new responsibilities? Although each market segment we serve is unique, there is a common theme among the basic manufacturing industries: the efficient utilization of renewable and sustainable resources. As a supplier of machines and systems to these industries, we have a responsibility to support our customers’ activities and collaborate with them to develop sustainable solutions. We intend to live up to our responsibilities as a global citizen and a local neighbor in the communities where we have a presence. Integrity, persistent values, and a longterm commitment to sustainability offer clear advantages and business benefits for our customers and for us. What are the key challenges/requirements of your customers? They have two major challenges: lowering their total costs of production (investment and operating costs) and ensuring that their production is sustainable. Our customers continuously ask, “How can we be more productive while wasting less of our precious resources?” Their focus is on productivity – doing more with less. This is easier to achieve with a new production line or a new plant. The bigger challenge for our customers is to be more productive and less wasteful with their existing machines and assets. They look to us to help them in achieving their goals.

ANDRITZ Annual Report 2006

“The principles of sustainable development are an integral part of our corporate policy.” Wolfgang Leitner

Global Responsibility

They also want to improve the quality of their production while reducing their costs. This means “doing more with less, without sacrificing.” Again that is where we come in. By focusing our R&D programs on sustainability and “doing more with less,” we have increased the yield (more product per unit of raw material) and reduced the relative volume of the waste for our customers. Waste, after all, is just another word for “pollution.” Where does sustainability fit into your strategy? Sustainable development – meeting the needs of the present without compromising the ability of future generations to also meet their needs – has become an integral part of our corporate policy. There are three fundamental pillars for sustainable development: social progress, ecological balance, and economic growth. The ultimate goal is social progress achieved on the basis of ecological balance. The prerequisite for achieving this is economic growth. Globalization creates economic growth – both in the developed world and, more importantly, in the developing regions. With new jobs come salaries and the ability to have a better life. With the jobs also come training, experience, and ultimately, entrepreneurship. Sustainable enterprises must aim to support free, open markets with stable societies and a fair distribution of the benefits. Andritz has a strong commitment towards the sustainable development of social life in the emerging markets. For example, in the fast-growing countries of Brazil, China, and India, we have created new jobs by establishing engineering, production, and service sites. The number of Andritz employees working in these countries has increased from 50 in year 2000 to a total of over 1,500 today, thus contributing to social welfare and well-being in these countries. By the way, this was not the result of shifting jobs from Europe to Asia; during this period, Andritz also increased the number of jobs in Europe. During the last ten years, Andritz delivered the main equipment for several new greenfield pulp mills in South America, India, and China. These mills provide work for more than 3,000 people – many of these newly-created jobs requiring advanced technical or business skills – and more than 15,000 in the forestry and other related branches.

At Andritz, we operate our business in a socially responsible manner. We look for suppliers who are equally committed to economic, environmental, and social stewardship. Our products and processes comply with the highest international environmental standards, not just the standards for the region where the products are being installed. Can you cite examples of such technological developments? In Pulp and Paper, our largest Business Area, our patents and developments in yield improvement, low-­impact bleaching, water conservation, waste reduction and recycling, and energy efficiency all contribute markedly to sustainability. An increasingly important area where technology is the key is climate change. The world has entered a new era in which carbon emissions carry a cost and there are economic incentives to reduce emissions. We recently completed a very important project for SCA’s Östrand mill in Sweden. The project is centered around the Andritz HERB (High Energy Recovery Boiler) that operates at the highest temperatures and pressures. SCA is now able to produce virtually all its electricity in-house using a “green” fuel which is a by-product of the pulping process. SCA earns green certificates – monetary credit for reducing CO2 emissions that can be used to produce more electricity that otherwise would have been lost as heat. In the sustainability chapter of this Annual Report, you can find further examples of our technological developments in the other Andritz Business Areas. What has been the outcome of this sustainability strategy? Sustainability is a critical success factor and our actions have been recognized. Our products are well regarded by the industry’s top players. Our people are seen as industry and technical experts. Our pronounced increase in Order Intake in every Business Area is proof of this acceptance of our products and strategy.

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much – profits are generated. Sustainable development criteria are being more and more integrated into the buying decision of investors. What more needs to be done? There is much more to sustainability than just environmental impact. Companies that foster innovation can substantially contribute to solving economic or societal problems. In the long run, these are the companies that will succeed. New technologies will make a key contribution to sustainable development. I know that Andritz has the creativity to bring innovative technologies to market. We are already engaged in technology cooperation with customers in developing countries. This is particularly important in helping these countries achieve social and economic progress. How will you accomplish this? Emerging markets account for 15–20% of the world’s GDP and are home to 84% of the world’s population. They have a right to pursue and achieve a better life according to their dreams. The challenge is to achieve this through sustainable development. Andritz will remain active in bringing products and services that contribute to sustainable development and social progress for the developing areas of the world. Most of our customers also contribute to the social progress and welfare of the emerging markets. We showcase two impressive examples, one from Stora Enso in China, the other from Veracel in Brazil, in the sustainability chapter of this Annual Report. We reach our goals faster when we work collaboratively with customer and supplier groups to find responsible solutions to social and environmental issues. Sustainable thinking must be incorporated into the minds of all employees, suppliers, and partners.

The positive performance of our share price since the IPO can also be seen as confirmation of the success of our sustainable strategy. We know that our investors are also paying close attention to how – and not simply how

ANDRITZ Annual Report 2006

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Customer Projects Pulp and Paper Business Area

Sweden

Island of Björkö in Sweden

In the pulp and paper industry, the effective use and reuse of resources is one of the basic conditions for sustainable production. The Andritz Pulp and Paper Business Area’s developments in improving fiber yield, minimizing water consumption, increasing energy efficiency, reducing chemical consumption in bleaching, and waste recycling, all contribute markedly to the industry’s sustainability.

ANDRITZ Annual Report 2006

Customer Projects Pulp and Paper Business Area

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“Andritz’s solutions for heat recovery and energy generation are very compelling.” Kenneth Eriksson, President and Group Executive Officer, SCA Forest Products

ANDRITZ Annual Report 2006

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Customer Projects Pulp and Paper Business Area

The new Andritz High Energy Recovery Boiler (HERB) enables Östrand to generate 500 Gigawatt hours of green electrical energy per year – enough to make it virtually energy self-sufficient.

ANDRITZ Annual Report 2006

Customer Projects Pulp and Paper Business Area

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Certified green energy Interview with Kenneth Eriksson President and Group Executive Officer, SCA Forest Products

SCA is a global company that develops, produces, and markets personal care products, tissue, packaging, publications papers, and solid-wood prod­ ucts. It produces products in 40 countries and markets in some 90 countries. SCA manages 2.6 million hectares of forest land (the biggest in Europe) and is one of only a few companies in the world able to offer certified paper products based on totally chlorine-free pulp. Andritz delivered a

Our team traveled the world to investigate the most energy-efficient technologies. What we saw convinced us that a boiler at Östrand could go higher in temperature and pressure than anything that had been attempted before, so we put the challenge before Andritz.

new type of recovery boiler to SCA’s Östrand (Sweden) mill which started up in October 2006. We spoke with Kenneth Eriksson, President and Group Executive Officer of SCA’s Forest Products business area, about renewable energy and Andritz’s contribution.

production as possible. There are several unique features in this boiler to get the maximum energy from the black liquor biofuel.

Personal background I was trained as a mechanical engineer and have been involved with the pulp and paper industry since 1971 when I began my career with MoDo Mekan (equipment division of MoDo Paper). I came to SCA’s Östrand mill in 1979 as a project manager and then became maintenance manager. I left the company for nine years to head up a company (the former Sunds Defibrator) that supplied process technology and production machinery to the industry. I rejoined SCA in 1995 as President of SCA Graphic Sundsvall (the pulp and papermaking units which produce publication papers) and in 2000 was named President of the Forest Products business. The Östrand project The Östrand mill is a very important part of the value chain from the forest to our customers. Our plans for the mill required additional recovery boiler capacity, and the old boiler had become a bottleneck. To rebuild the boiler would have forced us into a very long shutdown, and we could not have generated higher steam values with the old technology.

We were very impressed with Andritz’s solutions. In addition to high steam production which improves our electricity yield, we wanted to get as much hot water

After two years of work and a 150 million Euro investment, our new Andritz High Energy Recovery Boiler (HERB) enables us to generate 500 Gigawatt hours (GWh) of electrical energy per year. That is enough to make Östrand virtually energy self-sufficient. The boiler was delivered exactly on time. The costs are all within line. And, we didn’t have one serious accident throughout the entire project. Andritz has done a very, very good job and has had excellent project management. We have to take our hats off to them and say we are very happy. Compelling solutions Andritz’s technical solutions for internal heat recovery were very compelling. We were convinced that the electricity yield would be high. But what really appealed to us about Andritz was the way they solved the boiler expansion challenge. Although the initial design capacity is 3,300 t/d at 515°C and 105 bar, it is currently operating at 2,500 t/d. In the future, it can be expanded to process 4,400 t/d at the same temperature and pressure. We were very impressed when Andritz proposed to expand the boiler by moving the sidewall, instead of the conventional approach of moving the front wall. It is clearly superior to what has been done before.

Black is green Before the Andritz boiler started up, Östrand was producing 242 GWh of electricity. The new boiler and turbine-generator boosts this to 468 GWh. Since the energy is being generated from biomass, we earn Green Certificates, which bring additional economic credit for reducing CO2 emissions. SCA is financing some rather futuristic research and development programs for energy technology, but I think the most important step we have seen so far is what we have achieved at Östrand – to increase the pressures and use well-developed technologies to get maximum energy from the black liquor. We are in a capital-intensive industry. We cannot jeopardize our economics on such an important part of our process with an unproven technology. Energy challenge The high electricity costs in Sweden helped to steer us toward the HERB technology. The price of electricity has tripled within the last four years. There is no way our global customers would allow us to pass these price increases on to them. Energy will become more and more expensive. Oil will be less available in the future. What we see more of are integrated heat recovery systems. We have the possibility to capture the heat that our mill normally sends out into the air and into the water, and to use that in a good way for the local community. For example, our paper mill in Ortviken provides hot water to the city’s central heating system. 

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Expert interview Pulp and Paper Business Area

Technology providers are key to the solution Interview with Marco Mensink Energy & Environment Director for the Confederation of European Paper Industries (CEPI)

As energy costs skyrocket, and wood prices increase at double-digit levels, the European pulp and paper industry (PPI) struggles to compete in global markets. Marco Mensink, Energy & Environment Director for the Confederation of European Paper Industries (CEPI), discusses competitiveness issues and the importance of technology suppliers in this interview. Can you tell us about your position at CEPI and your background? I am responsible for coordinating and developing the paper industry’s positions to the EU institutions with regards to energy and environmental issues. Before joining CEPI, I worked for the Royal Netherlands Paper and Board Association (Royal VNP) and as a Senior environmental consultant for Ernst & Young. What is the most urgent issue facing the European paper industry right now? The most urgent is energy costs. The pulp and paper industry is the fourth largest energy user in the EU industrial sector. Energy has overtaken personnel costs so that 15–25% of the total costs of goods are related to energy. Keep in mind that the pulp and paper industry is competing in a global market. We cannot pass through these price increases like the utilities do. Energy price has become a key factor, along with markets and raw materials, for determining where investments will be made – on a global basis. Why are energy costs rising so rapidly? It is a combination of factors. Overall global economic growth, especially in the emerging markets, is driving oil and gas prices. The demand for energy in Europe continues to increase. If we continue business as usual, energy consumption will be 15% higher in 2030 than it was in 2000. It is projected that we will need 700 Gigawatts of new capacity to secure Europe’s electricity supply to 2030. Given such a scenario, there is no question that longer term energy prices will stay at high levels.

ANDRITZ Annual Report 2006

“The pulp and paper industry is already the largest producer and user of bioenergy.” Marco Mensink

Expert interview Pulp and Paper Business Area

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What about subsidies for renewable energy,

What are the possible solutions? The pulp and paper industry and the bioenergy industries have to resolve the potential conflicts and live together on a long-term basis. We need government policies that reflect the interests of all the industries involved and look at the total picture: job creation, economic growth, sustainability, and environmental impact. The policies should balance the support for renewables (biomass, hydropower, solar energy, and wind energy), energy efficiency,

Another key message is that we need to rethink the way we produce energy. In this possible “war on fiber” we should demonstrate to our governments that if they want to really support bioenergy, they should support the pulp and paper industry. The paper industry can offer a bio-solution for climate change. By further developing “bio-refineries,” we can produce energy, and produce second-generation biofuels and chemicals – and then combine it with the fiber we need. Either we do this our-

do they help? The pulp and paper industry is already the largest industrial producer and user of bioenergy in Europe. The problem is that there are other industries that want to use the same biomass for fuel.

and the use of certain subsidies. Perhaps a meaningful subsidy would be to provide incentives to get the forest residue (wood stumps, green chips, and other residues) out of the forests. Mobilization to get maximum wood from our forests is the right approach.

selves, or the refineries and chemical companies will start using fibers for second-generation biofuels and other products.

Governments subsidize the fuel alternative so that it is economically attractive to transport wood four times the distance for bioenergy than for industrial wood use. This has created a huge market distortion. Wood prices have risen an average of 20–25% in 2006. In some regions, the increase is as high as 50%.

What role can technology suppliers play? For the EU, the suppliers of technology to the pulp and paper industry are key to the solution. Research and technology will save us by cutting emissions and cutting costs. If we offer rewards for the frontrunners, and take away the institutional barriers, we can bring the most promising technologies along quickly.

“Business as usual” for energy in Europe is not sustainable – for climate reasons, for competitiveness, or for security of supply. The EU started the liberalization of energy markets and now must finish the work, as highlighted in the just published Energy Sector Inquiry. And politicians have to push for energy efficiency and the use of renewable energies, but must do it in a balanced way.

When presented with the choice of putting one ton of wood into bioenergy (fuel) or one ton of wood into the production of paper, the paper industry contributes eight times more added value to the European economy than the bioenergy industry – and preserves from six to thirteen times more jobs.

Are you positive or negative about the pulp and paper industry in Europe? I am positive. The European pulp and paper sector is still a hugely competitive sector, leading in the world. We have a strong base for technology development. And, we can keep this asset for a long time. We have big challenges, but we have big opportunities.

The supplier trend has been “faster-wider-bigger.” Suppliers need to intensely focus on energy-efficiency. They need to develop the low-energy or low-CO2 machinery of the future. This is a huge task and responsibility.

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Customer Projects Hydro Power Business Area

Switzerland

The Wetterhorn mountain rises above the lake called the Bachsee in the Bernese Alps near Grindelwald, Switzerland.

Hydropower is the leading source of renewable energy, supplying the world with about one-fifth of its electricity. It is clean, leaves behind no waste and neither emits pollutants nor significant amounts of harmful greenhouse gases. The Andritz Hydro Power Business Area has provided hydropower plants with modern equipment and extensive services for more than 160 years.

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Customer Projects Hydro Power Business Area

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“Andritz VA TECH HYDRO met all the challenging targets we set for them.” Karl Heiz, President of Rätia Energie, Switzerland

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Customer Projects Hydro Power Business Area

In the spring of 2006, the Küblis hydropower station, Switzerland, resumed operation after a one-year rebuild period. Andritz VA TECH HYDRO’s supply included two machine groups with Pelton turbines and generators as well as the control system and auxiliary equipment. (Photo: The new 22.8 MW vertical double-jet Pelton machine groups are seen on both sides of the glass control cubicle.)

ANDRITZ Annual Report 2006

Customer Projects Hydro Power Business Area

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CLEAN POWER FROM WATER Interview with Karl Heiz President of Rätia Energie, Switzerland

Rätia Energie (RE) is a major Swiss electricity company founded in 1904. It has been building up a strong position in the renewable energy segment for several years. RE operates several hydroelectric power plants, holds shares or long-term drawing rights at other facilities, and is building new production capacity in Italy. Karl Heiz, President of the company, talks about renewable energy and Andritz’s role as a key supplier. Personal background I graduated from the Swiss Federal Institute of Technology with a degree in physics and I also hold an MBA. I joined Rätia Energie in 1987 as its Chief Executive Officer after a successful international career with Nestlé. I am a member of the executive committee of the federation of Swiss electricity enterprises (VSE). Balanced and integrated approach RE has a balanced and integrated approach to the energy value chain. We started as a power generation company and soon built transmission lines, which gave us access to the Swiss and the international transmission grids. Distribution came later through acquisitions in Switzerland and Italy. While distribution is a relatively low-risk and low-growth business (at least in Switzerland where market liberalization is less advanced than in the EU), international trading offers us good growth opportunities. Key success factors for both distribution and trade are a secure proportion of generation capacity and access to the transmission and distribution grids. Environmental compatibility is always an important aspect of our projects. Several of our plants are ecologically certified as a result of different measures we have taken. Current trends Energy consumption will continuously increase. Energy generation will be predominantly dependent on fossil fuels; however, renewable energy will become more and more important. Efforts to reduce CO2 emissions will be intensified.

With market liberalization making progress all over Europe, price became the main issue for all customers and security of supply was taken for granted. Today, consumers consider security of supply and sustainability as the main challenges. We also have observed an increased demand for ecologically certified power. Both of these factors speak in favor of hydropower. Hydroelectric power development Hydro is, by far, the most important source of renewable power, both in terms of quantity and ecological value. Despite the fact that investment costs of a new hydropower plant are extremely high, we believe that the long-term economic prospects remain good. Pumpedstorage plants, in particular, are uniquely suited for generating power when demand for electricity is high and for supplying reserve capacity to renewable, fossil-fueled and nuclear plants. The production of renewable energy should be encouraged and expanded. Existing plants should be maintained and refurbished. Renovating the Küblis station The Küblis station is located in the Graubünden canton in eastern Switzerland. It started operation in 1922 with three 8-MW three-phase groups, one 2.9-MW singlephase group, and two 8.5-MW single-phase groups. The facility was granted an 80-year license when it went into operation. After lengthy negotiations, we were able to secure a new 80-year license in 2005. We set about to replace the outdated machinery. Our technical goals were to produce 175 GWh of electricity each year with two machine groups. We wanted fully automatic and autonomous operation of each machine group with high availability. We also were constrained by architectural goals. The power station, and particularly the machinery hall, at Küblis are considered to be of historical value. When the renovation began, it was a big challenge to ensure that technical and safety requirements were met while preserving the historical building. Andritz VA TECH HYDRO Through its predecessor companies, Andritz VA TECH HYDRO has supplied machinery to Rätia Energie since

the 1930’s. This business relationship has lasted for several generations. When selecting potential suppliers, we look at the company (R&D, experience, locations, size, etc.) and we evaluate the quality assurance systems. We look to see how the supplier has improved its products over the years, as well as the competence of its people. In addition, a solid financial base is absolutely necessary for larger projects. Andritz VA TECH HYDRO scores very well in all these areas. We chose them for the Küblis project. Their scope included the supply, erection, and start-up of the turbines, governors, and turbine shut-off devices, as well as the synchronous generators and their excitation equipment. Performance When the contract was signed with Andritz VA TECH HYDRO in March 2004, we agreed to shut down the Küblis station on March 29, 2005, dismantle the old machines, lay new foundations, and install the equipment so that trial operations for Group 1 could begin on December 24, 2005 and for Group 2 on February 13, 2006. Andritz VA TECH HYDRO met the start and finish dates exactly on schedule. The machines have been in operation for almost one year now and meet the challenging targets and requirements with regards to efficiency, reliability, availability, and maintenance to our full satisfaction. New legislation stipulates that we maintain a minimum water flow for water catchments, which means that the total quantity of water that can be utilized for power generation has been reduced. Thanks to the higher efficiency of the new Andritz VA TECH HYDRO machines, we can partly compensate for this loss of available water volume. I am very impressed with the willingness of Andritz VA TECH HYDRO to meet future challenges using research, development, and innovation. Their forward-thinking provides us with solutions which meet the needs of our markets. 

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Expert interview Hydro Power Business Area

“CLEAn, CLEVER, AND COMPETITIVE” Interview with Richard Taylor

Executive Director of the International Hydropower Association (IHA)

The International Hydropower Association (IHA) has members in more than 80 countries and is a non-profit organization advancing hydropower’s role in meeting the world’s water and energy needs. Richard Taylor has over 20 years experience in water resource management and has been Executive Director of the Association since 2001. He shares with us his views about hydropower as a source of renewable energy. Personal background My professional career started in 1985. I specialized in hydropower project assessment, focusing on design and environmental performance. Between 1986 and 2001, I edited international journals on hydropower and dam construction. Since 2001, I have been the Executive Director of IHA. I am also a Fellow of the Energy Institute in the UK and have been engaged in various United Nations initiatives. I am IHA’s observer to the UN Framework Convention on Climate Change. Supply and demand Global energy use has risen by 70% since 1971 and continues to increase at the rate of about 2% per year. There are many scenarios for future demand and the energy mix that will be needed to meet this. In 2005, renewable energy represented one-fifth of total power generation. Hydropower is the most advanced and flexible of the renewables and represents 87% of this production. During 2005 alone, 18 GW of new hydro capacity was commissioned. IHA estimates that only onethird of the realistic potential has been developed. Five countries make up more than half of the world’s hydropower production: China, Canada, Brazil, USA, and Russia. Taking Europe as a benchmark (proportion of production in relation to realistic feasibility), we expect to see a ten-fold increase of hydro in Africa, a three-fold increase in Asia, a doubling in South America, and an increase of about 10% in North America. Future development in countries such as Chile, Colombia, Ethiopia, Nepal, Romania, Turkey, and Zambia will rely on finding appropriate long-term funding mechanisms and partnerships.

ANDRITZ Annual Report 2006

There are many recent cases of incremental hydropower, both adding to existing capacity and retrofitting large dams to increase hydropower production. There are 45,000 large dams in the world and the majority does not have hydro facilities. While this is not always an economic option, there is a significant market niche in this area. An even bigger market is plant modernization. Equipment with improved performance can be installed, often to accommodate market demands for more flexible, peaking modes of operation. Most of the 807 GW of hydro equipment in operation today will need to be modernized by 2030. Drivers Beyond basic energy demand, there is a long-term economic advantage of hydro development. With annual operating costs in the order of 1% of capital costs, hydro’s autonomy from fuel price is a distinct advantage. The flexibility of storage hydro (hydro with reservoirs) also makes it a compelling partner to ensure security in mixed power systems. Another driver is the increasing need for water management. Multi-purpose hydro reservoirs bring security of water supply as well as power. Technologies Most of the early hydropower projects were built to provide a primary “baseload” to the power system. As other technologies were introduced, hydro has tended to evolve into a supporting role – responding to gaps between supply and peak demand. Consumers today subscribe to the need for a transition from “dirty, insecure, and expensive” to an energy future which is “clean, clever, and competitive.” However, there is certainly no technology panacea on the horizon. With hydropower technology, the challenge is to improve by continuously pushing the envelope in terms of environmental performance, materials, efficiency, operating range, and costs. The least-cost alternative for producers desiring additional capacity is almost always to modernize existing plants, when this is an option.

“Water and energy are the world’s key challenges – and hydropower has a vital role to play in both.” Richard Taylor

Expert interview Hydro Power Business Area

Also, looking at new technologies, I think the hydro industry could take more of a lead in the marine energy sector. More broadly, I think all renewable technologies could benefit from closer collaboration. Small versus large This is an old debate. From the smallest to the largest, all developments have a footprint, especially when you look at the cumulative effect of a lot of small schemes. Smaller-scale hydro plays an important role in remote areas and in maximizing the value of multi-purpose sites. Large schemes will continue to be the most environmentally benign to the power industry and urban centers. Pumped storage Storing hydro at times of low demand and releasing it when demands are high can be a very good business. Pumped storage can solve a plethora of system challenges. It can follow load fluctuations so that fossil plants can continue to operate at their best efficiency. In many countries, pumped storage units ensure total system security and maintain the quality of supply.

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Issues With regard to climate change, hydropower tends to have a very low greenhouse gas (GHG) footprint. As water carries carbon in the natural cycle, scientists have investigated the extent to which a new reservoir might accelerate carbon emissions. In some very shallow tropical reservoirs, this may be the case, and account would need to be taken into consideration in the life cycle analysis of such schemes. In contrast, several hundred res-

Regulatory matters Europe and North America tend to have the most advanced regulatory frameworks. While comprehensive project assessment is a given, much unnecessary bureaucracy is created in the development of new projects and the periodic re-licensing of existing installations. The high administration costs are a significant burden, especially for smaller companies. In Europe, the Water Framework and Emissions Trading Directives are in need

ervoirs around the world have been monitored to test their emissions, confirming that hydropower is one of the cleanest methods of power generation. Taking into account an international average for hydropower emissions, fossil fuel power plants tend to emit 10 to 35 times more greenhouse gas per unit of electricity.

of clarification regarding hydropower. For the “transition” countries and developing world, regulations relating to the Kyoto mechanisms need to be better understood. In addition, financial institutions must standardize their policies to avoid unnecessary duplication and inefficiency.

Population growth in emerging markets is both a driver and a constraint. The demand for land and water resources increases with population growth. Water management is key to sustainable development. Many of the projects in the future will be multi-purpose: urban water supply, flood control, in addition to power generation.

Synergies There are good synergies between renewable energies. For hydropower, the most developed relationships are with wind and geothermal power generation. Wind produces a variable and intermittent supply and hydro can provide the firming capacity to ensure both security and quality in the system. Geothermal plant characteristics

Finding the right balance is fundamental. Sustainability criteria demand that economic decisions incorporate environmental stewardship and social justice. To give guidance, IHA has developed Sustainability Guidelines. Supplementing this is an Assessment Protocol which sets out a system by which sustainability can be measured. I believe that the Protocol will become the pri-

lend the technology to baseload operation. Hydro’s flexibility can support this by meeting peaks in demand. Similar synergies between hydro and solar, biomass and the marine technologies will develop as these technologies move into larger scale deployment.

mary tool for certifying the sustainability of hydropower development. Following this, certification could be a win-win for all parties. That is, the best performers will get the best returns, and customers can buy with confidence.

Financing Many economically feasible hydropower projects are financially challenged. High up-front costs are a deterrent for investment. Also, hydro tends to have lengthy lead times for planning, permitting, and construction. When you examine life cycle costs, however, hydro often has the best performance, with operating costs being a fraction of the capital investment. The main challenges relate to creating investor confidence in hydropower. Green markets and trading in emissions reductions will undoubtedly give incentives in some areas. In developing markets, such as Africa, interconnection between countries and the formation of power pools will build investor confidence. Feasibility and impact assessments carried out by the public sector, prior to developer tendering, will ensure greater private sector interest in future projects. However, I think most investment will only come when the need becomes urgent – when the lights go out. Unless policymakers are better informed, much of the investment will be targeted at quick-fix solutions. It is IHA’s priority to increase awareness of the role that hydropower can play in the clean, clever, and competitive markets of tomorrow.

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Customer Projects Rolling Mills and Strip Processing Lines Business Area

China 中国

The Great Wall of China undulates over the mountains near Badaling, People’s Republic of China. 中国八达岭依山连绵起伏的长城。

在钢材和不锈钢生产过程中,高效利用原材料和减少生产工序中的排放物起着至关重 要的作用。由安德里茨轧钢及带钢表面处理部开发的酸回收和再生系统,几乎可回收 全部用过的酸洗酸。安德里茨以其不断开发的技术来大大降低来自退火炉和酸洗线的 氮氧物废气的排放。 In the production of steel and stainless steel, the efficient use of raw materials and reduction of emissions from production processes play an important role. The acid recovery and regeneration systems developed by the Andritz Rolling Mills and Strip Processing Lines Business Area allow almost complete recovery of used pickling acids. Also, Andritz has developed technologies to substantially reduce the emissions of NOX in waste gas streams from furnaces and pickling lines.

ANDRITZ Annual Report 2006

Customer Projects Rolling Mills and Strip Processing Lines Business Area

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Li Pi Hsien, Chairman, Lianzhong Stainless Steel Corporation, China

中国联众不锈钢有限公司李必贤董事长

“Andritz’s strength is that they think from the customer’s side to offer the best service.” “安德里茨公司的优势在于为客户着想,提供最好的服务。”

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Customer Projects Rolling Mills and Strip Processing Lines Business Area

中国广州联众不锈钢有限公司的不锈钢热轧带卷的退火酸洗线可处理的带钢厚度为2到10毫米,最大宽度1600毫 米,穿带速度可达100米/分钟。

The annealing and pickling line for hot-rolled stainless steel strip at LISCO, Guangzhou, China processes stainless steel strip of 2 to 10 mm thickness and up to 1,600 mm wide, at speeds of up to 100 m/min. ANDRITZ Annual Report 2006

Customer Projects Rolling Mills and Strip Processing Lines Business Area

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Sustainable Stainless steel manufacturing Interview with Li Pi Hsien

Chairman, Lianzhong Stainless Steel Corporation, China

持续性不锈钢生产 采访李必贤先生 中国联众不锈钢有限公司董事长

China’s consumption of stainless steel now leads all nations in the world. To reduce imports, China’s share of global stainless steel production has risen from approximately 8% to over 12% in the last three years. After an investment of 800 million US dollars and a five-year construction period, the Lianzhong Stainless Steel Corporation (LISCO), part of the E-United Group, has become the leading integrated stainless steel manufacturer in southern

Company background Since its establishment as Yieh Hsing Enterprise in 1978, the E-United Group of Taiwan has expanded from its core steel business into the education, medical, and real estate sectors. This demonstrates the Group’s commitment to paying back to society. Our intention from our founding has been to keep investing so we can make contributions to the general public.

The facility has the first integrated WRAP line (white rolling, annealing, pickling, skin pass mill, and tension levelling) in the world. It is over 600 meters long and the stainless strip length is over 2,000 meters.

China. Li Pi Hsien, Chairman of LISCO, talks about the market situation, environmentally sustainable technologies, and Andritz’s contribution.

公司背景 台湾义联集团自1978年首创烨兴公司迄今,已从钢铁 基础产业发展至教育事业,并跨足医疗体系,展现了企 业“取之于社会,用之于社会”的理念。

The line we call HAPL #1 is one of the largest and fastest annealing and pickling lines for hot-rolled stainless steel strip in the world. It is 555 meters long and has a capacity of up to 800,000 tons per year. It is truly an international line, featuring the most advanced equipment from Andritz and other international suppliers. It is the first in China that can process strip up to 10 mm thickness, which is in strong demand by the petrochemical industry.

现今中国不锈钢的消费量牵动着世界所有的国家。为 了减少进口量,在过去的三年里中国的不锈钢产量在全 球范围内所占的份额已经从8%上升到超过12%。联众 (广州)不锈钢有限公司(LISCO)作为台湾义联集团的子 公司,在投资了八亿美元和经过五年的建设期之后,已 经成为中国华南地区领头的不锈钢综合制造商。联众 不锈钢公司的董事长李必贤先生谈及了市场环境,环境 可持续发展技术以及安德里茨公司(Andritz)的贡献。 Personal background After graduating from School of Laws at Osaka City University, Japan, I joined the E-United Group. I have been working for the steel industry for more than 20 years now. I also served as Chairman of the Boards of I-Shou University, Taiwan, and as congressman for the Taiwanese Congress (two times for six years). At present, I am Chairman of the Board at Lianzhong Stainless Steel Corporation, and Member of the Boards of the E-United Group’s other subsidiary companies. 人物背景 于日本大阪城市大学毕业后,旋即加入义联集团。迄今 已于钢铁行业从业超过20年,期间曾经担任义守大学董 事长,两届六年台湾立法委员,现任联众不锈钢有限公 司董事长,同时担任集团下属多家公司的董事会成员。

The LISCO subsidiary, for which I am responsible, has about 1,800 employees. Here on the Chinese mainland, LISCO is a portfolio project for the E-United Group, which means we play an important role in the Group’s sustainable expansion.

公司具有第一条集成(轧机,退火,酸洗,SPM和矫 直机)的WRAP产线,600米长,不锈钢带的长度超过 2000米。

我所管理的联众子公司拥有1800名员工,义联集团在中 国大陆投资的联众不锈钢有限公司是重要的投资综合 项目,在整个集团的持续发展中起着非常重要的作用。

我们称作HAPL #1的产线是世界上最大最快的退火酸 洗线,555米长,年产量80万吨。它是一条国际化的产 线,安装的是安德里茨公司(Andritz)和其他国际供应 商最先进的设备,这是在中国第一条可以处理10毫米厚 钢板的生产线,厚板应用于石化产业。

Our customers are mainly in the Pearl River Delta, which is the largest consuming region of stainless steel in China. Because the GDP of China is growing so fast and the middle-class population in China has more available income, I strongly believe that the consumption of stainless steel will also show continued growth in the future.

The acid regeneration plant uses the Andritz Pyromars process and is the world’s largest regeneration system for mixed acids. It has the highest efficient acid recovery rate in China.

我们的客户主要在珠江三角洲,它是中国最大的不锈钢 需求地区。中国的GDP飞速提高,中产阶级的有了更多 的富余收入,我坚信在未来不锈钢消费量仍然会持续增 长。 The Guangzhou facility Our integrated facility at Guangzhou is one of the largest and environmentally most advanced stainless steel production facilities in the world.

酸回收再生产线(ARP)使用了安德里茨公司 (Andritz)的Pyromars工艺,是世界上最大的混合酸回 收再生系统,在中国具有最高的酸再生率。 The CAPL, supplied by Andritz, can produce up to 3 mm thick cold-rolled strip. It, too, has the most advanced technology, which fits into our overall strategy. 由安德里茨公司(Andritz)提供的CAPL产线能够生产 3毫米厚的冷轧不锈钢钢板,它同样也使用了最先进的 技术,并能符合我们联众公司公司的全盘规划。 ➔

广州厂的设备情况 我们广州厂采用的集成生产线是世界上生产能力最 高、最环保和先进的不锈钢生产线。

ANDRITZ Annual Report 2006

022

Customer Projects Rolling Mills and Strip Processing Lines Business Area

中国广州联众不锈钢有限公司的热轧带卷退火酸洗线上的在线退火炉是世界上同类产品中最大的炉子。

The furnace of the annealing and pickling line for hot-rolled stainless steel strip at LISCO, Guangzhou, China is one of the largest of its kind worldwide. ANDRITZ Annual Report 2006

Customer Projects Rolling Mills and Strip Processing Lines Business Area

023

Andritz relationship There is a history of cooperation between Andritz and the E-United Group, dating back almost 25 years. Andritz has supplied pickling lines for carbon steel, skin pass mills, roll grinding machines, acid regeneration systems, degreasing lines, and complete annealing and pickling lines for hot-rolled and cold-rolled stainless steel strip. In total, there have been about 20 projects over the years. We are most definitely a good customer for Andritz and

在和安德里茨签署合同时我们计划在2005年4月份处 理“第一卷”钢卷,实际的完成时间是在2005年的4月 28日。我们经历了土木工程建设和设备制造交货周期 的困难,就这些超出安德里茨公司范围的困难来说,取 得这样的成绩是非常出色的。尽管在这些方面出现了 延期,安德里茨公司还是按时成功完成了安装,调试和 产线的开机。例如,在4月初产线钢板的运输传动还没 有安装和开机,但是2个星期之后,安德里茨就完成了产 线的第一次穿带工作。退火炉烘炉工作比原计划整整

Sustainable production Bearing in mind that the earth is our common home, sustainable development in the stainless steel manufacturing industry is critical. We are using very advanced technologies at LISCO to reduce our demands on the environment.

everything speaks in favor of continuing this long-term relationship.

提前一个星期完成。

业是至关重要的,我们在联众使用最先进的技术,以降 低我们对环境的要求。

和安德里茨公司的关系 安德里茨集团公司和义联集团公司的合作已经差不多 25年之久了,安德里茨公司供应过调质延轧机,抛光 线,酸再生系统,除油脱脂线以及热轧和冷轧全套生产 线。总计已达20多条产线。我们绝对是安德里茨公司 一个好客户,并且愿意保持这种长期的合作关系。 The HAPL #1 project The main drivers for our investment in the hot-strip line were to meet the demand of a vigorously growing market and to become a strong competitor for thick hot-rolled sheets. Of all the projects we have done with Andritz, the HAPL #1 project is the most remarkable in my mind. HAPL 一号项目 我们投资这条热轧线主要是为了满足旺盛的市场需 求,成为热轧厚板的强有力竞争者。在我印象中,HAPL 一号项目是和安德里茨所有合作项目中最出色的。

When we signed the contract with Andritz, we scheduled “first coil” processing for April 2005. It was actually achieved on April 28, 2005. This is quite remarkable considering the difficulties we experienced with the civil work which was outside Andritz’s scope, and the delivery of terminal equipment. Even with the delays in these areas, Andritz, in cooperation with LISCO, still managed to install, commission, and start-up the line on schedule. For example, the strip transport drives were not installed and started up until the beginning of April. Two weeks later, Andritz had stainless steel strip threaded into the line for the first time. The furnace dry-out was actually completed one week ahead of schedule.

The high speed of commissioning was, I believe, due to skillful project and site management on Andritz’s part and the tireless work of LISCO’s commissioning team. It is an example of successful cooperation between partners. 我相信,调试工作速度之快,主要是安德里茨成熟的项 目管理经验以及联众连续调试作业的共同努力结果。 Performance First, the project schedule was adhered to even though the local supply was not delivered on time. This was an outstanding achievement. As far as operation is concerned, the performance of the Andritz equipment is improving daily. The process is stable and this is the most important aspect. We have been able to achieve our targets in terms of production, quality, reliability, maintainability, and environmental compliance. My people have a very close cooperation with Andritz. We continually learn from each other. This cooperation is the result of longterm trust and respect. Andritz’s most important strength is that it thinks from the customer’s side to offer the best service possible. 性能 首先,在国内制造没有按期交货的情况下,项目的进度 得到的维持,这是非常杰出的表现。在工作运行中,安 德里茨公司设备的性能每天都得到提升,工艺非常稳 定,这是最重要的一方面。我们在生产,质量,稳定 性,维护性和环境的适应性都达到了目标。我方人员 和安德里茨公司的人员有着紧密的合作,我们相互学 习,这是长期信任和尊重的结果。安德里茨公司最重要 的优势在于为客户着想提供最优的服务。

持续性生产 警记地球是我们共同的家园,可持续发展在不锈钢制造

For example, all of our heating processes use clean LPG as a source of energy and low NOX burners to minimize air emissions. Exhaust gases are discharged via dust collection systems, which prevent solid particulates from entering the atmosphere. Liquid waste streams from the hot-strip mill and cold-rolling plant are recovered and recycled. Only very small amounts are discharged to the waste treatment plant. The quality of the discharged water meets the environmental regulations. We use Andritz’s­ Pyromars technology for recycling acid from the annealing and pickling lines. The 96% recovery rate cuts our production costs and minimizes discharges. This factory is even equipped with sound protection enclosures to abate noise pollution. 例如,我们所有的加热工艺均是使用LPG清洁能源,用 NOx烧嘴使空气排泄物降低到最少。风烟排放系统是一 个灰尘收集系统,能阻止固体颗粒的外泄。热酸线和冷 酸线的液体排放也是得到回收和再生产利用,相当少的 一部分会被排放到水处理中心。所排放的水质达到环 保要求。我们使用安德里茨公司的Pyromars技术用于 回收退火酸洗线的废酸。96%的回收利用率大大降低我 们的生产成本,使排放量降低到最少。这种产线设备甚 至装备了能够吸收噪音的罩子。

ANDRITZ Annual Report 2006

024

Customer Projects Environment and Process Business Area

China

Yunnan Province, China

The treatment of municipal and industrial wastewater and sludge is becoming increasingly important for sustainable environmental protection and conservation of natural resources. In addition to mechanical dewatering systems, such as filter presses, centrifuges, and belt filters, the Andritz Environment and Process Business Area supplies thermal drying plants which convert dewatered sludge into granulate. With its high calorific value, this granulate can be used as a substitute for fossil fuels in heat and power generation systems, thus reducing CO2 emissions.

ANDRITZ Annual Report 2006

Customer Kundenprojekte Projects Geschäftsbereich Environment Walz- undand Bandbehandlungsanlagen Process Business Area

025

Claude Lopez Projektleiter bei Degrémont, Frankreich

“we use the most advanced equip“We use 30% ment and treatless water ment process in than before.” the world.” Gu Hong, General Manager, Qingyuan Hua Yan Water Industry Co. Ltd., China

ANDRITZ ANDRITZ Geschäftsbericht Annual Report 2006 2005

026

Customer Projects Environment and Process Business Area

Andritz supplied five fully automatic large-capacity filter presses for water and wastewater treatment in China’s largest Industrial Park. Two additional presses will be installed in 2007. ANDRITZ Annual Report 2006

Customer Projects Environment and Process Business Area

027

WORLD-CLASS WATER IN CHINA Interview with Gu Hong

General Manager, Qingyuan Hua Yan Water Industry Co. Ltd., China

The Suzhou Industrial Park, the largest in China, was formed in Jiangsu Province in 1994 and is now home to 260,000 people. This high-tech industrial park encompasses 288 km2 and presents a gardenlike setting beside Jinji Lake. Andritz supplied the filter presses for treating fresh water and wastewater in this massive park. Mr. Gu Hong, General Manager of the water industry serving the Suzhou Park, speaks to the environmental aspects of the project and Andritz’s contribution. Personal background My degrees are in chemical processes and international trade. I am also working on my Executive MBA degree. My first work was at a pharmaceutical factory in Suzhou. In 1996, I joined the Suzhou Industrial Park. First, I was the Manager of the Construction Department of Qingyuan Hua Yan Water Industry Co. Ltd., and now I am Vice President of the Municipal and Public Utility Group of Suzhou Industrial Park and General Manager of the Qingyuan Hua Yan Water Industry Co. Ltd., responsible for the water network. Suzhou Industrial Park water network The water plant of Suzhou Industrial Park can supply 450,000 m3 of water every day. It consists of the three parts: a water inlet and suction pump station with a capacity of 900,000 m3 per day; two water mixing pipelines that are 28 km and 32 km in length; and a clean water plant with a capacity of 450,000 m3 per day. The wastewater plant has a treatment capacity of 200,000 m3 per day. Customer requirements Our customers want their water supply to be safe and sufficient, comparable to the best international stand­ ards for health and quality. After the water is recovered and treated, they expect that the discharge will be environmentally safe as well. In addition, we in the business are concerned with the quality of the filtrate and the filter cake. We want to re-use the filtrate in our processes and have a high solids content for the filter cake. This way, we can economize on energy usage and protect the environment at the same time.

