"A Global Market Leader in High-Tech Production Systems for Pulp and Paper, Steel and Other Specialized Industries"

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1 Highlights of the 2001 Business Year Clearly improved market and competitive position Sales and EBIT reach record levels, increase in profitability Surge of Net Income Successful Initial Public Offering Purchase of the remaining 50% stake in Andritz-Ahlstrom Corporate Mission "A Global Market Leader in High-Tech Production Systems for Pulp and Paper, Steel and Other Specialized Industries"

2 2 Milestones in the History of Andritz 1852 Andritz is founded by Josef Körösi as a foundry and machine works Transformation into a stock holding company Creditanstalt-Bankverein buys the majority of shares AGIV AG, an investment company headquartered in Frankfurt, Germany, becomes new major owner Andritz buys Sprout-Bauer, a leading global producer of systems for mechanical pulp and feed, based in Pennsylvania, USA. The purchase of Sprout-Bauer marks the beginning of the strategic and technological new orientation of Andritz By buying Durametal Corporation in Tualatin, Oregon, USA, Andritz acquires a successful refiner plate manufacturer. Soon after, it dramatically strengthened its position on the North American market In mid-1994, Andritz buys the Kone Wood Group, a leading supplier of wood processing equipment for the pulp industry The purchase of Jesma-Matador A/S, a Danish company with an excellent local market position for feed mill plants (later renamed Sprout-Matador A/S) strengthens Andritz Feed Technology Business Area In January, Andritz buys 75% of Sundwiger Eisenhütte Maschinenfabrik GmbH & Co. based in Hemer, Germany. Sundwig is a leading supplier of cold rolling mills and strip processing lines for the international steel industry AGIV AG sells its shareholding in Andritz to a consortium, consisting of The Carlyle Group, GE Capital, Unternehmensinvest AG, Deutsche Beteiligungs AG, Custos Privatstiftung (founded by Andritz President & CEO Wolfgang Leitner) and other members of the Andritz Managing Board Andritz buys a 50% stake in Andritz- Ahlstrom, previously Ahlstrom Machinery Group, making Andritz a leading global supplier of production systems for all types of pulp, including chemical recovery systems. With the acquisition of Universal Milling Technology (UMT) Andritz becomes a global market leader in the field of feed technology as well Andritz AG is first listed on the Vienna Stock Exchange on June 25, At the end of June, Andritz buys the remaining 50% stake in Andritz-Ahlstrom.

3 3 The Year 2001 at Andritz January Jiangxi Paper Co. Ltd. (China) entrusts Andritz AG with the supply of a 550 ADMT/d RT/RTS-TMP system* including high-consistency post bleaching for a new paper machine producing newsprint from local pine. July From China, Andritz receives a contract for three tissue machines and for the highest-capacity push pickling line in China, worth over 40 MEUR, confirming and extending its leading position as a supplier in this region. February One of the largest producers of copper, Compañia Minera Disputada de las Condes Ltda. (Chile), entrusts Andritz AG with the supply of two Hyperbaric Filters HBF 60/5. These high performance pressure filters will be used for dewatering copper ore concentrate. Disputada has operated Andritz Hyperbaric Filters for 10 years now. March Andritz presents the financial results for the year 2000 with record values for Sales, Order Intake and Order Backlog and a marked increase in Earnings before Interest and Tax (EBIT). May The contract for supply of a deinking system for secondary fiber treatment to produce newsprint and SC paper is signed by Yanbin Shixian Bailu Paper Co., Ltd., one of the largest paper producers in Jilin Province (China), and Andritz in a formal ceremony. Andritz presents the financial results for the first quarter of 2001 and reports substantial increases in Sales, Order Intake and Earnings. June Markku Hänninen is appointed President of Andritz- Ahlstrom as of July 1, Andritz shares are listed for the first time on the August Andritz continues its successful business development during the first half of It reports increases in Sales, Earnings and Order Intake. October Andritz-Ahlstrom receives a letter of intent from Zellstoff Stendal GmbH in Saxony-Anhalt, Germany, for major chemical recovery systems for a greenfield kraft mill. The total value of the letter of intent is approximately 95 MEUR. November Despite difficult economic conditions, Andritz succeeds in boosting its Sales, Order Intake and Earnings for the first three quarters of A clear increase in the EBITDA margin is achieved. December The City of Singapore awards Andritz a contract for supply of a drum drying system consisting of five lines, each with a water evaporation rate of 11 t/h. With the large systems supplied to Bran Sands, Glasgow, Cardiff, Louisville and Singapore as the most recent one, Andritz is the global leader in this market segment. The ATX Committee resolves that Andritz AG is to be included in the ATX share index of the Vienna Stock Exchange as of January 21, Vienna Stock Exchange on June 25, Andritz AG buys the remaining 50% stake in Andritz- Ahlstrom, Finland. *R = Retention Time, T = Temperature, S = Speed, TMP = Thermo-mechanical pulp