Filtering and dewatering for the Suzhou plants In earlier days, we used centrifuges for slurry dewatering; however, the solids content was very low. We had to dose the slurry with polymers, which increased our operating costs. In addition, we could not convey the filter cake easily, which led to pollution. Today, environmental concerns are the most important drivers for our investments. This was not always the case in China, as you know. But we now recognize the need to preserve and protect the environment. After comparing the technical aspects, we decided to use filter presses. They can handle large capacities, produce a filter cake with high solids content, and the filtrate is clear. The filter cake can be moved by conveyors, which is convenient and saves money. Based on our research, we set the target of 40% final solids content. Why Andritz? I had no direct experience with Andritz before the Suzhou water plant and wastewater plant projects. However, I knew they were a global leader in supplying filter presses for many industries, including water and wastewater treatment. Before we decided to purchase from Andritz, we carefully studied the company and its products. We compared Andritz with other suppliers. Andritz has many successful reference projects and is regarded as a good problem solver. I visited the Wu’xi Meiyuan Water Supply Plant where the Andritz filter press is installed. The dewatering effect and production situation are excellent. Andritz also has an office in Shanghai and their aftersales support is considered to be prompt and earnest. Scope of supply We selected Andritz to supply two filter presses for water treatment (capacity 450,000 m3 of drinking water per day) and three filter presses for wastewater treatment (capacity 200,000 m3 per day). A new wastewater treatment plant with a capacity of 400,000 m3 per day will be completed next year.

For these projects, Andritz supplied the equipment and process design, including the whole dewatering system from slurry tank to cake conveyor. The entire filter press system can run fully automatically. This is our first application of filter presses in the wastewater plant, so the project was an adventure for us. Also, in our way of working, we must complete our projects – from design to equipment selection, to installation to commissioning – in one year. This is an extremely limited period of time. Even with this short time, Andritz came in under full sail to reach our target successfully. Meeting international standards Today, we use the most advanced equipment and treatment process in the world. I believe that our treatment level meets the international standards. We display the water quality and wastewater discharge quality reports every day on our Web site. Our customers can see how we are performing. We are very satisfied with the Andritz filter presses. The most important aspects of their performance are the fully automatic operation and the perfect dewatering effect. The solids content of the slurry is 40%. We save money by not having to add as much polymer. The cycle time is short. The operation and maintenance costs are low. We have gained even better results than originally planned concerning environmental protection. Now we can work within delightful and neat surroundings. During the project, I found that Andritz worked to a high standard all the time. They were concerned about safety and schedule. We closely and happily worked together with Andritz. My deepest impression of Andritz has been its teamwork, earnest work attitude, and care for its customers. We are not only partners at work, but now also good friends. Future I now know why Andritz has become a successful, fast developing, and international company. I wish Andritz great success in China. We will be updating our equipment in the future and the entire industrial park is expanding. As we enlarge or build new plants, we will give priority to the use of Andritz filter presses. 

ANDRITZ Annual Report 2006

028

Customer Projects Feed and Biofuel Business Area

Croatia

Biomass is a renewable source of energy that can be used to replace fossil fuels thus reducing environmental impact. The Andritz Feed and Biofuel Business Area is the world market leader for plants and systems for the production of environmentally friendly biofuel pellets from renewable materials, such as wood, peat, and agricultural by-products. In this way, highly valuable fuels are generated from materials that would otherwise have to be disposed of.

Pakleni Islands in Croatia ANDRITZ Annual Report 2006

Customer Projects Feed and Biofuel Business Area

029

“Andritz impressively demon­ strated the abil­ ity to deliver a complete proj­ ect from design to start-up.” Dragutin Drk, Chairman and CEO of Vindija Group, Croatia

ANDRITZ Annual Report 2006

030

Customer Projects Feed and Biofuel Business Area

Andritz supplied state-of-the-art processing lines for Koka‘s new multifunctional feed factory with a capacity of 400,000 tons per year. The Andritz supply included a premix line, full fat soya extrusion, and three parallel pellet­ ing lines producing high-quality feed and meeting highest standards in terms of heat treatment and traceability. ANDRITZ Annual Report 2006

Customer Projects Feed and Biofuel Business Area

031

FROM FARM TO FORK

Interview with Dragutin Drk Chairman and CEO of Vindija Group, Croatia

The Vindija Group developed from a small dairy established near Varaždin, Croatia in 1959. The company takes its name from the nearby Vindija cave which contains Paleolithic artifacts and Neanderthal skeletons dating from more than 200,000 years ago. Today, the state-of-the-art Vindija Group is an internationally known cheese producer, a leader in the dairy industry, and has expanded its portfolio to include juices, poultry, pork, and bakery products. Andritz supplied the production systems for a new

international quality standards. We are the first in Croatia to meet the International Food Standard (IFS).

feed mill at Vindija’s Koka subsidiary. The mill is capable of producing 400,000 tons of animal feed per year. Dragutin Drk, Chairman and CEO of the Vindija Group, talks about the company’s aggressive internationalization and Andritz’s contribution to the company’s expansion.

BIOdar and a new feed mill BIOdar is the brand name of the feed generated by our new mill. Koka built its first feed mill in 1964. It produced feed blends for breeding poultry with a capacity of 120,000 tons of feed per year.

Personal background I went to dairy school and then studied Economics at Zagreb University. I started my professional career in 1961 as production manager for Vindija. Four years later, at the age of 27, I was appointed General Manager. When I started working for Vindija, it was a small dairy with 25 employees, which supplied milk to the city of Varaždin. Today, it is the largest food company in Croatia. In my managerial actions, I have always given particular attention to the relationship with my employees because I firmly believe that people are the decisive criterion for quality. Vindija profile The Vindija cave, now an archeological treasure, was once used for the ripening of cheese. We took the name to evoke a link between the cave as a natural milieu for cheese and our current position as the largest food industry in Croatia (325 million Euros of sales and 3,300 employees). We have over 900 products and approximately 12% of our sales are exported to regional countries and the European Union. Our Koka (chicken) and Vindon (turkey) subsidiaries are the only poultry producers in Croatia certified to export to EU countries. Koka was founded in 1961 and is now the leading chicken meat producer in Croatia. The business is fully integrated – from breeding to hatchery to broiler farms, feed mill, slaughterhouse, and processing. Key to success Using quality raw materials and state-of-the-art processing technologies are key factors to us being certified to

We understand the need to make investments in the best technologies to support our production increases, improve quality, expand our product assortment, and improve our profit margins. This has permitted us to expand our markets beyond the region and into the European Union.

Andritz’s scope Andritz worked with our Koka team to design the process. Then they delivered all the production lines, including automation systems, for the factory’s 400,000 tons per year production. There are two lines for pelletized feed for poultry, one line for pelletized special diet feed, an integrated process line for thermal treatment of full fat soy beans, and a complete premix process line for the addition of vitamins and minerals which serves the feed factory as well as bagged products for third parties. During construction, Andritz supervised the installation. We suffered through a long and extreme winter, which delayed civil construction. When the physical construction was completed, Andritz started up the factory in February 2006.

There have been significant developments in poultry production and feed science since that time. Over the years, we added equipment and rebuilt our processes to increase capacity and improve the feed – such things as adding heat treatment for blends (pelleting and adding liquids). But we reached our practical physical limits and decided to build a completely new modern factory.

Performance The project for turnkey delivery stayed within the defined budget. We encountered construction delays along the way, as a result of situations beyond our control, but each challenge was solved mutually and with good cooperation.

The goals which we wanted to accomplish with the new construction were to more than triple our production capacity, improve the feed quality, and trace the production “from farm to fork” to conform with the latest EU regulations.

The feed mill is working to design capacity and supplies Koka with fodder blends. In addition, we are supplying other customers with different types of blends and premixes for all animal categories. There is a noticeable improvement in the feed quality.

Andritz capabilities

Since the factory is so close to the city of Varaždin, Andritz

Before this project, we had no direct experience with Andritz. During our analysis and negotiations, we visited several reference installations. The impression we got during the visits played an important part in our selection of Andritz.

had the responsibility to reduce municipal waste, and to minimize dust emissions and the release of any pollution into the environment. They have achieved all these targets. In addition, they installed systems for recovering and reusing waste heat from the production process.

Our criteria were straightforward. We wanted a longterm and reliable partner because our projects are based on long-term goals. We wanted a supplier who could offer a turnkey package. And, of course, we were looking for value for money invested.

Over the longer term, it will be important to see what impact the new fodder blends from the factory will have on the health and growth of the animals.

Andritz has a long tradition supplying technology for feed mills. They were flexible in applying their technology to our needs. They were willing to deliver a turnkey solution with guaranteed quality and capacity. And, they offered a competitive price. We signed the contract with them in February 2003.

Andritz demonstrated to us the ability to offer a complete project from design to start-up with guaranteed capacity and final product quality. 

ANDRITZ Annual Report 2006

032

Organizational Structure Andritz Group

ORGANIzational STRUcTURe of the ANDRITZ Group Managing Board

Group Functions

Business Areas

Wolfgang Leitner (President and CEO)

Humbert Köfler (from April 1, 2007)*

Karl Hornhofer (from January 1, 2007)*

Controlling; Accounting and Treasury; Internal Auditing; Organization and Business Process Development; Corporate Communications and Investor Relations; Human Resources; Project Financing; IT; Legal Matters, Patents, Insurance Pulp and Paper – Service

Pulp and Paper – Capital Equipment

Friedrich Papst

Franz Hofmann

Procurement; Manufacturing; Quality

Automation

Hydro Power, Feed and Biofuel

Rolling Mills and Strip Processing Lines, Environment and Process

* Karl Hornhofer and Humbert Köfler follow Markku Hänninen and Bernhard Rebernik, who had been responsible for the Pulp and Paper Business Area until 31.12.2006 and 31.3.2007, respectively.

Headquarters of the Andritz Group, Graz, Austria. ANDRITZ Annual Report 2006

Contents

033

CONTENTS

Mission and Company Profile Global Responsibility: Interview with Wolfgang Leitner Customer Projects Pulp and Paper: SCA Östrand                         

Expert interview: Technology providers are key to the solution

Hydro Power: Rätia Energie                      

Expert interview: Clean, clever, and competitive

003 004 006 006 010 012 016

Rolling Mills and Strip Processing Lines: Lianzhong Stainless Steel

018

Environment and Process: Qingyuan Hua Yan Water Industry

024

Feed and Biofuel: Vindija Group

028

Organizational structure of the Andritz Group Contents Letter from the Managing Board Company Boards Highlights 2006 Andritz Share Corporate Governance Sustainability and Corporate Responsibility Social Sustainability

032 033 034 036 038 040 042 044 045

  

- Veracel: A better life in Barrolandia

046

  

- Stora Enso: Making a good future for our children

050

Environmental Sustainability

Status Report Corporate Strategy Corporate Risks Business Areas

054

056 061 062 064

Pulp and Paper

064

Hydro Power

076

Rolling Mills and Strip Processing Lines

082

Environment and Process

086

Feed and Biofuel

Andritz Automation Human Resources Manufacturing, Procurement, and Quality Report of the Supervisory Board Consolidated Financial Statements 2006 Locations of the Andritz Group Technical Glossary Financial Glossary

090

094 096 098 100 101 136 142 144

ANDRITZ Annual Report 2006

034

Letter from the Managing Board

LETTER FROM THE MANAGING BOARD Ladies and Gentlemen, Dear Shareholders, Dear Employees,

All in all, the 2006 business year developed very favorably for the Andritz Group. We increased all relevant financial figures, with Order Intake, Order Backlog, Sales and Net Income reaching record levels. Despite strong competition in all of our relevant markets, all Business Areas maintained or expanded their good market position, and were able to win many important orders. In addition to strong organic growth, we continued our successful strategy of acquiring companies with complementary technologies. We purchased the remaining 40% stake in Küsters, which is a leading supplier of calendering technologies for the pulp, paper, and nonwoven industries, and we acquired Pilão, a successful Brazilian manufac-

tion projects which will be executed during the next few quarters. The medium-term goal for VA TECH HYDRO­ is an increase of the EBIT margin to the Group target level of 7%.

turer of low-consistency refiners and plates. Through these acquisitions, we are further extending the range of products and services we can offer our pulp and paper customers, thus providing a good basis for future growth.

New organizational structure and Managing Board for the Pulp and Paper Business Area As of January 1, 2007, the Pulp and Paper Business Area was reorganized in order to further increase our efficiency in greenfield and brownfield projects, as well as in large rebuilds. The Business Area is now organized into two segments: Capital Equipment and Service. The goal is to further improve coordination between the different product groups and to offer our customers comprehensive local service. The new organization is an important step to better fulfill the needs of our customers, thereby enhancing our market position.

Acquisition of VA TECH HYDRO By far the most important event for us in 2006 was the acquisition of VA TECH HYDRO. With VA TECH HYDRO, Andritz now ranks among the world’s top three suppliers for electromechanical equipment and services for hydropower stations. This acquisition ideally complements Andritz’s product portfolio. We have been active in the water turbine business for over 130 years. From 1949 to 1999, we were licensees of Sulzer-Escher Wyss. When Sulzer was acquired by VA Technologie AG in 1999, we successfully continued our water turbine business as an independent, although small, supplier. Now, with the acquisition of VA TECH HYDRO, we are able to extend a familiar field of activity into a truly global business in a growing market, with renewable resources such as hydropower being in much demand. VA TECH HYDRO employs approximately 3,000 employees at major sites in Austria, Germany, Switzerland, and India. Other affiliates are located in France, Italy, Spain, Norway, Canada, the USA, Mexico, and Brazil. Immediately after the financial closing of the trans­action at the end of May 2006 joint teams started several integra-

ANDRITZ Annual Report 2006

We will use our extensive network of manufacturing sites and sales offices to strengthen VA TECH HYDRO’s position in markets with strong growth in electricity consumption and availability of hydropower resources. We also see good opportunities for further expanding the rapidly growing pumps business, both in the pulp and paper industry and other selected industries.

At the beginning of October 2006, the Supervisory Board of Andritz AG appointed Karl Hornhofer and Humbert Köfler, who have served as Divisional Managers in the Pulp and Paper Business for many years, as new Members of the Managing Board as of January and April 2007, respectively. They follow Bernhard Rebernik, who will retire at the end of March 2007 after 15 years on the Managing Board as he reaches the age of 65, and Markku Hänninen, who became a member of the Supervisory Board of the Finnish subsidiary Andritz Oy as of the beginning of 2007. Outlook for 2007 and goals Our successful acquisitions, strong internal growth, and dedicated work of our employees and management teams have resulted in extraordinary growth of the

Andritz Group over the past few years. The goal for us now is to increase profitability while continuing to take advantage of an active investment climate in virtually all of our customer segments, and to acquire businesses if they fit into our medium-term strategy. The target is to reach a Group EBIT margin of 7% in 2008. Approaching this challenging goal will likely be the primary task for our Business Areas in 2007 and 2008. In the coming years, we will strive for continued growth via organic expansion by launching new products and technologies, as well as by complementary acquisitions. In all of our Business Areas, we still see opportunities for the acquisition of businesses for which the Andritz Group can provide a good home and strong base for a successful future. At the same time, we will focus on increasing our Earnings and profitability. Sufficiently high Earnings and a reasonable level of profitability are important conditions for a secure future for the company and our employees. The Managing Board of Andritz AG would like to thank all employees for their contributions and performance during the past year. The Board also wishes to thank all Andritz customers, business partners, and shareholders for the confidence placed in us. For 2007, we will do our utmost to serve our customers well and continue the success of the Company. The Managing Board Graz, March 2007

Letter from the Managing Board

035

The Managing Board of Andritz AG (from left to right): Karl Hornhofer (from 1.1.2007), Markku Hänninen (until 31.12.2006), Franz Hofmann, Humbert Köfler (from 1.4.2007), Wolfgang Leitner (President and CEO), Friedrich Papst, Bernhard Rebernik (until 31.3.2007)

ANDRITZ Annual Report 2006

036

Company Boards

COMPANY BOARDS

Stable, long-term management Managing Board

Wolfgang Leitner (President and CEO) joined Andritz in 1987 as Chief Financial Officer. He has served as President and CEO since 1994. His responsibilities encompass central Group functions such as Human Resources, Controlling & Finance, Corporate Communications & Investor Relations, Internal Auditing, Information Technology, and Business Process Development. Professional career: • Member of the Managing Board of AGIV AG • Founding member of GENERICON Pharma GmbH • Management consultant at McKinsey & Company • Researcher at Vianova

Humbert Köfler (Member of the Managing Board from April 1, 2007) joined Andritz in 1987 and held managerial positions in the Pulp and Paper Business Area. He was appointed as Member of the Managing Board as of April 2007 and is responsible for the Service segment of the Pulp and Paper Business Area. Professional career: • Head of the Paper Mill Services Division at Andritz AG • Head of the Mechanical Pulping Systems Division at Andritz AG • Regional Sales Manager at Andritz Sprout-Bauer GmbH • Export marketing manager at Biochemie GmbH

Markku Hänninen (Member of the Managing Board until December 31, 2006) joined Andritz in 1994 as manager of the Group’s Wood Processing Division, which Andritz had acquired from the KONE Group. He became a Member of the Andritz Managing Board in 2002 and was responsible for Pulp Mill Technologies until the end of 2006. Professional career: • President of Andritz-Ahlstrom Oy • President of Andritz Oy • President of Andritz Kone Wood Inc. • Division President at KONE Corporation

Friedrich Papst joined Andritz in 1979 and held leading positions in manufacturing and logistics. He has been a Member of the Managing Board since 1998 and is responsible for the Hydro Power and the Feed and Biofuel Business Areas, as well as for Manufacturing, Procurement, and Quality Management. Professional career: • Vice President of Andritz Sprout-Bauer Inc. • Director of Manufacturing at Andritz AG • Director of Production Planning at Andritz AG

Franz Hofmann joined Andritz in 1999 as Member of the Managing Board. He is responsible for the Rolling Mills and Strip Processing Lines Business Area, the Environment and Process Business Area, and the Automation department. Professional career: • Divisional Director at SMS Schloemann-Siemag AG • Management consultant at A.T. Kearney • Researcher at Vereinigte Deutsche Metallwerke Karl Hornhofer (Member of the Managing Board from January 1, 2007) joined Andritz in 1996 and held managerial positions in the Pulp and Paper Business Area. He was appointed as Member of the Managing Board as of January 2007 and is responsible for the Capital Equipment segment of the Pulp and Paper Business Area. Professional career: • Head of the Pulp and Paper Machines Division at Andritz AG • Head of the Pulp Drying Systems Division at Andritz AG • Design Engineer at Austrian Energy

Markku Hänninen (until 31.12.2006) Bernhard Rebernik (until 31.3.2007)

ANDRITZ Annual Report 2006

Bernhard Rebernik (Member of the Managing Board until March 31, 2007) joined Andritz in 1979 as a manager of the design and development department for pumps and nuclear components. He became a Member of the Managing Board in 1991 and has been responsible for Paper Mill Technologies until March 31, 2007. Professional career: • Chairman of Andritz Sprout-Bauer Inc. • Division Manager of Pulp and Paper at Andritz AG • Vice President of Aströ GmbH • Assistant professor at the Graz University of Technology

Humbert Köfler (from 1.4.2007)

Wolfgang Leitner President and CEO Karl Hornhofer (from 1.1.2007)

Franz Hofmann

Friedrich Papst

Company Boards

037

Supervisory Board Appointed Members

Kurt Stiassny (Chairman of the Supervisory Board): Chief Executive Officer of UIAG; Chairman of the Supervisory Board of Andritz AG since 1999, and elected until the Annual General Meeting of Andritz AG in 2010. Other supervisory board functions: Member of the Supervisory Board of Palfinger AG, Deputy Chairman of the Supervisory Board of Bene AG. Stock companies with major shareholdings: Deputy Chairman of the Supervisory Board of Austria Email AG.

Fritz Oberlerchner: Deputy Chairman of the Managing Board of BAUHOLDING STRABAG SE; Member of the Supervisory Board of Andritz AG since 2006, and elected until the Annual General Meeting of Andritz AG in 2011. Other supervisory board functions: Member of the Supervisory Boards of STRABAG AG (Cologne), STRABAG AG (Spittal/Drau, Austria), and STRABAG Zrt.; Chairman of the Supervisory Boards of STRABAG A.S. and STRABAG Sp.z.o.o.

Hellwig Torggler (Deputy Chairman of the Supervisory Board): Attorney-at-law; Deputy Chairman of the Supervisory Board of Andritz AG since 2004; Member of the Supervisory Board of Andritz AG since 2000, and elected until the Annual General Meeting of Andritz AG in 2009. Other supervisory board functions: Chairman of the Supervisory Board of FRAPAG Immobilienholding GmbH; Chairman of the Supervisory Board of FRAPAG Industrieholding AG; Deputy Chairman of the Supervisory Board of Theater in der Josefstadt Betriebsges.m.b.H.; Member of the Supervisory Boards of Mondi Packaging AG and Mondi Packaging Services AG.

Klaus Ritter: President and CEO of AVI Alpenländische Veredelungs Industrie Ges. m.b.H, EVG Entwicklungs- und Verwertungs-Gesellschaft m.b.H., and Stahl- und Walzwerk Marienhütte Ges.m.b.H.; Member of the Supervisory Board of Andritz AG since 2004, and elected until the Annual General Meeting of Andritz AG in 2009. Other supervisory board functions: none

Peter Mitterbauer: Chairman of the Managing Board of MIBA AG; Member of the Supervisory Board of Andritz AG since 2003, and elected until the Annual General Meeting of Andritz AG in 2010. Other supervisory board functions: Chairman of the Supervisory Boards of ÖIAG (Österreichische Industrieholding AG) and FFG (Austrian Research Promotion Agency); Member of the Supervisory Boards of Generali Holding Vienna AG, Oberbank AG, and Rheinmetall AG.

Andreas Martiner Member of the Supervisory Board of Andritz AG since 2001

Christian Nowotny: Full-time professor at the University of Economics in Vienna; Member of the Supervisory Board of Andritz AG since 1999, and elected until the Annual General Meeting of Andritz AG in 2009. Other supervisory board functions: Member of the Supervisory Boards of CA Immo AG, Allianz KAG, Immofinanz Beteiligungs AG, and Generali Drei Banken Holding AG.

Fritz Oberlerchner Hellwig Torggler Deputy Chairman of the Supervisory Board Johann Tschrischnig Peter Mitterbauer

Delegated Members

Johann Tschrischnig Member of the Supervisory Board of Andritz AG since 1994 Brigitta Wasserbauer Member of the Supervisory Board of Andritz AG since 2000

Christian Nowotny

Brigitta Wasserbauer Andreas Martiner

Klaus Ritter

Kurt Stiassny Chairman of the Supervisory Board

038

Highlights 2006

New Andritz Managing Board Members for Pulp and Paper Humbert Köfler, Karl Hornhofer

Annealing and pickling line for cold-rolled strip supplied by Andritz to E-United Group, Taiwan, for LISCO‘s stainless steel mill in China. In 2006, this customer placed two further major orders for annealing and pickling lines.

Andritz acquires VA TECH HYDRO, thus becoming one of the world‘s leading suppliers of electromechanical equipment for hydropower plants. Photo: Freudenau power station for which VA TECH HYDRO supplied major components. Photo: Verbund

ANDRITZ Annual Report 2006

Highlights 2006

039

HIGHLIGHTS 2006

Important acquisitions, new management team in Pulp and Paper

Important strategic acquisitions VA TECH HYDRO, Pilão, and Küsters At the end of May 2006, Andritz successfully closes the acquisition of VA TECH HYDRO, a globally leading supplier of electromechanical equipment for hydropower stations with a worldwide presence. It ideally complements Andritz’s product portfolio for hydropower equipment. In April, Andritz purchases Pilão S.A., a specialist in lowconsistency refining headquartered in São Paulo, Brazil. Pilão strengthens the Group’s presence in South America and profits from Andritz’s global organization and sales network. Having purchased a 60% stake in the Paper and Nonwoven Business Areas of Küsters in 2005, Andritz acquires the remaining 40% in June 2006. Küsters, based in Krefeld, Germany is one of the world’s leading suppliers of roll and calendering technologies for the paper, nonwoven, and textile industries.

Major orders from renowned customers worldwide Two 100 MEUR orders in the Pulp and Paper Business Area Sappi Saiccor (Pty.) Ltd., the world’s largest manufacturer of viscose pulp, places a 100 MEUR order for the

Order for the world’s most powerful turbines The state-owned enterprise EDELCA, Venezuela signed a contract with VA TECH HYDRO-led Consortium EUROBRAS­ for the supply of five large Francis turbines at the Second Powerhouse of the Simon Bolivar power plant in Guri on the Caroni River. With an output of 770 MW per unit, the turbines of Guri 2 belong to the most powerful in the world. Each single Francis runner will

supply of the bleaching, evaporation, and pulp drying equipment for its Saiccor mill in Umkomaas, near Durban, South Africa. This investment aims to increase mill capacity from 600,000 to 800,000 t/y of bleached viscose pulp.

have a finished weight of almost 200 tons.

Hunan Tiger Forest & Paper Group Co. Ltd., Changsha, Hunan Province, China awards a 100 MEUR contract to supply the main equipment and technologies for its greenfield pulp mill in Huaihua. The new mill will produce 400,000 t/y of bleached kraft pulp.

In October 2006, the Supervisory Board of Andritz AG approves changes in the Managing Board of Andritz AG. Bernhard Rebernik and Markku Hänninen will resign as Board Members and will be succeeded by Humbert Köfler­ and Karl Hornhofer.

Major orders from E-United Group for stainless steel mills

Bernhard Rebernik will retire upon reaching age 65, and Markku Hänninen will, upon expiration of his mandate, become a Member of the Supervisory Board of the Finnish subsidiary, Andritz Oy. Karl Hornhofer and Humbert Köfler have served as Andritz Divisional Managers for many years and are appointed as new Members of the Andritz AG Managing Board from January and April 2007, respectively. Karl Hornhofer will be responsible for the Capital Equipment segment, and Humbert Köfler will head the Service segment.

Taiwanese E-United Group orders two process lines, one hot-rolled strip annealing and pickling line for LISCO’s stainless steel mill in China and one cold-rolled strip annealing and pickling line for YUSCO’s stainless steel mill in Taiwan. In 2003, this customer had ordered one of the world‘s largest annealing and pickling lines for hot-rolled strip, and in 2004, an annealing and pickling line for coldrolled strip. Both lines are successfully in operation.

New Andritz Managing Board Members for Pulp and Paper

Largest European sewage sludge drying plant for Athens In the Environment and Process Business Area, Andritz receives an order to supply a drum drying system for the sewage treatment plant of the City of Athens. Being designed for the treatment of approximately 385,000 tons of sewage sludge per year, the plant will provide the largest sewage sludge drying capacity in all of Europe.

ANDRITZ Annual Report 2006

040

Andritz Share

ANDRITZ SHARE

Another year outperforming the ATX Relative share price performance of the Andritz share vs. ATX since the IPO 800

Share price development

Closing price 2006: 164.30 EUR 750

In 2006, the Andritz share price once again developed very positively. It increased by 74.9%, thus showing a significantly better performance than the ATX (leading stock exchange index of the Vienna Stock Exchange), which rose only 21.2% during the same period. The highest closing price during the reporting period was 164.30 Euros (December 28, 2006), the lowest 92.50 Euros (January 18, 2006).

700 650 600

Trading volume

550 500

ANDRITZ

450 400

Shareholder structure of Andritz

350 300 ATX

250 200

June 2003: SPO at 22.75 EUR per share

June 2001: 150 IPO at 21.00 EUR per share 100 50 2001

In 2006, the average daily trading volume of Andritz shares at the Vienna Stock Exchange was 88,895 shares (2005: 83,993 shares). The highest trading volume was 415,736 shares (June 13, 2006), the lowest 9,500 shares (February 15, 2006).

2002

2003

2004

2005

2006

2007

Andritz has a very stable and well balanced shareholder structure. Approximately 26% of the shares are owned by Certus whose Managing Director is Wolfgang Leitner, President and CEO of Andritz. Other Managing Board members, executives, and employees of the Andritz Group hold approximately 2% of the shares. With approximately 72% of free float, Andritz has a widely diversified shareholder structure consisting of institutional investors and private retail shareholders. The majority of institutional investors come from Anglo-Saxon countries, including Great Britain and the USA, but also from Austria and Germany. Private retail investors are mainly based in Austria and Germany.

Stock exchange figures for Andritz shares Highest closing price (EUR)

2006

2005

2004

2003

2002

2001

164.30

92.85

56.50

37.95

28.00

23.50

92.50

56.59

35.00

21.00

19.40

20.52

Closing price at year-end (EUR)

164.30

92.85

56.10

37.95

22.99

21.30

Market capitalization as of 31.12. (MEUR)

2,135.9

1,207.1

729.3

493.4

298.9

276.9

Performance

+3.8%

Lowest closing price (EUR)

+74.9%

+62.8%

+52.5%

+65.0%

+7.9%

ATX weighting as of 31.12. (%)

2.4077

1.8200

1.7656

2.3250

0.6992

-

Average daily number of shares traded

88,895

83,993

70,744

45,410

13,255

19,802

Source: Vienna Stock Exchange

ANDRITZ Annual Report 2006

041

Andritz Share

Analyst coverage further broadened

Investor Relations Each year, the Austrian Association for Financial Analysis and Asset Management (ÖVFA) and the Austrian business magazine GEWINN award prizes for special achieve­ments in Investor Relations. In 2006, Andritz – for the fifth time in a row – received an award for its outstanding performance in the area of Investor Relations. After winning the “Overall Stock Exchange Award” and “Investor Relations Online Award” in previous years,

The 2006 Andritz Investor Days, held on 11–12 October in Lucerne, Switzerland, focused on newly acquired VA TECH HYDRO and the outlook for the hydropower market. The attending financial analysts and journalists also visited the manufacturing site of Andritz VA TECH HYDRO­ in Kriens, Switzerland, and the hydropower station of KWO, a long-term and satisfied customer of Andritz VA TECH HYDRO.

Andritz received the important “Corporate Governance Prize 2006”, which evaluates compliance with the rules of conduct outlined in the Austrian Corporate Govern­ ance Code for responsible company management and control aimed at creating shareholder value. In addition to the qualitative features, “soft facts” such as corporate transparency toward shareholders were also included in the evaluation.

Contact Andritz Investor Relations Dr. Michael Buchbauer (Head) Petra Wolf (Assistant) Stattegger Strasse 18, 8045 Graz, Austria Phone: +43 316 6902 2722 Fax: +43 316 6902 465 [email protected] www.andritz.com

Number of one-on-one meetings significantly increased In 2006, Andritz staged a large number of road shows in the world’s most important financial centers. In total, over 190 individual one-on-one (1-1) meetings (2005: approximately 140 1-1 meetings) with institutional shareholders and financial analysts were held in London, Edinburgh, Milan, New York, Denver, Austin, San Francisco, San Diego, Boston, Toronto, Montreal, Zürich, Brussels, Amsterdam, Helsinki, Paris, Vienna, and Frankfurt. Andritz also presented itself at various investor conferences, such as JPMorgan’s Capital Goods Conference in Lon-

In 2006, Goldman Sachs and Sal. Oppenheim initiated the coverage on Andritz. In total, ten national and international banks and investment companies publish reports on Andritz on a regular basis. They are: Bank Austria/Creditanstalt, Berenberg Bank, Deutsche Bank, Erste Bank, Goldman Sachs, JPMorgan, Kaupthing Sofi, Sal. Oppenheim, UBS, and Raiffeisen Centrobank.

Shareholder structure of the free float by region

don, Great Britain; Bank Austria’s Austrian Investor Conference in Kitzbühel, Austria; at the Investor Conference of Erste Bank in Stegersbach, Austria; and the Investor Conference of Capital Bank in Bad Aussee, Austria.

Rest of world: 7% USA: 7%

Shareholder structure of Andritz (as of 31.12.2006) 2% Own shares, Management

Austria: 25% 26% Certus

France: 7%

Switzerland: 5% UK: 37% Germany: 12%

72% Free float

Source: Andritz estimates

Key figures for Andritz shares ISIN Code

AT0000730007

First Listing Day

June 25, 2001

Types of Shares

no par value shares, bearer shares

Total Number of Shares Authorized Capital Free Float Stock Exchange Ticker Symbols Stock Exchange Indices

13 million none approximately 72% Vienna (Prime Market) Reuters: ANDR.VI; Bloomberg: ANDR, AV ATX, ATXPrime, WBI

ANDRITZ Annual Report 2006

042

Corporate Governance

CORPORATE GOVERNANCE

Award for exemplary implementation of Corporate Governance measures

Corporate Governance Code In October 2006, Andritz was awarded the impor­ tant “Corporate Governance Prize 2006” within the framework of an international financial trade fair held annually in Vienna. This prize evaluates com­ pliance with the rules of conduct laid down in the Austrian Corporate Governance Code for respon­ sible company management and control aimed at creating shareholder value. In addition to the qual­ itative features, “soft facts” such as transparency toward shareholders, were also included in the evaluation.

Andritz endorses compliance with the Austrian Corporate Governance Code, which was revised in early 2006. It regards the Code as an essential means to implement responsible management and control of Andritz, which is directed towards creating added value. Implementation of and compliance with the Code will promote and intensify the confidence of shareholders, investors, customers, employees, suppliers, representatives of the media, and other stakeholders in the Company. The Managing Board and the Supervisory Board, as well as the entire staff of Andritz, are committed to complying with the Code. Besides the mandatory “L” Rules, which refer to legal requirements, Andritz explains the requirements of and the deviations to the Code’s “C” Rules as follows:*)

C Rule 30 The members of the Managing Board are entitled to receive pension scheme benefits. In addition to a retirement pension, these include benefits in the event of occupational disability, as well as pension payments for dependents following the death of the beneficiary. The retirement pension is normally paid as from a certain age provided that the employment contract has already been terminated by this date. The administration has been transferred to a pension fund; in the event that the employment contract is terminated prematurely, contributions made up to this point shall still be vested. The pension amount to which the beneficiary is entitled is not subject to an escalation clause before any benefits become payable, but will be adjusted annually thereafter. Each member of the Managing Board shall, upon termination of his/her function and concurrent termination of employment, be entitled to severance payments in the meaning of Article 23 of the Austrian Employees Act.

ANDRITZ Annual Report 2006

C Rule 34 The information and reporting obligations of the Managing Board, as well as the setting up of various committees, are stipulated in the Company’s Articles of Association, which are available on the Andritz AG website.

C Rule 38 Andritz AG Articles of Association do not stipulate an age limit for its Managing Board members. Appointment of Managing Board members is solely contingent on personal and professional qualifications.

C Rule 39 The Supervisory Board of Andritz AG shall nominate committees depending on the prevailing situation and necessities. These committees can be composed of all members of the Supervisory Board.

C Rule 41 The Supervisory Board of Andritz AG does not have a separate Nomination Committee. The Supervisory Board of Andritz AG is composed of experts from different fields who hold constructive sessions at regular intervals to discuss, inter alia, the filling of vacant Managing Board positions and the planning of succession.

C Rule 43 The Supervisory Board of Andritz AG does not have a separate Remuneration Committee. The Supervisory Board of Andritz AG is composed of experts from different fields who hold constructive sessions at regular intervals to discuss, inter alia, the remuneration of the Managing Board and employment contracts.

Corporate Governance

C Rule 49

C Rule 54

Schönherr Rechtsanwälte GmbH provides legal advice to Andritz. Hellwig Torggler, Deputy Chairman of Andritz AG’s Supervisory Board, was a senior partner of Schönherr Rechtsanwälte GmbH until January 31, 2007. The fees that have been paid to Schönherr Rechtsanwälte in 2006 are to be considered as minor.

The free float of Andritz is approximately 70%. No member of Andritz AG’s Supervisory Board owns more than 10% of the company. With regard to the independence criteria of the Supervisory Board members, please see explanations to C Rule 53.

C Rule 51 Pursuant to Article 15, paragraph 1 of the Articles of Association of Andritz AG, the Members of the Supervisory Board may be granted a remuneration. The amount of this remuneration is adopted in each case by a resolution of the General Meeting of Shareholders, which is free to determine different amounts for the individual Supervisory Board members. The General Meeting may also fix a total remuneration for the Supervisory Board and leave it to the Supervisory Board to decide on its distribution. It is intended to suggest the following scheme of remuneration for the Members of the Supervisory Board: the remuneration is composed of a fixed and an attendancerelated portion. The fixed portion is a global sum, which is to be distributed such that the Chairman of the Supervisory Board receives double the amount and his deputy one-and-a-half-times the amount paid to the other members. The second portion consists of a lump sum fee paid in respect of each meeting that the member attends.

C Rule 53 With regard to independence criteria, the Supervisory Board of Andritz AG follows the guidelines of annex 1 of the Corporate Governance Code. According to these guidelines, all members of the Andritz Supervisory Board, with the exception of Hellwig Torggler, can be seen as independent.

C Rule 57 Andritz AG Articles of Association do not stipulate an age limit for its Supervisory Board members. Appointment of Supervisory Board members is solely contingent on personal and professional qualifications. The complete Corporate Governance Code can be accessed and downloaded from the Andritz website (www. andritz.com). The website also contains Andritz’s statement on compliance with the Code, including explanations to deviations. *) The Austrian Code of Corporate Governance encompasses the follow­ ing three categories of rules: Legal Requirement (L): referring to mandatory legal requirements; Comply or Explain (C): this rule is to be followed; any deviation must be explained and the reasons stated in order to be in compliance with the Code; Recommendation (R): the nature of this rule is a recommendation; non-compliance with this rule requires neither disclosure nor explanation.

043

Compliance Guidelines Andritz’s most important Investor Relations goal is the equal treatment of all shareholders as well as the provision of detailed information to all market participants. In compliance with the regulations of the Austrian Financial Market Authority (FMA) and the Vienna Stock Exchange, Andritz has imple­ mented comprehensive and detailed Compliance Guidelines which encompass the following: • A ppointment of a Compliance Officer to supervise compliance with the Compliance Guidelines • Rules for the prohibition of misuse of insider information, and its handling, transmission and release (“Ad hoc publicity”) • Definition and implementation of Group-wide confidential areas (permanent as well as temporary projectrelated areas) of the Company where persons have regular or cause-related access to insider information • Trading bans on Andritz shares during blackout periods • Notification of Directors’ Dealings (= notification to the Financial Market Authority regarding transaction of Andritz shares and securities similar to shares, or of deri­vatives relating to these, by any person with manage­ment tasks within the Andritz Group) • Keeping and updating an Insider Register (list of all persons from confidential areas) • P otential civil law (tort) and administrative consequences of infringements of these Compliance Guidelines The Andritz Compliance Guidelines cover the Members of the Supervisory Board and the Members of the Managing Board of the Andritz Group, its Managing Directors, and its employees, as well as all persons with regular or cause-related access to insider information. 

ANDRITZ Annual Report 2006

044

Sustainability and Corporate Responsibility

Sustainability and Corporate Responsibility

Strong commitment to environmental and social sustainability

No business in the world can successfully operate in an economic and social vacuum. Industry is one of the primary users of raw materials such as fresh water and forest fibers, and natural resources. As such, industry must sustainably manage these raw materials while meeting demands for renew­ able and greenhouse-neutral energy, healthy liveli­ hoods, wildlife habitat, climate protection, and the cultural survival of indigenous peoples.

This requires close cooperation and collaboration with all relevant stakeholders, and a holistic view. Fulfilling the expectations of all of the key stakeholders – customers, investors, suppliers, employees, and the communities where Andritz does business or has manufacturing and services sites – is our goal. Only long-term sustainable development can secure the balance between economic growth, environmental impact, and social responsibility. For Andritz, sustainability, environmental protection, and social responsibility are integral parts of its corporate policy. The principles are reflected in the daily work of Andritz employees, as well as in the management principles and systems. It is important to recognize the knowledge and experience of employees, as well as cultural variety, as keys to success. Andritz companies operate all over the world on the same high level of quality, health protection, and work safety, as well as environmental protection. Sustainable development for Andritz means having a corporate responsibility and meeting the needs of the present without compromising the ability of future generations to meet their needs. There are three fundamental pillars for sustainable development: economic growth, ecological balance, and social progress.

ANDRITZ Annual Report 2006

Andritz is helping to achieve economic growth and ecological balance through: • Developing and offering technologies that prevent pollu­ tion in the first place • Processes that use the by-products of one process as raw materials for another, thus minimizing waste • Offering new services which allow more efficient utilization of labor and other raw materials used within a customer’s plant • Collaborating with customers to better understand the requirements for sustainability and aligning Andritz’s business processes with these requirements • Further developing products that are as environmentally benign as possible • Operating the business in a socially responsible manner • Giving preference to suppliers that share these commitments to sustainability. Andritz focuses all of its activities on sustainability, targeted on and contributing to ongoing, positive development in the economic, social and environmental areas.  

Sustainability and Corporate Responsibility Social Sustainability

045

Social sustainability Andritz provides modern, efficient plants to developing countries to produce what is needed there, but also, just as importantly, to create jobs that pay wages and salaries to buy what is produced. Andritz firmly believes in every human being’s right to pursue and achieve a better life, and firmly opposes movements trying to impose certain defensive roles on whole countries or even continents. Nobody can be expected to give up hope and pursuit for a better life due to somebody else’s overconsumption of oil or overproduction of carbon dioxide. The rapidly growing middle class in many developing/ newly developed countries is evidence for the successful global development of the last decade. But a lot still needs to be done. Socially sustainable development meets people’s basic needs for food, shelter, safety, education, and work. In addition, it must promote development of the human potential and preserve the cultural and natural heritage. As a globally active and expanding company, Andritz’s success is heavily dependent on human resources. As a consequence, numerous measures are set to support and protect staff and also to live up to the social responsibility vis-à-vis the individual person.

Health and safety Employees’ health and safety at work are major concerns. Andritz provides modern and safe equipment, clothing, tools, and accessories for the protection of its employees. Safe procedures are developed, documented, and enforced for all employees working in manu­ facturing facilities or at customer locations.

Investing in people Corporate success is strongly dependent upon the quality of Andritz employees. Human Resources management is a top priority. Andritz funds the professional development of its employees and also invests con­siderably in their health and well-being. A successful management training program (“Management Challenge”) has been an integral part of human resources development for several years. International and local courses offer training in areas such as leadership skills, project management, and conflict resolution. Young, fast-growing companies in developing countries benefit from the experience of well-established companies in Europe.

Education and information Andritz takes pride in its efforts for a safe and sustainable environment. Accordingly, an active information policy is in place to communicate with authorities and stakeholders. The policy is based upon transparency and trust. One example of Andritz’s information activities is the annual “Waste Management Report” for certain locations. The aspects of ecology are an integral element of the training and education programs for Andritz employees.