4 4 The Business Areas of the Andritz Group at a Glance Pulp and Paper Profile The Pulp and Paper Business Area is one of the global leaders in the supply of plants, systems, processes and services for production of all types of pulp, for chemical recovery in kraft pulp production, for fiber preparation in paper making, tissue production systems, and engineered, customized and technologically advanced wear and spare parts. Extensive services complete the large product portfolio. Share of total Sales: approx. 67% Products Plants, systems, processes and services / for all production steps in the woodyard / for manufacturing chemical pulp, including chemical recovery / for mechanical pulp for the paper and board industry and mechanical fibers for production of MDF fiber boards / for treatment of recycled paper, fiber preparation for all papermaking processes as well as sludge dewatering / for making tissue paper: Crescent- Former machines, through-air drying machines and tissue machines with the TissueFlex TM*) shoe press. / Services: original spare parts, engineered, customized and technologically advanced wear parts, plant rebuilds and modernization *)Trademark of Voith Paper, cooperation partner of Andritz Rolling Mills and Strip Processing Lines Profile The Rolling Mills and Strip Processing Lines Business Area designs and constructs complete lines for the production of cold-rolled carbon steel, stainless steel and nonferrous metal strip. The Andritz Group is the only supplier to master all processes involved in the manufacture of stainless steel (rolling, annealing and pickling) on a comprehensive basis and can supply all the production systems through a single source. Share of total Sales: approx. 13% Products Equipment for the steel, non-ferrous metal and aluminium industry: / Cold rolling mills / Strip processing lines / Surface treatment systems / Finishing systems / Regeneration plants / Continuous heat treatment systems

5 5 Environment and Process Technologies Profile The Environment and Process Technologies Business Area s product range covers the entire spectrum of technologies for mechanical and thermal treatment of sludge from municipal and industrial sewage sludge plants. Critical machines and components (screens, crushers, drum and belt thickeners, belt filter presses, centrifuges, dryer drums and fluidized bed dryers) are developed and produced in-house. The Andritz Group is a global market leader for systems for mechanical and thermal sludge treatment. Products Plants, systems, machines and processes for Share of total Sales: approx. 10% / Process water treatment / Mechanical waste water treatment / Sludge thickening / Sludge dewatering / Sludge drying / Thermal sludge utilization / Industrial solid/liquid separation Feed Technology Profile The Feed Technology Business Area is the global market leader for development and production of systems, machines and processes for the industrial production of animal feed. This comprises complete feed mill lines as well as unit equipment for grinding and mixing, expanding, pressing, extruding, cooling, vacuum coating and drying. The Business Area also supplies plants and systems for industrial production of biofuel pellets. Products / Size reduction systems / Conditioners and expanders / Pellet mills / Extruders / Dryers and cooling equipment / Pellet coating systems / Spare and wear parts Share of total Sales: approx. 8% Other Operations/Hydraulic Machines Profile Other Operations/Hydraulic Machines encompass Andritz Group activities such as the planning, development, and manufacture of water turbines, large-scale pumps for selected applications, pumps for the primary and secondary loop in nuclear power stations, centrifugal pumps for the pulp and paper industry, space technology components. Products / Water turbines / Large-scale pumps / Centrifugal pumps / Reactor pumps / Space technology components Share of total Sales: approx. 2%

6 Andritz, the listed Technology Group based in Graz, Austria, is a world market leader Company Profile The Company Boards Managing Board Wolfgang Leitner (President and CEO) Markku Hänninen (as of 1 January 2002) Franz Hofmann Friedrich Papst Bernhard Rebernik in developing and manufacturing advanced, customized production systems for pulp and paper making, the steel and other specialized industries (sewage sludge dewatering and drying, feed industry). Each of the Business Areas also offers special services for instance sale of original spare parts or technologically advanced engineered wear parts. Over the past few years the Group has grown by over 10% per year on average and in 2001 achieved Sales of over 1,300 MEUR. It has been profitable since The Andritz Group was first listed on the Vienna Stock Exchange on June 25, From the beginning of 2002, Andritz shares have been quoted in the Prime Market the top stock exchange segment and were included in the ATX share index of the Vienna Stock Exchange as of January 21, Supervisory Board Business Areas Appointed Members: Kurt Stiassny (Chairman) Hans Albrecht (Deputy Chairman) Michael Hildisch Christian Nowotny Anton Schneider Hellwig Torggler The activities of the Andritz Group are focused within four Strategic Business Areas, which offer high-tech production systems, plants and services for / Producing pulp and (tissue) paper (Pulp and Paper Business Area, approx. 67% of Group Sales), / Processing steel (Rolling Mills and Strip Processing Lines Business Area, approx. 13% of Group Sales), / Processing and treating waste water and sludge (Environment and Process Technologies Business Area, approx. 10% of Group Sales), and / Producing animal feed (Feed Technology Business Area, approx. 8% of Group Delegated Members: Johann Tschrischnig Brigitta Wasserbauer Andreas Martiner Sales). In all four Stategic Business Areas the Andritz Group is one of the global market leaders in the different market segments. The company s activities also comprise production of different hydraulic machines, e.g. water turbines, pumps for the pulp and paper industry, as well as components for space technology (Other Operations/Hydraulic Machines, approx. 2% of Group Sales). Employees and Locations The Andritz Group has a global staff of over 4,500 employees and more than 60 affiliates, distribution and service companies. There are 16 production sites in Austria, Germany, Finland, Denmark, France, Netherlands, Great Britain, USA, Canada and China. 6

7 Growth through In its research centers in Europe and in USA, Andritz develops innovative processes on an on-going basis. These processes employ patented and other proprietary technology and have helped the Group obtain its top position. Its global presence and the technology leadership strengthen the Group s competitive position and ensure that important strategic company goals are reached. Strategy The strategic target of the Andritz Group is organic growth through intensive research and development and utilization of synergies between the Business Areas, combined with the acquisition of complementary products and technologies. The goal is to become a comprehensive supplier of complete process lines in each of the Business Areas. Pursuant to this strategy, a number of businesses have been purchased over the past few years and successfully integrated into the Group. For example, the acquisition of the Finnish company Andritz-Ahlstrom Corporation has enabled the Andritz Group to become a global leader for high-tech production systems for all types of pulp, including chemical recovery. Similarly, with the purchase of UMT, Andritz advanced to global market leadership for feed technology. Continuous growth of the services business is a further very important growth area for the Group. The services business, which accounts for approximately 25% of overall Sales, comprises the supply of original spare parts and of technologically advanced engineered wear parts. Other services include comprehensive Mill Audits, which help customers identify potentials of optimizing production and of saving money. In addition, within the framework of an extensive ebusiness Project of the Andritz Group, special customer-oriented Internet solutions have been implemented. For instance, the Pulp and Paper Business Area s Service Club, which was established in early 2002, offers a wide range of customized services, from online spare parts ordering to complete plant documentation and production sequences with online support. Cost management and future-oriented pre-emptive restructuring have helped secure the Group s long-term profitability. Financial Goals research & development and complementary acquisitions Extension of the services business Intelligent cost management and pre-emptive restructuring The Group s financial goals are: / Long-term Sales growth of approx. 10% per year on average / EBITDA margin of over 7% (EBITDA as % of Sales) / A Return on Capital Employed (ROCE) of over 20% / A dividend payout ratio of at least 30% of the Net Income for the Year. 7