A major challenge for Andritz has been the integration of newly-acquired companies. Great importance is placed upon measures to integrate management and other employees. Cooperation with the various works councils is another principle for Andritz. All relevant issues are being resolved in close collaboration with the worker representatives.

Social sustainability measures of Andritz’s customers Most of Andritz’s customers have a strong commitment towards sustainability. Their sustainability strategy is based on implementation of the best environmental technologies and practices, strong social commitment, and active dialog with all relevant stakeholders. This results in significant investments in infrastructure, healthcare, and education of the people and communities where Andritz’s customers operate. In addition, many new jobs for local workers, sub-suppliers, and other involved industries are created, thus improving the stand­ ard of living of several thousand people. The following two articles showcase the positive impact of the sustainability measures of Veracel and Stora Enso – both are very good customers of Andritz – on social life and quality of life in Brazil and China, where both companies have invested significantly during the last few years. ➔

Employees are encouraged to contribute their knowledge and experience. One instrument is the “Suggestions for Improvement” area in the Andritz Intranet.

ANDRITZ Annual Report 2006

046

Sustainability and Corporate Responsibility Social Sustainability

“IT’S ABOUT BUILDING A BETTER LIFE.”

The streets of Barrolandia. Once a small community in the poorest region of Brazil, Barrolandia has benefited from the Veracel mill just 18 km away. Veracel has invested in the infrastructure – new streets, new sewers, bathrooms, medical facilities – as well as providing jobs.

Photo: Gleison Rezende

ANDRITZ Annual Report 2006

Sustainability and Corporate Responsibility Social Sustainability

047

A BETTER LIFE IN BARROLANDIA

Veracel improves living conditions in Brazil.

Veracel Celulose of Brazil started up one of the world’s largest and most environmentally advanced market pulp mills in 2005. The mill is a showcase for Andritz’s advanced technology. However, this story is not about technology. It is about people. Thousands of jobs were created when Veracel was built. And now, the company provides work for 538 people in the mill and 3,095 others in the forestry and corporate branch. Thousands more count on the mill for their livelihoods – as tree farmers, subsuppliers, or recipients of social programs. Vera­ cel brought significant improvements through its eleven million US dollars investments in local infra­ structure, healthcare, and education, plus the 23.3 million US dollars it paid in taxes in 2005. One Veracel employee can especially relate to the “better life” Veracel has brought to a poor district in the southern Bahia state. We are proud to be a partner with Veracel and to bring you this story. Special thanks to Cristina Moreno and Cyntia Fa­ rabotti of Veracel for their contribution. Sandoval Nascimento Silva was born in 1985 in Barrolandia, a small community in perhaps the poorest region of Brazil. Sandoval’s father moved there 40 years ago to work in the wood harvesting business long before the Veracel mill was even conceived. At that time, Barrolandia was “in the middle of nowhere.” Today, the Veracel mill is just 18 km from the village and Sandoval is an operator at the mill. But his journey from Barrolandia to Veracel did not follow a straight path. His early years were good. Sandoval’s father built a house, owned a car and a motorcycle, and enjoyed a hard-working, but decent life. As a child, Sandoval remembers playing football with friends, swimming in the nearby river, and exploring the forest in search of great adventures.

The good times came to an end in the early 1990s as the trees were harvested and the cocoa trade diminished. The cocoa trees were invaded by a virus and on the forestry side there was a growing concern about environmental issues in Brazil. Sandoval’s father owned a small supermarket at the time, but with no forests remaining, no cocoa industry, and very few opportunities for work, he had to sell almost everything to survive. Young Sandoval made a decision. “I knew that the only way to get a good job was to get a good education,” Sandoval says, “so at the age of 14 I moved with my sister to the city of Eunapolis, which, at that time, had approximately 84,000 inhabitants (today: approximately 94,000 inhabitants). We lived alone. Eunapolis was like a big city for me. Being away from my family and friends was difficult.” But Sandoval took advantage of the opportunity to learn. “I was the best student in my class,” he says proudly. One day, he heard about the Veracel mill that was going to be built nearby. “I did not know about the pulp industry, but I knew that the plant would have high technology,” Sandoval says. “My father told me it would be the best job that I could ever get in this region.” Sandoval woke up early and went to apply at Veracel. “The line of applicants was very long, but I didn’t give up,” he says. “I really wanted a chance to get into the internship program for technical training.” And he was successful. “I enjoyed the training and learning how to operate the fiberline,” Sandoval says. “Everything was state-of-theart and the computer systems were amazing. My parents are really proud of me. My father reminds me of the great opportunity that I have, after coming from a small, poor place like Barrolandia.”  ➔

ANDRITZ Annual Report 2006

048

Sustainability and Corporate Responsibility Social Sustainability

“It started out as a way to support the construc­ tion of this mill and has evolved now to finding out what each local community needs to build a better life.”

Veracel has invested in over 90 infrastructure and social projects in Barrolandia and the surrounding communities according to Cristina Moreno, Sustainability General Manager for Veracel. “Our local investments in sanitation, healthcare, security, and education are part of the commitment we made when we received funding for this project,” she says. “It started out as a way to support the construction of this mill and has evolved now to finding out what each local community needs to build a

In many parts of the world, leprosy has been eradicated, but that was not the case in Barrolandia. Veracel began a program which, to date, has trained 300 medical professionals and 115 healthcare community agents in the early detection of leprosy. In addition, the company donated modern equipment to medical and dental clinics in the communities around the mill.

better life.”

Veracel mill and in July 2006 he received his accounting degree from the local university. “I’ve been able to make a few economic improvements,” he says. “I bought a car that my father also uses.”

Barrolandia was of special interest because it housed many of the construction crews working at the Veracel complex. “We started by building barracks for the workers to live in,” Moreno says. “We knew that sanitation was not adequate so we built sewage lines and rain water drainage systems for the town. From this, we saw that many homes did not have sanitary bathrooms so we invested in a plant where local people were trained to make bricks and build the necessary bathrooms with the materials we provided.”

“Building is easy,” Cristina Moreno says, “but understanding is more difficult.”

ANDRITZ Annual Report 2006

One thing led to another. Next, Veracel helped build additions to the primary school, built a new police precinct, and added on to the local hospital. “Building is easy,” Moreno says, “but understanding is more difficult. We have had over 30 public meetings with the people in Barrolandia over the last two years to find out what they need and to explain what we are doing. It takes lots of dialogue to build trust.”

And, what of Sandoval today? He is an operator at the

The Silva family is back together in Barrolandia. “It’s close to the mill and is my home,” he says. “Things have really improved because of the hospital, the sewers, the paved roads, and the school. Plus, a few years ago, everyone knew someone with leprosy, but now it is really rare.” As always, Sandoval is planning for the future. “I am saving money for post-graduate work and I want to advance in my career,” he announces. “All of this because of Veracel.”

Sustainability and Corporate Responsibility Social Sustainability

049

Veracel‘s investments in sanitation, healthcare, se­ curity, and education are part of the commitment it made when it received funding for the mill. “We are finding out what each community needs to build a better life.”

Top photos: Emandes Alcantara

A local volunteer constructs a sanitary bathroom using bricks from the Veracelfunded brick factory.

Sandoval Nascimento Silva at work as an operator at the Veracel Celulose mill in Brazil. “I am saving money for postgraduate work and want to advance in my career.”

Photo: Gleison Rezende

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050

Sustainability and Corporate Responsibility Social Sustainability

Another day of hard work on the Hong Shi Ding plantation.

“The new Chinese Dream.” Preparing for the future – children from the Shankou Forest Farm school.

ANDRITZ Annual Report 2006

Sustainability and Corporate Responsibility Social Sustainability

051

MAKING A GOOD FUTURE FOR OUR CHILDREN Stora Enso invests in the future of the Chinese people Text: Hannu Pesonen Photography: Jarmo Hietaranta

The forest products industry contributes to the economic development and social well-being of communities worldwide. The major players in the industry take the challenge of sustainable devel­ opment seriously – taking actions that combine strong economic performance with sound environ­ mental management and attention to social condi­ tions.

A new television set stands on a shiny wooden chest of drawers. An electric fan hums softly, and there is a telephone on the coffee table. Mr. Shen’s truck is parked in front of the house, and he constantly fiddles with his cell phone. The conversation in the room unashamedly jumps from hiring staff to making profits to buying a new car. Even here, in the rural backwoods of Guangxi Autono-

Stora Enso, headquartered in Finland with op­ erations in more than 40 countries, is one of the world’s leading paper, packaging, and forest prod­ ucts companies. Sustainability has been identified as one of Stora Enso’s key strategies. As it enters new growth markets, such as China, Stora Enso faces new challenges in sustainable development. For example, the company’s typical approach of having an objective third party perform an Environ­ mental and Social Impact Assessment prior to the design of a project is a practice virtually unheard of in China. Stora Enso is also one of the Andritz Group’s key clients in the forest products sector. Andritz has supplied process technology and equipment to Stora Enso mills in Europe, North America, South America, and Asia. Like Stora Enso, Andritz is com­ mitted to improving the safety, economic, and so­ cial well-being of its workers and the communities where it operates. The following article, adapted from Stora Enso’s Tempus magazine for stakeholders, highlights some of the social sustainability challenges com­ panies face in new growth markets. Andritz sin­ cerely respects Stora Enso for its commitment to sustainability and thanks them for permission to adapt this article.

mous Region in Southern China, the first signs of China’s powerful thrust towards market economy are clearly visible. Shen’s leap from subsistence farmer to entrepreneur and provider of labor for an international company, Stora Enso, seems to constitute a true Chinese dream. “For a long time, we lived by planting cassava, paddy rice, and peanuts, mainly for our own consumption,” recalls Shen. “Then, we started cash crops such as sugarcane. Finally, we bought our first tractor.” Of course the tractor was very small, Shen hastens to add, but it allowed the family to get into selling wood for construction. “Then, we bought a truck to transport fertilizers and timber,” he says. “I established my own forest company. Now, we employ 10–20 people, depending on the season, and provide labor for Stora Enso’s plantation near Shankou town.” Starting with a plantation Stora Enso started investing in Guangxi in 2002 with the aim of establishing 160,000 hectares of industrial hardwood plantations on a trial basis. With the plantations underway, Stora Enso is now preparing to set up an integrated pulp, paper, and board mill complex near the plantations.  ➔

From the center of a bare wall, the watchful gaze of Chairman Mao Zedong dominates Shen Dexing’s and Liang Chaozheng’s simple living room in their house in tiny Shen Wu village. Traditional, perhaps, but it’s not the whole picture.

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Sustainability and Corporate Responsibility Social Sustainability

“If the project proceeds as planned,” says Kari Tuomela, President of Stora Enso Guangxi, “Stora Enso will become the leading forestry player in this region and among the very few international companies to have invested in this relatively neglected part of China.” Even at this preliminary stage, Stora Enso employs 150 people in the region, with another 2,000 indirectly involved in field work through contractors like Shen. The UNDP estimates thousands of people to profit from the project if the integrated mill becomes a reality. Social challenges According to LiYing Luan, Assistant Resident Representative of UNDP’s China office, the United Nations regards the private sector as a key partner in fighting poverty and social inequality. “In China and the rest of the world, environmental and social responsibilities have become part of the management philosophy of many businesses,” she says. “The private sector is indispensable. It is increasingly in their best interests to be part of the solution rather than part of the problem.” Answering the challenge, admits Tuomela, is a formidable task. That is why Stora Enso began a four-year cooperation with UNDP last March to promote sustainable development and social welfare in local communities and conserve the biodiversity in the region. The initiative is a direct follow-up of an environmental and social impact assessment of Stora Enso’s forest plantation, conducted by UNDP. Such assessments and mitigation efforts are normal for any new Stora Enso project, but they are not common in China.

The UNDP study found no major environmental or social issues that might jeopardize Stora Enso’s plantation project. According to Luan, the local communities are likely to benefit from the project in terms of biodiversity conservation, social engagement for equity, and improved social well-being regarding health, safe water, hygiene practices, basic education, and skill development.

“A fridge would be nice, but it would cost us more than

“The real challenges lie more in the social issues than on the environmental side,” Kari Tuomela says. Growth stimulates change The changes engendered by China’s consistently strong growth penetrate to the more remote and quieter regions, too. Take the Shens’ nearest outlet, Shankou. Despite its genuine small town atmosphere, the advertisements and international consumer trademarks are already creeping in. And, a half-day’s drive along a wide, new, well-surfaced highway takes you to Nanning, a city of five million inhabitants. Blocks of skyscrapers now cover a wide area that only five years ago was an empty wasteland. The benign smile of Colonel Sanders pops up here and there at numerous Kentucky Fried Chicken outlets. Nokia, Coca-Cola, Audi, and Toyota abound. And these products are not only displayed, they are in great demand. Everybody wants to be rich. Everybody wants a car, fridge, and TV set. Everybody wants a shop next door selling the latest electronics and exciting merchandise. Sacrifices for children Gaining wealth tastes both sweet and sour. The days are long for Shen and Liang. In fact, the Spring Festival, better known as the Chinese New Year, is the only time when Shen admits taking leave from his duties.

ANDRITZ Annual Report 2006

“I always prepare lunch in the morning so the children can have it if we can’t attend to them,” says Liang. She manages the kitchen in traditional style, steaming the rice and stir-frying strips of vegetables and meat in homemade peanut oil in a wok on a coal fire. There are no electrical appliances, even though the family got electricity four years ago and running water recently.

2,000 yuan (approximately 250 US dollars),” Liang says. “We put everything into the children’s education. Making a good future for the children is our foremost dream.” Their dream seems to be coming true. Their two eldest daughters have secured sought-after jobs in a computer firm and a TV sales company. The eldest son, 19, is battling to secure an education that will give him a chance to compete for a highly paid and appreciated professional job. The top universities take only the best. I wish him the best of luck. In clear and unaccented English, the young man’s answer is telling: “Thank you. I believe in myself.” Hannu Pesonen is a Finnish journalist who focuses his writing on development issues and crisis reporting. His work has taken him to more than 120 countries. He is the author of four books and his feature articles have been published in more than 20 countries. He is a regular contributor to Tempus, the Stora Enso international stakeholder magazine, where this article was first published. Jarmo Hietaranta is a Finnish photographer whose career spans over three decades. He has contributed to all major Finnish news and family mag­azines and currently is a video producer and photographer. He has filmed many documentaries on international events for television. His photo­ graphs have been displayed in several individual and joint exhibitions.



Firewood collectors such as Mr. Li visit Stora Enso‘s trial plantation in Wyiang to collect forest residue.

Sustainability and Corporate Responsibility Social Sustainability

053

Liang Chaozheng prepares food in the traditional style. There are no electrical appliances, though the family got electricity four years ago. “We put everything into our children‘s education.”

“I believe in myself.” Liang (right) and Shen (second from right) with three of their six children. Shen‘s leap from subsistence farmer to entrepreneur is part of the new Chinese Dream.

ANDRITZ Annual Report 2006

054

Sustainability and Corporate Responsibility Environmental Sustainability

ENVIRONMENTAL SUSTAINABILITY The Andritz Group is committed to promoting environmental protection and conserving natural resources. Due to the standardization of all core processes, all plants and systems delivered to Andritz customers around the world comply with the highest environmental standards. This is essential as most countries have implemented environmental impact assessments as well as comprehensive environmental regulations.

In the Pulp and Paper Business Area, the effective use and reuse of resources is one of the basic conditions for sustainable production. Andritz’s developments in improving fiber yield, minimizing water consumption, increasing energy efficiency, reducing chemical consumption in bleaching, and waste recycling, all contribute markedly to the industry’s sustainability. For example, the process of making pulp requires large volumes of water. In the last 20 years, technologies developed by Andritz

In the Rolling Mills and Strip Processing Lines Busi­ ness Area, conserving raw materials and minimizing emissions is the driving force of one of the core process areas. The Andritz acid recovery and regeneration systems completely recycle the acids used in the pickling process. The latest Andritz technology provides a zeroeffluent process for mixed acids. More than 99% of the acids are recovered and can be reused. All Andritz process lines employ technologies to substantially dimin-

have reduced the amount of water required to produce a ton of pulp by 60%. Another example is that Andritz systems help recover and reuse up to 99% of the chemicals used in making pulp. In 2006, Andritz completed a very important project for SCA’s Östrand mill in Sweden. The project is centered around the Andritz HERB (High Energy Recovery Boiler) that operates at highest temperatures and pressures. It enables the mill to generate 500 Gigawatt hours of electrical energy per year – enough to make the mill virtually energy self-sufficient. The energy is being generated from biomass which emits no fossilfuel based carbon dioxide into the atmosphere. Thus, the technologies developed by Andritz help customers to further reduce emissions and maximize energy production.

ish or completely eliminate the emission of substances into the environment. In particular, Andritz developed technologies to substantially reduce the emissions of NOx from waste gas streams in the furnaces and pickling lines.

The Hydro Power Business Area has been providing hydropower plants with modern equipment and extensive services for more than 160 years now. Hydropower is the leading source of renewable energy, supplying the world with about one-fifth of its electricity. It is clean, leaves behind no waste and neither emits pollutants nor significant amounts of dangerous greenhouse gases. Through the use of renewable energy sources and highly efficient technologies, Andritz already can ensure a future-oriented electricity generation. Thus, Andritz machines secure the daily power supply of about 100 million people and facilitate to save approximately 23 million tons of CO2 annually.

ANDRITZ Annual Report 2006

The Environment and Process Business Area supplies complete process lines which convert liquid sewage sludge into granulate. With a calorific value of approximately 10 to 13 MJ/kg, this granulate can be used as a substitute for fossil fuels in heat and power generation systems, thus reducing CO2 emissions. With its own optimization of the combined drying/incineration process of using dried granulate as fossil fuel and the energy generated in the incineration process as heat for the drying process, a self-sustaining reduction of CO2 is achieved. The Feed and Biofuel Business Area is the world market leader for plants and systems for the production of environmentally friendly biofuel pellets out of renewable materials, such as wood, peat, and agricultural by-products. In this way, highly valuable fuels are generated from materials, which would otherwise have to be disposed of, and the effect on CO2 emissions is neutral. Andritz also supplies pelleting equipment for industrial and household waste. The pellets produced offer an environmentally friendly alternative to fossil fuels in heating power plants.

Sustainability and Corporate Responsibility Environmental Sustainability

055

Andritz recovery systems generate “green” electricity from biomass making pulp mills virtually energy self-sufficient. (Photo: Detail of the recovery boiler at UPM-Kymmene‘s Wisaforest pulp mill, Finland)

Andritz hydropower plants secure the daily energy supply for more than 100 million people worldwide, thus considerably contributing to a reduction in CO2 emissions. (Photo: Impeller for E.ON Wasserkraft‘s Reisach power station, Germany)

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056

Status Report

STATUS REPORT

- Sales reach new record level - Order Intake and Order Backlog significantly increased

General economic conditions In 2006, the global economy developed favorably, with all the major regions showing economic growth. The U.S. showed a mixed economic growth in 2006. The First Half of 2006 was characterized by very strong growth driven by continued high private consumption and capital expenditure. As a consequence and in order to dampen any inflationary development, the Federal Reserve Board (FED) increased key interest rates during 2006 in several steps to 5.25%, the highest level since 2001. In the Sec­ ond Half of 2006, however, the U.S. economy showed signs of weakening growth, with real estate prices declin­ ing and private consumption slowing. In Euroland, economic activities during the First Half of 2006 were very weak. However, during the summer months, Euroland’s economy gained momentum, which was mainly driven by a strong increase in capital expenditures by companies as well as an increase in exports. As a consequence, the European Central Bank (ECB) increased key interest rates in several steps during the Second Half of 2006.

• Remaining 40% stake in the Paper and Nonwoven Business Areas of Eduard Küsters Maschinenfabrik GmbH & Co. KG (supplier of state-of-the-art rolling and calendering technologies for paper and nonwoven textiles); Andritz now owns 100% of the company. • Remaining 38.5% stake in VA TECH ESCHER WYSS Flovel Ltd. (Group member of VA TECH HYDRO); Andritz now owns 100% of the company. • 1 00% of the Coater Division of Bachofen + Meier (a globally active specialist for technologies and systems for paper coating)

Order Intake and Order Backlog significantly increased

Sales reach new record level

In 2006, the Andritz Group again showed a very favor­ able development of Order Intake, surpassing the very high level of 2005. At 2,891.0 MEUR, Order Intake was 46.4% higher than in 2005 (1,974.6 MEUR). In particular, the Pulp and Paper, and the Feed and Biofuel Business Areas were able to achieve strong organic growth rates. Order Intake of the Rolling Mills and Strip Processing Lines Business Area was slightly down compared to the very high level in 2005, which was influenced by the receipt of some major orders for stainless steel equipment from China.

As a result of continued strong organic growth and the first-time consolidation of VA TECH HYDRO as of July 1,

Order Intake of first-time consolidated companies

2006, Sales of the Andritz Group surged by 55.3% to 2,709.7 MEUR (2005: 1,744.3 MEUR). All Business Areas showed a solid development of Sales.

amounted to approximately 524.6 MEUR in 2006, of which VA TECH HYDRO contributed 474.4 MEUR.

First-time consolidated companies in total contributed approximately 449.2 MEUR (of which 390.2 MEUR came from VA TECH HYDRO) to the Group’s total Sales in 2006. Organic Sales growth of the Group, therefore, was approximately 29.6%.

The Group’s Order Backlog also showed a strong increase compared to the reference date of last year, surging to 3,397.1 MEUR as of 31.12.2006 (31.12.2005: 1,695.6 MEUR). VA TECH HYDRO added approximately 1,566.0 MEUR to the Group’s Order Backlog as of 31.12.2006. Thus, the Andritz Group has a solid visibility with regard to Sales for the coming months.

Sales by region 2006 (2005) in %

Order Intake by region 2006 (2005) in %

In Asia, economic activities remained very robust during 2006, with China showing continued strong economic growth. Sources: OECD, WIFO, OeNB, RZB, Volksbank

Business development

Others 3 (2)

Changes in consolidated companies/acquisitions

Asia excl. China 13 (18)

The following companies were acquired in 2006 and consolidated for the first time into the Group’s financial accounts for 2006: •1  00% of Andritz Pilão Equipamentos Ltda. (a special manufacturer of welded refiner fillings and stock preparation equipment) •1  00% of VA TECH HYDRO (one of the world’s leading suppliers of electro-mechanical equipment and services for hydropower plants) •1  00% of CONTEC Decanter Inc. (service company for the repair and maintenance of centrifuges and separators) •1  00% of BMH Wood Technology Oy (chip thickness screening technologies) •3  2% stake in Carbona Oy (engineering company develop­ing wood gasification technologies)

Europe 38 (33)

China 15 (17)

Europe 40 (30) China 16 (17)

South America 16 (22)

North America 16 (17)

South America 11 (15)

North America 14 (18)

Order Intake of the Andritz Group (MEUR)

1,300 1,121 2002

ANDRITZ Annual Report 2006

Others 6 (2)

Asia excl. China 12 (9)

1,394 2003

1,837 2004

1,975 2005

2,891 2006

Status Report

Significant increase in Earnings In line with higher Sales, Earnings before Interest and Taxes (EBIT) increased to 159.8 MEUR in 2006 (2005: 106.7 MEUR). EBIT margin, at 5.9% for 2006, however, weakened compared to 2005 (6.1%). This was mainly due to both the first-time consolidation of VA TECH HYDRO, whose profitability reached 3.7% in the Second Half of 2006 as expected, and the slight profitability decline of the Pulp and Paper Business Area. The financial result, at 6.1 MEUR in 2006, was significantly higher than in 2005 (3.4 MEUR). This was mainly due to both the higher average cash level and the higher interest rates compared to last year. The tax rate in 2006, at 26.9% in 2006, was practically unchanged

Shares and shareholder structure – disclosure according to § 243a UGB The share capital of Andritz amounts to 94,510,000 Euros or 13 million no par bearer shares. There are no lim­ itations concerning the voting rights or the transfer of shares. Approximately 26% of the shares are held by Certus Beteiligungs GmbH, whose Managing Director is Wolfgang Leitner, Chief Executive Officer of Andritz.

compared to 2005 (27.0%).

At present, there is no authorized capital. On March 30, 2005, the Annual General Meeting of Sharehold­ ers authorized the Managing Board to buy back up to 1,300,000 shares, i.e. 10% of the total of shares of Andritz AG, between October 1, 2005 and March 31, 2007. There are no powers of the members of the Man­

Net Income after deduction of Minority Interests amount­ed to 118.5 MEUR (2005: 78.7 MEUR).

aging Board, especially regarding the possibility to issue or buy-back shares, that do not result directly from legal stipulations.

Net worth position and capital structure

As far as is known to the company, there are no holders of shares with special controlling rights. Employees exercise their voting rights directly.

The development of total assets as of 31.12.2006 was primarily influenced by the first-time consolidation of VA TECH HYDRO and the issue of the 200 million Euro corporate bond in June 2006. As a consequence, total assets of the Andritz Group increased to 2,372.6 MEUR as of 31.12.2006 (1,391.3 MEUR as of 31.12.2005).

MEUR

As of 31.12.2006, the Group’s net liquidity (cash and cash equivalents minus interest-bearing financial liabilities) was 365.7 MEUR, again exceptionally high as of the end of 2005 (31.12.2005: 383.9 MEUR).

the first-time consolidation of VA TECH HYDRO and the bond issue.

Furthermore, there are no stipulations regarding the appointment and removal of the members of the Managing 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 and that would become effective, would 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 issued in June 2006, all holders of a bond forming part of the issue shall, in the event of a change of control taking place and this change of control leading to a substantial impairment of the issuer’s ability to fulfil 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. No compensation agreements exist between the company and the members of its Managing Board and Supervisory Board or any employees in the event of a take-over bid. ➔

Key financial figures of the Andritz Group 2006

2005

Change in %

2,709.7

1,744.3

+55.3%

EBITDA

194.2

130.9

+48.4%

EBIT

159.8

106.7

+49.8%

Earnings before Taxes

165.9

110.0

+50.8%

Net Income after Taxes

121.4

80.2

+51.2%

Sales

The equity ratio as of 31.12.2006 was 17.5% (31.12.2005: 23.6%). This decline mainly results from

057

Key balance sheet ratios 2006

2005

17.5

23.6

Net liquidity (in MEUR)

365.7

383.9

Capital employed1) (in MEUR)

209.7

21.1

Gearing2) (in %)

-88.2

-116.8

Equity ratio (in %)

1) Capital employed: Net working capital plus fixed assets 2) G  earing: (Interest-bearing liabilities minus cash and cash equivalents) divided by Shareholders‘ Equity including Minority Interests

Total assets 2006: 2,372.6 MEUR Assets 599.5 MEUR

1,062.9 MEUR

Long-term assets: 25%

710.2 MEUR

Short-term assets: 45%

Cash and cash equivalents: 30%

Shareholders‘ Equity and Liabilities 414.5 MEUR Shareholders’ Equity incl. Minority Interests: 17%

344.5 MEUR Financial liabilities: 15%

270.3 MEUR Other long-term liabilities: 11%

1,343.3 MEUR Short-term liabilities: 57%

ANDRITZ Annual Report 2006

058

Status Report

Risk management and treasury As a global company serving a variety of different markets and customers, the Group is subject to certain gen­eral and industry-specific risks. These risks mainly relate to the industries and markets served by the Group, the Group’s business, and major orders. Andritz has a long-established Group-wide risk management system whose main task is to identify nascent risks early and to take counter-measures. 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 ensure that major risks are identified at an early stage and counter-measures 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. Interest and exchange rate risks are limited and controlled by using 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 minimized by the Group’s cash management system which controls cash in- and outflows of all relevant Andritz affiliates. It also monitors the Group’s cash pooling activities in order to optimize net financing income. However, there is no guarantee that the monitoring and risk control systems are sufficiently effective.

Capex and cash flow In 2006, investments in tangible and intangible assets amounted to 45.7 MEUR (2005: 26.7 MEUR). This increase of 71.2% compared to 2005 was mainly due to VA TECH HYDRO, which added 7.7 MEUR to the Group’s investments in tangible and intangible assets in 2006. The Andritz Group’s investments in 2006 mainly encompassed construction works for building and workshop modernizations and extensions at some of the Group’s sites, as well as software for the ongoing Group-wide implementation of SAP. Cash flow from operating activities amounted to 143.1 MEUR, down compared to last year (2005: 237.3 MEUR).

Key cash flow ratios Cash flow from operating activities Capital expenditure1) Free cash flow2) Free cash flow per share3) 1) Additions to tangible and intangible assets 2) Cash flow from operating activities minus capital expenditure plus payments to sale of tangible and intangible assets 3) Free cash flow divided by 13 million shares (= total number of Andritz shares)

ANDRITZ Annual Report 2006

2006

2005

143.1

237.3

45.7

26.7

100.1

213.2

7.7

16.4

Effects from exchange rates Changes in exchange rates are hedged by forward rate contracts.

Non-financial performance indicators Manufacturing The reporting year was characterized by very high capacity utilization at all Andritz manufacturing sites. Increasing procurement problems in the material and semi-finished goods markets had to be countered by extremely high commitment and flexibility of all employ­ ees. Due to the very high Order Backlog, employment of temporary workers and outsourcing of manufacturing orders was further increased. Investments in automated manufacturing processes and projects to further improve competitiveness and reduce lead times were successfully implemented. In the strongly growing markets of China and South America, man­ufacturing capacity is being set up and/or extended systematically. Human Resources Continuous training and further development of working skills of all Andritz employees once again were the main goals of Human Resources activities in 2006. All relevant vacancies within the Andritz Group were well filled with highly qualified candidates. Recruiting activ­ ities are ongoing to meet future staff requirements and to support internal growth of the Andritz Group. Environmental issues In 2006, the main focus of the Andritz Group with regard to environmental issues was on reducing air pollution, saving natural resources, minimizing electricity consumption, reducing noise pollution, and providing training for new employees and apprentices. For example, at the Graz production site, the change of the office building’s heating system from oil to natural gas led to a 70% reduction of NOx emissions and a 50% reduction of carbon monoxide emissions. Improved and more efficient lighting systems in the workshops resulted in a savings of 25,000 kWh of electricity consumption in 2006. Training in work safety, fire protection, and envi­ronmental protection for new employees and appren­tices was organized at most Group sites.

Status Report

Research and Development In 2006, the Andritz Group invested approximately 35.4 MEUR in Research and Development (2005: 27.1 MEUR). More than 300 people work in the Group’s research centers in the USA, Austria, Finland, Switzerland, and France to develop new processes and equipment and to expand Andritz’s technological leadership. The Divisions of the Pulp and Paper Business Area focus their R&D activities on providing technologies which help customers maximize specific production param­ eters while at the same time reduce the use of media to a minimum (higher efficiencies and yields with less raw materials, natural resources, and energy consumption). R&D work of Andritz has also focused on the development of machines and systems for pulp mills with capacities of over 3,000 tons per day. In addition to the technology, significant advances have been made in standardization, construction techniques, and automation to shorten the time between installation and the customer’s revenue generation of the installed equipment. Andritz’s response to minimizing environmental impact and sustainability is evident in the new systems which have been adapted to efficiently process annual plants and plantation fibers and technologies which consume much less energy than their predecessors. As part of this, considerable R&D effort is being employed to more effectively utilize biomass as an energy source. Not only does this substantially reduce fossil fuel-based CO2 emissions, but it also enables many more pulping oper­ ations to become virtually energy self-sufficient. In the area of wood processing, new wood processing applications were under intensive development to con­ tribute to the sustainability of the forest products industry. Continued development of the RotaBarker™, a dry debarking technology which minimizes wood losses, now makes the technology also suitable for processing softwood logs after its successful application for eucalyptus. New types of debarking teeth are being tested to see if debarking efficiency can be improved even further.

Technology development in the Fiberline Division contin­ ues to focus on lowering the investment cost per ton of pulp produced. This is being accomplished through pro­ c­ess simplification, increase of specific capacity, stand­ ardization, and modularization. In addition, the work is continuing to make the pulping process more sustainable. Recently, the development work in cooking and brownstock processing has resulted in higher yield and better fiber recovery from uncooked chips. For hardwoods, these yield improvements can result in up to 5% less wood usage for the same pulp output. Due to continuously rising energy costs for pulp and paper producers, a development program was launched in the recovery area to introduce advanced biomassfired power boilers to the industry. High oil prices have triggered growing interest in using biofuels in lime kilns, which are still significant consumers of fossil fuels in the pulp mill. The next generation of High Energy Recovery Boilers (HERB) is taking shape through successful installations recently started up. For chemical recovery applications, a recently launched product for lime mud dewatering – the LMD-Filter™ – has been further enhanced to significantly reduce soda levels in the lime kiln feed. In the area of fiber preparation, Andritz is focusing its R&D for stock preparation equipment on increasing system efficiency and reducing the amount of energy consumed. The results of this effort in the last year are the introduction of new low-consistency and high-consistency pulpers for both virgin and recycled pulp slushing, as well as the new family of low-consistency refiners. For mechanical pulping processes, a pre-treatment process for wood chips prior to the refining stage (RT pretreatment) has been introduced to the market. Additionally, work is proceeding on the application of lowconsistency refiners as last stage which further reduces energy consumption and also simplifies the process. The trend in sustainable development is to utilize different or new wood species in the production of paper, especially in countries where wood is rare. One part of the R&D work has focused on the selection and testing of such species (eucalyptus, acacia, birch, maple, bagasse, reed, and kenaf). In combination with the use of new raw materials, emphasis is on reducing the total effluent dispatch from the mill.

059

Technology development for pulp drying lines continues to focus on lowering the investment cost per ton of pulp produced. The main R&D thrust is to further increase the capacity of a single drying line from 3,500 t/d today to over 4,000 t/d or over 1,200,000 t/y of pulp. Energy consumption of the entire drying line has been reduced by simplifying the process and optimizing the biggest energy “consumers” in the line (e.g. thermal energy and vacuum sources). In the area of tissue production equipment, research and development has focused on the provision of smaller fully-standardized and pre-engineered tissue machine packages and on the reduction of energy consumption for high-quality soft and water absorbent tissue paper. Another important focus was to develop advanced solutions for the modernization of board and packaging paper machines with integration of the press and calendering products of newly-acquired Küsters as well as the coating technology of Bachofen + Meier. Development work in paper finishing has been concentrating on advanced calendering technologies in combination with the shoe press and on coating application for wider and faster paper and board machines. The product group Nonwoven is aiming for better web quality for a wider variety of nonwoven products. The Hydro Power Business Area has developed a wide variety of very advanced hydraulic designs. In the field of Francis turbines, the new generation of runner designs was the key to successful upgrading projects. In the field of low head units, new axial runners for existing units with special casing designs have been developed. The optimization of runner casing interaction has also been the key success factor in the upgrading of Pelton units. Between the hydraulic designs of large tailor-made pumps for water transport and the designs for pump turbines and pumps for storage power plants, very attractive synergy potentials have been identified and already exploited. A further interactive R&D initiative has been launched with respect to the field assessment of existing hydro plants, both from the mechanical and the electrical point of view. ➔

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Status Report

The large-pumps program was extended by the addition of Francis pumps. The development program further includes extensions for and the improvement of semi-axial and axial pumps, the latter as bulb pumps. Other main points in the development program include materials and coating for components sensitive to wear, shaft bearing assembly, and rotor dynamics for main coolant pumps. R&D activities of the Rolling Mills and Strip Process­ ing Lines Business Area focused on the standardization and optimization of push pickling lines and mixed acid recovery plants for a nitrate-free stainless steel pick­ ling process. The combination of the total mixed acid recovery process (PYROMARS) and a patented rinse water recycling system has led to an economical and ecological breakthrough in stainless steel processing. A new series of roll grinding machines was developed, which enlarge the diameter of rolls that can be ground on machines to 650 mm, meeting the closest tolerances. Special attention was paid to further optimize the design of heavy shears and multi-purpose levelers, covering a wide range of material thickness. A new series of punching and metal-forming presses was introduced to the market. The new press generation, while continuing to ensure the well-known quality and reliability features, is based on an improved modularized design platform, allowing flexible adaptation to different customer demands. Research work of the Environment and Process Busi­ ness Area continued to concentrate on the optimization of the centrifuge product range in order to further enhance performance and/or reduce manufacturing costs. Another focus in the area of separation technologies was the standardization of the filter press product family in order to shorten delivery times and reduce costs. In sludge drying, a combined drying plant using a belt and a fluid bed dryer was developed and a patent was filed. The target is to use process synergies of both systems to achieve the best energy efficiency.

In response to the increasing requirements for feed and food safety, the Feed and Biofuel Business Area has launched a series of products in support of controlled thermal treatment and sterilization of feed. In the extrusion area, a new generation of all stainless steel Combizone dryers was developed providing full corrosion protection and integrated self-cleaning features for customers in the aquatic feed and pet food businesses. In the biofuel area, development projects with the target to optimize production efficiency of wood pelleting plants are underway.

Outlook Andritz expects its relevant markets to continue to develop favorably in 2007. Assuming a continued overall positive development of the global economy, project activity should remain on a solid level in all Business Areas. For Pulp and Paper, investments in new plants or production lines are expected to remain concentrated on South America, Australia, and Asia, where one or the other greenfield pulp mill and several major modernization projects are currently being evaluated. For Europe and North America, only selective investments in new lines are expected. However, investments in modernization and refurbishment of existing plants should remain on a solid level. For the Hydro Power Business Area, project activity is expected to continue on an attractive level, mainly driven by the continuous growth of the global power generation market, with hydropower as the most important source of renewable energy for electricity generation. In Asia and South America, investments should focus on the construction of new hydropower stations. Due to the

For Environment and Process, high project activity for both sludge dewatering and drying equipment should continue. Increased stringent environmental regulations, especially in Europe, will remain the key growth drivers in the future. In the area of mining, the current global shortage of raw materials, such as coal, iron ore, and other minerals, should lead to increased investments in solid/ liquid separation equipment. In the area of Feed and Biofuel, project activity for wood pelleting equipment should remain on a very high level, in particular in North America, Europe, and Russia. The aquatic feed industry is also expected to develop favorably, with both marine and freshwater farming showing good investment activity for plant upgrades as well as new plants, especially in Asia, South America, and Europe. As a result of the high Order Backlog of over 3.3 billion Euros as of the end of 2006, and the full-year consolidation of VA TECH HYDRO, Andritz expects Group Sales for the full year of 2007 to reach approximately 3 billion Euros (2006: 2,709.7 MEUR). In line with the Sales increase, Net Income of the Group is also expected to increase compared to 2006.

Significant events after the balance sheet date No significant events have occurred after the balance sheet date. 

ageing installed capacities in North America and Europe, several modernization and capacity expansion projects are underway in these regions. In addition, the demand for pumped storage power stations in Europe to secure grid stability has increased. In the area of Rolling Mills and Strip Processing Lines, investment activities will continue to focus on China and Europe, with some projects also coming up in North America. Project activity will increasingly shift from big lines to specialized production equipment and plants for high-quality stainless steel and carbon steel. Increased project activity is expected for India.

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.

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Corporate Strategy

061

CORPORATE STRATEGY Focus on growth and profitability

The Andritz Group follows a clear strategy. The overall strategic goal is to further consolidate An­ dritz’s strong market position in each of its Busi­ ness Areas in order to become the leading supplier of production systems and processes with full-line capabilities in all of its industries served. All stra­ tegic measures and decisions are focused on con­ tinued growth and increased profitability of the Group. Since 1990, the Andritz Group’s Sales have grown by more than 10% p.a. This growth has been based on strong organic expansion through product innovation and R&D, as well as on the acquisition of companies, complementing Andritz’s product and technology portfolio. At the same time, and in spite of a very competitive environment, the profitability of the Group has been enhanced by better fulfillment of customer needs for economic production systems, technological leadership, and continuous efficiency improvement measures.

The Group’s strategy is based on the following principles: Focus on existing markets and customers The Group serves long-term growing markets. Pulp, paper, and steel consumption grows in step with gross domestic product expansion per year. Within each of these markets, Andritz will continue to focus on the fast growing segments, e.g. stainless steel or tissue, which have grown more than proportionally over the last few years. As a leading supplier of plants, machines, and systems to all major customers in these markets, Andritz is in a position to benefit from the growth of these markets.

R&D and complementary acquisitions Andritz will continue to invest in the development of new products and processes, often in cooperation with customers, in order to consolidate or expand its competitive position. The main goal is to remain a technological leader in all Business Areas and to continuously expand this edge by launching new products that are cost-efficient, reliable, and will increase productivity for the customers. It is a declared goal of the Group to invest a sizeable amount of money in R&D activities. On average, approximately 3% (including project-related expenses in connection with customer projects) of the Group’s Sales have been spent for R&D over the last few years. In addition, pilot plants are run and operated together with customers. In total, over 300 people work in the Group’s research centers to develop new processes and products. Andritz will also continue to seek opportunities to acquire companies and businesses that complement its existing range of products and services. The goal is to offer customers full-line capabilities with regard to products and services in all Business Areas. This allows Andritz to design, supply, and substantially service all production lines, equipment, and processes required by its customers. Andritz has a very strong long-term commitment to the companies it acquires. The main goal is to further expand these companies, thus giving the former owners – frequently families with decades of history with the company – the confidence that their former company will continue to thrive within the Andritz Group.

Global presence In all of its Business Areas, the Andritz Group serves leading international companies with global reach. Fast support and service, together with local expertise, are, therefore, main requirements for Andritz to optimally satisfy the customers’ needs. As a result, Andritz has established a well-organized global organization with a presence in all major geographic market areas.

It is Andritz’s declared goal to further enhance its strong global reach by improving its service presence and sustaining ongoing business relations with key customers internationally. Andritz seeks to achieve this objective in part through recently established centers in growth areas such as Chile, Brazil, China, and India. By establishing company sites in such countries, Andritz – besides benefitting from highly-specialized local expertise – also contributes to the further development of technical competence in these countries. Since the Group also has production sites in major economic areas of the world, it can better balance potential currency fluctuations, thus avoiding or reducing major negative impacts on the Group’s competitiveness.

Expansion of Service business The Service business is an integral part of Andritz’s product offerings to its customers. It covers not only the sale of spare parts, but also of engineered wear parts, whose technical features have a great influence on the quality of the customers’ end product as well as on the reliability and profitability of the plants and processes. The product portfolio in Service also encompasses daily maintenance from single services to full-service contracts. In partnership with the customers’ own maintenance personnel, Andritz efficiently maintains the machines, production lines, and complete plants. Service sales of Andritz have grown significantly during the last few years. Andritz will continue to grow its service capabilities in order to support its customers in reaching their defined production and profitability goals. For Andritz, further growth of the Service business will result in balancing out potential cyclical swings of the Capital business. Recognizing the importance of a local presence for Service, Andritz will organically expand its geographic network and, when appropriate, acquire specialist service providers in local markets.

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Corporate Risks

CORPORATE risKS

Proven active risk management for many years

The Andritz Group is a globally-operating com­ pany serving a variety of industrial markets and customers. As such, the Group is subject to cer­ tain general and industry-specific risks. To identify, manage, and mitigate these risks, Andritz has a long-established Group-wide Management Steer­ ing Committee whose main task is to identify na­ scent risks early and to take counter-measures. This is an important element in the active risk man­ agement within the Group. The risks described be­ low, and the effects these risks may have on the business development of Andritz, have been taken into account in the Group’s corporate planning. The risks that the Andritz Group may incur include, but are not limited to, the following:

Risks related to the industries in which the Group operates Volatility of incoming orders Some customers and industries served by the Andritz Group are directly dependent on general economic development and frequent fluctuations in demand for their products. This is especially true of the Pulp and Paper, and the Rolling Mills and Strip Processing Lines Business Areas, but all Business Areas can be affected. The prices for these products are, in part, dependent on the prevailing relationship between supply and demand. Possible price fluctuations are, therefore, apt to have a direct influence on each customer’s capital investment decisions, with subsequent influence on the Group’s Order Intake. This may lead to volatility in the development of Order Intake of the Group.

Customer concentration In some of the industries served by Andritz, there is a trend towards company mergers. This is especially prevalent in the pulp and paper, and steel industries. These mergers might result in a reduction of the number of customers in the future, as well as the Group having to negotiate with global companies that have greater purchasing power. The dependence on key customers might increase, which could have direct consequences on the Group’s financial development.

ANDRITZ Annual Report 2006

Uncertainty of future contracts The Group’s future performance depends on, among other things, securing certain new contracts. It can sometimes be difficult to predict when an order for which the Andritz Group has provided a quotation will actually be awarded. Contract awards are often affected by events outside the control of the Group, such as prices, demand, and general economic conditions. This can cause difficulties in matching the Group’s workforce with contract needs. Although Andritz has been able to successfully manage this risk by outsourcing during brisk sales periods and producing in-house in periods of sales decline, this may change in the future.

Safety and environmental matters The Group’s operations are subject to numerous local, national, and supranational environmental regulations. The Group uses and generates hazardous substances in its manufacturing operations. In addition, many of the Group’s current and former properties are, or were, used for industrial purposes, and disposal of waste at disposal sites has been arranged. It is possible that in the future the Group may be subject to liabilities relating to the investigation and clean-up of contaminated areas. In addition, the Group provides several systems that involve the use of dangerous and hazardous chemicals and materials and provides installation and other services on industrial sites containing dangerous and hazardous chemicals and materials. In the event of a spill of these hazardous materials, accident, or explosion involving such chemicals or materials, the Group could be responsible for property damage, personal injury, environmental remedies and/or have to assume other liabilities arising out of such spill, accident, or explosion.

Risks related to the Group’s business Currencies The Group has operations and subsidiaries in a large number of countries outside Euroland, and a significant portion of its Sales and costs are denominated in nonEuro currencies, mainly in US dollars and British pounds. The currencies in these countries may be subject to fluctuations in exchange rates. Although the Group attempts to hedge the net currency exposure of the orders to mitigate the currency risk, currency fluctuations can result in the recognition of exchange rate losses in the Group’s financial statements. Developments of exchange rates may also have translation effects on the Group’s Sales

and Earnings, whose values are converted into Euros. In addition, shifts in exchange rates may affect Andritz’s position relative to its competitors, although most of the main competitors of Andritz are also based in Euroland. As some of Andritz’s major customers are based outside Euroland, changes in exchange rates could lead to a delay of project decisions by those customers. Also, the Shareholders’ Equity of the Andritz Group is not hedged and is thus susceptible to being affected by changes in the exchange rate.

Competitive position The Andritz Group does business in very competitive markets. Some of the markets in which the Group competes are highly fragmented, with a few large, international manufacturers competing against each other and against a high number of smaller, local companies. This has, in some cases, adversely impacted sales margins realized by certain of the Group’s businesses. The Andritz Group invests approximately 3% of total Sales in Research and Development and has so far been able to offer its customers the latest technological developments. There is, however, no assurance that the Group can maintain and defend this position in the future.

Acquisition and integration of complementary businesses One of the Group’s main strategic pillars is to become a comprehensive supplier of systems and equipment in all of its Business Areas through organic growth and complementary acquisitions. In the course of implementing this strategy since 1990, the Group has acquired and integrated a number of businesses with worldwide operations. However, no assurance can be given that the Group will be successful in identifying and acquiring appropriate acquisition candidates in the future, or that suitable candidates will be available, or that sufficient financing will be available. Furthermore, although Andritz has an excellent track record of integrating newly-acquired businesses, it is possible that in connection with existing or future integration efforts, including the ongoing integration of VA TECH HYDRO, the integration will not succeed and that planned objectives and synergies are not realized, or the Group may be exposed to new risks that have not been properly managed.

Corporate Risks

Legal proceedings In the course of its normal business, the Andritz Group is party to numerous legal proceedings before both administrative and judicial courts, and bodies and arbitration tribunals. The substantial majority of such proceedings is of a nature considered typical of the Group’s business. Where appropriate, provisions are made to cover the expected outcome of proceedings to which Group companies are a party, to the extent that negative outcomes are likely and reliable estimates can be made. However, even when provisions are made, there is no guarantee that these will always be sufficient. As of December 31, 2006, Andritz Inc., a subsidiary of the Andritz Group, is one of many defendants in a total of approximately 28 asbestos cases in the USA. In aggregate, the cases involve 2,290 plaintiffs. Nearly all of these cases involve claims by multiple plaintiffs against multiple defendants. Andritz Inc. does not believe it should be found liable in connection with any of these claims and plans to vigorously defend each claim. For further information on asbestos litigation, please see page 134 of this report.

Risks related to major orders Payment risks from customers Much of the Group’s business involves handling major projects with a large contract volume. If customers fail to meet their payment obligations for these projects, this may have negative effects on the net worth and liquidity position of the Group. The Andritz Group tries to limit these risks by securing payment guarantees from banks. Even in projects covered by export credit insurance, typically only 85% of the purchase price is secured through such insurance.

Liabilities and performance of projects In conjunction with the performance of plants supplied by Andritz, the Group is, in many cases, under contractual obligation to make performance guarantees and to meet certain deadlines. If the performances stated are not achieved or if deadlines are exceeded, the Group may have to perform remedial work at its expense or pay damages. If a guaranteed performance level or deadline is missed by a wide margin, the customer may have the right to terminate the agreement and return the delivered system to the Group for a full refund and/or recover damages. Such action could adversely affect the Group’s financial development. The Group has put risk management procedures in place to reduce, among other things, its contractual and financial risk exposure on projects.

Cost overruns The Group’s projects are usually based on long-term contracts, the substantial majority of which are fixed price contracts awarded on a competitive bidding basis. The sales and operating margins realized in a fixed price contract may vary from original estimates as a result of changes in costs and productivity over the term of the contract, especially on projects that include plant-wide engineering and/or construction. In addition, since certain parts of the manufacture of the Group’s supplies are outsourced, the Group may be compelled to quote at a fixed price to the customer without knowing exactly how much the purchased parts will cost. While estimates are made using empirical data and quotes from potential suppliers, these may not be accurate. The Group has experienced significant losses on certain past and pending projects and project difficulties and losses may occur in the future in a way that would adversely affect the Group’s financial condition.

EPC/turnkey contract risks In a growing number of the Group’s projects, Andritz has responsibility for plant-wide engineering and/or construction in addition to the supply of Andritz equipment and systems. These turnkey or EPC contracts involve the risks discussed above, but also involve risks relating to greater on-site responsibilities including environmental matters, local labor conditions, and construction and installation risks. Additionally, the Group is exposed to risks inherent in managing the third parties that perform construction, installation, and engineering services on these projects. The Group has put risk management procedures in place, including insurance programs, contract policies, and project management discipline to reduce these EPC-related risks.

063

Government contracts A significant amount of the Group’s Hydro Power business involves projects with governmental entities. These projects can present the performance, liability, and EPC/ turnkey contract risks described above. Due to public bid requirements and local laws, it may not be possible for the Group to achieve its desired contractual protections and the Group may thus be more exposed to such risks in connection with these projects.

Risks related to the capital markets Dependence on the development of international financial markets Apart from company-related occurrences, development of the Andritz share price is also dependent on price fluctuations within international financial markets. Possible price fluctuations and high volatility of major stock markets might adversely affect the price of Andritz shares.

Recommendations by research analysts As a publicly-listed company, Andritz is regularly analyzed by financial analysts and institutional investors. Analysts’ recommendations to buy or sell Andritz shares and subsequent investment decisions by shareholders may lead to considerable price fluctuations of the shares. The Andritz Group has consistently followed a policy of open and transparent information exchange with shareholders and the financial community to minimize unfounded price fluctuations of its shares.

Active trading of Andritz shares The high level (approximately 70%) of public free float of the Company’s total outstanding shares has led to active trading in Andritz shares on the Vienna Stock Exchange. However, there is no assurance that active trading will be maintained in the future. If active trading is not maintained, the liquidity and the market price would be adversely affected and investors might not be able to sell their shares at what they perceive to be an acceptable price. It could also result in the removal of Andritz shares from the ATX, the leading index of the Vienna Stock Exchange.

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064

Business Areas Pulp and Paper

Pulp and Paper

Business Area Managers: Karl Hornhofer, Graz, Austria (from 1.1.2007) Bernhard Rebernik, Graz, Austria (until 31.3.2007) Markku Hänninen, Helsinki, Finland (until 31.12.2006)

ANDRITZ Annual Report 2006

Humbert Köfler, Vienna, Austria (from 1.4.2007)

Business Areas Pulp and Paper

065

The Andritz recovery boiler at SCA‘s Östrand pulp mill in Sweden operates at higher temperatures and pressures to maximize the production of high-pressure steam. The result of this High Energy Recovery Boiler (HERB) technology is that SCA produces more electricity from a “green” fuel and reduces the amount of carbon emissions into the atmosphere.

ANDRITZ Annual Report 2006

066

Business Areas Pulp and Paper

Profile The Pulp and Paper Business Area is a leading global supplier of systems, equipment, and services for the production of all types of pulp, paper, Medium Density Fiberboard (MDF), and nonwoven fabrics. The Business Area’s technology is employed for the production of chemical, mechanical, and recycled pulp. The successful acquisition of complementary product areas over the last decade enables the Business Area to supply complete processing lines from log handling to fiber production to the drying, sheeting, and baling of chemical pulp, including the power boiler, chemical recovery systems, and sludge handling.

The Business Area also supplies complete processing lines for the mechanical pulp production including flash drying and bale presses, for recycled fiber systems, for stock preparation and paper machine approach systems; for tissue and board machines; machine ventilation/drying systems; and press-dewatering, calendering, and coating systems for paper, tissue, paperboard, and for nonwoven applications.

The Pulp and Paper Business Area provides basic and detailed engineering, procurement, manufacturing, equipment erection, construction supervision, commissioning, and maintenance services, as well as the supply and start-up of complete installations on an EPC basis.

Service activities within the Business Area are focused on helping customers increase their operational efficiency while reducing operating costs. Service products include maintenance and development agreements, equipment upgrades and rebuilds, engineered wear products for all brands of equipment (refiner plates, screen baskets, rotors, cleaners, disc filter sectors, chipper knives, etc.), as well as complementary technical services.

Divisional Managers of the Pulp and Paper Business Area: Jarmo Viiala Wood Processing Division

Markku Kosonen Chemical Systems Division Pekka Rahkila Fiberline Division

ANDRITZ Annual Report 2006

Erich Weitgasser Pulp Drying Systems Division Harry Rickman Recovery Division

Michael Pichler Paper Machine Division

Business Areas Pulp and Paper

067

Pulp and Paper Divisions: As of January 1, 2007, the Business Area was reorganized in order to adapt it to the requirements of the markets and to even better fulfill the demand and needs of Andritz’s customers. It is now divided into two segments: Capital Equipment and Service. The Capital Equipment segment comprises the Wood Processing, Fiberline, Recovery Systems, Chemical Systems, Pulp Drying Systems, Paper Machine, and the Paper Finishing Divisions. The Service segment comprises the Pulp and Paper Engineered Service (Engineered Wear Products, Engineered Services Pulp, Engineered Services Paper), Mechanical Pulping Systems, and Fiber Preparation ➔ Systems Divi­sions.

Erich Bröker Paper Finishing Division

Thomas Bachhofner Engineered Services Paper Division Dietmar Heinisser Engineered Wear Products Division

Christian Pedratscher Fiber Preparation Systems Division

Jarmo Häkkinen Engineered Services Pulp Division

Wolfgang Lashofer Mechanical Pulping Systems Division

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068

Business Areas Pulp and Paper

Market development

Business development

In 2006, project activity for greenfield plants, as well as modernizations and rebuilds of existing plants, was at a satisfactory level. Projects for new pulp mills and capacity additions continued to be focused in the southern hemisphere (South America, South Africa, Australia, and Southeast Asia) and China. Investments for the modernization and refurbishment of existing mills developed favorably in Europe, and to some extent in North America.

In 2006, Sales of the Business Area surged to 1,304.2 MEUR, an increase of 26.3% over 2005 (1,032.9 MEUR). In line with Sales, EBITA also increased, to 75.9 MEUR (2005: 63.6 MEUR). Profitability (EBITA margin) was 5.8%, slightly lower than in 2005 (6.2%). This was mainly due to the execution of some larger orders, typically having lower margins.

The development of pulp prices in 2006 was characterized by continued strong demand from international paper producers and reduced pulp supply from North American pulp producers. As a consequence, the price for Northern Bleached Softwood Kraft (NBSK) pulp increased from approximately 600 US dollars per ton at the beginning of 2006 to approximately 750 US dollars per ton at the end of 2006. The price for hardwood pulps (e.g. birch and eucalyptus) also increased during 2006, although much more moderately than for NBSK. This was due to the availability of sufficient production capacities and market expectations that further capacities will come on-stream in South America in the near future. Demand for paper continues to grow in Asia (especially in China and India) based on the very positive economic development in these regions. This triggers increasing demand for virgin fibers and recycled fibers as most of the paper production is based on recycled fibers. In these countries, demand for higher paper quality is also on the rise, thus boosting equipment modernizations and investments in paper finishing equipment.

ANDRITZ Annual Report 2006

The Business Area’s Order Intake showed very good development in 2006. It increased to 1,432.4 MEUR, which is 40.8% higher than in 2005 (1,017.0 MEUR). All Divisions of the Business Area contributed to this very high growth, thus confirming the excellent market position of Andritz for pulp and paper equipment.

New Managing Board members At the beginning of October 2006, the Supervisory Board of Andritz AG approved changes in the Managing Board of Andritz AG. After 15 years on the Board, Bernhard Rebernik will, upon reaching the age of 65, leave the Managing Board at the end of March 2007 and retire. Markku Hänninen, on the Board since 2002, also resigned as a member of the Managing Board at the end of December 2006 and will join the Supervisory Board of the Finnish subsidiary Andritz Oy. Karl Hornhofer and Humbert Köfler, who have served as Andritz Divisional Managers for many years, have been appointed new members of the Andritz Managing Board as of January and April 2007, respectively.

New market-oriented organization structure In order to better fulfill the expectations of Andritz’s customers, the Pulp and Paper Business Area was divided into two segments (Capital Equipment and Service) as of January 1, 2007. Karl Hornhofer is responsible for the Capital Equipment segment and Humbert Köfler for Service. The goal is to further improve coordination between different product groups and benefit from opportunities in local service markets.

Acquisitions and product developments further strengthen market position In June 2006, Andritz purchased the remaining 40% stake in the Paper and Nonwoven Business Areas of Eduard Küsters Maschinenfabrik GmbH & Co. KG from Jagenberg AG. Andritz Küsters, now 100% owned by Andritz, offers state-of-the-art calendering, press-dewatering, and finishing technologies for the paper and fastgrowing nonwoven markets. In May 2006, Andritz acquired Pilão S.A., São Paulo, Brazil, a special manufacturer of welded refiner fillings and stock preparation equipment, including conical refiners. Andritz Pilão further enhances Andritz’s product portfolio in low-consistency refiners and increases the business volume of Paper Mill Services products and stock preparation equipment, particularly in South America. With the acquisition of the rights for the worldwide chip thickness screening business of the Finnish company BMH Wood Technology Oy, Andritz strengthened its position as a leading supplier of wood processing equipment and services.

Business Areas Pulp and Paper

069

Major orders Andritz also purchased the Coater Division of Bachofen + Meier AG (BMB), based in Bülach, Switzerland. BMB is a globally active specialist for technologies and systems for paper coating. It complements the existing Andritz product portfolio in the area of paper and board production equipment, enabling Andritz to offer complete systems including hard and soft nip calenders, coating, and drying equipment.

Hunan Tiger Forest & Paper Group Co., Ltd. of China selected Andritz to supply the main equipment for a greenfield pulp mill in Huaihua, Hunan Province. The new mill will produce 400,000 t/a of bleached kraft pulp. Andritz’s scope of supply includes wood handling, cooking, wash­ ing, screening, bleaching, pulp drying, bale handling, and chemical recovery (evaporation, recovery boiler, recausticizing, and lime reburning).

In the spring of 2006, Andritz launched a new tissue machine concept, the PrimeLineCOMPACT. It combines proven Andritz technologies for stock preparation, tissue production, and automation into a cost-effective system. Andritz created a design based upon standardized 1,600, 1,800, and 2,000 m/min tissue machines, with widths of 2.7–2.85 m. Virgin or recycled fibers can be used.

Sappi Saiccor (Pty.) Ltd. of South Africa, the world’s largest manufacturer of viscose pulp, selected Andritz to supply the systems for screening, oxygen delignification, bleaching, evaporation, and pulp drying for the Umkomaas mill near Durban. Capacity of the mill will be increased from 600,000 to approximately 800,000 t/a. Andritz will provide the basic and detail engineering, equipment, mechanical erection, supervision, start-up, and training. Brazilian Klabin, one of the largest manufacturers of paper, board, and paper products in South America, awarded Andritz an order for the EPC supply of a complete CTMP (Chemi-Thermo Mechanical Pulping) plant for the new board production line at the Monte Alegre mill. The plant will also include an effluent evaporator to reuse the process water. Start-up of the plant, which is designed to produce 140,000 tons per year of unbleached eucalyptus pulp for the production of various board grades, is scheduled for September 2007. This new CTMP plant will be among the first in the world to use eucalyptus as the raw material. This order underlines Andritz’s dominant position in hardwood chemi-thermo mechanical production technology.

Andritz received an order from Aracruz Celulose S.A. of Brazil, for its expansion project 2330, which will in­c rease the capacity of Fiberline C from 700,000 to 950,000 t/a­.­ Fiberline C was delivered by Andritz in 2002. The expansion includes a new chipping line; the upgrade of washing, screening, and bleaching equipment, including three new Drum Displacer® (DD) washers; the rebuild of the drying machine; and a new StiroX™ system for white liquor oxidation. Andritz will also increase the capacity of an existing Andritz recovery boiler, which started up in 1997, by upgrading the combustion air system, superheater, and dissolving tank scrubber system. Aracruz also ordered a new bleaching stage from Andritz for Fiberline­ B at the same mill. Andritz received an order to supply another PrimeLine tissue machine, including the complete stock preparation and approach system, to the Hengan Group, a leading manufacturer of high-quality tissue products in China. The start-up of the machine is planned for 2008. The new PM 7 will have an annual production capacity of 60,000 tons. With a speed of 2,000 m/min and a width of 5.55 m, the machine produces high-quality tissue products serving the increasing demand of the Chinese market. This order, once again, reflects the long-lasting and successful partnership of Hengan and Andritz. Including this latest order, Andritz will have nine tissue machines in operation in China, thus confirming its position as the leading supplier of high-tech tissue machines to the Chinese tissue paper industry. ➔

Key figures Pulp and Paper MEUR

2006

2005

2004

2003

2002

2001

Sales Order Intake

1,304.2 1,432.4

1,032.9 1,017.0

884.6 1,218.9

810.3 857.3

672.2 843.3

883.0 642.8

Order Backlog as of 31.12.

1,124.4

950.4

951.1

622.7

582.0

431.5

89.6

76.1

77.9

63.9

53.5

69.8

6.9%

7.4%

8.8%

7.9%

8.0%

7.9%

75.9

63.6

64.8

49.1

39.2

53.9

5.8%

6.2%

7.3%

6.1%

5.8%

6.1%

EBITDA EBITDA margin EBITA EBITA margin Capital investments Employees as of 31.12.

21.7

13.6

14.3

9.3

11.5

10.8

3,863

3,018

2,805

2,959

2,634

2,626

ANDRITZ Annual Report 2006

070

Business Areas Pulp and Paper

In addition to these orders, the individual Divisions received orders as follows: The Wood Processing Division received an order from Stora Enso to supply new equipment for a dual-line wood­yard in Varkaus, Finland. This new woodyard represents the most modern and efficient wood processing technology available to minimize wood losses and produce quality chips. The same technology in a single-line configuration was selected by Price Maryvale Pty Ltd., Australia, and by Mondi Packaging Frantschach GmbH, Austria. The Division will deliver a complete wood­room to Grupo Empresarial ENCE S.A., Spain. This woodroom will be the first installation of the new RotaBarker™ technology for eucalyptus debarking. The RotaBarker™ technology was also chosen by Tolko Industries Limited for the debarking process at its new greenfield Oriented Strand Board plant in Slave Lake, Alberta, Canada. The Recovery Division received an order for a new high dry solids evaporation plant from UPM for the Kymi mill in Finland. SCA Packaging, Sweden ordered a MeOH liquefaction plant for its Obbola mill. In North America, Weyerhaeuser selected the Division to supply a new high pressure and high temperature recovery boiler for its Campti, LA mill. Abitibi Consolidated, Canada ordered a new TMP heat recovery system for its Kenogami mill. Upgrades of note include evaporation modernizations for Nanning Pulp Mill, China; Papelera Guipuzcoana de Zicuñaga, Spain; Smurfit Kappa’s Nettingsdorfer Papierfabrik, Austria; Svilocell, Bulgaria; and Mufindi Paper, Tanzania. The orders from Svilocell and Mufindi also include upgrades of the recovery boilers.

ANDRITZ Annual Report 2006

The Chemical Systems Division will supply a complete white liquor plant featuring the most advanced technology for UPM’s Kymi Paper mill in Finland. Also in Finland, the Division was awarded orders from UPM for a StiroX™ system at the Tervasaari mill and from MetsäBotnia for a green liquor clarifier as part of a modernization project at the Äänekoski mill. A major order was awarded by Bahia Pulp S.A. for a complete white liquor plant to be built in the state of Camacari, Brazil. The Division was also chosen to upgrade the white liquor plant for Australian Paper’s Maryvale pulp mill. An Indonesian customer selected the Division to supply a new LMD lime kiln. With a capacity of 1,000 t/d and a length of 140 m, the lime kiln will be the largest Andritz has ever delivered. This customer also placed a further order for

The Pulp Mill Services Division was very active in providing upgrades, rebuilds, and maintenance contracts to all the industry’s major producers. New maintenance agreements were signed and existing agreements were extended. UPM’s Wisaforest mill, Metsä-Botnia’s Kaskinen and Joutseno mills, Stora Enso’s Tainiokoski mill and ENCE of Spain ordered HQ-Plus™ chipper service programs. Upgrade activities in Europe included a project to modernize the recovery boiler and evaporation plants for UPM’s Kaukas mill, and Natron-Hayat Maglaj of Bosnia-Herzegovina’s project to upgrade the cooking, evap­ oration, and white liquor plants at its mill. Natron-Hayat Maglaj also selected Andritz to provide start-up services for their recovery boiler. In South Africa, Mondi Paper ordered a rebuild of the digester at its Piet Retief mill.

a new white liquor plant with two lime kilns.

Upgrade activity in North America was considerable. Georgia-Pacific ordered upgrades including a lime mud filter, a kiln shell replacement, and a recovery boiler mod­ ernization. Smurfit-Stone Container selected Andritz to upgrade a boiler scrubber system. Fiberline and cooking upgrades were performed for International Paper Co.

The Fiberline Division will supply a DD washer for brownstock washing and a digester upgrade for Mitsubishi Paper’s Hachinohe mill in Japan. In Finland, MetsäBotnia ordered modifications to the washing, screening and bleaching systems at the Rauma mill and UPM ordered systems for screening, brownstock washing, oxygen delignification, and bleaching for the Tervasaari mill. UPM ordered the Diamondback® chip bin and TurboFeed® chip feeding system for its softwood digester at the Kuusanniemi mill. Earlier, Andritz delivered a complete new hardwood digester for the same mill. In the USA, the Division was selected by International Paper to supply a knotting system for the Courtland, AL mill. Also, Simpson Tacoma Kraft ordered a Lo-Solids® cooking upgrade for its Tacoma, WA mill. SFK Pulp ordered a blowline pressure diffuser system for its St-Félicien, Quebec mill. In China, Nanning Phoenix Pulp & Paper Co. Ltd. select­ ­ed the Division to provide a cooking and fiberline capacity increase for the mill. Sichuan Yong Feng Paper, Inc. ordered screening and MC components for its new Bamboo fiberline in Muchuan, China.

Business Areas Pulp and Paper

The Pulp and Paper Machines Division received an order from Fripa Papierfabrik KG of Miltenberg, Germany for the first new PrimeLineCOMPACT tissue machine soon after the concept was introduced to the market. The machine will produce 30,000 t/a of supersoft tissue. The Division also booked orders for two tissue machines for Shandong Hengan Paper Co. Ltd., China. ICT of Poland, Swedish Tissue, and SCA Tissue in the USA ordered one tissue machine each. A confidential customer placed an order for a wide TAD machine. The Division was also selected to rebuild a pulp drying line for ENCE, Pontevedra in Spain. An Indonesian customer ordered a complete 6.7 m wide pulp drying plant. The Division received orders from Natron-Hayat Maglaj, Bosnia-Herzegovina for a sack kraft machine rebuild. The Fiber Preparation Systems Division received an order from Georgia-Pacific in the USA for a new FibreFlow™ drum pulper. In China, Zhejiang Jingxing Paper ordered the main equipment for an approach system for their board machine, and Stora Enso Huatai ordered a complete deinking line and paper machine approach system. Also included in the order are the systems for sludge dewatering, chemical preparation, and water treatment. Anhui Shanying Paper ordered a complete 600 t/d deinking line, including sludge dewatering, for standard newsprint. JTI Yelets of Russia ordered stock refining equipment and Durango of Mexico selected Andritz to upgrade its existing deinking lines. NatronHayat Maglaj, Bosnia-Herzegovina ordered an approach system for a rebuild of a board machine. Thai Union Paper, Thailand ordered equipment for its recycled fiberline for packaging grades. ICT Poland gave Andritz a repeat order for a complete stock preparation and approach system.

071

The Mechanical Pulping Systems Division was awarded large orders from a renowned Asian customer to supply two complete chemi-mechanical pulping lines based on P-RC™ APMP technology to China. The integrated systems will use various hardwood raw materials (eucalyptus, poplar, etc.) and are designed to produce chemi-mechanical pulp for printing and writing paper, as well as board grades. Both lines include chip washing and impregnation, mainline refining, heat recovery, reject refining, screening, cleaning, thickening, pulp washing, and a final storage tower. They will be connected to zeroeffluent systems where all pulp mill effluents are recov­ ered, cleaned, and re-used in the process. The decision in Andritz’s favor was made due to its leading process technologies which provide the highest pulp quality at

In the Press and Calendering Division, German packaging specialist DELKESKAMP ordered a PrimePress X shoe press from Andritz Küsters to produce kraftliner substitute from 100% recycled paper. The XNip technology delivers product and efficiency gains while allowing higher production speeds. The Italian Marchi-Burgo Group ordered two new calenders to improve paper quality. Marchi-Burgo is the first customer to use the new Andritz Küsters sheet transfer system. In Japan, Nippon Paper ordered 11 Multi-HV axles with a working width of 8,850 mm for the multi-nip calender of its new paper machine at the Ishinomaki mill.

the lowest possible energy and operational costs. The start-up for both lines is scheduled for late 2007. In addition, two P-RC™ APMP lines will be delivered to China – one to Nanning Jinlang Pulp Co. Ltd. and the other one to Yanzhou Heli Paper Industry (Sun Paper). The start-up of these hardwood-based integrated systems is scheduled for 2008. Further, Holmen Paper, Hallstavik, Sweden, placed an order for three TwinFlo™ low-consistency refiners and a pressure screen to upgrade the existing Andritz RTS™-TMP system to further reduce specific energy consumption.

Nine Dragons in China to supply 80 baskets, and Aspex Paper of Indonesia to rebuild the coarse and fine screen­ ing lines. Contracts were signed with Mondi Swiecie, Poland for complete service and inventory management for baskets and refiner plates; with M-Real, Finland for maintenance planning and execution at the Joutseno and Kaskinen mills; and with Estonian Cell, Estonia for the establishment of a preventive maintenance system including quarterly inspections. Significant orders for dewatering and drying service products were received from Mondi Merebank, South Africa; Norske Skog, France; and Stora Enso, Sweden. Mechanical pulping services were focused on extending the lives of refiners that are no longer being actively developed. These products, which enable longer service intervals and higher refining precision, include guide systems, seals, and bearings. Orders for mechanical pulping services and automation systems came from Holmen Paper, Sweden; and Weyerhaeuser, Catalyst Paper, and Boise Cascade, all in North America.  ➔

In the Panelboard segment, Fiberboard GmbH, a member of the German CLASSEN Group, ordered a chip washing and pressurized refining system for a new MDF mill in Baruth. Yangdong Luyuan Wood Based Panel­board, Ltd., China selected Andritz to supply a complete front end system (woodyard, chip washing, and pressurized refining) for a new MDF investment. This is the fifth Andritz system ordered by Yangdong Luyuan within five years.

The Paper Mill Services Division received several major orders for screen baskets including a contract from

The Division also received an order from Unopan Tableros de Fibras, S.A. of Spain to supply a woodyard (debarking, chipping, chip handling, storage, and screen­ing), a chip cleaning system, and a pressurized refining system for its new MDF factory in Burgos. Bajaj Eco-tec Products, Ltd., a wholly owned subsidiary of India’s largest processor of sugar and ethanol, ordered two pressurized refining systems for new MDF plants. These are the first orders Andritz has received from India for processing bagasse as the raw material. Andritz will also supply MDF pressurized refining systems to Sichuan Shengda Forestry Industry Co., Ltd. and Shen­yang Heavy Machinery Group, Co. Ltd. of China.

ANDRITZ Annual Report 2006

072

Business Areas Pulp and Paper

Research and Development The Divisions within the Business Area have focused their R&D activities on the development of technologies helping customers to maximize specific production parameters while at the same time reducing the use of media to a minimum (higher efficiencies and yields with less raw materials, use of natural resources, and lower energy consumption). R&D programs address the needs of capital equipment buyers as well as users to lower the total cost per ton produced.

The Divisions’ R&D programs in detail are as follows:

Two major trends are driving customer investments today. First is the goal to reduce the investment cost per ton to its lowest possible level. This is leading to larger, single-line production units with no redundancy of systems. The second trend is to continue to make the pro-

Continued development of the RotaBarker™, a dry debarking technology which minimizes wood losses, now makes the technology suitable for processing softwood logs after it has proven the eucalyptus application. New types of debarking teeth are being tested to see if de-

duction process more sustainable.

barking efficiency can be improved even further.

Andritz’s response to the sustainability requirement is evident in the new systems which have been adapted to the efficient processing of plantation fibers and technologies which consume much less energy than their predecessors. As part of this, considerable R&D effort is being employed to more effectively utilize biomass as an energy source. Not only does this substantially reduce fossil fuel-based CO2 emissions, but it also enables many more pulping operations to become virtually energy self-sufficient.

Another new technology has been created for separating stones, sand, and other potentially damaging materials early in the process before damage is done to downstream equipment. The first new stone separator was recently installed in the debarking line of a mill in southern Europe.

Sophisticated simulation programs are being utilized to improve individual processes. Advanced control systems for all the fiberline process areas are being developed and tested.

ANDRITZ Annual Report 2006

Wood Processing Developing technology jointly with key customers is an essential step when implementing new products and applications. During 2006, new wood processing applications were under intensive development to contribute to the sustainability of the forest products industry.

Fiberline Technology development in the Fiberline Division continues to focus on lowering the investment cost per ton of pulp produced. This is being accomplished through process simplification, increased specific capacity, standardization, and modularization. In addition, the work is continuing to make the pulping process more sustainable. Recently, the development work in cooking and brownstock processing has resulted in higher yield and better fiber recovery from uncooked chips. For hardwoods, these yield improvements can result in up to 5% less wood usage for the same pulp output. Less chemicals are now required for cooking and bleaching while benchmark pulp quality features such as strength, cleanliness and brightness are being improved. Quality improvements in the pulping stage typically have a positive carry-over to paper production in terms of less raw material and chemical additives being required, in addition to there being fewer variations and process disturbances on the paper machine itself. The milder conditions in reactors and simplified process designs are also consuming less energy. Reduced fresh water consumption and correspondingly lower effluent volumes have been achieved by introducing new fractional washing concepts and by pressurizing/closing process steps to prevent emissions to the atmosphere. Many of these developments are now in practical application in the latest Andritz installations, for example at the Veracel mill in Brazil.

Business Areas Pulp and Paper

Recovery Due to continuously rising energy costs for pulp and paper producers, a development program was launched to introduce advanced biomass-fired power boilers to the industry. High oil and gas prices have triggered growing interest in using biofuels in lime kilns, which are still significant consumers of fossil fuels in the pulp mill. Technologists in the Recovery Division are reviving biomass gasification technology, which was developed for this purpose during the 1980s. The next generation of High Energy Recovery Boilers (HERB) is taking shape through successful installations recently started up. Work continues on refinements such as new materials and new sub-processes. Improved accuracy of CFD modeling (simulation of heat transfer and fluid streams within the recovery furnace) is being addressed in a large, partially publicly-funded project. The modeling helps designers better understand the internal behavior of the boiler in order to improve energy efficiency, minimize emissions, and minimize scaling. Andritz is also developing next generation automation to optimize the operation of a recovery boiler. Chloride removal is becoming more important as mills close their chemical circulation loops to reduce emissions to the environment. A new, leaching-based chloride removal process is being developed to offer a lower cost alternative to the proven ash re-crystallization process (ARC).

Another contribution to sustainable development is the technology to reuse process fluids in other areas of the mill to minimize the consumption of fresh water. Key to this is the technology to split condensate streams inside the evaporation process and re-direct them to optimized areas of the mill. Chemical Systems The Chemical Systems Division is further developing its technologies to promote the environmental sustainability of a pulp mill. For example, a recently launched product for lime mud dewatering – the LMD-Filter™ – has been further enhanced to significantly reduce soda levels in the lime kiln feed. The new soda levels are well below previous achievements and serve to decrease emissions from the kiln even further. A two-stage LMD-Filter™ installed at a pulp mill in Austria has been operating with excellent results. To address the customer requirement to manufacture more products at lower overall costs, the Division developed a larger kiln which can process 1,000 t/d of lime. The largest model is being delivered to a mill in Indonesia. The Division’s new concept for green liquor handling has become widely accepted by customers. In 2006, the Andritz X-Filter filtration technology conquered a new market area, China. In Europe, the Americas, Australia, and Indonesia it has served in recausticizing processes for quite some time. Also, the application of centrifuge technology for dregs dewatering and washing is now being accepted by customers. The centrifuge eliminates using lime mud as a separation aid. The dregs from the centrifuge process are less bulky and better washed, which minimizes their impact in landfills. Also, the amount of material to be landfilled is reduced. Lime mud can be purged separately in an uncontaminated form, which allows it to be used as a soil amendment.

073

Pulp Mill Services The Division launched an aggressive program called LCP (Life Cycle Profits for customers) to support the sustainability targets of Andritz’s customers. It includes cooperation with the major research organizations in Europe and several projects to improve the maintenance of systems for pulping processes. The LCP projects are focused on developing predictive tools (such as online condition monitoring and diagnostics), proactive practices (such as efficient spare parts systems), and more durable materials for the equipment. The other leading force for service development is the OPE® (Overall Production Efficiency) agreement where the target is to increase production and quality at each customer’s mill while reducing costs. Many product innovations are taking place. A new type of sensor to measure acoustic emissions has been developed which gives more exact measurements. This sensor is being deployed to measure the wear in chipper knives and the condition of the sealing elements in DD washers. Special materials have been developed to lengthen the life of wear parts in wood handling and of rotors in screening applications. In the cooking process, two new style digester screen plates have been developed. For the lime kiln, a new advanced control system helps to reduce energy consumption, and an improved burner replaces oil with natural gas to reduce energy costs and emissions. New air port rodders in the recovery boiler improve efficiency and increase energy production of the boiler.  ➔

A new lime kiln at UPM’s Kuusaniemi mill in Finland will incorporate a burner which is a completely new technology. The LMD Burner has lower NOx emissions and improved flame shaping, compared to existing technology.

ANDRITZ Annual Report 2006

074

Business Areas Pulp and Paper

Fiber Preparation Systems The Fiber Preparation Systems Division has been focusing its R&D for stock preparation on increasing system efficiency and reducing the amount of energy consumed. The results of this effort in the last year are the introduction of new low-consistency and high-consistency pulpers for both virgin and recycled pulp slushing as well as the new family of low-consistency refiners. There are also new under-machine pulpers. Excellent operating results are being achieved with newly developed products such as SelectaFlot™ flotation, CompaDis™ dispersion, and Papillon™ refiners. After the acquisition of Pilão, the Division now has a TriConic® conical refiner in the Graz pilot plant to test the optimum refining solution for every customer application. In support of sustainable development with reduced environmental impact, development work continues to introduce more competitive systems for wastewater, sludge, and reject handling. Mechanical Pulping Systems Development work in the Mechanical Pulping Systems Division focuses on reducing energy consumption and simplifying the processes to lower the investment/operating costs for customers. Reducing energy consumption not only lowers costs, but also lowers the emission of greenhouse gases in support of the goals of the Kyoto protocol. In the area of energy efficiency, the Division has introduced to the market a pre-treatment process for wood chips prior to the refining stage (RT pre-treatment). Additionally, work is proceeding on the application of a low-consistency refiner as last stage, which will further reduce energy consumption and can also simplify the process.

ANDRITZ Annual Report 2006

The trend in sustainable development is to utilize different or new wood species in the production of paper – especially in countries where wood is a rare resource. One part of the Division’s R&D work is focused on the selection and testing of such species (eucalyptus, acacia, birch, maple, bagasse, reed, and kenaf). In combination with the use of new raw materials, emphasis is on reducing the total effluent dispatch from the mill. The Division is active in the development of zero-effluent technologies where all effluent streams from a mechanical pulp mill are collected, evaporated, and recovered. Fresh water consumption is significantly reduced and valuable chemicals can be recovered.

Press and Calendering Energy efficiency and cost savings continue to be major drivers for the paper industry. The R&D programs of the Press and Calendering Division are designed to accomplish both. Important to this is the continued development of extended nip calendering technology (X-Nip). In 2006, the Division not only installed a pilot machine in its technical center, but initiated detailed research to document which paper grades can be produced more efficiently and at higher quality with the X-Nip technology.

For the MDF industry, the Division is developing a new

In addition, the Division developed a sheet transfer feeding system and sold the system to a customer. The Paper and Nonwovens research staff is working on new methods to produce speciality papers for gasoline filter

digester concept that reduces energy consumption and minimizes the moisture content of the fibers, resulting in lower energy costs for the overall process. Another project focuses on the development of an entirely new treatment process to turn mixed plastic waste into a raw material for new products, thus extending the valueadded chain for this material.

systems. In this, the paper industry is benefiting from the Division’s extensive experience in the nonwoven area. Specifically finished nonwovens are laminated to specific paper grades, thus showing optimum product qualities. Similar research projects for development of new wet finishing technologies for nonwovens are on the research agenda.

With these developments, the Division supports environmental protection, material recycling, waste reduction, and sustainable management of limited resources.

Pulp and Paper Machines Technology development for pulp drying lines continues to focus on lowering the investment cost per ton of pulp produced. The main research and development thrust is to increase the production capacity of a single drying line based upon Twin Wire Forming technology from approximately 3,500 t/d today to over 4,000 t/d or over 1,200,000 t/y of pulp. Energy consumption of the entire drying line has been reduced by simplifying the process and optimizing the biggest energy “consumers” in the line (e.g. thermal energy, vacuum sources).

Business Areas Pulp and Paper

Further development work for the process simulator on the sheet drying line has been carried out. A similar simulation tool for flash drying lines was installed for the first time at the Estonian Cell mill. In addition, there are developments to improve machinery uptime through advanced process control using BrainWave® sensors. An ACE™ (Andritz Control Expert) tool ensures stable and uniform operation of the machine automatically to minimize operator requirements and also minimize the steam and energy consumed. Technology development for tissue machines centers around the deployment of a tool which dynamically simulates all mass and energy flows in tissue or TAD plants. Operators can be trained “virtually” to run the production line – doing start-ups, grade changes, and shutdowns in a safe, virtual environment. Also in the tissue industry, a new generation of shoe presses became available with the acquisition of Andritz Küsters in 2006. Andritz received the first order for the PrimePress XT from a mill in northern Europe. The new shoe press shows improvements in all areas: machine direction profiles can be adjusted online, the smaller diameter­ makes it easier to retrofit on existing machines, together with other features to simplify and improve the reliability of the system. A stable sheet run in the area between the creping doctor and reel is critical to runnability at high speeds. To secure this high runnability, especially for high speed tissue machines, the new PrimeRun system with advanced run components – air or dust deflectors, suction headers, active headers with low sheet contact, and guiding/ stabilizing foils – has been developed and introduced to the markets.

The move by Andritz into TAD tissue production, starting with the first machine in 2004 and followed by two additional orders, is now successfully established. The Division is making steady improvements to allow more economic TAD production. Now a commercial solution is available which will reduce energy costs significantly. Over the past few years, there has been a continuous rise in energy costs. Andritz has responded to this development in good time and marketed EconoFit and ECOS, two new control concepts which provide for permanent process analysis in paper drying, thus ensuring optimum energy use and reducing costs.