8 Letter from the Managing Board Ladies and Gentlemen, Dear Shareholders, Improved market position and Earnings despite weak economy Successful IPO Inclusion in the Prime Market and in ATX Purchase of the remaining 50% stake in Andritz- Ahlstrom Re-organization of Pulp and Paper Business Area 2001 was the most successful business year in the long history of Andritz. Despite the very difficult economic environment, which was additionally exacerbated by the tragic terrorist attacks in the United States, Andritz succeeded in extending its market position and in achieving considerable improvements of its most important financial key figures. Group Sales and Earnings before Interest and Tax (EBIT) increased to historical records. There are two reasons for this: Firstly the Andritz Group has succeeded in establishing itself further in its markets as a comprehensive supplier of overall systems. In this regard, it has enhanced its market position clearly on account of the last year s strategically important purchases, Andritz-Ahlstrom and UMT. Secondly the consistent pursuit of both cost management and pre-emptive restructuring has increased the Group s profitability. This strategy will be continued in the future. The planned merger of the two Finnish affiliates, Andritz-Ahlstrom and Andritz Oy, and the closure of the UMT production site in Hull, England as of December 31, 2001, are two important actions in support of this. Andritz AG s Initial Public Offering in June 2001 was an outstanding event for our company. In spite of the problems on the international financial markets when Andritz went public, we were able to place 2 million new shares successfully with established institutional investors at home and abroad. A most remarkable factor was the high level of participation by our own employees. A total of 8% of the volume issued was subscribed by Andritz employees, which shows just how closely Andritz employees identify with the company. Since January 1, 2002, Andritz shares have been quoted in the highest segment of the Vienna Stock Exchange, the Prime Market, and since January 21, have been included in the Vienna Stock Exchange index (ATX). High transparency, quick supply of information and active Investor Relations vis-à-vis our shareholders are clearly defined company goals. As a consequence of a contractual clause related to the IPO, Andritz was able to buy the remaining 50% of Andritz-Ahlstrom Corporation. The full ownership of Andritz- Ahlstrom permits the latter s complete organizational and product-related integration into the Pulp and Paper Business Area. To this end, the re-organization of the Business Area into Pulp Mill Technologies and Paper Mill Technologies (effective January 1, 2002) was implemented. This customer-oriented bundling of the product and system know-how of both Andritz and Andritz-Ahlstrom makes us one of the global market leaders for high-tech production systems and processes for the pulp and paper industry, with additional synergies being utilized, the competitive situation being improved and a further Earnings improvement being achieved. Markku Hänninen, President of Andritz-Ahlstrom, was appointed as member of the Managing Board of Andritz AG beginning January 1,

9 An important focus of the past year was the implementation of the ebusiness project Andritz AG Managing Board, from left to right: Franz Hofmann, Markku Hänninen, Wolfgang Leitner (President & CEO), Friedrich Papst, Bernhard Rebernik for the Andritz Group. The goal is to turn the opportunities that Internet Technologies offer into advantages for our customers. Both simplifying business processes in the value-added chain and creating client-specific, personalized and transaction-oriented web solutions are of great importance to our customers. With the successful re-launch of the Andritz public website and the implementation of the Pulp and Paper Service Club the first two ebusiness solutions of this ambitious project have been realized. Leading economic research institutes predict that the difficult economic conditions will likely persist in During the second or third quarter of 2002 a slight recovery is expected. With a good Order Backlog, satisfactory project activity in the markets which Andritz serves and the letters of intent received, we expect business to develop favorably in the current year. The logical continuation of Group integration for optimum exploitation of synergies and the management of projects according to deadlines and customer requirements will continue to be priority goals for the Group in Another focus will be continuous expansion of the services business and optimization of existing production capacity. Successful start of Andritz ebusiness project Good Order Backlog and high project activity as a basis of satisfactory business development in 2002 The Managing Board wishes to thank all employees in the Group for their contribution during the year under review. Only on account of this input, active cooperation and diligence of each employee has it been possible for Andritz to hold its own in a very difficult competitive environment and to achieve the best annual result ever in our history. We also thank our customers and business partners for the confidence they have placed in us in the past business year. We assure them that we will perform to their requirements fully during the year to come. Wolfgang Leitner (President and CEO) Friedrich Papst Bernhard Rebernik Franz Hofmann Markku Hänninen (Member of the Managing Board since January 1, 2002) 9