075

R&D programs for refiner plates focus on advancing the energy efficiency and continuously improving fiber quality. The acquisition of Andritz Pilão in Brazil further strengthens the company’s capabilities to produce highquality conical refiner plates. Programs are underway to extend the operating life of cast plates and enhance the manufacturing techniques for fabricated plates. In the stock preparation area, new techniques are being deployed for upgrading pulpers in virgin fiber and broke applications. Development work to improve the efficiency and durability of cleaner plants – from Andritz and other OEMs – continues to expand the market possibilities.

Paper Mill Services Much of the R&D focus for paper mill services is on improving the efficiency of equipment already installed in a customer’s plant to lower the operating costs. To this end, the Division is developing engineered solutions to extend the operating life and add value to the production process. Examples of recent activities include programs to extend the maintenance cycles and refining precision of Twin 60 refiners, and developing new seals and bearings that can be retrofitted into the Bauer DD 485/495 refiner.

In the dewatering area, a major goal of the R&D program is to develop upgrade products to improve equipment performance and extend the maintenance intervals of disc filters, Twin Wire presses, and screw presses offered by different manufacturers. A patented coating for wear shoes on screw presses was developed to increase production rates and reduce abrasion significantly. A new filtrate valve and optimized filtrate channels of disc filters improve capacity and filtrate quality. Condition monitoring of bearings on Twin Wire presses alerts operators to potential problems before production is impacted. The Division will also continue to link automation and optimization systems with its fundamental process/product knowledge as this has proven to be fertile ground for innovation. 

ANDRITZ Annual Report 2006

076

Business Areas Hydro Power

Hydro Power

Business Area Managers: Manfred Wörgötter, Graz, Austria Franz Strohmer, Linz, Austria

Business Areas Hydro Power

077

Küblis hydropower station in Switzerland, which was modernized by Andritz VA TECH HYDRO, has an installed power of 45.6 MW and generates approximately 180 GWh of clean electrical energy per year. Increased turbine efficiency and improved mode of operation have resulted in better utilization of available water amounts. (Photo: Penstock bifurcation to individual turbines)

ANDRITZ Annual Report 2006

078

Business Areas Hydro Power

Profile

Market development

The Hydro Power Business Area of the Andritz Group is a global leading supplier of turnkey electro-mechanical equipment and services for hydropower plants. It offers new hydroelectric power stations, as well as services, rehabilitation, and upgrading of existing plants.

In 2006, project activity for hydropower plant equipment was very high. In China and India, the construction of several new hydropower plants has started due to the continued strong increase in electricity demand.

Excluding VA TECH HYDRO, Order Intake of the Business Area would be 111.0 MEUR, significantly up compared to 2005 (71.5 MEUR). In particular, the Pumps Division continued its very successful development in 2006, with the number of stock pumps sold to pulp and paper mills reaching a new record level.

The Business Area also offers the development, design, and manufacture of large-scale pumps for selected applications like water transport, pumps for the primary and secondary loops in nuclear power stations, cooling water pumps for thermal power stations, and centrifugal pumps for the pulp and paper industry.

In Europe and North America, due to the ageing installed capacities, investments focused primarily on modernizations and capacity increases. In addition, the demand for pumped storage power stations to secure grid stability in Europe has increased. Besides upgrading projects for existing plants, there was also increased project activity for constructing new small hydropower stations.

The Business Area also provides design and manufacturing of air-cooled turbo generators for General Electric

Demand for large-scale centrifugal pumps, especially in China, remained very high during the reporting period.

In April 2006, Andritz purchased the hydropower section of VA TECH HYDRO from Siemens Austria. After obtaining the approvals from the relevant anti-trust authorities, the acquisition of VA TECH HYDRO was successfully concluded at the end of May 2006. Andritz VA TECH

(GE), used in GE’s gas and steam turbines.

With its successful joint venture Andritz-Kenflo, Andritz is the clear market leader for centrifugal pumps for the Chinese pulp and paper industries.

HYDRO ranks among the world’s top three suppliers for hydropower equipment. Integration of the company into the Andritz Group has been started.

Business development*)

Major orders

Sales of the Business Area for 2006 amounted to 467.9 MEUR of which 390.2 MEUR came from first-time consolidated VA TECH HYDRO. Excluding VA TECH HYDRO­, Sales of the Business Area would have been 77.7 MEUR, significantly up compared to 2005 (52.7 MEUR). This is mainly due to the continued positive development of Andritz’s Pumps business.

Verbund-Austrian Hydro Power (AHP) ordered the penstocks and motor generators, including electrical equipment such as excitation systems and frequency converters, for the Limberg II pumped storage power station, Austria. Limberg II is the underground extension of the existing storage power station Kaprun. With two additional pump turbines and motor generator units, this more than doubles the installed capacity.

EBITA of the Business Area in 2006 was 22.2 MEUR; the profitability (EBITA margin) amounted to 4.7% (2005: 4.9%). Profitability of VA TECH HYDRO developed as planned and amounted to 3.7% in the Second Half of 2006. Order Intake of the Business Area in 2006 amounted to 585.4 MEUR, of which 474.4 MEUR resulted from the first-time consolidation of VA TECH HYDRO. All Divisions of the Business Area – Large Hydro, Hydro Service, Compact Hydro, Pumps, and Generator Turbo – showed a very solid and satisfactory development.

ANDRITZ Annual Report 2006

Acquisition of VA TECH HYDRO

Business Areas Hydro Power

In August 2006, a contract with civil company Veidekke, Norway for a complete electro-mechanical package for the 84 MW Pelton power plant in Kjosnesfjorden, Norway was signed. Andritz VA TECH HYDRO has been successful in Norway for several years in the modernization of small hydropower. With this contract, it has been able to extend its activities into the Large Hydro segment. Cleuson-Dixence Construction SA, Switzerland awarded a contract for the rehabilitation of the penstock of the 1,200 MW hydropower plant. VA TECH HYDRO GmbH is the leader in a consortium with MCE Industrietechnik Linz, and is in charge of design and supply of the equipment. The total weight of the new steel lining is 12,600 tons. The design pressure of 200 bars is presently the worldwide highest design pressure for a penstock of a hydropower plant. The award of this contract sets another milestone in the Business Area’s history in penstock construction. VA TECH HYDRO GmbH signed a contract with Natsionalna Elektricheska Kompania EAD, Bulgaria for the refurbishment of the Dolna Arda hydropower plant cascade. The project involves the renovation of three power plants with a total of 11 units and an output of 270 MW, and the installation of one new unit. A decisive factor for the award was Andritz VA TECH HYDRO’s global experience in hydropower plant refurbishments and, in particular, the numerous projects already realized in Bulgaria.

After the Tsankov Kamak hydropower plant, which is currently under construction, Dolna Arda is the second project realized between Austria and Bulgaria based on the stipulations of the Kyoto Protocol. The emission certificates generated will be allotted to Austria’s Kyoto targets. Comisión Federal de Electricidad (CFE), Mexico awarded a contract for the modernization and rehabilitation of the Infiernillo hydropower plant located on the river Balsas in the State of Guerrero, Mexico. The project comprises the modernization of four turbines at Mexico’s third largest hydropower station. A CFD study to increase turbine output from 160 to 200 MW will be done in order to optimize the hydraulic profile and behavior of the Francis runners. The state utility CADAFE, Venezuela signed a contract for the modernization of the Pena Larga hydropower station. Besides the installation of two new 20 MW Francis turbine runners, the complete automation system, the turbine governors, the electrical excitation, and protection system will be replaced by state-of-the-art technology and a modern online monitoring and diagnostic system.

079

The state-owned enterprise EDELCA, Venezuela signed a contract with the Consortium EUROBRAS for the supply of five large Francis turbines. The consortium is led by VA TECH Escher Wyss Ravensburg, a company of Andritz VA TECH HYDRO. The turbines will be installed at the second powerhouse of the Simon Bolivar power plant in Guri on the Caroni River, which is the biggest tributary in the Orinoco river basin. With a maximum output of 770 MW per unit, the turbines of Guri 2 belong to the most powerful in the world. Each single Francis runner will have a finished weight of almost 200 tons. Karnataka Power Corporation Ltd., India awarded the contract for Stage II of the Varahi underground power plant, comprising the installation of 2 x 115 MW Pelton turbines, generators, automation system, and the complete balance of the plant. This order confirms the strong market position of Andritz VA TECH HYDRO in India. PNG Power Limited ordered the upgrade and rehabilitation of the Rouna 2 hydropower station in Papua New Guinea. Rouna 2, located 40 kilometers northeast of Papua New Guinea’s capital Port Moresby, is the uppermost of four power stations of the Rouna hydro scheme, all using the waters of the Laloki River to supply Port Moresby with electricity. PNG Power Limited decided to rehabilitate the station to guarantee reliable operation, to achieve modern working safety standards, and to extend its operational life by another 20 to 30 years. Additionally, the unit power will be increased by more than 30%.  ➔

Key figures Hydro Power MEUR

2006*)

2005

2004

2003

2002

2001

Sales

467.9

52.7

43.8

32.0

29.3

26.0

Order Intake

585.4

71.5

58.7

37.3

28.3

28.6

1,659.5

60.5

40.7

27.2

21.5

22.6

33.3

4.8

5.5

3.2

7.4

2.3

7.1%

9.1%

12.6%

10.0%

25.3%

8.9%

Order Backlog as of 31.12. EBITDA EBITDA margin

22.2

2.6

3.8

3.3

5.8

-0.1

4.7%

4.9%

8.7%

10.3%

19.8%

n.sp.

EBITA EBITA margin

13.5

3.4

2.4

1.7

2.6

0.9

3,678

474

365

302

277

246

Capital investments Employees as of 31.12.

*) VA TECH HYDRO was consolidated into the financial accounts of the Andritz Group for the first time in Q3 2006. For the reference periods of last year, no pro-forma figures are available.

ANDRITZ Annual Report 2006

080

Business Areas Hydro Power

Research and Development Ethiopian state utility Ethiopian Electric Power Corporation (EEPCO) – through its turnkey contractor Salini Costruttori s.p.a. – placed an order to supply four 115 MW Francis turbines. The hydropower plant at the Beles River will be the largest hydropower station in Ethiopia. This order, once again, confirms the successful partnership between EEPCO and Andritz VA TECH HYDRO, which has lasted for more than 40 years. Vattenfall Europe Generation, Germany’s largest hydropower utility, ordered an automation system (NEPTUN­), including a digital protection system for the modernization of its Markersbach pumped storage station. After completion of this upgrade, it will be possible to operate Markersbach by remote control from the area control center of Goldisthal. This is another important success in the cooperation with Vattenfall Europe Generation. The Business Area was awarded a large number of orders for centrifugal pumps in China, thus further strengthening Andritz’s market leadership in this region. In the Sudan, a large order for spare parts for irrigation pumping stations came into force. An order for eight large pumps for the “South Water to North China” large-scale project was received. In addition, two major orders for the supply of core components for water power stations in China were put into force.

ANDRITZ Annual Report 2006

A wide variety of very advanced hydraulic designs has been developed in connection with recent contracts. In the field of Francis turbines, the new generation of runner designs was the key to successful upgrade projects ranging from high head runners in Norway to large 770 MW runners in Venezuela.

For the cooling of high-performance (maximum-capacity) bulb-type generators, an innovative ventilation system was developed, which provides several advantages for the mechanical and electrical design. The ventilation design is based upon numerical fluid dynamics (CFD) and measurements.

In the field of low head units, new axial runners for exist­ ing units with special casing designs have been developed. The optimization of runner casing interaction has also been the key success factor in the upgrading of Pelton units.

Detailed CFD simulations were carried out in order to investigate the oil flow and mixing behavior in the cavities between adjacent thrust bearing pads.

Continuous research in numerical design has also enabled further progress in the field of single-stage and multi-stage pump-turbines. Very attractive synergy potentials have been identified and already exploited between the hydraulic designs of large tailor-made pumps for water transport and the designs for pump-turbines and pumps for storage power plants. A further interactive R&D initiative has been launched with respect to the field assessment of existing hydro plants, both from the mechanical and the electrical point of view. New developments for high-voltage insulation and a cost-effective design were successfully introduced for hydro generators, as well as for turbo generators. Further research activities on large rotating electrical machines with high-rated voltage were focused on the optimization of the stator end winding design regarding corona phenomena.

Another focus of R&D was placed on technologies in the field of automation. The new SAT 250 product line re­ presents a state-of the art system for control centers and operator stations. For excitation and protection systems, the development of new platforms has been launched. The application of the very successful technology for governors and plant controls has been extended to all kinds of turbine types and sizes. The large pumps program was extended by Francis pumps. The development program further includes extensions for and improvement of semi-axial and axial pumps, the latter as bulb pumps. Other main points in the development program include materials and coating for components sensitive to wear, shaft bearing assem­ bly, and rotor dynamics for main coolant pumps. 

Business Areas Hydro Power

081

Andritz dewatering pump for Sudan after shop assembly.

ANDRITZ Annual Report 2006

082

Business Areas Rolling Mills and Strip Processing Lines

Rolling Mills and Strip Processing Lines

Business Area Managers: Peter Gravert, Vienna, Austria

Franz Hofmann, Graz, Austria

Business Areas Rolling Mills and Strip Processing Lines

083

The annealing and pickling line for cold-rolled stainless steel strip at LISCO, Guangzhou, China processes stainless steel strip of 0.3 to 3.0 mm thickness and up to 1,600 mm wide, at speeds of up to 95 m/min. The line includes a skin pass mill and a tension leveler.

ANDRITZ Annual Report 2006

084

Business Areas Rolling Mills and Strip Processing Lines

Profile

Market development

Major orders

The Rolling Mills and Strip Processing Lines Business Area designs and builds complete lines for the production and further processing of cold-rolled stainless steel, carbon steel, and non-ferrous metals. These lines consist of equipment for cold rolling, surface treatment, strip coating and finishing, stamping and deep drawing, and acid regeneration. The expertise and key equipment are developed in-house and manufactured at the Business Area’s own facilities.

In 2006, the market for carbon steel and stainless steel equipment developed very positively. Projects concentrated mainly on China, India, and Europe; in these regions, several orders for new plants and the modernization of existing mills were awarded. In North America, only selective investments were made.

Andritz will supply a stainless steel cold-strip annealing and pickling line (annual capacity: 250,000 tons) with in-line skin-pass mill and leveling line to the E-United Group, Taiwan, for the YUSCO stainless steel mill. Production is planned to start in the autumn of 2007. The order includes the complete engineering work and startup of the entire plant, as well as the supply of the major plant parts. The mechanical equipment, pickling line, furnace, and automation are all based on proprietary technologies developed by Andritz.

The Andritz Group is the only single-source supplier worldwide, capable of providing all technologies and processes involved in the manufacturing of stainless steel strip (cold rolling, annealing, pickling, and finishing) on a comprehensive basis (mechanical, process, and electrical equipment). This ensures minimized interfaces and takes the interdependencies of the overall process into consideration.

Prices for cold-rolled steel and stainless steel products developed positively during the reporting period due to continued solid demand – especially for stainless steel. Global crude steel production in 2006 is expected to amount to approximately 1.2 billion tons, up 9% as compared to 2005. The output of China amounts to approximately 400 million tons, which is approximately one third of global crude steel production. As a result, China has become a net exporter of crude steel.

new stainless steel plant.

For stainless steel, market researchers expect global production in 2006 to rise to approximately 28 million tons, up 14% compared to 2005. Demand growth was solid in all regions of the world, with China showing continued double-digit increases in stainless steel demand.

The Business Area received an order from ThyssenKrupp Nirosta, Krefeld, Germany for the reconstruction of the stainless steel annealing and pickling lines at its Krefeld works which had been damaged in a fire.

Sources: ISSF, IISI, MEPS

Business development In 2006, the Business Area’s Sales amounted to 450.5 MEUR, which is a strong increase of 63.3% compared to 2005 (275.9 MEUR). As a result of higher Sales and successful order execution for some projects, EBITA and profitability also developed very positively. At 30.6 MEUR in 2006, EBITA was 92.5% higher than in 2005 (15.9 MEUR). EBITA margin surged to 6.8% (2005: 5.8%). Order Intake in 2006 reached 401.9 MEUR, down 9.6% compared to the exceptionally high level of 2005 (444.8 MEUR), which was influenced by the receipt of some very large orders from China.

ANDRITZ Annual Report 2006

In addition, the E-United Group, Taiwan placed a further order for an annealing and pickling line with integrated rolling mills for their new stainless steel plant in China. This is the fourth large order awarded to Andritz for this

TIAN-TIE Group, Tianjin, China ordered an acid regeneration plant for their plant in Tianjin, near Beijing. The plant, which has a capacity of 11,700 liters per hour, is designed for a future upgrade to produce even higher oxide qualities. Start-up is scheduled for the beginning of 2008. With this order, Andritz once again confirmed its leading position in acid regeneration technology. In addition, the TIAN-TIE Group placed an order with Andritz for the supply of a continuous annealing furnace for a new hot dip galvanizing line.

Business Areas Rolling Mills and Strip Processing Lines

085

Research and Development Salzgitter Flachstahl, Germany awarded an order for a cut-to-length line for materials with thicknesses in the range from 2 to 16 mm. With a patent for highly precise levelers with almost unlimited thickness range, Andritz is among the market leaders for cut-to-length lines for thick materials with high precision requirements. The Business Area received an order from OJSC Novolipetsk Steel, Russia for a turnkey push pickling line with acid regeneration. Start-up of the plant is scheduled for the First Quarter of 2007. This new pickling plant is designed for the treatment of a product mix of oriented silicon steel strip, as well as standard carbon steel. It will have an annual production capacity of approximately 300,000 tons, for strip up to 1,300 mm wide and in a

Taiyuan Iron and Steel Company Ltd. (TISCO), China placed orders for two very wide (2,100 mm) cold-rolling mills, once again demonstrating the customer’s satisfaction with Andritz’s support and technology. The Business Area received an order for the fifth acid regeneration plant from Baosteel, China. This plant has a capacity of two times 7,500 l/h. In order to produce high quality iron oxide, a WAPUR (Waste Acid Purification) unit will also be supplied. To Jindal South West Steel, India, the Business Area will deliver a hydrochloric acid recovery plant for processing 6,400 l/h of waste acid. The final acceptance test is planned for May 2007.

thickness range of 1.5 to 3 mm. Optimized balancing of operating fluids and agents will minimize consumption levels and effluents.

In 2006, R&D activities focused on the standardization and optimization of push pickling lines and mixed acid recovery plants. A Zero Effluent Mixed Acid Plant (ZEMAP)­ was developed to meet the demand for a nitrate-free stainless steel pickling process. The combination of the total mixed acid recovery process (PYROMARS) and a patented rinse water recycling system has led to an economical and ecological breakthrough in stainless steel processing. New coating technologies were investigated, using ionic liquids, CVD technology, and aqueous electro-galvanizing processes. A new series of roll grinding machines was developed to enlarge the diameter of rolls that can be ground on machines up to 650 mm, meeting the closest tolerances. Special attention was paid to further optimizing the design of heavy shears and multipurpose levelers covering a wide range of material thickness.

Shanghai Baoshan Iron and Steel Co. Ltd., China ordered a stainless steel hot-strip annealing and pickling line with in-line rolling mill for the new stainless steel mill in Baoshan. The order comprises the complete engineer­ ing services and start-up of the complete plant as well as the supply of important machinery and plant components. All required processes (rolling, annealing, pickling) will be based on Andritz’s own technologies. The line has been designed for approximately 900,000 tons of strip per year, depending on the product mix, and will process strip in the thickness range of 2 to 10 mm and up to 1,600 mm wide. Production is scheduled to start in the summer of 2007.

For the first time, the Business Area has installed a newly developed direct fired furnace zone as part of the new hot dip galvanizing line for voestalpine in Linz, Austria. It allows specific heat control over the strip width. During 2006, Andritz presented a new generation of punching and metal-forming presses. The new generation of presses features a modular design which allows flexible adaptation to various customer demands.

Key figures Rolling Mills and Strip Processing Lines MEUR

2006

2005

2004

2003

2002

2001

Sales

450.5

275.9

235.4

173.1

177.4

167.4

Order Intake

401.9

444.8

266.7

287.6

175.7

196.3

Order Backlog as of 31.12.

403.7

458.9

293.1

265.4

154.0

159.2

32.8

18.2

14.3

6.6

11.1

8.7

7.3%

6.6%

6.1%

3.8%

6.3%

5.2%

30.6

15.9

12.1

4.4

8.5

6.1

6.8%

5.8%

5.1%

2.5%

4.8%

3.7%

EBITDA EBITDA margin EBITA EBITA margin Capital investments

2.3

2.2

3.2

1.4

1.6

3.4

Employees as of 31.12.

819

749

736

533

642

562

ANDRITZ Annual Report 2006

086

Business Areas Environment and Process

Environment and Process

Business Area Managers: Werner Hölblinger, Graz, Austria (Thermal Process Technologies)

Johannes Kappel, Graz, Austria (Separation Technologies)

Business Areas Environment and Process

087

Andritz membrane filter presses dewater sludge from all types of industries to the highest dry solids possible. A special filter cake scraping device helps meet customers’ demand for fully automatic operation. Optimum results are achieved with minimum energy input.

ANDRITZ Annual Report 2006

088

Business Areas Environment and Process

Profile

Market development

Business development

The Environment and Process Business Area covers a comprehensive range of technologies, products, and services for mechanical and thermal solid/liquid separation for municipalities and major industries, such as coal and mineral processing, chemical/petrochemical, and food processing.

During 2006, the market for sewage sludge dewatering equipment developed very positively, especially in Western Europe and the USA. In China, project activity has also been high. Project activity for sludge drying plants focused on the UK and Asia. Due to rising gas prices, the market for refurbishments of drying plants with combined heat and power solutions and plants with combined incineration is on the rise. The trend in the US towards pathogen elimination in bio-solids prior to reuse on land has continued, thus driving the demand for sludge treatment systems.

In 2006, Sales of the Business Area increased to 366.5 MEUR, which is 26.7% higher than in 2005 (289.2 MEUR). Both Divisions of the Business Area, Separation Technologies and Thermal Process Technologies, showed a solid Sales development during the reporting period.

The Business Area is a global leader in this field and offers comprehensive support from design to the manu­facture of key components for sludge thickening, dewatering, drying, and incineration as well as erection and startup of turnkey plants, including automation and safety engineering. The large installed base of Andritz products and systems, including more than 10,000 centrifuges and over 100 sludge drying lines worldwide, is serviced from dedicated Andritz service centers in Europe, the USA, and Asia.

Project activity for industrial applications for the petro­ chemical, minerals, mining, and food processing industries was very high in most areas of the world, but especially in China. Demand was on the rise again in the US, where there had been quite low investment activity during the past few years. Also, the demand for dewatering equipment to treat industrial sludges, in particular from the steel industry and from flue gas desulphurization plants, remained at a very high level.

EBITA, however, did not fully match Sales growth. At 20.5 MEUR in 2006, it increased only by 15.8% compared to 2005 (17.7 MEUR). This is mainly due to cost-overruns for some projects in the Thermal Process Technologies Division, offsetting the continued positive development of the Separation Technologies Division. Order Intake in 2006 reached 344.2 MEUR, slightly above the high level achieved last year (340.1 MEUR). In particular, the Separation Technologies Division showed a solid increase of new orders, with the number of centrifuges and filter presses sold reaching another record level in 2006.

Acquisition of a service company in the USA In October 2006, Andritz signed an agreement to purchase CONTEC Decanter Inc. based in San Leandro, CA, USA. CONTEC specializes in the repair and maintenance of centrifuges and separators for various industries. The company has annual Sales of approximately 3 MEUR. With this acquisition, Andritz has added a service center for centrifuges and separators on the West Coast of the USA to its network of existing service centers in the USA, Europe, and Asia. This will enable Andritz to serve local customers better and faster and to strengthen its leading position in servicing centrifuge installations.

ANDRITZ Annual Report 2006

Business Areas Environment and Process

Research and Development

Major orders Separation Technologies Alunorte, Brazil awarded Andritz another contract for five large hyperbaric disc filters for the dewatering of bauxite. Clark County, USA ordered eight large centrifuges to dewater the sludge from the City of Las Vegas.

Four lines of a drum drying system (DDS) for the biggest sewage treatment plant in Europe on the island of Psyttalia­, Greece were ordered by the general contractor J/V Actor Athena (joint venture of the companies Actor S.A. and Athena S.A.) for the municipality of Athens. This plant will dry 385,000 tons of sludge per year.

Three special censor centrifuges were sold to Entec, USA for separating the various synthetics which are used for carpets to obtain pure products for recycling.

The municipality of Bilten, Switzerland ordered a sewage sludge drying plant, based on Andritz’s proven belt drying technology.

American Power, USA awarded a contract for five (2 x 2 m) filter presses to dewater the sludge from flue gas desulphurization at two locations.

Manatee County, Florida, USA awarded a contract to design and build a bio-solids drying system for three wastewater plants. The plants will utilize the successful Andritz Drum Drying System (DDS); they will be located on a county landfill site and will process 200 t/d of biosolids using landfill gas to fulfill energy requirements.

Three large centrifuges will be supplied for an HDPE plant in Saudi Arabia. A number of orders were received from the Baosteel Group, China to dewater various sludges from steel production. The Division will deliver large filter presses for three drinking water preparation plants in Northern Ireland. Thermal Process Technologies Beijing Drainage Group, China ordered a sewage sludge drying plant for its Qinghe wastewater treatment plant. The drying plant is based on the fluid bed technology and comprises two lines, each with 6.5 t/h evaporation capacity.

089

Ortec Industries SA, France ordered a belt drying system for municipal sludge. For Xin Jiang Zhongtai Chemical Co. Ltd, China, Andritz will deliver a large fluidized bed drying system with a capacity of 30 t/h for S-PVC powder. A fluid bed dryer for solidification of 5,500 t/a of calcium chloride brine, a by-product of soda ash production, was ordered by Tangshan Sanyou International Industry Co. Ltd., China.

Research work in the Separation Technologies Division continued to concentrate on the optimization of the centrifuge product range in order to further enhance performance and/or reduce manufacturing costs. Another focus area was the standardization of the filter press product family in order to shorten delivery times and reduce costs. In connection with the EcoDry Process for sludge incineration, the Thermal Process Technologies Division conducted a research program including tests on an industrial installation to minimize ammonia emissions after an SNCR (Selective Non-Catalytic Reactor) offgas cleaning system. Similar investigations on emissions were carried out with analysis and process optimization for the off-gas cleaning systems on belt dryers using biofilters and chemical scrubbers. A combined drying plant using a belt and a fluid bed dryer was developed and a patent filed. The target is to use process synergies of both systems to achieve the best energy efficiency. Intensive pilot tests were carried out with pilot-scale drying plants to obtain design and feasibility data for fluid bed drying on various products such as polymers, salts, minerals, and waste from bio-ethanol production. 

The fifth system for sludge drying was ordered by Southern Water Services for its Ashford, Kent wastewater treatment plant. The drum drying system will have a water evaporation capacity of 7,000 l/h and will process a total of 75.000 t/a of dewatered sludge.

Key figures Environment and Process MEUR

2006

2005

2004

2003

2002

2001

Sales

366.5

289.2

217.9

110.4

122.8

135.3

Order Intake

344.2

340.1

200.7

110.2

147.7

140.6

Order Backlog as of 31.12.

179.3

202.2

138.3

113.8

122.6

99.7

25.6

22.0

12.6

3.3

2.8

9.0

7.0%

7.6%

5.8%

3.0%

2.3%

6.7%

EBITDA EBITDA margin EBITA EBITA margin Capital investments Employees as of 31.12.

20.5

17.7

9.9

1.5

1.0

7.2

5.6%

6.1%

4.5%

1.4%

0.8%

5.3%

6.5

6.6

7.9

1.5

1.9

1.9

1,324

1,213

926

428

439

435

ANDRITZ Annual Report 2006

090

Business Areas Feed and Biofuel

Feed and Biofuel

Business Area Manager:

Harald Heber, Esbjerg, Denmark

ANDRITZ Annual Report 2006

Business Areas Feed and Biofuel

091

The Vindija Group is the biggest integrated food company in Croatia. For their feed producing subsidary, Koka, Andritz delivered a multifunctional feed plant with an annual capacity of 400,000 tons on a turnkey basis. (Photo: BIOdar is the brand name of the feed produced by the new Koka mill.)

ANDRITZ Annual Report 2006

092

Business Areas Feed and Biofuel

Profile

Market development

Business development

The Feed and Biofuel Business Area is a global market leader for supplying machines and systems, pellet mill consumables, such as dies and rolls, and other technical services to the animal feed industry, the pet food industry, and the fish and shrimp feed industries. The Business Area also holds a leading position in fast-growing markets for wood fuel pelleting and for pelleting of agricultural and industrial by-products.

In 2006, project activity in the animal feed sector developed very positively in Eastern Europe and South America, mainly driven by expansion projects of large international vertically integrated meat producers, as well as medium-sized regional companies.

The Business Area’s Sales in 2006 amounted to 120.6 MEUR, which is a strong organic growth of 28.8% compared to 2005 (93.6 MEUR). EBITA and profitability were also higher than in 2005. EBITA, at 10.6 MEUR in 2006, increased by 47.2% compared to 2005 (7.2 MEUR), thus surpassing the Sales growth. As a result, EBITA margin was further enhanced to 8.8% (2005: 7.7%).

The Business Area has three main sites: Esbjerg, Denmark; Geldrop, the Netherlands; and Muncy, PA, USA. It operates globally from ten regional sales and service offices and four manufacturing sites, being supported by a strong network of distributors and sub-suppliers. All companies of the Business Area operate worldwide under the brand name of Andritz Sprout.

ANDRITZ Annual Report 2006

The aquatic feed industry also developed favorably, with both marine and freshwater farming showing high investment activity for plant upgrades as well as new plants, especially in Asia, South America, and Europe. The pet food extrusion industry also showed good project activity in 2006, mainly in Europe and Latin America.

Order Intake also developed very favorably, achieving a strong organic growth. It increased to 127.1 MEUR (2005: 101.2 MEUR). Order Intake was particularly strong for animal feed plants, aquatic feed extrusion lines­, and wood pelleting systems.

The market for wood pelleting equipment continued its

The Business Area successfully handed over a fully inte-

strong development during the reporting period. High project activity was seen in North America, Europe, and Russia. In addition, the new regions of Southern Europe and South America have also become increasingly active. For industrial pelleting plants for recycling and waste combustion, there was good investment activity, mainly in Europe.

grated multifunctional feed factory to Koka, the biggest Croatian integrated poultry producer. In 2006, Andritz acquired the remaining 49% stake of the joint venture between Andritz Sprout and Chemes Strojarne in Humenné, Slovakia which had been established in 2005. Andritz Sprout s.r.o. is an important part of the supply chain of the Feed and Biofuel Business Area, providing manufacturing and engineering services for the Andritz Sprout group worldwide.

Business Areas Feed and Biofuel

Major orders

093

Research and Development

The Business Area was awarded a number of orders for process lines for animal feed, mainly in Eastern Europe. Major orders for process lines came from vertically integrated meat producers based in Asia and Eastern Europe as well as in South and North America. Among these, a large order for two projects from the largest Ukrainian meat producer. The Business Area received a number of large orders for animal feed expansion projects in South America, Asia, and Scandinavia.

In response to the increasing requirements for feed and food safety, the Business Area has launched a series of products in support of controlled thermal treatment and sterilization of feed.

Several orders for aquatic feed extrusion lines were won in Asia, the Mediterranean region, and South America.

In the biofuel area, development projects that target the optimization of production efficiency for wood pelleting plants are underway.

In the extrusion area, a new generation of all stainless combizone dryers was developed which provide full corrosion protection and integrated self-cleaning features to customers in the aqua feed and pet food businesses.

In the pet food sector, the Business Area received several larger orders in Europe. These included an order from Spain for the highest capacity pet food extrusion line in Europe. Orders in the biofuel sector continued to develop favorably with a large number of orders for wood pelleting lines received from customers in North America and Northern and Eastern Europe. Several orders for pelleting lines for waste-based fuels and for industrial recycling purposes were secured in Central Europe.

Key figures Feed and Biofuel MEUR

2006

Sales Order Intake Order Backlog as of 31.12. EBITDA EBITDA margin EBITA EBITA margin

2005

2004

2003

2002

2001

120.6

93.6

127.1

101.2

99.6

99.2

108.4

107.0

92.0

102.0

104.7

30.2

23.6

112.6

16.0

24.5

23.5

27.6

12.9

9.8

5.1

7.4

6.1

4.7

10.7%

10.5%

5.1%

7.5%

5.6%

4.4%

10.6

7.2

2.2

4.8

4.2

0.9

8.8%

7.7%

2.2%

4.8%

3.9%

0.9%

Capital investments

1.7

0.9

1.6

6.6

5.4

6.7

Employees as of 31.12.

531

489

482

549

609

676

ANDRITZ Annual Report 2006

094

Andritz Automation

ANDRITZ AUTOMATION

Successful market introduction of several new products

Andritz Automation is a global network formed by the individual automation groups within the Andritz Business Areas, the fully-owned affiliates IDEAS Simulation & Control and Universal Dynamics Group, as well as the automation specialists from Andritz VA TECH HYDRO. More than 890 engineers at locations in 24 countries worldwide focus on the development and implementation of automation solutions for Andritz’s systems and plants and provide service support. By combining in-house automation process expertise with intimate knowledge of the production equipment that only the machinery supplier can possess, Andritz Automation creates unique and specific automation solutions to meet customer needs. Fewer interfaces and practical experience with all leading industrial automation components and systems lead to fast start-ups and smooth operation of Andritz plants and technologies. Improvements to existing customer plants using simulation models, and advanced process control technologies and special sensors are part of the comprehensive services.

ANDRITZ Annual Report 2006

Business development

Product developments

With the acquisition of VA TECH HYDRO in 2006, the Andritz Automation network was further strengthened by the electrification and automation specialists of Hydro Automation who focus on the development, engineering, implementation, and servicing of automation systems for new power stations, as well as the rehabilitation and upgrade of existing plants. The NEPTUN concept, developed by Andritz VA TECH HYDRO, is an integrated solution for hydropower automation containing modules for control, excitation, protection, monitoring and diagnosis, power plant management, synchronizing, and electronic turbine controllers.

Advanced Control Expert (ACE™) is the common Andritz software platform for all process optimization solutions for the pulp and paper industry. The ACE™ platform is based on the patented BrainWave® technology. ACE™ helps to reduce process variabilities by more than 50% and provides tools for comprehensive mill data ana­lyses. The new generation Cooking ACE™ was installed at VCP, Jacarei, Brazil. The first PulpDrying ACE™, Kiln ACE™, and Recaust ACE™ will be put into operation in 2007. Further ACE™ orders were received from CMPC Santa Fe, Chile; Tiger Paper Group, China; and PT Lontar Papyrus Pulp and Paper, Indonesia.

In 2006, Andritz Automation successfully launched the service business for paper mill automation. The highlights of the offering are the HydraulicCommander™ which is a refiner plate positioning control system and RPS™, a refiner plate protection device.

An innovative technology was developed to simultaneously measure various properties of pulp, such as consistency and freeness, based on a multi-ingredient scan (MIS™) of pulp by installing an inline sensor. The first industrial installation of the MIS™ sensor platform was successfully implemented in a thermo-mechanical pulping plant (TMP).

Components for Andritz plants and systems which are knowledge-intensive and quality-critical are manufactured in Andritz facilities around the world. In 2006, the manufacturing capacities were extended with new workshops in China and India serving the local markets. To be closer to the customer and better support local stand­ ards and requirements, Andritz established new automation groups in South America and China.

The research activities of Hydro Automation focused on the development of ideal ergonomics for human/machine interfaces (HMI), electronic protection, and excitation systems.

Andritz Automation

095

Important orders Andritz has developed a Mill Management System (MMS™) for rolling mills which manages and documents all process-relevant data of the mill. The system also includes an order and roll management, as well as a coil tracking module. With its modular design, MMS™ can be adapted easily to customers’ requirements. In 2007, MMS™ will be used for the first time at JINDAL Stainless Steel in India. Five shape control systems were equipped with the new MPC (Model Predictive Control) Controller and commissioned successfully. The MPC Controller has proven to be successful in enhancing quality and increasing productivity in silicon steel rolling. IDEAS Simulation & Control developed a full range of BrainWave® solutions for kraft pulp mills. These products, which allow customers to optimally control various processes, have won market acceptance at the Arauco Valdivia mill, the CMPC Santa Fe mill, both in Chile, as well as at the Weyerhaeuser Longview mill in the USA, and the Mondi Frantschach mill in Austria. Other significant BrainWave® orders came from McCain Foods in Canada, Nova Chemicals in the USA, and Phelps Dodge in Chile.

A clear trend for customers in the pulp and paper industry is to order full packages instead of single parts. Andritz Automation received orders for complete electrification and automation packages from Heinzel Pulp, Austria; SCA Obbola, Sweden; SCA Östrand, Sweden; and Tracodi, Vietnam. Another trend focused on the upgrading of existing pulp mills. Customers in Indonesia, Brazil, and Spain decided to benefit from the experience and knowledge that electrification and automation engineers gained during the start-up of the initial installation. Pulp mill process equipment, combined with unique Andritz Automation solu-

Andritz Automation continued to supply automation solutions for rolling mills and strip processing lines in China, India, and Russia. All Andritz stainless steel plants were equipped with Andritz software packages, including mathematical models for process optimization. A couple of automatic gauge control systems (AGC™) were ordered by customers in the Far East and Europe. Andritz Automation received two orders to supply complete automation systems to TISCO, China for one of the largest cut-to-length lines. For a greenfield project in Russia, Andritz Automation will supply the complete electric and automation system with

tions, was supplied to Sappi, South Africa; April Group, Indonesia; Tiger Group, China; APP, China; and Norske Skog-Klabin, Brazil.

integrated Level 2 for a push-pull pickling line and acid recovery plant. All systems are pre-tested and simulated to guarantee a very short start-up time.

Andritz Automation entered a new business segment to improve and upgrade control systems for paper and board machines. In cooperation with Andritz Küsters, several orders were received from customers in South­ east Europe.

Hyperbaric filters and chamber filter presses for dewater­ ing coal and bauxite sludge equipped with up-to-date SCADA control (Supervisory Control and Data Acquisition) were delivered to China and Brazil.

Hydro Automation received orders for turnkey projects in Papua New Guinea, Venezuela, and Bulgaria. Automation control and protection systems were delivered to Vattenfall Europe for one of the biggest pumped storage plants in Europe. The cooperation between Andritz and VA TECH HYDRO formed the basis for solutions which convinced Verbund-Austrian Hydro Power to place important orders, including supplies for the Bösdornau project.

IDEAS Simulation & Control received simulator orders for kraft pulp mills in Brazil, Chile, and Australia and for a recovery boiler in Sweden, as well as several orders from the oil sands industry in Canada and the mining industry in South America. 

ANDRITZ Annual Report 2006

096

Human Resources

“I’m proud to work for a company like Andritz.” 为安德里茨这样的公司工 作我很自豪。

“Andritz provides excellent training for a successful career.” Ralph-Anton Gerngroß and Philipp Engelbrecht, apprentices at Andritz Graz

Glenn E. Evans,

Andritz Inc., Muncy, PA, USA

“A great Place To WORK.”

Lai Yongbin, Andritz Technologies, Foshan

赖永斌 佛山安德里茨技术有限公司

Human Resources

097

HUMAN RESOURCES

Focus on training and career development

Being aware of the importance of committed and qualified staff, Andritz strives to continuously motivate and support its employees by a series of targeted measures including attractive training programs, interesting career opportunities, and incentive plans. These measures were continued in 2006.

Continued staff increase As a result of company acquisitions and organic growth, the number of employees increased strongly in 2006. As of December 31, 2006, the Andritz Group had a total of 10,215 employees, an increase of 71.9% compared to 2005 (5,943). This increase is mainly due to the acquisition of VA TECH HYDRO (+3,108 employees) and Küsters (+416 employees).

Employees by region 2006 (2005) in % Others 14 (8)

India 5 (1) Austria 25 (21)

China 7 (6) Netherlands 1 (3)

Northern Europe 12 (16)

France 2 (3) Denmark 2 (3)

Germany 19 (19)

North America 13 (20)

Activities in 2006

Incentive strategy

The numerous vacancies within the Andritz Group in 2006 were filled with qualified candidates. To recruit highly talented junior staff, Andritz intensified its participation in job fairs held at universities and vocational schools.

In addition to a comprehensive catalog of training programs, measures to improve personal health, and an attractive working environment, Andritz uses an incentive compensation system to reward employees and attract potential candidates. On top of a basic compensation, an annual incentive is given which is based on the fulfillment of clear targets set for each business year. Targets are linked to the success of the Divisions (e.g. Order Intake and/or other financial performance figures) as well as personal achievements. In addition, most affiliated companies run local incentive programs. Based on income tax benefits, employees in Austria were again offered Andritz shares instead of cash incentives in 2006.

The training programs offered on a Group-wide and local level were further enhanced and new modules added. The proven Andritz Management Challenge training program which is attended mainly by future executives, but also by specialized staff, was successfully continued and extended by new training modules. This Group-wide training program is organized in cooperation with St. Gallen Management Center, Switzerland. It was found that these trainings which unite Andritz staff from all over the world have an important added value in helping to create internal networks and considerably strengthen intercultural competencies. A lack of skilled workers is becoming increasingly apparent on the job market. Andritz counters this trend with its own training programs for apprentices which have proven their worth over many years. In 2006, Andritz AG trained an average of 50 apprentices at its workshop in Graz. An additional 20 young people were trained as commercial apprentices at the Graz offices. In a number of Andritz Divisions, management audits were carried out together with external consultants to improve existing organizational structures and processes. Another project focused on enhancing the attractiveness of a technical career within the Andritz Group to encourage more people to aspire to technical versus managerial positions.

A significant number of employees opted for the shares, thus showing a very high commitment towards Andritz. Thirty-five percent of all Austrian Andritz employees hold Andritz shares now. Approximately 60 managers and executives of the Andritz Group (including the members of the Managing Board) take part in a stock option program launched in 2006. As a prerequisite, Managers had to invest up to EUR 40,000 of their own money in Andritz shares. Exercise of the options is linked to the performance of the Andritz share price and the development of Earnings per share. A similar stock option program based on comparable conditions and prerequisites was implemented in 2004. Managers participating in this program (approximately 50 people) were able to exercise their options in 2006 after all conditions had been fulfilled. 

Internal career opportunities One of the main strategies of Andritz’s human resources management is to fill vacant managerial positions with successful and experienced people from the existing Andritz staff. A prominent example in 2006 was the appointment of two Andritz managers, who had successfully worked for Andritz for many years, to positions on the Managing Board of Andritz. The managerial functions which became vacant as a result of these appointments were also filled with internal staff. In addition, several new highly qualified candidates were recruited to maintain and enlarge the management resources available.

ANDRITZ Annual Report 2006

098

Manufacturing, Procurement, and Quality

Manufacturing, Procurement, and Quality

Goal to reach World Class Standards

Manufacturing The Andritz Group operates 50 manufacturing and service sites in Europe, North America, South America, and Asia. These sites produce and assemble the key components for Andritz equipment and systems. In total, Andritz employs approximately 4,800 people in manufacturing worldwide. This highly qualified workforce with long-term experience, as well as state-of-the-art production systems and processes, ensures high product quality and reliable, on-time order execution.

Manufacturing strategy In order to remain successful and competitive in the global markets, Andritz operates manufacturing sites all over the world and is expanding its presence in the growing markets of China, India, and South America. All process-relevant and complex key components for Andritz plants and machines are manufactured and assembled at Andritz’s own workshops. Less critical components are sourced from qualified suppliers, who are subjected to regular quality checks and on-timeperformance monitoring.

Capacity and time management

Major developments in 2006

The strongly growing order intake and increasingly difficult situation in the material and semi-finished goods markets present a great challenge to Andritz Manufacturing. Short lead times and on-time production require precise planning procedures as well as committed and flexible employees. Andritz uses flex-time contracts and a temporary workforce to cope with cyclical fluctuations and peaks in workload. In order to make sure that the sourcing needs of Andritz Manufacturing can be covered at all times, the pool of suppliers is constantly enlarged with new, qualified suppliers. Professional project management ensures that contractual milestones are met over

Despite the heavy workload at all Andritz workshops, on-time production and high product quality were maintained.

the entire process chain, from order intake to start-up.

kets, Andritz reinforced its procurement management and increased its stock of semi-finished goods. In addition, investments were made to introduce new manufacturing technologies and further automate production processes.

Global service network Andritz has established a global network of service points in order to serve customers as best possible after their systems have started up. Equipment of service points is based on the requirements of Andritz’s products and regional distribution is guided by customers’ requirements.

All Andritz manufacturing sites are to achieve World Class Standards in productivity, product quality, and lead time. To further improve competitiveness, ambitious projects aimed at increasing performance were carried out. New companies were investigated and selected as Andritz suppliers in order to cover the sourcing needs of Andritz Manufacturing and reduce risks. In view of the reduced offering in the material and semi-finished goods mar-

New sites Through the acquisition of VA TECH HYDRO, Andritz also acquired and integrated eight manufacturing sites. A new assembly hall and machining section for large parts was added to the Andritz manufacturing center in Foshan, China. A new stainless steel foundry will start operating in the First Quarter of 2007. With the acquisition of Küsters, Germany, two manufacturing locations were purchased and are being consolidated into one. In South America, the manufacturing site in Pomerode, Brazil was extended and another site in Vinhedo, near São Paulo, was purchased through the acquisition of Pilão. The new site in Vinhedo specializes in stock preparation equipment and services. In 2006, Andritz took over the remaining 49% stake of the joint venture between Andritz Sprout and Chemes Strojarne in Humenné, Slovakia which had been established in 2005.

ANDRITZ Annual Report 2006

Manufacturing, Procurement, and Quality

Procurement

Quality

The fast growth of the Andritz Group over the last few years has brought a lot of challenges for the Andritz procurement departments. The procurement policy of Andritz focuses on markets, suppliers, procurement processes, and resources. It aims to achieve optimum synergies within the Group’s different locations and to improve efficiency in the procurement supply chain.

The high technical standards of Andritz’s products and systems require manufacturing standards of the highest level, a systematic organization, well-defined business processes, and well-trained employees. Andritz Quality Management plays a major role by implementing operating standards on products, processes, and personnel and by providing continuous feedback about the effects and fulfillment of these standards. Resources have been considerably increased to cope with the organic and external growth of the Andritz Group.

The procurement function of the Andritz Group is decentralized and performed individually by different project, manufacturing, and service locations. The coordination and cooperation activities within this decentralized structure are ensured by the global procurement organization. The goal is to achieve substantial cost savings by the pooling of demand, benchmarking, and negotiation of Group-wide contracts. For specific regions (e.g. China), the regional sourcing/subcontracting activities are coordinated and supported by special, regional purchasing organizations. The main purpose of the procurement organization is to secure the supply of all goods and services required for running the business processes. These goods and services are to be purchased at the most favorable terms and conditions, are to meet Andritz’s quality standards, and must be available at a specific date. In addition, procurement is to contribute to strengthening Andritz’s competitive position through systematic reductions in process and procurement costs.

099

Large efforts were undertaken to improve the quality level in the supply chain. Andritz invested in state-of-the-art equipment for incoming goods inspection with respect to chemical analysis and dimension control. The new equipment is easy to use and mobile, enabling checks on suppliers’ sites. Emphasis was on quality monitoring and systematic re-evaluation of sub-suppliers.

A focus of Andritz’s quality management activities in 2006 was product quality. The twofold approach in-

To further improve the safety level of systems and products, a series of safety audits covering all Divisions was started. This program will be finished in 2007. The external safety audits are conducted by leading international experts.

cluded quality assurance in the engineering phase and a thorough quality assurance process in Andritz’s own and outsourced manufacturing. Quality assurance in the engineering phase was strengthened by a training program along with additional independent reviews for engineering results.

Andritz Technologies China, one of the fastest growing branches of the Andritz Group, was certified to ISO 9001. In China, the emphasis remained on ensuring the quality of products manufactured in Andritz’s own workshops and sourced from sub-suppliers. Newly-acquired VA TECH HYDRO has a global management team for quality, environment, and safety, focusing on fast implementation of improvements and applying best practice across the Group. Integration of the quality management system of VA TECH HYDRO into the Andritz Group is underway and has been progressing as planned. 

The most important countries for purchases of the Andritz Group are the member states of the European Union, the USA, Brazil, China, and India. The biggest production sites of Andritz are also located in these countries. The importance of countries for procurement varies very quickly due to required local contents, especially for EPC contracts. This fact challenges all procurement organizations in analyzing new procurement markets and in handling new suppliers and the local supply.

ANDRITZ Annual Report 2006

100

Report of the Supervisory Board of Andritz AG

Report of the Supervisory Board of Andritz AG The Supervisory Board was regularly informed by the Managing Board, both verbally and in writing, of the status of the Company, its development, and major business transactions. The transactions that were subject to approval by the Supervisory Board were investigated and reviewed together with the Managing Board. On March 29, 2006, Fritz Oberlerchner was elected as a member of the Supervisory Board by the Meeting of Shareholders for the maximum duration according to the stipulations in the Articles of Association. Karl Hornhofer and Humbert Köfler were appointed as members of the Managing Board as of January 1, 2007 and April 1, 2007, respectively. Markku Hänninen withdrew from the Managing Board as of December 31, 2006. Bernhard Rebernik will resign from the Managing Board and retire as of March 31, 2007. The Financial Statement of Andritz AG and the Consol­ idated Financial Statements as of December 31, 2006, as well as the Status Reports for 2006, were audited (including the accounts) by Auditor Treuhand GmbH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft, Vienna who had been appointed as auditors by the Meeting of Shareholders and who certified the Financial Statements. The Supervisory Board examined the Financial Statements certified by the Auditors, as well as the proposed appropriation of profit and the Status Reports of the Managing Board, and concurs with the result of the Audit. The Supervisory Board approved the Financial Statements, which are herewith adopted in compliance with Article 125, paragraph 2 of the Corporation Act. Kurt Stiassny Chairman of the Supervisory Board Graz, March 2007

ANDRITZ Annual Report 2006

Consolidated Financial Statements 2006 of the Andritz Group

101

CONSOLIDATED FINANCIAL STATEMENTS 2006 OF THE ANDRITZ GROUP - Auditor’s Report - Consolidated Balance Sheet - Consolidated Income Statement - Consolidated Cash Flow Statement - Consolidated Statement of Shareholders’ Equity - Notes to the Consolidated Financial Statements

ANDRITZ Annual Report 2006

102

Consolidated Financial Statements 2006 of the Andritz Group

Auditor’s Report Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Andritz AG, Graz for the financial year from January 1, 2006 to December 31, 2006. These consolidated financial statements comprise the balance sheet as at December 31, 2006 and the income statement, statement of changes in equity and cash flow statement for the year ended December 31, 2006 and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the EU. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with laws and regulations applicable in Austria and in accordance with International Standards on Auditing, issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Report on Other Legal and Regulatory Requirements Laws and regulations applicable in Austria require us to perform audit procedures whether the consolidated management report is consistent with the consolidated financial statements and whether the other disclosures made in the consolidated management report do not give rise to misconception of the position of the Group. In our opinion, the consolidated management report for the group is consistent with the consolidated financial statements.

Vienna, February 20, 2007

AUDITOR TREUHAND GMBH Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

Walter MÜLLER  Michael SCHOBER (Austrian) Certified Public Accountants

AUDITOR TREUHAND GMBH is a member of

Opinion Our audit did not give rise to any objections. Based on the results of our audit in our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the group as of December 31, 2006, and of its financial performance and its cash flows for the financial year from January 1, 2006 to December 31, 2006, in accordance with International Financial Reporting Standards as adopted by the EU.

ANDRITZ Annual Report 2006

In case that the consolidated financial statements are disclosed or handed over to a third party in a version which differs from that certified by us, our prior approval is necessary if our audit opinion is included or our audit is mentioned.

Consolidated Financial Statements 2006 of the Andritz Group

103

Consolidated Balance Sheet Consolidated Balance Sheet as of December 31, 2006 Notes

2006 (in TEUR)

2005 (in TEUR)

Assets Intangible assets

1.

50,990

8,745

Goodwill

1.

207,392

120,683

Property, plant and equipment

1.

237,089

140,538

Shares in associated companies

1.

6,222

2,319

32,738

13,828

Investments Other non-current receivables and assets Deferred tax assets

2./7.

6,132

5,976

18.

58,969

21,845

Non-current assets

599,532

313,934

Inventories

3.

213,728

198,788

Advance payments made

4.

35,710

21,265

Trade accounts receivable

5.

347,368

236,518

Cost and earnings of projects under construction in excess of billings

6.

346,777

80,532

Other current receivables

7.

108,699

40,834

Prepayments and deferred charges

10,594

5,378

Marketable securities

39,592

75,257

Cash and cash equivalents

670,591

418,785

Current assets

1,773,059

1,077,357

Total assets

2,372,591

1,391,291

94,510

94,510

Shareholders’ equity and liabilities Share capital Capital reserves Retained earnings

8.

Equity attributable to shareholders of the parent company Minority interests Total shareholders’ equity

45,966

45,966

262,352

179,941

402,828

320,417

11,712

8,335

414,540

328,752 100,000

Bonds

11.

296,358

Bank loans and other financial liabilities – non-current

11.

21,826

6,200

9./10./11.

182,002

92,105

778

198

Provisions – non-current Obligation under finance leases – non-current

11.

Other liabilities – non-current

11./12.

8,144

0

Liabilities for deferred taxes

18.

80,093

45,036

589,201

243,539

24,900

3,361

Non-current liabilities Bank loans – current Obligations under finance leases – current Trade accounts payable Billings in excess of cost and earnings of projects under construction

6.

Advance payments received Provisions – current

9.

Liabilities for current taxes

599

384

340,682

151,398

391,934

250,609

70,730

103,827

204,106

97,773

22,605

20,643

313,294

191,005

Current liabilities

1,368,850

819,000

Total Shareholders’ equity and liabilities

2,372,591

1,391,291

Other current liabilities

12.

The following notes to the consolidated financial statements form an integral part of this consolidated balance sheet. ANDRITZ Annual Report 2006

104

Consolidated Financial Statements 2006 of the Andritz Group

consolidated Income Statement Consolidated Income Statement for the year ended December 31, 2006 Sales

Notes

2006 (in TEUR)

2005 (in TEUR)

13.

2,709,686

1,744,295

(46,933)

45,230

Changes in inventories of finished goods and work in progress Capitalized cost of self-constructed assets

Other operating income

14.

Cost of materials

1,972

218

2,664,725

1,789,743

41,231

26,359

(1,644,917)

(1,084,282)

Personnel expenses

15.

(516,933)

(363,555)

Other operating expenses

16.

(349,883)

(237,364)

194,223

130,901

Earnings before interest, taxes, depreciation and amortization (EBITDA) Depreciation and amortization (without amortization of goodwill)

1.

Earnings before interest, taxes and amortization of goodwill (EBITA) Impairment/Amortization of goodwill

1.

Earnings before interest and taxes (EBIT)

(34,384)

(23,868)

159,839

107,033

0

(383)

159,839

106,650

Income/Expenses from associated companies

1,244

147

Interest result

5,290

3,216

Other income from financing activities Financial results

17.

Earnings before taxes (EBT) Income taxes

18.

Net income

(448)

11

6,086

3,374

165,925

110,024

(44,572)

(29,786)

121,353

80,238

118,488

78,683

2,865

1,555

12,817,591

12,839,237

9.24

6.13

Thereof attributable to: Shareholders of the parent company Minority interests Weighted average number of no par value shares Earnings per no par value share (in EUR) Effect of potential dilution of share options

19.

83,124

82,247

12,900,715

12,921,484

Diluted Earnings per no par value share (in EUR)

9.18

6.09

Proposed or paid dividend per no par value share (in EUR)

3.00

2.00

Weighted average number of no par value shares and share options

The following notes to the consolidated financial statements form an integral part of this consolidated income statement.

ANDRITZ Annual Report 2006

Consolidated Financial Statements 2006 of the Andritz Group

105

Consolidated Cash Flow Statement Consolidated Cash Flow Statement for the year ended December 31, 2006 Notes Earnings before taxes (EBT)

2006 (in TEUR)

2005 (in TEUR)

165,925

110,024

Interest result

(5,290)

(3,216)

Depreciation, write-ups and amortization of fixed assets

34,475

24,253

Income/Expense from associated companies

(1,244)

(147)

Changes in non-current provisions

12,563

13,127

194

(1,359)

Results from the sale of fixed and financial assets Other non-cash income/expenses Taxes paid Interest received

5,470

8,767

(42,131)

(23,127)

23,023

10,754

Interest paid

(18,592)

(7,443)

Gross cash flow

174,393

131,633

44,269

(44,950)

Changes in inventories Changes in advance payments made Changes in receivables, prepayments and deferred charges Changes in current provisions

(57)

(6,696)

(160,868)

25,934

36,136

12,659

Changes in advance payments received

(75,964)

48,231

Changes in liabilities and deferred income

125,224

70,459

Cash flow from operating activities

143,133

237,270

Payments received for asset disposals Payments made for investments in fixed tangible and intangible assets Payments made for investments in financial assets Cash flow due to purchase of minority interests and business acquisitions Payments made for short-term financial investments

I.

2,729

2,631

(47,475)

(26,760)

(5,143)

(1,491)

(57,837)

(20,568)

35,440

(8,578)

Cash flow from investing activities

(72,286)

(54,766)

Changes in interest bearing borrowings

213,981

(14,285)

Dividends paid by Andritz AG

(25,550)

(18,013)

Other changes of investments by minority shareholders

299

(618)

1,354

(13,020)

Cash flow from financing activities

190,084

(45,936)

Change in cash and cash equivalents

260,931

136,568

Payments concerning own shares

Changes in cash and cash equivalents resulting from exchange rate fluctuations

(9,125)

8,278

Cash and cash equivalents at the beginning of the period

418,785

273,939

Cash and cash equivalents at the end of the period

670,591

418,785

The following notes to the consolidated financial statements form an integral part of this consolidated cash flow statement.

ANDRITZ Annual Report 2006

106

Consolidated Financial Statements 2006 of the Andritz Group

Consolidated Statement of Shareholders’ Equity Consolidated Statement of Shareholders’ Equity for the year ended December 31, 2006 Attributable to shareholders of the parent

(in TEUR)

Notes

Status as at 1 January 2005

Minority interests

Total shareholders’ equity

277,081

Share capital

Capital reserves

Other retained earnings

IAS 39 reserve

Currency translation adjustments

Total

94,510

45,966

143,210

21,097

(34,871)

269,912

7,169

Currency translation adjustments

26,555

Changes to IAS 39 reserve

(24,269)

Gains/(losses) recognized directly in equity, net of taxes on income Net income

0

0

Total gains/(losses) for the year

0

0

Dividends

0 78,683

(24,269)

26,555

78,683

(24,269)

26,555

26,555

226

26,781

(24,269)

(29)

(24,298)

2,286 78,683

197 1,555

2,483 80,238

80,969

1,752

82,721

(18,013)

(18,013)

(769)

(18,782)

(13,020)

(13,020)

Changes from acquisitions

183

Changes concerning own shares Other changes

569

183 (13,020)

569

569

Status as at 31 December 2005

94,510

45,966

191,429

(3,172)

(8,316)

320,417

8,335

328,752

Status as at 1 January 2006

94,510

45,966

191,429

(3,172)

(8,316)

320,417

8,335

328,752

(13,730)

(13,730)

(24)

(13,754)

3,845

(25)

3,820

Currency translation adjustments

8.

Changes to IAS 39 reserve

3,845

Gains/(losses) recognized directly in equity, net of taxes on income Net income Total gains/(losses) for the year

0

0

0 118,488

3,845

(13,730)

(9,885) 118,488

(49) 2,865

(9,934) 121,353

0

0

118,488

3,845

(13,730)

108,603

2,816

111,419

(25,550)

(25,550)

(583)

(26,133)

(4,144)

(4,144)

1,144

(3,000)

Changes concerning own shares

1,354

1,354

Other changes

2,148

2,148

Dividends

8.

Changes from acquisitions

Status as at 31 December 2006

94,510

The following notes to the consolidated financial statements form an integral part of this consolidated statement of shareholders’ equity.

ANDRITZ Annual Report 2006

45,966

283,725

673

(22,046)

402,828

1,354 2,148 11,712

414,540

Notes to the Consolidated Financial Statements as of December 31, 2006

107

Notes to the Consolidated Financial Statements as of December 31, 2006

A. General Andritz AG (“Andritz”) is incorporated under the laws of the Republic of Austria and has been listed on the Vienna Stock Exchange since June 2001. The Andritz Group (the “Group”) is a leading producer of high technology industrial machinery and operates in five strategic Business Areas: Pulp and Paper, Hydro Power, Rolling Mills and Strip Processing Lines, Environment and Process, and Feed and Biofuel. The average number of employees in the Group was 8,164 in 2006 and 5,632 in 2005. The registered office address of the Group is at Stattegger Strasse 18, 8045 Graz, Austria. The consolidated financial statements are the responsibility of the Management and will be acknowledged by the Supervisory Board. Various amounts and percentages set out in these consolidated financial statements have been rounded and accordingly may not total.

B. Summary of Significant Accounting Policies

For these financial statements prepared in accordance with IFRS based on § 245a of Austrian Commercial Code the legal requirements are met for the exemption from the obligation of preparing Group financial statements.

b. Reporting Currency The Group financial statements are prepared in EURO.

c. Principles of Consolidation The consolidated financial statements of the Group include Andritz and the companies that it controls. This control is normally evidenced when Andritz owns, either directly or indirectly, more than 50% of the voting rights of a company’s share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The equity and net income attributable to minority shareholders’ interests are shown separately in the balance sheet and income statement, respectively. The purchase method of accounting is used for acquired businesses. Companies acquired or disposed of during the year are included or excluded, accordingly, in the consolidated financial statements from the date of acquisition or from the date of disposal.

The principal accounting policies adopted in preparing the financial statements of Andritz are as follows:

Joint ventures with equal voting rights are consolidated on a proportionate basis.

a. General

Inter-company balances and transactions, including inter-company profits and unrealized profits and losses have been eliminated. The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances.

The financial statements are prepared in accordance with Standards formulated by the International Accounting Standards Board (IASB) that are accepted by the European Union as well as the Interpretations formulated by the International Financial Reporting Interpretations Committee (IFRIC). In the current year Andritz has adopted all of the new Standards and Interpretations that are relevant to its operations and that are effective for accounting periods beginning on 1 January 2006. The amendment to IAS 19 (“Employee Benefits”) has been applied in the fiscal year. In August 2005, IFRS 7, “Financial Instruments: Disclosures” was issued and is effective for annual periods beginning on or after January 1, 2007. The standard supersedes IAS 32, “Financial Instruments, Disclosure and Presentation”, and IAS 30, “Disclosure in the Financial Statements of Banks and Similar Financial Institutions”. The Company is currently evaluating the impact of the standard on its consolidated financial statement disclosures.

d. Major Differences between Austrian and IFRS Accounting Principles Goodwill: Goodwill from capital consolidation as well as any goodwill arising from business will be treated in accordance with IFRS 3. The Austrian Commercial Code allows a credit to reserves, with no effect on the income statement. Construction contracts: According to Austrian accounting regulations, sales and profits are first realized upon takeover by the customer (“completed contract method”). Under IAS 11, order completion is accounted using the percentage of completion method in accordance with progress and pro rata profit realization. The extent of completion is established by considering the ratio of accumulated costs to estimated total costs to complete each contract (“cost-to-cost method”). Deferred taxes: The Austrian Commercial Code requires the creation of deferred tax assets and liabilities for temporary differences if a tax liability is expected to arise when these differences are reversed. IFRS require the creation of deferred taxes for all temporary differences which arise between financial statements prepared for tax purposes and IFRS financial statements, measured at actual or enacted tax rates. Deferred tax assets must also be recorded for unused loss carry forwards and unused tax credits which are expected to be offset against taxable profits in the future. Other provisions: In contrast to the Austrian Commercial Code, IFRS interprets the principle of prudence differently with respect to provisions. IFRS tends to place stricter requirements on the probability of an event occurring and on estimating the amount of the provisions. Provisions for pensions: Differences may arise at application of the so-called corridor method or at initial recognition of actuarial gains or losses with equity. Basically Austrian Commercial law allows the application of the principles of IAS 19. Marketable securities: Austrian accounting principles require securities to be recorded at the lower of acquisition costs or market value. Under IFRS marketable securities available for sale are to be valued at fair values and changes in the fair value are recognized directly in equity.

ANDRITZ Annual Report 2006

108

Notes to the Consolidated Financial Statements as of December 31, 2006

Foreign currency transactions: These two accounting systems require different treatments for unrealized profits arising from the valuation of foreign exchange items as of the balance sheet date. According to Austrian law, only unrealized losses are recorded, whereas IFRS also requires the recognition of unrealized profits of monetary items. Non-current securities: In accordance with IFRS noncurrent securities of the Group are classified as “available for sale” and are valued at their quoted market price at the balance sheet date. The Austrian Commercial Code requires a valuation at acquisition costs or a lower market value if there is a sustainable decrease of monetary items. Hedging: According to the rules of IFRS derivatives are recognized at fair value through profit or loss. This also applies to embedded derivatives.

C. Acquisitions In the first half of 2006, Andritz acquired 100% of Küsters Group with locations in Germany and the USA. Küsters complements the products for paper and board machines in the Pulp and Paper Business Area. In April 2006, 100% of the Brazil based company Andritz Pilão Equipamentos Ltda. was acquired. Pilão complements the products for the service business for Pulp and Paper and for stock preparation for the paper industry. In June 2006, the Company acquired 100% of VA TECH HYDRO Group, one of the four largest, international systems suppliers for hydropower stations. In addition to supplying electromechanical equipment and services for hydropower stations including automation VA TECH HYDRO is a well known producer of turbo generators. VA TECH HYDRO is reported in the Hydro Power Business Area. Andritz acquired the worldwide chip thickness screening business of BMH Wood Technology Oy, Finland, in September 2006. This transaction strengthens the position of Andritz as a leading supplier of wood processing equipment and services in the Pulp and Paper Business Area.

ANDRITZ Annual Report 2006

In December 2006, Andritz acquired the Coater Division for paper production from Bachofen+Meier AG (BMB), Switzerland. This Division complements the product portfolio in the area of paper and board production equipment enabling Andritz to offer complete systems. The Coater Division will be managed as a separate company under the name of Andritz BMB AG, based in Bülach, Switzerland. In October 2006, Andritz acquired the US based CONTEC­ Decanter Inc. CONTEC specializes in the repair and maintenance of centrifuges and separators for various businesses. With this acquisition, the services organization in the Environment and Process Business Area is complemented. Since their dates of acquisition, the businesses acquired in 2006 contributed EUR 449,229 thousand to Sales and EUR 18,212 thousand to EBITA (Earnings before Interest, Taxes, and Amortization of Goodwill) of the Andritz Group. If the businesses had been acquired at the beginning of 2006, the Group’s additional Sales would have been EUR 768,659 thousand, and the Group’s additional EBITA would have amounted to EUR 20,358 thousand. The aggregate purchase price of the business combinations effected in 2006 amounted to EUR 237,855 thousand, including direct cost of acquisition of EUR 3,631 thousand. The estimated fair values of the assets acquired and liabilities assumed are as follows: (in TEUR) Current assets

2006 552,788

Intangible assets

45,252

Goodwill

90,480

Property, plant and equipment

90,037

Other non-current assets

16,632

Deferred tax asset

25,977

Current liabilities Non-current liabiliities

(467,415) (99,851)

Liabilities for deferred taxes

(20,189)

Net assets acquired

233,711

The factors contributing to goodwill recognized are assets which are not separately recognized such as an experienced and trained workforce, available reference plants, the existing customer base and the acquired market positions. Disclosure of the carrying amounts of the acquired companies’ assets and liabilities recorded immediately before the acquisitions in accordance with IFRS would be impracticable, as these amounts are not available under IFRS. Initial accounting for VA TECH HYDRO Group in the consolidated financial statements is based on preliminary figures because of the size and the complexity of the business combination. The first time consolidation of the other acquisitions is also based on preliminary figures.

D. Accounting and Valuation Principles a. Intangible Assets Intangible assets are accounted for at acquisition cost. After initial recognition, intangible assets are accounted for at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. The amortization period and the amortization method are reviewed annually at each financial year-end. Concessions, industrial rights and similar rights and values Amounts paid for concessions, industrial rights and similar rights and values are capitalized and then amortized on a straight-line basis over the expected periods of benefit. The expected useful lives vary from 3 to 15 years.

Notes to the Consolidated Financial Statements as of December 31, 2006

Business combinations and goodwill For business combinations and goodwills IFRS 3 has been applied. According to this standard, goodwill is measured as the residual cost of the business combination after recognizing the acquiree’s identifiable assets, liabilities and contingent liabilities. From 2005 on, any goodwill arising from business combinations is no longer amortized. Goodwill is tested for impairment in accordance with IAS 36 annually, or more frequently if events or changes in circumstances indicate that it might be impaired. In determining whether an impairment write-down is required, goodwill is allocated to the cash-generating units that are expected to benefit from the synergies of the business combination. If the carrying amount exceeds the value in use that is calculated by

b. Property, Plant and Equipment

using a Discounted Cash-Flow (DCF) calculation – based on future cash flows projected by the Managing Board – an impairment loss is recognized. An impairment loss recognized for goodwill will not be reversed in a subsequent period. The discount rate used for DCF calculation is based on an interest rate, which represents actual assessment of possible changes of exchange rates as well as specific risks of an asset. Under consideration of the applicable currency and the corresponding risk profile a discount rate between 8.65% and 10.63% was applied.

as repairs and maintenance and overhaul costs, are normally charged to income in the period in which the costs are incurred. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

At acquisition date substantial goodwills were allocated to existent cash-generating units of Andritz AG (1999), to the Pulp Mill Division acquired by the Andritz-Ahlstrom Group (2000/2001) as well as to the VA TECH HYDRO Group in the Hydro Power Business Area (2006). After reassessment of the identification and the measurement of the acquirees’ identifiable assets, liabilities and contingent liabilities and the measurement of cost of the combination, any negative goodwill is recognized in profit or loss immediately. Goodwill and negative goodwill arising from business combinations effected before 1 January 1995 were charged or credited directly to equity.

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. When assets are sold or retired, their cost and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the fixed assets have been put into operation, such

Buildings

20–50 years

Machinery and technical equipment

4–10 years

Tools, office equipment and vehicles

3–10 years

The useful life and depreciation methods are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment. Assets in the course of construction represent plant and properties under construction and are stated at cost. These include costs of construction, plant and equipment and other direct costs.

109

Other non-current securities held on a long-term basis are initially recognized at acquisition costs including transaction costs and are classified as available-for-sale investments. In subsequent periods other non-current securities held on a long-term basis are valued at fair value. Changes of these fair values are recognized as gains or losses directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in profit or loss of the period. Interest on these non-current securities is recognized directly in the income statement in the period they occur in.

d. Finished Goods, Work in Progress, Raw Materials Inventories, including work in progress, are valued at the lower of cost and net realizable value, after provision for obsolete and slow moving items. Net realizable value is the selling price in the ordinary course of business, less the costs of completion, marketing and distribution. Cost is determined primarily on the basis of the FIFO method. For processed inventories, cost includes the applicable allocation of fixed and variable overhead costs. Unrealizable inventory has been fully written off. Contracts other than construction contracts are valued at production costs. For these contracts the revenue is recognized when the ownership of the goods is transferred (“completed contract method”).

c. Financial Assets and Investments in Associated Companies These long-term investments consist primarily of shares in associated companies and non-current securities. Investments in associated companies (generally investments of between 20% and 50% in a company’s equity) where a significant influence is exercised by the Group are accounted for by using the equity method. An assessment of investments in associates is performed when there is an indication that the asset has been impaired or the impairment losses recognized in prior years no longer exist.

ANDRITZ Annual Report 2006

110

Notes to the Consolidated Financial Statements as of December 31, 2006

e. Construction Contracts

f. Trade Accounts Receivable

i. Share Capital

Receivables from construction contracts and the related sales are accounted for using the percentage of completion method. The construction contracts are determined by the terms of the individual contract, which are agreed at fixed prices. The extent of completion (“stage of completion”) is established by the cost-to-cost method. Reliable estimates of the total costs and sales prices and the actual figures of the accumulated costs are available on a monthly basis. Estimated contract profits are recorded in earnings in proportion of recorded sales. In cost-to-cost method sales and profits are recorded after considering the ratio of accumulated costs to estimated total costs to complete each contract. Changes to total estimated

Receivables are stated at face value, after allowances for doubtful accounts.

Only ordinary shares exist and all shares are issued and have the same rights.

g. Marketable Securities

The share capital of Andritz AG amounts to EUR 94,510,000 divided into 13,000,000 shares of no par value.

contract costs and losses, if any, are recognized in the income statement of the period in which they are determined. For remaining technological and financial risks which might occur during the remaining construction period, an individually assessed amount is included in the estimated contract costs. Impending losses out of the valuation of construction contracts are recognized at the time of occurrence. Impending losses are recognized when it is probable that the total contract costs will exceed the contract revenues. For possible customer warranty claims provisions are accounted for according to the profit realization. At the completion of a contract the remaining warranty risk is reassessed.

fair value. Changes of these fair values are recognized as gains or losses directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognized in equity is included in profit or loss of the period. Interest on the marketable securities is recognized directly in the income statement of the period it occurs in.

Marketable securities consist of governmental bonds and bonds of first-class banks that are traded in liquid markets. They are held for the purpose of investing in liquid funds and are not generally intended to be retained on a long-term basis. Marketable securities are initially recognized at acquisition costs including transaction costs and are classified as available-for-sale investments. In subsequent periods marketable securities are valued at

h. Cash and Cash Equivalents Cash includes cash in hand and cash at banks. Cash equivalents might include short-term deposits with nonbanks with original maturities of three months or less and that are not subject to any risk of change in value.

Based on authorizations of the shareholders’ meetings, held on 30 March 2004 and 30 March 2005, and with approval from the Supervisory Board, the Managing Board has decided a program for acquisition of own shares up to 1,300,000 shares between 5 April 2004 and 29 September 2005 and a further program for acquisition of own shares up to 1,300,000 shares between 1 October 2005 and 31 March 2007. The price range of both programs is a lowest price of 10 Euros and a highest price, which must not exceed the average unweighted closing price over the ten preceding trading days by more than 30%. In 2005, 210,711 own shares were acquired at an average price of 65.21 Euros per share and 22,250 own shares were resold at a price of 21 Euros per share to eligible executives of the Management Share Option Plan. 3,699 own shares were transferred to employees of Andritz AG in the course of an employee participation program. In 2006, 44,361 own shares were acquired at an average price of 120.82 Euros per share. 154,500 own shares were resold at a price of 37.53 Euros per share to eligible executives of the Management Share Option Plan and 2,104 own shares were transferred to employees of Andritz AG in the course of an employee participation program. In addition, 4,000 own shares were sold at the Vienna Stock Exchange for an average price of 162.40 Euros per share. At December 31, 2006 the Company held 108,959 own shares at a market value of EUR 17,902 thousand. It is planned to use these shares for delivery of shares within the framework of the Management Share Option Plan.

ANDRITZ Annual Report 2006

Notes to the Consolidated Financial Statements as of December 31, 2006

j. Capital Reserves Capital Reserves are created in accordance with Austrian requirements and include share premium amounts.

k. Retained Earnings Retained earnings include retained income, IAS 39 reserve and currency translation adjustments.

l. Provisions A provision is recognized when, and only when, the enterprise has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

m. Other Accounting and Valuation Principles Estimations for Construction Contracts The accounting for construction contracts is based on estimations for costs and recoverable earnings. Although these estimations are based on all information available on balance sheet date changes after the balance sheet date are possible. These changes could lead to adjustments of assets and may influence earnings in subsequent periods.

Financial instruments Financial assets and financial liabilities carried on the balance sheet include cash and cash equivalents, marketable securities, trade and other accounts receivable and payable, non-current receivables, borrowings and investments. The accounting policies on recognition and measurement of these items are disclosed in the respective accounting policies found in these notes. Financial assets and financial liabilities are recognized in the consolidated balance sheet, if the Group qualifies as a party to the contract concerning the contract regulations of the financial instrument. Financial instruments are classified as assets or liabilities in accordance with the substance of the contractual arrangement. Therefore interest, dividends, gains and losses relating to these financial instruments classified as an asset or a liability are reported as expense or income. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realize the asset and settle the liability simultaneously. Hedging The Group uses forward exchange contracts to mitigate exposure to foreign currency risk out of projects in foreign currency. According to the Group’s hedging policy most forward contracts are used for highly probable future cash flows for these projects or regular sales. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized directly in the hedging reserve in shareholders’ equity. Otherwise, for all other cash flow hedges, gains and losses initially recognized in equity are transferred from hedging reserve to net profit or loss in the same period or periods during which the hedged firm commitment or

111

All investments in a foreign entity are long-term investments and presently a sale of such investments is not expected to occur in the foreseeable future. According to the Group’s hedging policy there are no hedges of net investments in foreign currencies. Derivative financial instruments Fixed forward exchange rate contracts are used for hedging of currency risks and interest swaps are used for hedging of interest risk. Derivative financial instruments are valued at their fair value on the balance sheet date and are recognized as other receivables, other liabilities respectively liabilities to banks and other financial liabilities. Research and development costs Expenditures for research and development are charged against income in the period incurred because the criteria for capitalization (IAS 38) are not met. In 2006 EUR 35,417 thousand and in 2005 EUR 27,148 thousand were recognized as an expense. Revenue recognition (except for construction contracts) Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the enterprise and the amount of the revenue can be measured reliably. Sales are recognized net of sales taxes and discounts when delivery has taken place and transfer of risks and rewards has been completed. Interest is recognized on a time proportion basis that reflects the effective interest rate of the asset. Dividends are recognized when the shareholders’ right to receive payment is established.

forecast transaction affects the income statement. If a forward exchange contract does not qualify as a cash flow hedge the fair values respectively any changes of these contracts are reported as profit or loss in the income statement.

ANDRITZ Annual Report 2006

112

Notes to the Consolidated Financial Statements as of December 31, 2006

Borrowing costs Borrowing costs are generally expensed as incurred. Impairment of assets Property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount (the higher of fair value less costs to sell and value in use), an impairment loss is recognized in income for items of property, plant and equipment and intangibles carried at cost. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit.

n. Foreign Currency Foreign currency transactions Foreign currency transactions are recorded in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Exchange rate differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the periods are recognized in the income statement in the period in which they arise.

ANDRITZ Annual Report 2006

Foreign entities Foreign consolidated subsidiaries are regarded as foreign entities since they are financially, economically and organizationally autonomous. Their reporting currencies are their respective local currencies. Financial statements of foreign consolidated subsidiaries are translated at year-end exchange rates with respect to the balance sheet. Expense and revenue items are translated using the average exchange rates for the year. All resulting translation differences are included in a currency translation reserve in equity. From 2005 on any goodwill arising on the acquisition of a foreign entity is allocated to the acquired entity and is recorded using the exchange rate effective on balance sheet date. Exchange differences arising on a monetary item that, in substance, forms part of the Group’s net investment in a foreign entity are classified as equity in the consolidated financial statements until disposal of the net investment.

o. Employee Benefits Defined benefit plans (provisions for pensions) Some Group companies provide defined benefit pension plans for certain employees. The funds are valued every year by professionally qualified independent actuaries. The obligation and costs of pension benefits are determined using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past service costs are recognized on a straight-line basis over the average period until the amended benefits become vested. Gains or losses on the curtailment or settlement of pension benefits are recognized when the curtailment or settlement occurs. The actuarial gains or losses are included directly in the income statement of the period. The pension obligation is measured at the present value of estimated future cash flows using different discount rates for different countries. Other Group companies provide defined contribution plans for certain employees. The related costs are expensed as they occur.

Notes to the Consolidated Financial Statements as of December 31, 2006

Severance payments In certain countries the Group is also obliged by law to pay termination indemnities in some cases of termination of employment. No termination indemnities are payable for voluntary termination at the request of the employee. Expenses related to termination indemnities are accrued. The funds are valued every year by professionally qualified independent actuaries. The obligation and costs of pension benefits are determined using a projected unit credit method. The projected unit credit method considers each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. Past service costs are recognized on a straight-line basis over the average period until the amended benefits become vested. Gains

p. Income Taxes

or losses on the curtailment or settlement of pension benefits are recognized when the curtailment or settlement occurs. Actuarial gains or losses of the pension plans are included directly in the income statement of the period. The pension obligation is measured at the present value of estimated future cash flows using different discount rates for different countries.

by the balance sheet date. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the enterprise expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.

The income tax charge is based on profit for the year and considers deferred taxation. Deferred taxes are calculated using the balance sheet liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted

113

Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. At each balance sheet date, the Group reassesses unrecognized deferred tax assets and the carrying amount of deferred tax assets. The Group recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax is charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity, including exchange rate differences arising on the translation of inter-company loans.

Deferred tax assets and liabilities are recognized regardless of when the timing difference is likely to reverse.

ANDRITZ Annual Report 2006

114

Notes to the Consolidated Financial Statements as of December 31, 2006

q. Use of Estimates The preparation of financial statements requires Management to make estimates and assumptions that can affect the reported amounts of assets, liabilities, revenues and expenses as well as amounts reported in the notes. Actual results could differ from these estimates. Management has made judgements in the process of applying the Company’s accounting policies. Additionally, at the balance sheet date Management made the following key assumptions concerning the future and has identified other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: a) Pension plans: The valuation of the various pension plans is based on the methodology used applying some parameters, including the expected discount rate, rate of compensation and pension increase and return on plan assets. If the relevant parameter developed materially differently than expected this could have a material impact on the Company‘s defined benefit obligation and subsequently net periodic pension cost.

ANDRITZ Annual Report 2006

b) Impairments: The impairment analysis for goodwill, other intangible assets and tangible assets is principally based upon discounted estimated future cash flows from the use and eventual disposal of the assets. Factors like lower than anticipated sales and resulting decreases of net cash flows and changes in the discount rates used could lead to impairments. Regarding the carrying value of goodwill, other intangible assets and tangible assets see Note F. c) Employee incentive plans: The Stock Option Plans are measured based on the fair value of the options on the grant date and every subsequent reporting date. The estimated fair value of these options is based on parameters such as volatility, interest rate, share price, duration of the option and expected dividend. Com-

r. Contingencies

pensation expense and liabilities could materially differ from the estimated amount on the balance sheet date if the parameters used changed. d) Deferred taxes: In assessing the recoverability of deferred tax assets, Management considers whether it is probable that all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. If the Company does not generate sufficient taxable income, deferred tax assets on loss carry forwards cannot be used and will have to be provided for.

reports its primary segment information. Financial information on business and geographical segments is presented in section H (see “segment information” below).

Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable.

E. Segments Business segments For management purposes the Group is organized on a worldwide basis into five operating businesses. The strategic Business Areas are the basis upon which the Group

There are no material inter-segment transactions. All consolidation entries are included in the relevant segment. According to the monthly reporting scheme, which is the basis for the primary segment information, all sales and all direct and indirect expenses (including overhead and administrative costs) are allocated to business segments.