10 Status Report General Economic Conditions Considerable slowing of the world economies in 2001 USA: Interest rates at lowest level in 40 years Delay in economic upswing as a result of terrorist attacks Europe: Conservative interest policy of ECB China is experiencing sustained high economic growth Economic growth became much weaker during In each of the large economic regions the USA, Europe and Japan/Asia the economy cooled off, a trend that was further intensified by the terrorist attacks of September 11 in the United States. The terrible events in New York and Washington hit the USA during a time of particular economic vulnerability. Partly as a consequence of the expansionary interest policy of the American Federal Reserve Board (during 2001, interest rates were lowered 11 times to the lowest level in 40 years), at the beginning of the third quarter of 2001 the USA was poised to enter a phase of economic recovery. A rise in order intake and a gradual increase in construction activity gave reason to expect a slight acceleration in economic growth. However, the terrorist attacks left American consumers and companies in a state of apprehension, the consequence being a drop in private consumption and restrictive investment policies of companies. The US economy declined during the third quarter for the first time since the early 1990 s by 1.3%. During the fourth quarter, there was a slight growth of 0.2 %. In total, the economic growth for year 2001 should be approximately 1.1% (2000: 4.1%) in the USA. The economic development in Euroland was similar to the United States. Declining exports, which came as a result of the weak demand from the Americas, considerably receding investment activity by companies and diminished consumer spending weakened the economy significantly. In the view of a harmonized rate of inflation of plainly over 2%, the European Central Bank (ECB), which is strongly oriented toward securing monetary stability, pursued a reluctant policy of interest rate cuts. The Euroland in 2001 saw total growth of approx. 1.6%, compared to 3.3% in Austria s economy, which is strongly dependent on exports, did not succeed in uncoupling from this development. Its economic growth decreased to approx. 1.1% in 2001, versus 3.2% for The economic development in Asia and South America experienced considerable regional variations in It shrank in Japan, Hong Kong, South Korea, Singapore and Taiwan, but in China, an important buyer country for Andritz products (rolling mills and strip processing lines, pulp and tissue paper machines, increasingly also environmental and process technology equipment) the gross national product increased approx. 7.6%, maintaining the already high level of the previous year (+8.0% in 2000). South America was affected increasingly by the economic downturn in the USA. Its economic growth declined somewhat from the previous year. Sources: RZB, WIFO; OECD, OeNB 10

11 Status Report The 2001 Business Year Note: For better comparability, the figures of the Consolidated Income Statement as well as the Cash flow for the year 2000 are presented pro forma including Andritz-Ahlstrom. Sales The 2001 Sales of the Andritz Group rose to 1,318.7 MEUR, the highest value in the history of the company. Compared to 2000, Sales increased by 18.7% (2000: 1,111.4 MEUR). Sales are at the highest level in the company s history The Pulp and Paper Business Area increased its annual Sales by 22.9% due to the very favorable development of Andritz-Ahlstrom, where Sales went up 21.2% over those of Rolling Mills and Strip Processing Lines was faced with a slight decline of its Sales (-1.0%). All other Business Areas in the Group saw their Sales rise: Environment and Process Technologies by 1.6%, Feed Technology by 57.7% due to the consolidation of Universal Milling Technology, and Other Operations/Hydraulic Machines by 14.5%. With a share of 67.0% (2000: 64.7%) in the total Group Sales, Pulp and Paper is the largest Business Area of the Group. Rolling Mills and Strip Processing Lines and Environment and Process Technologies contribute 12.7% and 10.3% respectively (2000: 15.2% and 12.0%). The Sales share of the Feed Technology Business Area increased from 6.1% in 2000 to 8.0% in The Andritz Group s Other Operations/Hydraulic Machines contributed 2.0% to the Sales (2000: 2.0%). Sales by Business Area Feed Technology 8% Environment and Process Technologies 10% Others 2% Rolling Mills and Strip Processing Lines 13% Pulp and Paper 67% 11

12 12 Status Report Sales by Business Area MEUR *) % change Pulp and Paper % Rolling Mills and Strip Processing Lines % Order Intake by Region Environment and Process Technologies % Feed Technology % Other Operations % Others 1% Total Group 1, , % Asia 24% *) Pro forma including Andritz-Ahlstrom, without UMT Geographically, the largest market for the Andritz Group was Europe: It accounted for 46.1% of the total Sales (2000: 47.2%). The share of the Americas, 37.5%, showed a slight increase (2000: 33.5%). Asia dropped from 17.0% in the previous year to 14.2% in Europe 41% South America 7% North America 27% Order Intake and Order Backlog Order Intake showed a satisfactory development during the year in spite of the very difficult economy. It amounted to 1,120.9 MEUR, slightly less than in 2000 (1,233.0 MEUR). It is to be noted, however, that especially Andritz-Ahlstrom had a particularly high Order Intake, MEUR, in 2000 (2001: MEUR). Also, the order received from Zellstoff Stendal GmbH in October 2001, in the form of a Letter of Intent worth 95 MEUR, is not contained in the Order Intake for The contract is expected to take effect in the second quarter of 2002 after the overall financing concept has been finalized, whereupon it will be booked as Order Intake. Pulp and Paper had the largest share in the Order Intake: 57.3% (2000: 71.9%), followed by Rolling Mills and Strip Processing Lines, 17.5% (2000: 10.6%) and Environment and Process Technologies, 12.5% (2000: 9.6%). Feed Technology s share increased to 10.0% mainly on account of the consolidation of UMT (2000: 5.7%). The Andritz Group s Other Operations/Hydraulic Machines accounted for 2.6% of the total Order Intake (2000: 2.2%). The distribution by regions shows the increasing importance of Asia, especially China. The receipt of some major reference orders for (stainless-) steel and tissue paper production equipment boosted the Asian proportion from 10.7% in 2000 to 23.5% in Order Intake from Europe and America reached 40.8% and 34.3% respectively (2000: 41.6% and 46.5%). The Andritz Group s Order Backlog was MEUR as of December 31, 2001, 21.1% less than in the previous year (Dec. 31, 2000: MEUR), when the Order Backlog had reached an exceptionally high value.

13 Earnings Status Report The Earnings of the Andritz Group in 2001 developed very favorably. All essential financial ratios improved considerably from the previous year, due to the improved competitive position that the Andritz Group has achieved as a supplier of overall systems. In the Pulp and Paper Business Area, above all, the acquisition of the remaining 50% stake in Andritz-Ahlstrom led to an enhancement of the Andritz market position despite a difficult economic environment. Efficient cost management and pre-emptive restructuring also continued successfully. EBITDA (Earnings before Interest, Tax, Depreciation and Amortization of goodwill) rose to 94.5 MEUR or 36.9% over the figure for year It is the best result that Andritz has ever achieved. The EBITDA margin (EBITDA as % of Sales) rose from 6.2% in 2000 to 7.2% in year EBIT (Earnings before Interest and Tax) advanced 56.5% over the previous year, reaching 54.6 MEUR in year 2001 (2000: 34.9 MEUR). Higher Earnings due to improved market position and efficient cost management EBITDA reaches record level Increase in profitability The Andritz Group s Financial Result for 2001 was 5.5 MEUR against 0.4 MEUR in This rise is basically attributable to the significantly increased net liquidity. The Earnings before Tax (EBT) amounted to 60.1 MEUR (2000: 35.3 MEUR). The Net Income for the Year after deducting Minority Interests was 33.6 MEUR (2000: 17.1 MEUR), an increase of 96.1% compared to the previous year. Andritz Group Key Figures MEUR *) % change Sales 1, , % EBITDA % EBITDA Margin 7.2% 6.2% EBITA % EBITA Margin 5.2% 4.3% Earnings before Interest and Tax (EBIT) % Earnings before Tax % Net Income for the Year (including minorities) % *) Pro forma including Andritz-Ahlstrom, w/o UMT 13

14 14 Status Report Net Worth Position and Capital Structure Andritz AG s Initial Public Offering (on June 25, 2001), as well as the purchase of the remaining 50% stake in Andritz-Ahlstrom and the first-time consolidation of UMT caused a shift of some essential balance sheet items as of December 31, Increase of the Equity-to-Assets ratio to 24.5% Due to the placement of two million new shares in the course of going public (initial issue price: 21 EUR per share) and the favorable Earnings development, Shareholders Equity of the Andritz Group increased from MEUR as of December 31, 2000 to MEUR as of December 31, The equity-to-assets ratio rose to 24.5%, compared to 17.2% on December 31, This high ratio signals a solid and balanced financial structure. The Minority Interests, due to acquisition of the remaining 50% of Andritz-Ahlstrom, went down to 9.3 MEUR ( : 60.2 MEUR). No other balance sheet items were subject to any major changes from the year before. The traditionally low Net Working Capital of the Group amounted to MEUR or 9.4% of Sales as of December 31, 2001 (December 31, 2000: MEUR or 10.9% of Sales). Net liquidity surged to 77.3 MEUR Net liquidity of the Andritz Group underwent a very favorable development, amounting to 77.3 MEUR as of December 31, 2001 and rising considerably over the previous year ( : 45 MEUR). Cash Flow and Capital Expenditure Cash flow from operating activities increased to 71.9 MEUR in 2001 (2000: 50.5 MEUR). All investments in tangible and intangible assets could thus be financed from Cash flow, as has been the case during previous years. Cash Flow from Operating Activities and Capital Expenditure, 1998 to 2001 in MEUR Capital expenditure Cash flow