Notes to the Consolidated Financial Statements as of December 31, 2006

115

F. Notes to the Consolidated Balance Sheet 1. Changes in Intangible and Tangible Assets Acquisition or production costs 2006 Balance as at 1 January 2006

Currency translation differences

Additions

25,601

(503)

5,968

819

43,505

270

74,022

Goodwill

124,021

(4,371)

1,805

0

89,275

0

210,730

Land and buildings

132,516

(2,800)

5,734

1,581

48,948

8,847

191,664

Technical equipment and machinery

150,455

(4,589)

10,877

5,454

25,340

(2,547)

174,082

74,200

(2,196)

13,806

5,909

11,624

1,449

92,974

4,416

(200)

8,042

811

3,860

(7,232)

8,075

(in TEUR) Intangible assets

Other equipment, factory and office equipment Assets in course of construction Advance payments on tangible assets

Changes due to business Disposals acquisitions

Balance as at 31 December Transfers 2006

523

(17)

1,241

1

472

(787)

1,431

Total property, plant and equipment

362,110

(9,802)

39,700

13,756

90,244

(270)

468,226

Total intangible and tangible assets

511,732

(14,676)

47,473

14,575

223,024

0

752,978

Balance as at 1 January 2005

Currency translation differences

Additions

29,025

816

2,436

8,827

2,151

0

25,601

Goodwill

110,516

5,286

0

0

8,219

0

124,021

Land and buildings

124,811

2,846

1,611

265

3,510

3

132,516

Technical equipment and machinery

134,676

5,773

6,295

692

4,160

243

150,455

66,184

3,188

12,224

8,408

739

273

74,200

939

181

3,645

96

283

(536)

4,416

2005

(in TEUR) Intangible assets

Other equipment, factory and office equipment Assets in course of construction Advance payments on tangible assets

Changes due to business Disposals acquisitions

Balance as at 31 December Transfers 2005

77

3

523

63

0

(17)

523

Total property, plant and equipment

326,687

11,991

24,298

9,524

8 ,692

(34)

362,110

Total intangible and tangible assets

466,228

18,093

26,734

18,351

19,062

(34)

511,732

ANDRITZ Annual Report 2006

116

Notes to the Consolidated Financial Statements as of December 31, 2006

Depreciation and amortization 2006

(in TEUR) Intangible assets Goodwill Land and buildings

Balance as at 1 January 2006

Currency translation differences

Depreciation and amortization for the year

16,856

(287)

6,655

160

0

(32)

23,032

3,338

0

0

0

0

0

3,338

Changes due to business Disposals acquisitions

Balance as at 31 December Transfers 2006

58,939

(1,434)

4,760

1,549

0

2,355

63,071

110,233

(3,192)

11,442

4,820

0

(5,909)

107,754

52,390

(1,776)

11,527

5,425

0

3,586

60,302

10

0

0

0

0

0

10

0

0

0

0

0

0

0

Total property, plant and equipment

221,572

(6,402)

27,729

11,794

0

32

231,137

Total intangible and tangible assets

241,766

(6,689)

34,384

11,954

0

0

257,507

Balance as at 1 January 2005

Currency translation differences

Depreciation and amortization for the year

21,964

708

2,879

8,695

0

0

16,856

2,955

0

383

0

0

0

3,338

Land and buildings

54,180

1,586

3,286

113

0

0

58,939

Technical equipment and machinery

98,750

4,075

7,993

442

0

(143)

110,233

Other equipment, factory and office equipment

Technical equipment and machinery Other equipment, factory and office equipment Assets in course of construction Advance payments on tangible assets

2005

(in TEUR) Intangible assets Goodwill

Changes due to business Disposals acquisitions

Balance as at 31 December Transfers 2005

48,367

2,173

9,700

7,959

0

109

52,390

Assets in course of construction

0

0

10

0

0

0

10

Advance payments on tangible assets

0

0

0

0

0

0

0

Total property, plant and equipment

201,297

7,834

20,989

8,514

0

(34)

221,572

Total intangible and tangible assets

226,216

8,542

24,251

17,209

0

(34)

241,766

ANDRITZ Annual Report 2006

Notes to the Consolidated Financial Statements as of December 31, 2006

117

Net book value Net book Net book Costs as at value as at value as at 31 December Accumulated 31 December 31 December 2006 depreciation 2006 2005

(in TEUR) Intangible assets

74,022

23,032

50,990

8,745

Goodwill

210,730

3,338

207,392

120,683

Land and buildings

191,664

63,071

128,593

73,577

Technical equipment and machinery

174,082

107,754

66,328

40,222

Other equipment, factory and office equipment

92,974

60,302

32,672

21,810

Assets in course of construction

8,075

10

8,065

4,406

Advance payments on tangible assets

1,431

0

1,431

523

Total property, plant and equipment

468,226

231,137

237,089

140,538

Total intangible and tangible assets

752,978

257,507

495,471

269,966

Finance leases

Goodwill

The net book value for technical equipment and machinery includes an amount of EUR 1,006 thousand (2005: EUR 772 thousand) and the net book value for other equipment, factory and office equipment includes an amount of EUR 333 thousand (2005: EUR 73 thousand) in respect of assets held under finance lease. The total of minimum lease payments at balance sheet date amounts to EUR 1,293 thousand (2005: EUR 582 thousand). The leasing contracts have remaining terms from 7 up to 48 months.

(in TEUR)

Shares in associated companies 2006

2005

VA Tech Hydro

80,542

0

Andritz Ahlstrom

35,287

35,540

Acquisition of Andritz AG

59,596

59,596

Other

31,967

25,547

207,392

120,683

In 2006, there was no need for impairment of goodwill. In 2005, the goodwill arising from the acquisition of CyberMetrics­ Inc. met the tests for impairment because the business did not develop according to plan. The impairment loss for this goodwill amounted to EUR 383 thousand and is related to the pulp and paper business. It was included in the income statement under impairment/amortization of goodwill.

Accumulated assets of material associated companies included in the consolidated balance sheet as of December 31, 2006 amount to EUR 53,205 thousand, total liabilities to EUR 43,866 thousand, sales amount to EUR 82,159 thousand and net income amounts to EUR 2,506 thousand.

2. Other Non-current Receivables and Assets The amount recorded for the prior fiscal year of EUR 5,976 thousand was shown in the positions trade accounts receivable (EUR 662 thousand) and other receivables (EUR 5,314 thousand) in the financial statements of 2005.

ANDRITZ Annual Report 2006

118

Notes to the Consolidated Financial Statements as of December 31, 2006

3. Inventories (in TEUR)

2006

2005

Finished goods

64,834

54,286

Work in progress

83,404

108,189

Raw materials

65,490

36,313

213,728

198,788

2006

2005

Contract revenue recognized as sales in the current period

1,778,173

1,070,884

Contract costs incurred and recognized profits (less recognized losses) to date Advances received and progress billings

3,300,809 3,345,966

1,666,753 1,836,831

2,585

348

The write-down of inventory for obsolete and slow-moving items included as expense in the income statement amounts to EUR 4,570 thousand (2005: EUR 2,571 thousand).

4. Advance Payments Made The advance payments made and presented in the balance sheet relate to open purchase orders for ongoing contracts.

5. Trade Accounts Receivable Allowances for doubtful accounts in the amount of EUR 12,564 thousand (2005: EUR 5,130 thousand) are included in the trade accounts receivable. The Managing Board considers that the carrying amount of trade receivables corresponds with their fair value.

6. Construction Contracts (in TEUR)

Amount of retentions “The billings in excess of costs and earnings of projects under construction” represent primarily payments from customers for work, which is not performed yet.

ANDRITZ Annual Report 2006

Notes to the Consolidated Financial Statements as of December 31, 2006

119

2006

2005

Receivables from associated companies

3,280

2,120

Financial instruments carried at fair value

11,265

0

Receivables from value-added tax

31,785

20,193

Receivables from prepaid income taxes

8,774

7,166

Receivables from other taxes and charges

1,995

1,052

54,977

15,617

112,076

46,148

108,699

40,834

7. Other Receivables (in TEUR)

Other

thereof other current receivables thereof other non-current receivables

3,377

5,314

112,076

46,148

The Managing Board considers that the carrying amount of other receivables corresponds with their fair value.

8. Retained Earnings Dividends For 2006 a dividend of EUR 3.00 per outstanding share is proposed by the Managing Board. The dividend for 2005 of EUR 25,550 thousand which is equal to EUR 2.00 per share was proposed by the Managing Board and was approved at the 99th Annual General Meeting of Shareholders on 29 March 2006. The dividend was paid to the shareholders on 7 April 2006. On 16 February 2007, the Managing Board authorized the consolidated financial statements for the year ended 31 December 2006 according to IFRS. On 17 February 2006, the Management authorized the consolidated financial statements for the year ended 31 December 2005 according to IFRS to be issued to its Supervisory

executives and includes representatives of employees. The consolidated financial statements were presented for information purposes only to the Supervisory Board and subsequently acknowledged by the Meeting of Shareholders. The Supervisory Board and the General Meeting of Shareholders acknowledged the consolidated financial statements. Currency translation adjustment Equity and shareholder loans in foreign currency are not hedged against currency risks because the investments are considered to be permanent and the conversion to the reporting currency is not planned. Exceptions are made for planned disposal of investments or planned repayments of shareholder loans.

Board. The Supervisory Board is made up solely of non-

ANDRITZ Annual Report 2006

120

Notes to the Consolidated Financial Statements as of December 31, 2006

9. Provisions 2006 (in TEUR)

Balance as at 1 January 2006

Currency Changes due translation to business differences acquisitions

Reclassi­ fication

Use

Reversal

Balance as at 31 December Addition 2006

Provisions for severance payments

33,850

(8)

38,915

0

2,519

0

4,805

75,043

Provisions for pensions

28,493

(178)

30,618

0

3,380

942

4,707

59,318

Other non-current provisions

29,762

(733)

8,520

(3,590)

756

2,481

16,919

47,641

Non-current provisions

92,105

(919)

78,053

(3,590)

6,655

3,423

26,431

182,002

Current provisions

97,773

(2,443)

71,690

3,590

16,830

14,003

64,329

204,106

Currency Changes due translation to business differences acquisitions

Reclassi­ fication

2005 (in TEUR)

Balance as at 1 January 2005

Use

Reversal

Balance as at 31 December Addition 2005

Provisions for severance payments

29,351

0

0

0

17

20

4,536

33,850

Provisions for pensions

27,180

50

461

0

175

1,418

2,395

28,493

Other non-current provisions

21,269

780

30

(1,423)

1,723

1,307

12,136

29,762

Non-current provisions

77,800

830

491

(1,423)

1,915

2,745

19,067

92,105

Current provisions

81,823

2,881

434

1,396

14,378

11,415

37,032

97,773

Other non-current and current provisions consist primarily of order related provisions (2006: EUR 234,737 thousand; 2005: EUR 119,392 thousand) for warranties, contingencies and impending losses.

ANDRITZ Annual Report 2006

Notes to the Consolidated Financial Statements as of December 31, 2006

10. Employee Benefit Obligations Defined benefit plan for pensions Some Group companies provide defined benefit pension plans for some classes of employees. Provisions for pension obligations are established for benefits payable in the form of retirement, disability and surviving dependant pensions. The benefits offered vary according to the legal, fiscal and economic conditions of each country. Benefits are dependent on years of service and in some cases on the respective employee’s compensation.

121

The following table reconciles the changes of the benefit obligation for the years ended December 31, 2006 and 2005: (in TEUR) Defined benefit obligation as at 1 January Currency translation differences

2006

2005

42,411

38,782

(46)

223

Current service cost

2,027

955

Interest cost on obligations

3,352

1,445

Actuarial gains/losses

(4,824)

2,741

Benefits paid

(4,637)

(1,514)

Contributions by the plan participants Past service cost Effect of any curtailment or settlement

1,101

0

8

57

463

(739)

Business acquisitions

101,787

461

Defined benefit obligation as at 31 December

141,642

42,411

Fair value of plan assets

(82,324)

(12,661)

59,318

29,750

Funded status as at 31 December Unrecognized actuarial gains/losses Accrued liability as at 31 December

0

(1,258)

59,318

28,492

2006

2005

Total pension obligations of EUR 141,642 thousand (2005: EUR 42,411 thousand) include EUR 88,302 thousand (2005: EUR 26,463 thousand) that are covered in part or in full by investments in funds (plan assets). The following table reconciles the fair value of the plan assets: (in TEUR) Fair value of plan assets as at 1 January

12,661

10,891

Currency translation differences

(178)

187

Expected return on plan assets

1,654

220

(3,017)

772

Contributions by the employer

2,184

735

Contributions by the plan participants

1,101

0

Benefits paid

(2,285)

(144)

Business acquisitions

70,204

0

Fair value of plan assets as at 31 December

82,324

12,661

Actuarial gains/losses

ANDRITZ Annual Report 2006

122

Notes to the Consolidated Financial Statements as of December 31, 2006

The split of fair values of the plan assets is as follows: (in TEUR)

2006

2005

Equity instruments

24,592

3,454

Debt instruments

40,332

5,388

Property

13,380

13

4,020

3,806

82,324

12,661

(in TEUR)

2006

2005

Current service cost

2,027

955

Interest expense on obligations

3,352

1,445

Expected return on plan assets

(1,654)

(220)

(549)

1,409

Other assets

Pension expense is comprised of the following:

Actuarial gains/losses recognized Past service cost Effect of any curtailment or settlement

8

57

463

(739)

3,647

2,907

14,425

11,136

18,072

14,043

2006

2005

Discount rate Wage and salary increases

4.50% 3.00%

4.50% 3.00%

Retirement benefit increases

2.50%

2.50%

Expected return on plan assets

5.25%

5.25%

Payments to defined contribution plans

Principal actuarial assumptions used to determine pension obligations as of 31 December were as follows: (in per cent)

The average expected return was assumed as 5.25% due to the composition of the plan assets and under consideration of past experience. In 2006, the actual return on plan assets was approximately 4.6% (2005: approximately 11.0%).

ANDRITZ Annual Report 2006

Positive experience adjustments on obligations amoun­ ted to EUR 18 thousand, negative experience adjustments on assets amounted to EUR 165 thousand. The expected payments to the pension fund for defined benefits are EUR 5,269 thousand for the fiscal year 2007.

Notes to the Consolidated Financial Statements as of December 31, 2006

123

Severance payments The following table provides a reconciliation of the changes in the severance benefit obligations for the years ended December 31, 2006 and 2005: (in TEUR) Defined benefit obligation as at 1 January Currency translation differences

2006

2005

33,850

29,351

12

(21)

Current service cost

2,308

1,406

Interest cost on obligations

2,314

1,404

Actuarial gains/losses

(29)

3,329

Benefits paid

(2,540)

(1,619)

Business acquisitions

39,128

0

Defined benefit obligation as at 31 December

75,043

33,850

Fair value of plan assets Funded status as at 31 December Unrecognized actuarial gains/losses

0

0

75,043

33,850

0

0

75,043

33,850

(in TEUR)

2006

2005

Current service cost

2,308

1,406

Interest expense on obligations

2,314

1,404

(29)

3,329

4,593

6,139

Accrued liability as at 31 December Severance expense is comprised of the following:

Actuarial gains/losses recognized Payments to defined contribution plans

419

294

5,012

6,433

Principal actuarial assumptions used to determine severance obligations as of 31 December were the same as used for pension obligations.

ANDRITZ Annual Report 2006

124

Notes to the Consolidated Financial Statements as of December 31, 2006

Management share option plan The 97th Annual General Meeting of Shareholders held on 30 March 2004 adopted a Share Option Program for Managers and Members of the Managing Board. The number of options granted to the different Managers varies, depending on the area of responsibility, between 1,500, 2,500 and 5,000 shares for Managers, to 10,000 for Board Members and 12,500 for the CEO. The options are to be drawn from the pool of shares bought back under the corporate share buy-back program. One share option entitles to the purchase of one share. In order to exercise a share option, eligible persons must be in active employment with Andritz AG or one of its affiliates from 1 May 2004 until before each date of exercise of an option. Another requirement is that Managers must

If the conditions of exercise are met, 50% of the options can be exercised immediately, 25% after three months and the remaining 25% after a further three months. Share options can only be exercised by way of written notification to the company. The share options are not transferable. The shares purchased under the Share Option Program are not subject to a ban on sales over a certain period.

have invested at least EUR 20,000 in Andritz shares from their own resources, and the Members of the Managing Board at least EUR 40,000.

sand, thereof EUR 254 thousand have been reported as proportionate expense in 2006. The calculation of the fair value is based on the Black-Scholes Option Pricing Model. The share price at the time of granting the options is the closing price of the Andritz share on 17 May 2004 and amounts to EUR 37.05. The exercise price of EUR 37.53 was calculated in accordance with the rules of the option program. For the lifetime of the options a period of two years was assumed. The expected dividend yield was fixed at 3%, and a discount rate of 5% was used. The expected volatility was calculated on the basis of the historical development of the share price of the Andritz share during the 30 months preceding the granting date of the options. Further parameters of granting the options were not used.

The exercise price of the option is the unweighted average closing price of Andritz shares in the four calendar weeks following the 97th Annual General Meeting of Shareholders held on 30 March 2004. Options can be exercised between 1 May 2006 and 30 April 2008 (=period of exercise) provided that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2006 to 30 April 2007 is at least 15% above the exercise price and the earnings per share in business year 2005 (based on the total number of shares listed) or the earnings per share in business year 2006 (based on the total number of shares listed) are at least 15% above the earnings per share in business year 2003 (based on the total number of shares listed) or that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2007 to 30 April 2008 is at least 20% above the exercise price and the earnings per share in business year 2006 (based on the total number of shares listed) or the earnings per share in business year 2007 (based on the total number of shares listed) are at least 20% above the earnings per share in business year 2003 (based on the total number of shares listed).

ANDRITZ Annual Report 2006

The total options granted in 2004 amount to 174,500. The exercise requirements regarding the share price increase and the earnings per share were fulfilled in 2006, so the options could be exercised according to the other requirements of the program. The fair value of the options at the time of granting amounts to EUR 1,220 thou-

The 99th Annual General Meeting of Shareholders held on 29 March 2006 adopted another Share Option Program for Managers and Members of the Managing Board. The number of options granted to the different Managers varies, depending on the area of responsibility, between 1,500, 2,500 and 5,000 shares for Managers, to 10,000 for Board Members and 12,500 for the CEO. The options are to be drawn from the pool of shares bought back under the corporate share buy-back program. One share option entitles to the purchase of one share. In order to exercise a share option, eligible persons must be in active employment with Andritz AG or one of its affiliates from 1 May 2006 until before each date of exercise of an option. Another requirement is that Managers must have invested at least EUR 20,000 in Andritz shares from their own resources, and the Members of the Managing Board at least EUR 40,000.

The exercise price of the option is the unweighted average closing price of Andritz shares in the four calendar weeks following the 99 th Annual General Meeting of Shareholders held on 29 March 2006. The options can be exercised between 1 May 2008 and 30 April 2010 (=period of exercise) provided that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2008 to 30 April 2009 is at least 15% above the exercise price and the earnings per share in business year 2007 (based on the total number of shares listed) or the earnings per share in business year 2008 (based on the total number of shares listed) are at least 15% above the earnings per share in business year 2005 (based on the total number of shares listed) or that the average unweighted closing price of the Andritz share over twenty consecutive trading days within the period from 1 May 2009 and 30 April 2010 is at least 20% above the exercise price and the earnings per share in business year 2008 (based on the total number of shares listed) or the earnings per share in business year 2009 (based on the total number of shares listed) are at least 20% above the earnings per share in business year 2005 (based on the total number of shares listed). If the conditions of exercise are met, 50% of the options can be exercised immediately, 25% after three months and the remaining 25% after a further three months. Share options can only be exercised by way of written notification to the company. The share options are not transferable. The shares purchased under the Share Option Program are not subject to a ban on sales over a certain period.

Notes to the Consolidated Financial Statements as of December 31, 2006

The total options granted in 2006 amount to 236,000. The fair value of the options at the time of granting amounts to EUR 6,492 thousand, thereof EUR 1,894 thousand have been reported as proportionate expense in 2006. The calculation of the fair value is based on the Black-Scholes Option Pricing Model. The share price at the time of granting the options is the closing price of the Andritz share on 1 June 2006 and amounts to EUR 129.75. The exercise price of EUR 126.67 was calculated in accordance with the rules of the option program. For the lifetime of the options a period of two years was assumed. The expected dividend yield was fixed with 2.5%, and a discount rate of 4.5% was used. As expected volatility the value released by the Vienna Stock Exchange was applied. Further parameters of granting the options were not used.

125

Movements in options under the stock option plans for financial years 2006 and 2005 were as follows:

2006

2005

Average exercice Number of price per option options (in EUR)

Number of options

Average exercice price per option (in EUR) 35.66

Total at the beginning of the year

173,875

37.53

196,750

Options granted

236,000

126.67

0

0.00

(154,500)

37.53

(22,250)

21.00

Options exercised Options forfeited Total at the end of the year

0

0.00

(625)

37.53

255,375

119.91

173,875

37.53

19,375

37.53

0

0.00              

Exercisable at year-end

11. Statement of Liabilities 2006 (in TEUR) Bonds Bank loans and other financial liabilities – non-current Obligations under finance leases – non-current Other liabilities – non-current

Remaining term between 1 and 5 years

Remaining term over 5 years

Total non-current liabilities

100,000

196,358

296,358

19,590

2,236

21,826

778

0

778

8,144

0

8,144

128,512

198,594

327,106

Provisions – non-current

182,002 509,108

2005 (in TEUR) Bonds Bank loans and other financial liabilities – non-current Obligations under finance leases – non-current Other liabilities – non-current Provisions – non-current

Remaining term between 1 and 5 years

Remaining term over 5 years

Total non-current liabilities

100,000

0

100,000

3,652

2,548

6,200

198

0

198

0

0

0

103,850

2,548

106,398 92,105 198,503

The interest bearing borrowings consist primarily of current bank loans at floating interest rates and fixed rates.

The Managing Board considers that the carrying amount of liabilities corresponds with their fair value.

Property, plant and equipment amounting to EUR 15,111 thousand and EUR 4,573 thousand as at 31 December 2006 and 2005, respectively, has been pledged as security for long-term debt.

ANDRITZ Annual Report 2006

126

Notes to the Consolidated Financial Statements as of December 31, 2006

12. Other Liabilities (in TEUR) Payables to associated companies Personnel related costs Outstanding invoices for order related costs Deferred income Financial instruments carried at fair value Liabilities from value-added tax Liabilities from commissions Other

thereof other current liabilities thereof other non-current liabilities

2006

2005

891

650

71,586

48,392

125,532

70,037

5,485

2,830

0

6,413

6,318

10,817

8,374

5,320

103,252

46,546

321,438

191,005

313,294

191,005

8,144

0

321,438

191,005

2006

2005

The Managing Board considers that the carrying amount of other liabilities corresponds with their fair value.

G. Notes to the Consolidated Income Statement 13. Sales (in TEUR) Contract revenue recognized as sales in the current period

1,778,173

1,070,884

Revenue recognized due to after-sales service

609,011

430,741

Other

322,502

242,670

2,709,686

1,744,295

2006

2005

527 18,700

1,652 17,864

2,107

1,414

14. Other Operating Income (in TEUR) Profit on disposal of fixed assets excluding financial assets Exchange rate gains Rental income Other

ANDRITZ Annual Report 2006

19,897

5,429

41,231

26,359

Notes to the Consolidated Financial Statements as of December 31, 2006

127

2006

2005

15. Personnel Expenses (in TEUR) Wages

93,684

61,662

Salaries

318,691

225,261

18,072

14,043

Pension expenses Severance expenses Social security and payroll related duties Other social payments

5,012

6,433

66,820

43,500

14,654

12,656

516,933

363,555

2006

2005

16. Other Operating Expenses (in TEUR) Exchange rate losses Sales expenses Administrative expenses Other

11,663

13,108

164,981

106,410

29,567

22,039

143,672

95,807

349,883

237,364

(in TEUR)

2006

2005

Income / expenses from associated companies

1,244

147

17. Financial Results

Other interest and similar income Interest and similar expenses Interest result Other income / expenses from financing activities

24,632

11,273

(19,342)

(8,057)

5,290

3,216

(448)

11

6,086

3,374

2006

2005

Current tax expense

(45,107)

(30,170)

Changes in deferred taxes charged to the income statement

535 (44,572)

384 (29,786)

18. Income Taxes (in TEUR)

ANDRITZ Annual Report 2006

128

Notes to the Consolidated Financial Statements as of December 31, 2006

Changes in the deferred income tax account consist of the following: (in TEUR) Deferred tax assets

2006

2005

21,845

21,854

Liabilities for deferred taxes

(45,036)

(58,693)

Balance as at 31 December, as previously stated

(23,191)

(36,839)

Deferred tax relating to the origination and reversal of temporary differences income statement charge charged to equity

535

384

1,532

13,264

(21,124)

(23,191)

thereof Deferred tax assets Liabilities for deferred taxes

58,969

21,845

(80,093)

(45,036)

The reconciliation of the effective tax rate to the tax rate used is as follows: (in TEUR)

2006

2005

Earnings before taxes (EBT)

165,925

110,024

Tax at the applicable tax rate (25% in 2006 and 25% in 2005)

(41,481) 0

(27,506) (146)

Non-deductable amortization of goodwill Tax effect of adjustment of using new tax rates other changes

Current tax expense Changes in deferred taxes charged to the income statement

509

(246)

(3,600)

(1,888)

(44,572)

(29,786)

(45,107)

(30,170)

535

384

Deferred tax assets and liabilities for deferred taxes as at 31 December 2006 and 2005 are the result of the following temporary valuation differences between book values in the IFRS consolidated financial statements and the relevant tax bases:

(in TEUR)

2006

2005

Deferred tax

Deferred tax

Assets

Liabilities

Assets

Intangible assets

1,805

(12,226)

2,031

(713)

Property, plant and equipment

2,945

(11,760)

2,841

(8,963) (106)

Financial assets Inventories Receivables Marketable securities and shares Other assets

Liabilities

7

(10,108)

5

268,518

(2,065)

227,167

(507)

2,733

(47,223)

2,458

(21,966) (195)

0

(182)

0

190

(93)

0

(16)

276,198

(83,657)

234,502

(32,466)

Provisions

56,317

(36,198)

29,921

(35,816)

Liabilities

22,466

(275,355)

3,766

(221,190)

Deferred income Tax loss carry-forwards

27

(13)

5,685

0

78,810

(311,566)

39,372

(257,006)

60,264

0

7,198

0

Deferred tax assets/liabilities

415,272

(395,223)

281,072

(289,472)

Valuation allowance for deferred tax assets

(41,173)

0

(16,514)

0

0

0

1,723

0

(315,130) 58,969

315,130 (80,093)

(244,436) 21,845

244,436 (45,036)

Other Offset within legal tax units and jurisdiction Net deferred tax assets and liabilities

ANDRITZ Annual Report 2006

Notes to the Consolidated Financial Statements as of December 31, 2006

129

19. Earnings per Share Basic earnings per share (see Consolidated Income Statement) are calculated by dividing the net profit for the period attributable to ordinary shareholders of the parent company by the weighted average number of ordinary shares outstanding during the period. Diluted basic earn-

ings per share are calculated by dividing the net profit for the period attributable to shareholders of the parent company by the weighted average number of shares with consideration of no par value share options.

H. Segment Information Segment information is prepared on the following basis:

Business segments

Geographical segments

The Andritz Group conducts its business activities in the following areas: a. Pulp and Paper (P+P) b. Hydro Power (HP) c. Rolling Mills and Strip Processing Lines (WB) d. Environment and Process (EP) e. Feed and Biofuel (FB)

The Group’s activities are conducted predominantly in Europe, North America and Asia.

2006 Business segment data (in TEUR)

P+P

HP

WB

EP

FB

Transition

Total

1,304,149

467,851

450,540

366,521

120,625

0

2,709,686

75,945

22,201

30,568

20,476

10,649

0

159,839

Total assets

642,747

557,711

142,533

228,988

70,986

729,626

2,372,591

Total liabilities

649,677

531,075

155,756

161,987

34,438

425,118

1,958,051

21,658

13,498

2,346

6,510

1,656

0

45,668

13,698 562

11,074 0

2,256 0

5,092 439

2,264 243

0 0

34,384 1,244

2,157

2,254

0

1,323

488

0

6,222

Sales Segment result before amortization of goodwill

Capital expenditure Depreciation and amortization of tangible and intangible fixed assets Share of net profit / loss of associates Shares in associated companies

Geographical segment data

(in TEUR)

Europe

North America

Rest of the world and Asia consolidation

Total

External sales

1,018,071

433,331

735,845

522,439

2,709,686

Total assets

3,284,837

479,909

171,076

(1,563,231)

2,372,591

32,365

5,054

7,159

1,090

45,668

Capital expenditure

ANDRITZ Annual Report 2006

130

Notes to the Consolidated Financial Statements as of December 31, 2006

2005 Business segment data (in TEUR)

P+P

HP

WB

EP

FB

Transition

Total

1,032,876

52,644

275,939

289,209

93,627

0

1,744,295

63,601

2,618

15,887

17,685

7,242

0

107,033

Total assets

450,117

38,553

79,277

202,957

63,070

557,317

1,391,291

Total liabilities

566,005

31,283

129,555

116,646

28,661

190,389

1,062,539

13,561

3,411

2,171

6,659

932

0

26,734

12,502 (64)

2,246 0

2,283 0

4,310 211

2,527 0

0 0

23,868 147

1,313

0

0

884

122

0

2,319

Sales Segment result before amortization of goodwill

Capital expenditure Depreciation and amortization of tangible and intangible fixed assets Share of net profit / loss of associates Shares in associated companies

Geographical segment data

(in TEUR) External sales Total assets Capital expenditure

North America

Europe

Rest of the world and Asia consolidation

Total

583,309

299,204

447,259

414,523

1,744,295

1,520,810

284,705

83,996

(498,220)

1,391,291

16,810

2,771

3,400

3,753

26,734

I. Notes to the Consolidated Cash Flow Statements Cash flows from acquisition of subsidiaries* (in TEUR)

Total

Total

P+P

HP

EP

2006

2005

(4,965)

(162,886)

0

(167,851)

(2,121)

(708)

0

0

(708)

0

Receivables

(15,110)

(314,506)

(337)

(329,953)

(11,801)

Inventories

(12,941)

(67,153)

(158)

(80,252)

(5,366)

(8,569)

(36,405)

(278)

(45,252)

(2,097)

(18,734)

(71,261)

(42)

(90,037)

(8,773)

(858)

(15,774)

0

(16,632)

(27)

25,578

540,970

536

567,084

9,638

Cash and cash equivalents Marketable securities

Intangible assets Property, plant and equipment Financial assets Accounts payable and accrued expenses Financial debt Net assets / liabilities acquired Cash and cash equivalents Goodwill

Business Area

5,031

15,297

43

20,371

5,620

(31,276)

(111,718)

(236)

(143,230)

(14,927)

4,965

162,886

0

167,851

2,121

(8,849)

(80,706)

(925)

(90,480)

(7,945)

Changes in minority interests

0

0

0

0

183

Changes in equity attributable to shareholders of the parent company

0

(4,144)

0

(4,144)

0

12,166

0

0

12,166

0

(22,994)

(33,682)

(1,161)

(57,837)

(20,568)

Purchase price not yet paid Net cash flow * Converted by exchange rates as per dates of transaction

ANDRITZ Annual Report 2006

Notes to the Consolidated Financial Statements as of December 31, 2006

J. Financial Instruments a. 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. These risks mainly relate to the industries the Group serves (e.g. uncertainty of future contracts, volatility of incoming orders, customer concentration, etc.), the Group’s business (e.g. currency exposure, competitive position, legal proceedings, etc.), and to major orders (e.g. payment risks, liabilities and performance of projects, cost overruns, etc.). Andritz has a long-established Group-wide management steering committee whose main task is to identify nascent risks early and to take counter-measures. 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 secure to identify major risks at an early stage and to take counter-measures, if necessary. For most of the orders, the risk of payment failure by customers is reduced by bank guarantees and export insurances. Risks for deliveries in countries with political risks typically are also insured. Interest and exchange rate risks are limited and controlled by using derivative financial instruments, in particular forward exchange contracts and swaps. The Group mostly enters into fixed forward foreign exchange contracts in managing its foreign exchange risk resulting from cash flows from current business activities. Transaction risk is calculated in each foreign currency and includes currency denominated assets and liabilities and certain off-balance sheet items such as highly probable future cash flows for firm commitments and highly probable purchases and sales. The currency risks of the Group occur due to the fact that the Group‘s operations, productions and markets are located in various countries. The Group carries its forward exchange contracts at fair value. The remaining period of most of the cash flow hedges does not exceed one year.

Cash flow risks are minimized by the Group’s cash management system which controls cash in- and outflows of all relevant Andritz affiliates. It also monitors the Group’s cash pooling activities in order to optimize net financing income.

b. Liquidity Risks Due to Group-wide finance and liquidity planning Andritz maintains sufficient cash and cash equivalents or has available funding through an adequate amount of credit facilities to meet its commitments. Any excess cash is invested mostly in listed securities which are actively traded.

c. Credit Risks Credit risks, or the risk of counterparties defaulting, are controlled by the application of credit approvals, limits and monitoring procedures. Where appropriate, the Group obtains guarantees from governmental export agencies or similar private institutions to reduce the risk of a counterpart defaulting. Furthermore there is no existent concentration of default risk due to high diversification of contract parties. Credit risk associated with the investment of liquid funds and securities is limited by the fact that the Group works only with financial partners who can demonstrate sound creditworthiness. For some financial assets and financial liabilities the Group has a legally enforceable right to set off. These amounts are only reported on a net basis. For all existing risks, valuation allowances are included, so that the Managing Board believes that no other credit risk will occur.

131

d. Interest Risk In June 2002, the Company issued a bond for a nominal value of MEUR 100 with a repayment period of 6 years and a nominal interest rate of 6% p.a. For this bond an interest swap has been used to hedge the risk from the fixed interest rate of the bond. The interest swap changes the fixed interest rate for the whole period to a variable interest rate based on 1 month’s Euribor. In this way, there is the risk of a changing interest rate concerning the cash flows but the fair value of the bond is hedged. In June 2006, the Company issued another bond for a nominal value of MEUR 200 with a repayment period of 7 years and nominal interest rate of 4.5% p.a. For this bond interest swaps have been used to hedge the risk from the fixed interest rate of the bond. The interest swaps change the fixed interest rate for the whole period to a variable interest rate based on 1 month’s Euribor. In this way, there is the risk of a changing interest rate concerning the cash flows but the fair value of the bond is hedged. The Managing Board believes that the exposure to interest rate risk of remaining financial assets and liabilities is negligible. Consequently, additional derivative instruments for hedging of these interest risks are not used within the Group. The weighted average interest rates at the balance sheet date were as follows: 2006

2005

Cash on current accounts

1.9%

1.5%

Short term deposits

3.4%

2.2%

Securities, short term

7.0%

3.5%

Securities, long term

2.8%

2.5%

Overdraft on current accounts

5.2%

3.3%

Short term loans

10.7%

3.3%

Long term loans

5.3%

4.5%

Bond

4.3%

3.2%

ANDRITZ Annual Report 2006

132

Notes to the Consolidated Financial Statements as of December 31, 2006

e. Fair Value of Financial Instruments Fair value calculation The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date. (in TEUR)

At the balance sheet date, the fair values of forward contracts designated as cash flow hedges were as follows:

2006

2005

Forward contracts with positive fair values

15,039

4,886

Forward contracts with negative fair values

(3,774)

(11,299)

11,265

(6,413)

The change in fair values of forward contracts from in to-

Non-current and current securities

tal negative to in total positive fair values was mostly due to the change in fair values of forward contracts to hedge cash flows in US dollars because of the weakening of the US dollars against the Euro.

The fair values of publicly traded instruments are based on quoted market prices. For all other instruments for which there are no quoted market prices, a reasonable estimate of fair value has been calculated based on the expected cash flows or the underlying net asset base for each investment. Non-current securities of the Group are classified as “available for sale” and are valued at their quoted market price at the balance sheet date.

The fair value of the interest swaps presenting a total negative fair value as of end of 2006 was EUR 2,647 thousand (EUR 4,024 thousand as of end of 2005 being a positive fair value). Cash and cash equivalents, current and non-current financial assets The carrying amount of cash and other financial assets approximates fair value due to the relatively short-term maturity of these financial instruments.

ANDRITZ Annual Report 2006

Receivables and payables The historical carrying amounts of receivables and payables which are all subject to normal trade credit terms correspond basically to their fair values. Short-term borrowings The carrying amount approximates fair value because of the short period to maturity of those instruments.

Notes to the Consolidated Financial Statements as of December 31, 2006

133

Long-term borrowings The fair value of the long-term debts is based on the current interest rates available for debt with the same maturity profile. The fair value of non-current borrowings and other payables with variable interest rates approximates their carrying amounts. The interest risk of the bond has been hedged by an interest swap. Management believes that the exposure to interest rate risk of the remaining financial assets and liabilities is negligible. IAS 39 Reserve The table below shows the movements in the IAS 39 reserve in equity: (in TEUR) Balance as at 1 January

2006

2005

(3,172)

21,097

(104)

(11,744)

Movements in the period: Gains and losses from changes in fair value Deferred income taxes thereon

26

3,641

Transfers to income statement

5,557

(23,737)

Deferred income taxes thereon

(1,723)

7,358

Change in fair value of financial assets

130

314

Deferred income taxes thereon

(41)

(101)

673

(3,172)

Balance as at 31 December

K. Leases The Group has entered into various operating lease agreements for machinery, offices and other facilities as lessee. Lease terms do not contain restrictions on the Group’s activities concerning dividends, additional

(in TEUR) Next year 1 year to 5 years After 5 years

debt or further leasing. Rent expense amounts to EUR 20,444 thousand in 2006 and EUR 15,763 thousand in 2005 respectively. Future lease payments under non-cancelable operating lease are as follows:

2006

2005

6,129

5,780

15,745

11,940

8,934

2,444

30,808

20,164

ANDRITZ Annual Report 2006

134

Notes to the Consolidated Financial Statements as of December 31, 2006

L. Commitments Commitments arising from contracts for expenditure on property, plant and equipment are only in the normal course of business. As of December 31, 2006 these commitments amounted to EUR 2,661 thousand (2005: to EUR 1,810 thousand).

M. Contingent Liabilities Various legal actions and claims are pending or may be asserted in the future against Group companies from litigations and claims incidental to the ordinary course of business. These mainly include project related claims and disputes. Related risks have been analyzed as to likelihood of occurrence. Although the outcome of these matters cannot always be ascertained with precision, the Managing Board believes that the outcome of these legal actions and claims, individually or in the aggregate, will not have a material adverse effect on the Company’s business, liquidity, result of operations or financial position.

ANDRITZ Annual Report 2006

As of December 31, 2006, Andritz Inc., as subsidiary of the Company, was one of many defendants in a total of approximately 28 asbestos cases in the US. Nearly all of these cases involve claims by multiple plaintiffs against multiple defendants. In aggregate the cases involve a total of approximately 2,312 plaintiffs. Andritz Inc. does not believe it should be found liable in connection with any of these claims and plans to vigorously defend each claim. As the vast majority of claims against Andritz Inc. have not as yet been stated with specificity it is not possible for Andritz Inc. to assess the full extent of its potential exposure to asbestos litigation. Andritz Inc. has not had a judgment of liability rendered against it in connection with an asbestos claim. Approximately 85 asbestos cases and about 22,678 claims against Andritz have been dismissed, and one claim has been resolved without Andritz incurring any significant liability or expense. It is possible that the final adjudication or settlement of such proceedings could have a material adverse effect on the Company’s business, results of operations and financial condition. The Group believes it has several potential sources of recovery including insurance and/or contractual indemnities from the previous owners of the relevant businesses of Andritz Inc. Whether any indemnities and/ or insurance will apply depends on the particular facts of each plaintiff’s claim. Because the claims against Andritz in most cases have not as yet been stated with specificity and for the reasons set forth below, it is not possible for the Group to assess the amount of its expected recovery. Moreover, certain indemnitors or insurers have contested and others may contest the applicability of the indemnity or insurance in question, and there can be no assurance that the Group will prevail in any dispute relating to the applicability of such insurance or indemnity to existing or future claims against a Group company.

N. Related Party Transactions Only minor business relations exist with the shareholders. The shareholders are: Free Float

72%

Certus Beteiligungs-GmbH

26%

Management

2%

Transactions with associated companies and not consolidated companies were not material.

Emoluments of the Managing Board A provision of EUR 4,292 thousand in 2006 (EUR 4,428 thousand in 2005) was recorded for pensions of former Members of the Managing Board and their dependants; the current year expense for these pensions amounted to EUR 169 thousand for 2006 (EUR 548 thousand for 2005). The following expenses have been recognized for the Managing Board: (in TEUR)

2006

2005

Short-term benefits

9,490

7,613

Post-employment benefits

1,312 498

1,641 184

11,300

9,438

Share-based expenses

The members of the Supervisory Board received remunerations in the amount of EUR 41 thousand (2005: EUR 45 thousand).

Notes to the Consolidated Financial Statements as of December 31, 2006

135

O. List of Consolidated Subsidiaries Ownership Interest Material Affiliated Companies

Headquarters

direct

Andritz Denmark A/S

Esbjerg/Denmark

100%

Andritz Sprout A/S

Esbjerg/Denmark

Andritz (USA), Inc.

indirect

100%

Roswell/Georgia (USA)

100%

Andritz Inc.

Roswell/Georgia (USA)

100%

Andritz-Ruthner Inc.

Arlington/Texas (USA)

100%

Andritz Bird Inc.

Arlington/Texas (USA)

100%

Andritz S.A.S.

Vélizy/France

Andritz Selas S.A.S.

100%

Gennevilliers/France

100%

Andritz Ingenieria S.A.

Madrid/Spain

100%

Andritz GmbH

Hemer/Germany

6.25%

93.75%

Sundwig GmbH

Hemer/Germany

Andritz Fiedler GmbH

Regensburg/Germany

100%

Andritz Separation GmbH

Cologne/Germany

100%

Andritz Fliessbettsysteme GmbH

Ravensburg/Germany

100%

Andritz Kaiser GmbH

Bretten-Gölshausen/Germany

100%

Lenser Filtration GmbH & Co KG

Senden/Germany

Andritz Oy

75%

100%

Helsinki/Finland

Savonlinna Works Oy

100%

Savonlinna/Finland

Andritz Ltd./Ltée.

100%

Lachine/Canada

Andritz Fiber Drying Ltd.

Lachine/Canada

Universal Dynamics Group Ltd.

Richmond/Canada

Andritz AB

100% 100% 100%

Örnsköldsvik/Sweden

Andritz Fiber Drying AB

100%

Växjö/Sweden

100%

Andritz Ltd.

Staffordshire/Great Britain

100%

Andritz-Kenflo Foshan Pump Co. Ltd.

Foshan/China

60%

Andritz Technologies Ltd.

Foshan/China

100%

Andritz Sprout B.V.

Geldrop/Netherlands

100%

Andritz Brasil Ltda.

Curitiba/Brazil

100%

Andritz KK

Tokyo/Japan

100%

VA TECH HYDRO GmbH

Vienna/Austria

100%

VA TECH HYDRO India Pvt. Ltd.

Bhopal/India

100%

VA TECH ESCHER WYSS Flovel Ltd.

Faridabad/India

100%

VA TECH ESCHER WYSS GmbH

Ravensburg/Germany

100%

Andritz-Küsters GmbH & Co KG

Krefeld/Germany

100%

VA TECH ESCHER WYSS S.L.

Madrid/Spain

100%

VA TECH ESCHER WYSS S.r.l.