15 Status Report Research and Development The continued focus on our R&D activities is a declared strategic goal of the Andritz Group. Steady new and further developments of processes, systems, products and services are the only means by which the Group s competitiveness can be further strengthened and its market leadership extended. With over 150 employees in R&D and many research centers and pilot plants located all over the world, the Andritz Group continues to develop innovative, proprietary processes, equipment and technology that are protected by patents and intellectual property rights. The most essential research facilities and pilot plants are located in Springfield (Ohio, USA), Glens Falls (New York, USA), Graz, Vienna (Austria), Kotka (Finland), and Châteauroux (France). The Group also cooperates with the Biotechnological Institute in Kolding (Denmark). During 2001, 18.4 MEUR, or 1.4% of total sales, was invested in Research and Development. Including the expenditure for contract-related development, the total R&D expenditure amounted to over 3% of Sales. Research and Development as an important strategic goal of the Andritz Group Expenditure for R&D: over 3% of Sales The Research and Development activities in the Andritz Group s largest Business Area, Pulp and Paper, concentrated on the following priorities: minimizing water consumption and improving environmental compatibility in kraft mill bleaching processes, improvements in the field of refiner systems for optimized fiber quality, at the same time achieving a reduction in energy input, and numerous other product and system improvements in the tissue machines, fiber preparation and wood processing areas. Application of our in-house developed automation and sensor technology was also a strong focus in all Divisions of the Pulp and Paper Business Area. 15

16 16 Status Report The development activities of the Rolling Mills and Strip Processing Lines Business Area were focussed on the process-technology side of strip processing (electrolytic pickling of stainless steel, electrolytic galvanization in a radial cell with insoluble anodes). Membrane technology is being pilot-tested for use in regeneration plants. Additionally, a new reactor design for acid regeneration was realized at a customer s plant. Computer simulations of process sequences were drawn up with the aim of achieving improved plant integration and control. The main area of R&D work for Environment and Process Technologies centered on the development of centrifuges for industrial processes as well as standardization of sewage sludge drying systems and product improvements in dewatering systems both for municipal and industrial applications. The Feed Technology Business Area succeeded in developing and marketing a number of new products in Examples are a new generation of dryers, a high-capacity (16 t/h) extruder, a hammer mill for fine grinding, which also offers very high capacity, and a newly developed automation system for extruder plants. The test facility which is operated together with the Biotechnological Institute in Kolding, Denmark, was enlarged, especially in the sector of special feed. Customers can use a complete extruder line with dryer and vacuum coater for trial purposes.

17 Status Report Employees As of December 31, 2001, the Andritz Group had a total of 4,545 employees, an increase of 304 employees or 7.2% over the same date in The figure for 2000 did not contain the UMT Group with its 227 employees as at December 31, ,143 are Andritz AG employees (2000: 1,072) and 3,402 employees (2000: 3,169) of Andritz Group companies. The regional distribution of the Group s personnel remained virtually unchanged from the year 2000: 25% work in Northern Europe, 25% in Austria, 23% in North America, 9% in Germany, 1% in Great Britain, 4% in France, 4% in the Netherlands and the remaining 9% in other countries of the world. Global balanced staff structure Regional Distribution of Andritz Group Employees Others 9% France 4% Germany 9% Netherlands 4% Great Britain 1% North America 23% Austria 25% Northern Europe 25% The goals formulated with regard to personnel development in the Andritz Group were followed up consistently and successfully during the past year. Systematic functional training for employees was given high priority. Training programs involving both internal courses and meaningful external seminars were attended by all employee groups. Seminars were offered to promote individual personal development. Group-wide training in business management and employee leadership, which has been conducted for several years, is now being revised and developed. More than 100 employees from different functional areas and from all companies in the Group participated in this promotional Management Challenge Program. Further extension of the personnel development At production sites, service centers and on-site at customers mills, Andritz relies on its highly skilled specialists who have undergone basic instruction in the company s own training centers but whose practical and theoretical training never stops over the entire career at Andritz. 17