Vicenza/Italy

100%

VA TECH HYDRO AG

Kriens/Switzerland

100%

Graz, February 16, 2007 Wolfgang Leitner

Franz Hofmann

Karl Hornhofer

Friedrich Papst

Bernhard Rebernik

ANDRITZ Annual Report 2006

136

Locations of the Andritz Group

LOCATIONS OF THE ANDRITZ GROUP EUROPE Austria Headquarters: Andritz AG Stattegger Strasse 18 8045 Graz Austria Phone: +43 316 6902 0 Fax: +43 316 6902 415 [email protected] Andritz AG Eibesbrunnergasse 20 1120 Vienna Austria Phone: +43 1 81195 0 Fax: +43 1 81376 45 [email protected] Anstalt für Strömungsmaschinen Gesellschaft mbH Andritzer Reichsstrasse 68B 8045 Graz Austria Phone: +43 316 692 728 0 Fax: +43 316 691 575 [email protected] European Mill Service GmbH Andritzer Reichsstrasse 44/1/3 8045 Graz Austria Phone: +43 316 691 200 Fax: +43 316 691 200 99 [email protected] VA TECH HYDRO GmbH Headquarters Penzinger Strasse 76 1141 Vienna Austria Phone: +43 1 89100 0 Fax: +43 1 89460 46 [email protected] VA TECH HYDRO GmbH EURO PLAZA – Object D Wienerbergstrasse 41 1120 Vienna Austria Phone: +43 1 81195 6700 Fax: +43 1 81195 6953 [email protected]

ANDRITZ Annual Report 2006

VA TECH HYDRO GmbH Elingasse 3 8160 Weiz Austria Phone: +43 3172 606 0 Fax: +43 3172 494 [email protected]

Andritz Oy Kyminlinnantie 6 48600 Kotka Finland Phone: +358 20 450 5555 Fax: +358 20 450 5540 [email protected]

Andritz Fiedler S.A.S. 30, rue Henri Martin 86100 Châtellerault France Phone: +33 549 93 9381 Fax: +33 549 93 9380 [email protected]

VA TECH HYDRO GmbH Lunzer Strasse 78 4031 Linz Austria Phone: +43 732 6987 0 Fax: +43 732 6980 2554 [email protected]

Andritz Oy Lypsyniemenkatu 5 57200 Savonlinna Finland Phone: +358 20 450 5555 Fax: +358 20 450 6220 [email protected]

Czech Republic

Andritz Oy Relanderinkatu 2 78200 Varkaus Finland Phone: +358 20 450 5555 Fax: +358 20 450 5974 [email protected]

Andritz Selas S.A.S. 7, rue du Fossé Blanc Bâtiment C1 92230 Gennevilliers France Phone: +33 140 80 3400 Fax: +33 140 80 3438 [email protected]

Andritz spol s.r.o. Na Hrázce 710 500 09 Hradec Králové Czech Republic Phone: +420 602 170 764 Fax: +420 495 518 220 [email protected] VA TECH SAT Praha spol s.r.o. ˇ Ceskobrodská 108n P.O. Box 55 130 04 Praha 3 Czech Republic Phone: +420 2 663 10746 Fax: +420 2 848 24313 [email protected]

Denmark Andritz Sprout A/S Glentevej 5–7 6705 Esbjerg Denmark Phone: +45 72 160 300 Fax: +45 72 160 301 [email protected]

Finland Andritz Oy Tammasaarenkatu 1 00180 Helsinki Finland Phone: +358 20 450 5555 Fax: +358 20 450 5109 [email protected] Andritz Oy Keskikankaantie 9 15860 Hollola Finland Phone: +358 20 450 5555 Fax: +358 20 450 6711 [email protected]

Andritz Oy Hermiankatu 8D 33720 Tampere Finland Phone: +358 20 450 5555 Fax: +358 20 450 6500 [email protected] Savonlinna Works Oy Lypsyniemenkatu 5 57200 Savonlinna Finland Phone: +358 20 450 6000 Fax: +358 20 450 6239 [email protected]

France Andritz S.A.S. 2–4 Avenue de l’Europe – Bât. A 78140 Vélizy-Villacoublay France Phone: +33 139 26 0550 Fax: +33 139 26 0560 [email protected] Andritz S.A.S. Allée de la Garenne – Z.I. Le Buxerioux 36000 Châteauroux France Phone: +33 254 61 3333 Fax: +33 254 61 3300 [email protected]

Andritz Sprout S.A.S. Site d’Activités des Grillonnières 37270 Saint Martin Le Beau France Phone: +33 247 50 6364 Fax: +33 247 50 2066 [email protected] Lenser Filtration S.a.r.l. 65, Route de Marienthal 67500 Haguenau France Phone: +33 3880 600 99 Fax: +33 3880 690 90 [email protected] VA TECH BOUVIER HYDRO S.A.S. 49–51 Boulevard Paul Langevin BP 7-38601 Fontaine Cedex France Phone: +33 476 85 95 23 Fax: +33 476 26 16 20 [email protected]

Germany Andritz GmbH Zweigniederlassung Kirchheim Tannenbergstrasse 139 73230 Kirchheim/Teck Germany Phone: +49 7021 5074 0 Fax: +49 7021 5074 10 [email protected] [email protected] Andritz GmbH Stephanopeler Strasse 22 58675 Hemer Germany Phone: +49 2372 54 0 Fax: +49 2372 54 400 [email protected]

Locations of the Andritz Group

Andritz Fiedler GmbH Weidener Strasse 9 93057 Regensburg Germany Phone: +49 941 6401 0 Fax: +49 941 6241 4 [email protected]

Lenser Filtration GmbH & Co. KG Breslauer Strasse 8 89250 Senden Germany Phone: +49 7307 8010 Fax: +49 7307 33 275 [email protected]

Andritz Fliessbett Systeme GmbH Goethestrasse 36 88214 Ravensburg Germany Phone: +49 751 560 58 0 Fax: +49 751 560 58 930 [email protected]

Sundwig GmbH Stephanopeler Strasse 22 58675 Hemer Germany Phone: +49 2372 54 0 Fax: +49 2372 54 200 [email protected]

Andritz Kaiser GmbH Gewerbestrasse 30 75015 Bretten-Gölshausen Germany Phone: +49 7252 910 01 Fax: +49 7252 910 199 [email protected] Andritz Küsters GmbH & Co. KG Eduard-Küsters-Strasse 1 47805 Krefeld Germany Phone: +49 2151 34 0 Fax: +49 2151 34 1206 [email protected] Andritz Separation GmbH Dillenburger Strasse 100 51105 Cologne Germany Phone: +49 221 9856 0 Fax: +49 221 9856 202 [email protected] Andritz Separation GmbH Gebrüder-Netzsch-Strasse 19 95100 Selb Germany Phone: +49 9287 75 700 Fax: +49 9287 75 704 [email protected] Andritz Sprout eine Zweigniederlassung der Andritz GmbH Industriestrasse 15a 40822 Mettmann Germany Phone: +49 2104 91970 Fax: +49 2104 12054 [email protected]

VA TECH ESCHER WYSS GmbH Escher-Wyss-Strasse 25 88212 Ravensburg Germany Phone: +49 751 8300 Fax: +49 751 8323 96 [email protected]

Great Britain Andritz Ltd. R&B Technology Centre Speedwell Road Parkhouse East Newcastle-under-Lyme Staffordshire, ST5 7RG Great Britain Phone: +44 1782 5656 56 Fax: +44 1782 5661 30 [email protected]

Lenser UK Ltd. Winton House, Stoke Road Stoke-on-Trent Staffordshire, ST4 2RW Great Britain Phone: +44 1782 415 414 Fax: +44 1782 415 757 [email protected]

Italy VA TECH ESCHER WYSS S.r.l. Via Daniele Manin 16/18 36015 Schio (Vicenza) Italy Phone: +39 0445 678 211 Fax: +39 0445 678 218 [email protected]

Netherlands Andritz B.V. Nijverheidsweg 3C 1785 AA Den Helder Netherlands Phone: +31 2236 33474 Fax: +31 2236 37781 [email protected] Andritz Sprout B.V. Spaarpot 112 5667 KZ Geldrop Netherlands Phone: +31 40 262 7777 Fax: +31 40 262 7751 [email protected]

Andritz Ltd. Thermal Processes Suite 5L North Mill, Bridgefoot Belper, DE56 1YD Great Britain Phone: +44 1773 5995 40 Fax: +44 1773 5995 41 [email protected]

Thermtec B.V. Wijnhaven 76 3011 WT Rotterdam Netherlands Phone: + 31 10 280 1660 Fax: +31 10 404 7356 [email protected]

Andritz Selas UK Ltd. Suite 5L, Business Centre North Mill, Bridgefoot Belper, DE56 1YD Great Britain Phone: +44 1773 829 954 Fax: +44 1773 829 985 [email protected]

VA TECH HYDRO AS Bergermoen 3520 Jevnaker Norway Phone: +47 61 3152 00 Fax: +47 61 3128 46 [email protected]

Andritz Sprout Ltd. Stockholm Road, Sutton Fields Industrial Estate Hull, HU7 0XL Great Britain Phone: +44 1482 825 119 Fax: +44 1482 839 806 [email protected]

Norway

137

Poland Andritz AG Spółka Akcyjna Przedstawicielstwo w Polsce Aleje Jerozolimskie 214 02-486 Warsaw Poland Phone: +48 22 87399 40 Fax: +48 22 87399 39 [email protected] [email protected]

Romania Andritz S.R.L. Transilvaniei No. 21 Cisnadie, Sibiu 555300 Romania Phone: +40 269 561 173 Fax: +40 269 561 727 [email protected] Andritz Rep. Office Bukarest Bd. Luliu Maniu No. 94–100 Bl. 18, sc. 4, apt. 126 Bucharest 061112 Romania Phone: +40 21 4304 166 Fax: +40 21 4304 166 [email protected]

Russia LLC Andritz 6th Krasnoarmeiskaya Street 5–7, Entrance A, 4th Floor, Office 404A 190005 St. Petersburg Russia Phone: +7 812 332 5703 Fax: +7 812 332 5707 [email protected] Andritz Representative Office Moscow Mjasnizkaja Ul. 24/7 Building 1, Office 108 101000 Moscow Russia Tel.: +7 495 625 4552 +7 495 625 7401 Fax: +7 495 628 0301 [email protected] [email protected] VA TECH HYDRO Krasnopresnenskaya Naberezhnaya 12 WTC-2, Doorway 7, Etage 12, Office 1204 123610 Moscow Russia Phone: +7 495 762 00 33 Fax: +7 495 35 27 395 [email protected] 



ANDRITZ Annual Report 2006

138

Locations of the Andritz Group

LOCATIONS OF THE ANDRITZ GROUP Slovakia Andritz Jochman s.r.o Radlinského 19 052 01 Spišská Nová Ves Slovakia Phone: +421 53 4198 111 Fax: +421 53 4198 122 [email protected] Andritz Sprout s.r.o. Chemlonská 1 066 01 Humenné Slovakia Phone: +421 57 771 2701 Fax: +421 57 786 0780 [email protected]

Spain Andritz Ingeniería S.A. Agustin y Antonia, 12 28700 S. Sebastián de los Reyes Madrid Spain Phone: +34 91 663 6409 Fax: +34 91 651 1931 [email protected] Andritz Ingeniería S.A. P.O. Box 1017 08902 Hospitalet de Llobregat Barcelona Spain Phone: +34 93 298 8598 Fax: +34 93 432 5997 [email protected] VA TECH ESCHER WYSS S.L. Paseo de la Castellana 163 28046 Madrid Spain Phone: +34 91 425 1000 Fax: +34 91 425 1001 [email protected]

Sweden Andritz AB Köpmangatan 9 891 33 Örnsköldsvik Sweden Phone: +46 660 29 5300 Fax: +46 660 29 5399 [email protected] Andritz AB Ivarshyttevägen 4 776 33 Hedemora Sweden Phone: +46 225 635 50 Fax: +46 225 635 51 [email protected]

ANDRITZ Annual Report 2006

Andritz AB Tynäsgatan 14 652 24 Karlstad Sweden Phone: +46 5455 5450 Fax: +46 5455 5459 [email protected] Andritz AB Gävlegatan 22 113 30 Stockholm Sweden Phone: +46 8736 2500 Fax: +46 8736 2529 [email protected] Andritz Fiber Drying AB Kvarnvägen 351 87 Växjö Sweden Phone: +46 470 70 6300 Fax: +46 470 70 6380 [email protected] Andritz Lynson AB Tellusvägen 29 186 36 Vallentuna Sweden Phone: +46 8 514 307 40 Fax: +46 8 514 307 49 [email protected]

Switzerland Andritz 3Sys AG Oberdorfweg 9 5610 Wohlen Switzerland Phone: +41 56 618 4680 Fax: +41 56 618 4681 [email protected] Andritz BMB AG Feldstrasse 60 8180 Bülach Switzerland Phone: +41 44 864 4700 Fax: +41 44 864 4703 [email protected] VA TECH HYDRO AG Obernauer Strasse 4 6010 Kriens Switzerland Phone: +41 41 329 5111 Fax: +41 41 329 5152 [email protected] VA TECH HYDRO AG Hardstrasse 319 8005 Zurich Switzerland Phone: +41 44 278 2323 Fax: +41 44 278 2819 [email protected]

VA TECH HYDRO SA Rue des Deux Gares 6 Case postale 1800 Vevey Switzerland Phone: +41 21 925 7700 Fax: +41 21 925 7703 [email protected]

Andritz Brasil Ltda. Av. Presidente Castelo Branco, 1577 – Sala 203 – Carapina 29160-970 Serra, ES Brazil Phone: +55 27 2104 7650 Fax: +55 27 2104 7656 [email protected]

VA TECH SAT AG Obernauer Strasse 4 6010 Kriens Switzerland Phone: +41 41 329 5111 Fax: +41 41 329 5152 [email protected]

Turkey

Andritz Pilão Equipamentos Ltda. Rua Olimpiadas, 100 – 7th Floor Office 72 – Vila Olimpia 04551- 000 São Paulo, SP Brazil Phone: +55 11 3049 8001 Fax: +55 11 3049 8031 [email protected]

ELIN Elmak Elektromekanik Sistemler Ticaret Ltd. Sirketi Billur Sok. 5/7–8 06680 Kavaklidere (Ankara) Turkey Phone: +90 312 466 3580 Fax: +90 312 466 3611 [email protected]

Andritz Pilão Equipamentos Ltda. Rua Francisco Foga, 1005 Distrito Industrial 132800-000 Vinhedo, SP Brazil Phone: +55 19 3736 6800 Fax: +55 19 3836 6824 [email protected]

Ukraine

Andritz Separation Industria e Comércio de Equipamentos de Filtracâo Ltda. Rua Progresso, 450 89107-000 Pomerode, SC Brazil Phone: +55 47 3387 9100 Fax: +55 47 3387 9103 [email protected]

VA TECH HYDRO GmbH Uliza Artema, 73 8th Floor, No. 827 04053 Kiev Ukraine Phone: +38 044 484 3939 Fax: +38 044 486 1665 [email protected]

AMERICAS Brazil Andritz Brasil Ltda. Headquarters Av. Vicente Machado, 589-Centro 80420-010 Curitiba, PR Brazil Phone: +55 41 2103 7611 Fax: +55 41 2103 7511 [email protected] [email protected] Andritz Brasil Ltda. Rua Tabapuã, 627 – Conj. 92 – Itaim Bibi 04533-012 São Paulo, SP Brazil Phone: +55 11 2168 0100 Fax: +55 11 2168 0110 [email protected] [email protected]

Andritz Sprout do Brasil Ltda. Rua Dona Eugenia, 811 90630-150 Porto Alegre, RS Brazil Phone: +55 51 3333 0128 Fax: +55 51 3333 0128 [email protected] VA TECH HYDRO BRASIL Ltda. Alameda Mamoré, 911 – 12th Floor Edificio Monte Carlo – Alphaville 06454-040 Barueri, SP Brazil Phone: +55 11 4133 00 Fax: +55 11 4133 00 30 [email protected]

Locations of the Andritz Group

Canada Andritz Ltd./Ltée. 2260 – 32nd Avenue/32ième Avenue Lachine, QC, H8T 3H4 Canada Phone: +1 514 631 7700 Fax: +1 514 631 3995 [email protected] [email protected] Andritz Ltd./Ltée. DRT Service Center 45 Roy Blvd. Brantford, ON, N3R 7K1 Canada Phone: +1 519 754 4590 Fax: +1 519 754 4594 [email protected] Andritz Ltd./Ltée. Service Center 3448-78 Avenue Edmonton, AB, T6B 2X9 Canada Phone: +1 780 465 3344 Fax: +1 780 440 4354 [email protected] Andritz Fiber Drying Ltd. 2260 – 32nd Avenue/32ième Avenue Lachine, QC, H8T 3H4 Canada Phone: +1 514 631 7700 Fax: +1 514 631 8355 [email protected] Andritz Bird A Division of Andritz Ltd. Saskatoon Service Center 2600 Wentz Avenue Saskatoon, SK, S7K 2L1 Canada Phone: +1 306 931 0801 Fax: +1 306 931 2442 [email protected] IDEAS Simulation & Control Ltd. 13700 International Place, Suite 100 Richmond, BC, V6V 2X8 Canada Phone: +1 604 214 3456 Fax: +1 604 214 3457 [email protected] Universal Dynamics Ltd. 100-13700 International Place Richmond, BC, V6V 2X8 Canada Phone: +1 604 214 9248 Fax: +1 604 214 9249 [email protected]

Universal Dynamics Ltd. 205-556 N. Nechako Road Prince George, BC, V2K 1A1 Canada Phone: +1 250 564 3381 Fax: +1 250 562 6514 [email protected] Universal Dynamics Ltd. 201-4548 Lakelse Avenue Terrace, BC, V8G 1P8 Canada Phone: +1 250 638 0886 Fax: +1 250 638 0830 [email protected] Universal Dynamics Ltd. 10-327 Prideaux Street Nanaimo, BC, V9R 2N4 Canada Phone: +1 250 753 5307 Fax: +1 250 753 2926 [email protected] VA TECH HYDRO Canada Inc. 944 South Service Road Stoney Creek, ON, L8E 6A2 Canada Phone: +1 905 643 5881 Fax: +1 905 643 7279 [email protected]

Chile Andritz Chile Ltda. Isidora Goyenechea 3600, Oficina 202 Las Condes, Santiago Chile Phone: +56 2 462 4600 Fax: +56 2 462 4646 [email protected] [email protected] VA TECH HYDRO Office [email protected] Andritz Chile Ltda. Barros Arana 273 Segundo Piso, Concepcion Chile Phone: +56 41 2211 030 Fax: +56 41 2210 794 [email protected]

Colombia VA TECH Colombia Ltda. Calle 90, No. 14–16 Oficina 502 Bogotá 93228 Colombia Phone: +57 1 655 8200 Fax: +57 1 655 8251 [email protected]

Mexico VA TECH HYDRO Pseo de Tamarindos 400A Piso 5 Col. Bosques de las Lomas 05120 Mexico, D.F. Mexico Phone: +52 55 5091 4412 Fax: +52 55 5091 4310 [email protected] VA TECH ESCHER WYSS S.A. de C.V. Av. Cd. Industrial No. 977 Col. Cd. Industrial 58200 Morelia, Mich. Mexico Phone: +52 443 323 1530 Fax: +52 443 323 1538 [email protected]

USA Andritz Inc. 1115 Northmeadow Parkway Roswell, GA, 30076-3857 USA Phone: +1 770 640 2500 Fax: +1 770 640 9454 [email protected] Andritz Inc. 35 Sherman Street Muncy, PA, 17756 USA Phone: +1 570 546 8211 Fax: +1 570 546 1306 [email protected] [email protected] Engineered Wear Products/ Pulp and Paper Fax: +1 570 546 1312 [email protected] Andritz Inc. 101 Ridge Street Glens Falls, NY, 12801 USA Phone: +1 518 793 5111 Fax: +1 518 793 1917 [email protected] [email protected] Andritz Inc. R&D Facility 3200 Upper Valley Pike Springfield, OH, 45504 USA Phone: +1 937 390 3400 Fax: +1 937 390 6827

139

Andritz Inc. Service Center 101 Bamberg Drive Pell City, AL, 35125 USA Phone: +1 205 338 3331 Fax: +1 205 338 3334 [email protected] Andritz Inc. Engineered Wear Products/ Pulp and Paper 9560 S.W. Tualatin Road Tualatin, OR, 97062 USA Phone: +1 503 692 0850 Fax: +1 503 692 1169 [email protected] Andritz Inc. 101 South Main Street, Suite 400 Janesville, WI, 53545 USA Phone: +1 608 758 5920 Fax: +1 608 758 5935 [email protected] Andritz Küsters Inc. 201 Zima Park Drive, Spartanburg, SC, 29301 USA Phone: +1 864 587 4848 Fax: +1 864 576 2306 [email protected] Andritz-Ruthner, Inc. Southpoint Industrial Park 125 Technology Drive Canonsburg, PA, 15317 USA Phone: +1 724 745 7599 Fax: +1 724 745 9570 [email protected] Andritz Separation Inc. 1600 Boston-Providence Highway Walpole, MA, 02081 USA Phone: +1 508 404 1400 Fax: +1 508 668 6855 [email protected] Andritz Separation Inc. Lakeland Service Center 2721 Mine and Mill Road Lakeland, FL, 33801 USA Phone: +1 863 665 5811 Fax: +1 863 665 5851 [email protected] 



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Locations of the Andritz Group

LOCATIONS OF THE ANDRITZ GROUP Andritz Separation Inc. Houston Service Center 12734 Tanner Road Houston, TX, 77041 USA Phone: +1 713 856 1750 Fax: +1 713 856 1751 [email protected] Andritz Separation Inc. Scott Depot Service Center Erskine Lane P.O. Box 199 Scott Depot, WV, 25560 USA Phone: +1 304 757 2678 Fax: +1 304 757 2689 [email protected] Andritz Separation Inc. 1010 Commercial Blvd. South Arlington, TX, 76001 USA Phone: +1 817 465 5611 Fax: +1 817 468 3961 [email protected] Andritz Sprout Division of Andritz Inc. 8259 Melrose Drive Lenexa, KS, 66214 USA Phone: +1 913 541 1703 Fax: +1 913 541 1631 [email protected] CONTEC Decanter Inc. 13880 Catalina Street San Leandro, CA, 94577 USA Phone: +1 510 614 1717 Fax: +1 510 614 1710 [email protected] CyberMetrics Inc. 1050-D Nine North Drive Alpharetta, GA, 30004 USA Phone: +1 770 740 2071 Fax: +1 770 740 2074 [email protected] IDEAS Simulation & Control Inc. 125 Clairemont Avenue, Suite 570 Decatur, GA, 30030 USA Phone: +1 404 370 1350 Fax: +1 404 378 3813 [email protected]

ANDRITZ Annual Report 2006

IDEAS Simulation & Control Inc. 1801 Roeder Ave., Suite 112 Bellingham, WA, 98225 USA Phone: +1 360 714 0787 Fax: +1 360 752 1337 [email protected] Lenser Filtration Inc. 1215 Route 70 Suite 1001 Lakewood, NJ, 08701 USA Phone: +1 732 370 1600 211 Fax: +1 732 370 8411 [email protected] VA TECH HYDRO USA Corp. 10735 David Taylor Drive Suite 500 Charlotte, NC, 28262 USA Phone: +1 704 943 4343 Fax: +1 704 943 0200 [email protected]

Venezuela Andritz Sprout A/S Av. Atlantico no. 159-71 Trigal Norte, Valencia Estado Carabobo Venezuela Phone: +58 241 842 2515 Fax: +58 241 843 3709 [email protected] VA TECH Venezuela C.A. Av La Estancia Torre Las Mercedes, Of: 606 Chuao Caracas Venezuela Phone: +58 212 991 7044/9159 Fax: +58 212 992 8720 [email protected]

ASIA China Andritz AG Beijing Office 2702-03 CITIC Building 19 Jian Guo Men Wai Dajie Beijing 100004 China Phone: +86 10 8526 2720 Fax: +86 10 6500 6413 [email protected]

Andritz Filtrationstechnik GmbH Shanghai Office 1604 Lan Sheng Plaza 6–8 Middle Huaihai Road Shanghai 200021 China Phone: +86 21 6319 1088 Fax: +86 21 6319 1098 [email protected] Andritz-Kenflo Foshan Pump Co., Ltd. 14 He Bin Road Foshan, Guangdong 528000 China Phone: +86 757 8283 6920 Fax: +86 757 8281 7010 [email protected] Andritz-Shanghai Representative Office 1603 Lan Sheng Plaza 6–8 Middle Huaihai Road Shanghai 200021 China Phone: +86 21 6319 1088 Fax: +86 21 6319 1098 [email protected] Andritz Technologies Ltd. 9 Tian Bao Road Foshan, Guangdong 528000 China Phone: +86 757 8296 9222 Fax: +86 757 8296 9289 [email protected] [email protected] Andritz Technologies Ltd. Beijing Branch Office Add: Room 802 Hong Yu Building, 7 Xueyuan Road Haidian District Beijing 100083 China Phone: +86 10 5131 3700 Fax: +86 10 8230 6637 [email protected] Andritz Technologies Ltd. Thermal Processes Office Shanghai 1602 Lan Sheng Plaza 6–8 Middle Huaihai Road Shanghai 200021 China Phone: +86 21 6319 1088 Fax: +86 21 6319 1098 [email protected]

Andritz-Wolfensberger Special Alloy Foundry Co., Ltd. 83 Zone B Sanshui Central Technical & Industrial Park Sanshui District Foshan, Guangdong 528137 China Phone: +86 757 8738 4801 Fax: +86 757 8738 4800 [email protected] Lenser Filtration GmbH + Co. KG Shanghai Representative Office 1606 Lan Sheng Plaza 6–8 Middle Huaihai Road Shanghai 200021 China Phone: +86 21 6319 1104 Fax: +86 21 6319 1114 [email protected] VA TECH HYDRO GmbH Beijing Representative Office Hanwei Plaza, 18F/B 3–7 7 Guang Hua Road Chaoyang Beijing 100004 China Phone: +86 10 6561 3388 Fax: +86 10 6561 4192 [email protected] VA TECH (Beijing) Ltd. Hanwei Plaza, 18F/B 3–7 7 Guang Hua Road Chaoyang Beijing 100004 China Phone: +86 10 6561 3388 Fax: +86 10 6561 4192 [email protected]

India Andritz Oy India Liaison Office Building No. 7, Flat No. 204–206 Local Shopping Center Madangir Road New Delhi 110 062 India Phone: +91 11 2905 2094  +91 11 2905 2883 Fax: +91 11 2905 3227 [email protected] Andritz Separation Private Limited Plot No. 1961-B Asiad Colony Anna Nagar Western Extension Chennai 600 101 India Phone: +91 44 2615 3750/3751 Fax: +91 44 2615 4741 [email protected]

Locations of the Andritz Group

Andritz Technologies Pvt. Ltd. Makam Plaza, 2nd Floor No. 63/1, 3rd Main Road 18th Cross, Malleswaram Bangalore 560 055 India Phone: +91 80 2346 5995 Fax: +91 80 2346 5997 [email protected] Enmas Andritz Private Limited IV Floor, Guna Buildings Annexe, 443 Anna Salai, Teynampet Chennai 600 018 India Phone: +91 44 2433 8050/51 Fax: +91 44 2433 2412 [email protected] VA TECH HYDRO India Pvt. Ltd. D-17, MPAKVN Industrial Area Mandideep 462 046 Dist. Raisen India Phone: +91 7480 400 400 Fax: +91 7480 400 393 [email protected] VA TECH India Pvt. Ltd. 13/1 Mathura Road Faridabad 121003, Haryana India Phone: +91 129 225 8798 Fax: +91 129 225 8843 [email protected] VA TECH ESCHER WYSS Flovel Ltd. 13/1 Mathura Road Faridabad 121003, Haryana India Phone: +91 129 227 4319 Fax: +91 129 227 4320 [email protected]

Indonesia PT. Andritz Gedung Bank Panin Pusat, 3rd Floor JI. Jend. Sudirman 1 Senayan, Jakarta 10270 Indonesia Phone: +62 21 725 0137 Fax: +62 21 571 0896 [email protected]

141

Iran

Taiwan

AUSTRALIA

VA TECH HYDRO Tehran Branch Kahled Eslamboli Ave 21st Street, No. 9, 2nd Floor Tehran 15139 Iran Phone: +98 21 8871 9618 Fax: +98 21 8871 6413 [email protected]

Andritz AG Taiwan Representative Office 4th Floor, No. 200, Section 1, Keelung Road Taipei Taiwan Phone: +886 2 2722 7475 Fax: +886 2 2722 7476 [email protected]

Andritz Pty Ltd. 56–58 Gaine Road Dandenong South, Victoria 3175 Australia Phone: +61 38 795 9800 Fax: +61 39 799 4899 [email protected] [email protected] [email protected]

Japan

Thailand

Andritz K. K. Toyo-cho, Shinei Bldg., 7F 4-chome 3-1 Toyo, Koto-ku, Tokyo 135-0016 Japan Phone: +81 3 5634 3450 Fax: +81 3 5634 3460 [email protected]

Andritz (Thailand) Ltd. Lake Rajada Office Complex, Unit 22E 193/96 Ratchadaphisek Road Klongtoey Bangkok 10110 Thailand Phone: +662 264 0488 Fax: +662 264 0499 [email protected]

Malaysia Lenser Asia Sdn. Bhd. Lot 1560 Kampung Jaya JIn. Kusta, Batu 12 1/2 47000 Sungai Buloh, Selangor D.E. Malaysia Phone: +60 3 6157 3627 Fax: +60 3 6156 3403 [email protected]

Philippines Representative Office of Andritz Singapore Pte. Ltd. Unit 4B MB Aguirre Building III, F. Reyes St., Balibago, Sta. Rosa, Laguna 4026 Manilia Philippines Phone: +63 2 420 8182 Fax: +63 49 534 3060 [email protected]

Vietnam Representative Office of Andritz Singapore Pte. Ltd. Room No. S3, 2nd Floor 2, Phung Khac Khoan St. Dakaro Ward, District 1 Ho Chi Minh City Vietnam Phone: +84 8 829 7929 Fax: +84 8 829 7929 [email protected]

AFRICA South Africa Andritz (Pty) Ltd. Suite 13, 2nd Floor Granada Centre 22 Chartwell Drive Umhlanga 4319 Durban South Africa Phone: +27 31 561 7271 Fax: +27 31 561 6265 [email protected] Andritz (Pty) Ltd. 241 Albert Amon Road Millennium Business Park Meadowdale x7 Edenvale South Africa Phone: +27 11 454 3350 Fax: +27 11 454 3381 [email protected] VA TECH International (Pty) Ltd. 17 First Road Linbro Park, 2065 South Africa Phone: +27 11 608 1425 Fax: +27 11 608 3560 [email protected]

Singapore Andritz Singapore Pte. Ltd. 25 Tuas Ave 4 Singapore 639375 Singapore Phone: +65 6512 1800 Fax: +65 6863 4482 [email protected]

PT. VA TECH Indonesia VA TECH Building, 2nd Floor JI. Talang No. 3 Proklamasi, Jakarta 10320 Indonesia Phone: +62 21 390 6929 Fax: +62 21 390 5006 [email protected]

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Technical Glossary

TECHNICAL GLOSSARY

From Annealing across LMD-Filter™ up to White liquor.

Annealing

Chemical recovery

Digester

Process in which metal is heated, retained at a suitable temperature, then cooled rapidly or slowly to reduce internal stress. As a result, the metal becomes softer and more workable, particularly in cold processes.

In chemical pulping, the collection, recovery, and regeneration of cooking chemicals so that they can be utilized again in the process.

A pressure vessel, typically cylindrical, used to treat wood chips or other cellulosic materials with chemicals under elevated pressure and temperature, so as to produce pulp for papermaking.

APMP/P-RC™

A process in a woodyard in which the debarked logs are converted into chips for pulping or refining processes. Chipping is typically done by horizontally or gravity-fed disc chippers.

Alkaline Peroxide Mechanical Pulping/Preconditioning Refiner Chemical. APMP is a refining process preceded by multi-stage impregnation with alkaline peroxide bleach liquors. The wood chips are compressed and destructured prior to the addition of the bleach liquors. APMP systems can operate without a post bleach plant since bleaching takes place up front in the process. P-RC™ APMP is a technology that distributes chemicals between the impregnation steps in a small interstage bleach tower located between the primary and secondary refining stages.

Approach flow system Feeding system that provides stable feeding conditions for the paper/board machine.

Black liquor Mixture of spent cooking chemicals and dissolved wood material remaining after sulphate cooking. Black liquor is recovered during pulp washing, concentrated by evaporation, and burned in the recovery boiler to regenerate the cooking chemicals and also produce energy for the mill.

Brownstock The pulp obtained directly from the cooking process, before intercellular materials and cooking liquors have been removed.

Calender In paper, nonwovens, and textile production, machine with one or several rolls, which causes certain profile and surface properties in web materials (gloss, strength, roughness).

Chemical pulp A generic term which describes pulp produced by che­mi­cal (as opposed to mechanical) processes. These chemical processes include kraft (sulphate) and sulphite processes.

ANDRITZ Annual Report 2006

Chipping

Coating In paper production, process through which the surface of paper or board is closed by chemical substances or a color coat. This improves certain properties (e.g. the printability of paper) significantly and prepares the material for certain uses.

CVD Chemical Vapor Deposition A coating process which generally uses a gas-phase precursor to deposit thin films on the surface of a substrate. Metal-organic precursors can be used to deposit corrosion resistant coatings on metals’ surfaces.

DD Washer The Drum Displacer® (DD) Washer can be used in all fiberline process stages to separate the waste liquor that is generated during cooking and that contains dissolved wood and chemicals from the stock. It is a pressurized multistage washer which can include as many as four stages.

Deinking A process in which most of the ink, filler, and other extraneous material are removed from printed and/or unprinted recovered paper. The result is a pulp which can be used in the manufacture of new paper, including tissue, printing, writing, and office papers.

Delignification Removal of lignin from wood fibers. This is performed primarily in the cooking process and further carried out in the washing and bleaching process. In bleaching, ECF pulp mills use chlorine compounds (chlorine dioxide) for this process, although it can be achieved with oxygen, hydrogen peroxide, or ozone (which do not create organo-­chlorines).

ECF Elemental Chlorine-Free pulp Pulp bleached without the use of any elemental chlorine. However, chlorine compounds (e.g. chlorine dioxide) may be used in the bleaching process.

EPC Engineer Procure Construct A project delivery where one supplier assumes total responsibility for product and project engineering, equipment and construction procurement, and on-site construction.

Extrusion A continuous process in which animal feed components are cooked under pressure in a combination of frictional and steam heat in order to expand the resulting product and convert it into feed granulate. This process is very common in the production of pet food, fish feed, and cereals.

Fiberline The machines and process systems involved in converting wood chips into pulp. Process steps can include cooking, washing, screening, knot separation, refining, and, if required, bleaching.

Flash dryer Thermal dryer in which pulp is carried pneumatically while the material is dried. In many cases, the drying is carried out in two stages.

Fluid bed drying Thermal process causing free-flowing products such as plastics, chemicals, etc., or sludges to float due to gas or air infeed and to dry by intensive material and heat transfer between the fluidizing gas and the product.

Technical Glossary

143

Green liquor

Nonwovens

RTS™

Aqueous solution of the smelt resulting from the burning of thickening waste liquor in the recovery boiler. Mainly consists of sodium carbonate and sodium sulphide.

Flat textile structure consisting of single fibers bound together by such processes as thermal bonding, solidification by water jet, chemical bonding or ultrasonic solidification. Nonwovens contrast with paper in that they lack the hydrogen bonds that give paper its strength.

Retention time, Temperature, Speed refining A TMP process, producing better quality mechanical pulp at lower energy consumption. Improved fiber properties are obtained by rapid heat treatment of the fibers at higher temperatures, while optical properties are preserved due to the low retention time. The process is operated at higher refiner disc speeds, most commonly 2,300 rpm.

Lime kiln A long, slowly rotating kiln used to reburn lime mud (calcium carbonate) to form calcium oxide, which can be reused in recausticizing.

LMD-Filter™

OSB Oriented Strand Board Multilayer board with lengthwise-oriented chips.

The LMD-Filter™ is a lime mud precoat filter designed to achieve optimum dry solids with excellent washing efficiency for lime mud. The filter ensures efficient lime kiln operation at low heat consumption. LMD stands for Lime Mud Drying.

Pickling

Market pulp

PrimeRun

Pulp produced from wood and sold on the open market, as opposed to that which is produced for internal consumption by an integrated paper mill or affiliated mill.

The sheet stabilization system improves productivity by efficiently transporting the web from the Yankee to the reel. The active and passive stabilizers convey the web without deteriorating the paper properties and can remove dust from the sheet and local area.

MDF Medium Density Fiberboard Board made of mechanical pulp from the refiner process.

Mechanical pulp A generic term describing pulp produced by a mech­ anical (as opposed to a chemical) process. Also known as „high-yield“ pulp as the processes utilize a higher proportion of the raw material (wood) than the chemical processes. Mechanical pulp is produced using either grinders or refiners. They are principally used in the production of newsprint, magazine papers, printing papers, specialty papers, tissue, towelling, paperboard, and wallboard.

NBSK Northern Bleached Softwood Kraft The industry’s benchmark grade of pulp for pricing and inventory data. Produced primarily in Canada and the Nordic countries. Some NBSK is also produced in the Northwestern USA and Russia.

Process for chemical treatment of oxidized steel, applied to obtain a clean metallic surface. Here, the steel is dipped into a hot bath of diluted sulphuric or hydrochloric acid.

Recausticizing A process by which green liquor from sulphate pulping is converted to white liquor, thus allowing the cooking chemicals to be reused. In recausticizing, sodium carbonate of green liquor is converted to sodium hydroxide by using calcium oxide. Lime mud, which is formed in recausticizing reactions, is reburned in the lime kiln.

Recovery boiler An important process step in the production of kraft pulp. A special boiler, where the black liquor from the cooking process is burned, after concentrating it in an evaporation process. The residual carbon is burned and the inorganic sodium salts are melted and recovered.

Stock pump Special centrifugal pump for water and fiber suspen­ sions.

TAD Through-Air Drying Process for tissue drying with the paper web running over a perforated drum, where hot air is blown through the web.

TMP Thermo-Mechanical Pulping A refining process in which wood chips are refined in a pressurized refiner. The process can involve from one to three refining stages in the mainline; however, two stages are most common. The higher temperatures help soften the chips, which results in higher pulp strength compared to atmospherically refined pulps (RMP). TMP relies on mechanical energy rather than chemicals to convert wood into pulp. TMP pulps are most commonly used in newsprint and magazine papers.

White liquor A strongly alkaline solution used in the cooking (digesting) process. Mainly consists of sodium hydroxide and sodium sulphide.

Refiner Machine used to grind pulp between two discs. Refiners can operate at low consistency or at higher consistencies. At low consistencies, the material is fed to the refiner using a pump. At higher consistency levels, conveying devices are used. Other refiner types are used for breaking down wood chips into fibers.

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144

Financial Glossary

FINANCial Glossary

From ATX across EBIT(D)A up to WBI.

ATX

Ex-dividend

Prime market

Austrian Traded Index Price index calculated by the Vienna Stock Exchange, containing the most actively traded shares on the Vienna Stock Exchange. The ATX comprises approximately 20 shares, weighted in the Index according to market capitalization and free float.

The price of the share is lowered by the amount of the dividend paid a few days before the day a dividend is paid out.

Market segment of the Vienna Stock Exchange which contains stocks that are admitted to listing on the Official Market or Semi-Official Market and meet special additional listing criteria.

ATX Prime Price index calculated by the Vienna Stock Exchange and containing all the shares of the ATX Prime Market segment.

Authorized capital Authorization by resolution of the Shareholders’ Meeting allowing the Managing Board to increase the share capital by a maximum of 50% within five years by issuing new shares.

Chart

Free float Portion of a company‘s shares that is held by a large number of private and institutional investors.

IFRS International Financial Reporting Standards IFRS are international accounting standards drawn up by the International Accounting Standards Board (IASB). Complying with IFRS should enable investors and other relevant stakeholders to better compare annual accounts presented by companies from different countries.

IPO

Graph showing the daily, weekly, or monthly prices for a particular share for a certain period.

Initial Public Offering Admission of a company to list its shares on the Stock Exchange by selling company shares to the public.

Continuous trading

Investor Relations

Continuous handling of all orders where price and quantity requested match up. Transactions can be concluded at any time during the opening hours of the Stock Exchange.

Interface between the company and the financial community. An Investor Relations department should regularly provide transparent, comprehensive, and up-todate information on developments within the company to shareholders, financial analysts, and investors.

Corporate Governance Code The Corporate Governance Code represents a set of rules for the responsible management and control of a company.

Dividend

Share Certificate that represents a certain stake in the nominal capital of a stock company.

Shareholders’ Meeting Body of a stock company which usually meets at least once a year and takes resolutions on important company matters according to company law.

Share capital increase Increase in the nominal capital of a stock company. Equity capital is paid into the company.

SPO Secondary Public Offering Selling of further shares of a company that is already publicly listed.

ISIN

Stock Option Program

International Securities Identification Number Individual identification number of a security, enabling computerized international registration of a security.

A company grants options to a defined group of executives for the purchase of shares of the company, which may be exercised at an agreed price after agreed performance criteria are met.

Market capitalization

That part of a company’s profits paid out to the shareholders. The amount of the dividend is proposed by the Managing Board of a company and approved in a resolution by the Shareholders‘ Meeting.

Market price of a listed company. This is calculated by multiplying the current share price by the number of company shares.

EBIT(D)A

MEUR

Earnings before Interest, Taxes (Depreciation), and Amortization of goodwill This earnings measure is of particular interest in cases where companies have large amounts of fixed assets which are subject to heavy depreciation charges or in the case where a company has a large amount of acquired intangible assets on its books and is thus subject to large amortization. EBITDA is a good measure of comparing companies within industries.

Million Euros

Net liquidity Cash and cash equivalents minus interest-bearing financial liabilities.

No par value share Share with no par value, referring to a certain interest in the company without stating a fixed amount.

EBIT

Par value

Earnings before Interest and Taxes The EBIT is part of the profit and loss accounts; also often called “operating profit.”

Face value of a security. This is the amount the share­ holder has contributed to the nominal share capital of the company. The par value gives no indication of the actual value of the share.

ANDRITZ Annual Report 2006

Road show The management of a listed company presents the company’s activities, strategies, and long-term prospects to national and international institutional investors and retail shareholders.

Volatility Measure of the average fluctuation of a share price over a certain period. In statistics, the volatility is equal to the standard deviation.

WBI Wiener Börse Index (Vienna Stock Exchange Index) The WBI contains all shares listed on the Official Market and the Semi-Official Market. The WBI, as overall index, reflects the development of the Austrian stock market as a whole.

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Name

Andritz AG Investor Relations

Address

Stattegger Strasse 18 8045 Graz Austria

E-mail address

ANDRITZ Annual Report 2006