18 18 Status Report

19 19 Status Report A benchmarking process made last year comparing Andritz with other international industrial groups proved our personnel development concept to be targeted and attractive. Employee discussions and assessments, which are being held more consistently, are an important factor in systematically determining the training needs of each employee and, in addition, support an active communications culture. Full integration of Andritz-Ahlstrom employees was prepared by drafting an all-out organizational development project. Several workstreams for structuring a futureoriented follow-up and build-up organization included members from the Andritz- Ahlstrom team. Vacant positions were filled in time despite the pronounced increased shortage of qualified workers in a free labor market. New employees were recruited from committed, well-versed graduates from vocational high-schools, colleges and universities. Adding new employees with initial successful occupational experience to a staff of many long-term and very experienced employees ensures that the qualification structure of the personnel is future-oriented. The Andritz Group appears as an attractive employer, which is expressed, amongst other factors, by the comparatively low labor turnover. This fact is also underpinned by the participation of so many of the employees in the IPO subscription program. Vacant positions filled in time Low turnover as a sign of high employee satisfaction

20 20 Status Report Outlook Only moderate recovery predicted by economic research institutes Leading economic research institutes have predicted a slight recovery of the global economy in According to forecasts, the upswing will take place rather slowly and will not start until the second or even the third quarter. The United States is likely to be the first of the three major economic areas to leave the trough and be back on the road of growth. The low level of interest rates and increased government spending should give the essential impetus for the future upswing. Europe s economy is also expected to recover during 2002, but with a certain time lag of one or two quarters. According to forecasts, Japan will remain at the rear of the leading economic regions. No significant, sustained economic upswing is to be expected for Given these general conditions, the markets where Andritz is active (Pulp & Paper and Steel) can be expected to recover slightly in the course of Analysts expect slight increase in demand and prices of pulp Continuing high growth of steel consumption in China Andritz expects satisfactory business development for 2002 According to forecasts, the global pulp market should after a weak development at the beginning of the year undergo a slight increase in demand and in pulp pricing during The general economic recovery of the large industrial nations and massive production cuts by the large pulp producers over the past months should lead toward a minor increase in pulp prices in the course of year Increased project activity is expected for South America and some single regions in Asia. A similar development is predicted for the global steel and stainless steel markets. Here, too, only a slight upward trend in steel consumption is expected to take place along with the development of the overall economy in According to the International Iron and Steel Institute, IISI, the development will vary greatly from one region to another. The demand in North America and Europe is predicted to rise only somewhat above the 2001 level, but China is said to be looking ahead to further large growth rates of between 6% and 8%, especially in the area of stainless steel consumption. In the light of these forecasts and assumptions, the Andritz Group expects a satisfactory business development for These expectations are, firstly, founded on the good Order Backlog, which was about 740 MEUR as of December 31, Secondly, continued satisfactory project activity is to be expected for 2002 in the markets that are relevant to the Group. In China and South America, above all, where Andritz enjoys a strong competitive position, some larger projects in the field of steel, stainless steel and pulp are expected to materialize. Additionally, a number of investment decisions are planned for systems and processes for municipal waste water and sludge treatment and also feed technology fields in which Andritz has global leadership.

21 If, however, against all expectations of forecasting institutes, world economy Status Report growth stagnates or even recedes in 2002 and no upswing materializes, this would likely not leave the business development of the Andritz Group unaffected. The intensified consolidation and integration of the affiliates acquired last year continue to be a central issue in The re-organization of the Pulp and Paper Business Area, whose goal is even better customer focus, will boost Andritz competitive position decidedly. Complete implementation of this new organization is one of the priority goals for Aided by the consistent cost and capacity management Andritz is aiming at an increase in profitability. The further expansion of the services business by all Business Areas will back this development. 21