Acquisition trail – Andritz Group’s burgeoning portfolio

29 May 2014

International technology group Andritz ranks among the global market leaders in all four of its business areas, and, despite warnings that the group’s earnings could waver, CEO Wolfgang Leitner’s overall strategic goal is still to consolidate and extend the company’s position, and its portfolio, reports Barry Mansfield.

This Austrian company is the top supplier in the world for palm oil presses. Its technology converts the refuse collected daily in the sewers of London and Paris into electricity, and its tools are used by German automakers to refine upholstery. It is the reason why the Bosch refrigerator in your kitchen is rust resistant. Now, Andritz Group is a world leader or at least number two in every one of their segments, but there is no management strategy. The engineering firm's CEO Wolfgang Leitner simply aims to be "a complete supplier" with high market share prices and technological development. His preferred method is permanent acquisitions; Leitner himself estimates that he has bought 50 companies so far.

This is also how Leitner has joined the ranks of the world's billionaires. Through his holding company Certus Beteiligungs he owns close to 30% of the Andritz shares, now worth €1.3 billion. The Graz-based firm has grown annually since 1990 by an average of 10%.

His story is a classic tale of entrepreneurial achievement; the son of KarlLeitner, a machine fitter at Andritz Group, he studied for a doctorate in chemistry, and began his career as a research chemist for Vianova subsidiary Hoechst. Leitner rejected Stanford and Harvard to join McKinsey as a consultant in 1981, spending two years on a restructuring plan with his father's employer.

"McKinsey is an extremely good school," says Leitner. "You get to see many competent people working together, who recognise the value of cool analysis and working hard. Fear of the unknown is gone forever after spending time there. You learn to convince. McKinsey shows how, as a consultant, it's possible for you to organise anything."

In 1987, he joined the firm as CFO. Around 1986, he somehow found time to establish a pharmaceutical company specialising in cheap generic drugs, Genericon Pharma, based out of a 17th-century Lannach castle.

"Leitner has spent the last 25 years helping to boost sales to €5.18 billion, up from €145 million, and raising profits from €900,000 to nearly €244 million."

However, Leitner's fortune stems largely from his turnaround, and later buyout, of Andritz. He was appointed CEO in 1994 and joined forces with a group of private equity companies, including Carlyle Group, to initiate a management buyout in 1999. Subsequently, in June 2001, the company floated on the Vienna Stock Exchange; within two years, the private equity investors cashed-out through a secondary placement, leaving Leitner as the main shareholder. It has been a long but successful journey since joining the business, which was founded by Hungarian industrialist Josef Körösi in 1852.

Continued growth

Leitner has spent the last 25 years helping to boost sales to €5.18 billion, up from €145 million, and raising profits from €900,000 to nearly €244 million. The company, which currently employs 23,700 people around the world, supplies plant equipment and services for hydropower stations, and the pulp and paper industry, and is involved in the production of animal feed and biomass pellets.

Seated in his fifth-floor office at the nondescript company headquarters, located 6km north of Austria's second city, Leitner enjoys a typical workday lunch consisting of Emmental bread, an apple, yogurt and the business section of Frankfurter Allgemeine Zeitung. He lacks the abruptness of contemporaries Mirko Kovats and Claus Raidl. Leitner admits he values his "personal independence" far more than political or social influence; he has enjoyed the close friendship of one-time finance minister Martin Bartenstein, but would prefer to spend his free time reading the newspaper than advising the chancellor. His father's 30-year commitment to Andritz, and the fact that he benefitted from the loyalty of his secretary Claudia Zirngast for over 20 years, gives some clues as to Leitner's thinking. For him, one's "track record" in business relates not only to the occasional satisfactory "exit" or acquisition, but to long-term life performance. Leitner also dislikes ostentatious displays of wealth.

"We were a working-class family, and my parents sacrificed a lot to give their two sons a good education," he explains.

For Wolfgang and his older brother Gerald, life in '50s suburban Graz was tough; on the 15th of each month, Karl would bring home some ham and rolls, which were considered a luxury. Karl was 47 at the time of Wolfgang's birth and was driven by the fear that he would not live long enough to see his children reach adulthood. His mother was a secretary in a school. The rise of Wolfgang Leitner is strong testament to planning and perseverance in post-war Austria.

Bartenstein, his partner at Genericon, describes Leitner as "an incredibly strong analyst. He is not loud, but knows exactly what he wants."

Like any good chemist, Leitner takes copious notes; Zirngast has kept hundreds of yellow papers on which her boss recorded thoughts on his conversations. Now, his willpower will be put to the test, as Andritz is struggling in the flagging economy. In January 2014, the company moved to cut its dividend by nearly 60%. While Andritz's consolidation in 2012 of German metal company Schuler helped to lift revenue, this couldn't make up for the group's falling profitability.

Nevertheless, a April 2014 forecast by London's Financial Times, which polled 28 investment analysts across Europe, suggests that Andritz will go on to outperform the market.

Pulp fiction

After all, despite the decreasing earnings in pulp and paper - cost overruns, strikes and delays marred the completion of the Uruguay mill, while expensive structural improvements were needed at Schuler - and the separation business area - due to the costly launch of a new product series in China - the Group's earnings in other segments have developed satisfactorily, and hydro and metals performed well. Over 2013, total sales amounted to €5.7 billion, representing an increase of 10.3% from 2012. In 2014, Andritz has picked up new orders for Norway's Lyseboten 2 hydro project, and from DDN Beijing Dongfang Dayuan Nonwoven-Fabric to supply a spunlace line for the production of wipes from viscose, beginning early next year.

Leitner insists the company is on the right track. He stresses that "there is no such thing as security," and that it is important for the group to "constantly adapt to the market, and observe its development", particularly in the BRIC nations where he feels the company's performance so far has been lacklustre.

He wants to concentrate on Brazil, but is also mindful that the European economy will eventually "jump back". When questioned on Europe's long-term recovery and prospects for the steel industry, he jokes: "You could write a book about it."

"The rise of Wolfgang Leitner is strong testament to planning and perseverance in post-war Austria."

He believes the auto market was "inflated" by the scrappage scheme of 2007-08. Leitner's chosen industry is characterised by great fluctuations in fortune, which is reflected in the share price and changes in employee count at Andritz over the years. The stock was on a tear in 2013, with a low of €37 and highs of around €55. However, the Austrian is already looking forward to contract awards that he expects "for two or three major projects on a greenfield site around the end of 2014, or even the first half of 2014". Leitner is hopeful of "opportunities to improve the quality of price rises" in 2014.

Hydro therapy

The group's hydro division is also involved in Brazil's controversial Belo Monte dam project, which faces resistance from local campaigners. Andritz is working with Voith to deliver turbines and generators for this mega project in Pará, whose status Leitner describes as "running normally".

He says the Andritz team are "simply suppliers" and points out that every major infrastructure project of this kind, even the Black Sulm tributary in Southern Styria, Austria, can expect some opposition. In Brazil, the protestors are "a noisy but very small minority" and, despite their efforts, "Brazil is a democratic country, and the project is approved". Leitner makes it clear that the world does not stand still when Andritz fails to deliver - "though that would be nice," he says.

Even the Ilisu hydropower project in Turkey generated controversy among local groups. This motivated Leitner to initiate an apprenticeship scheme in eastern Anatolia, with Andritz paying out to train 36 young workers annually, far exceeding the commitment of equivalent programmes already established in Austria.

Buyout specialist Kurt Stiassny describes Leitner as "a loving father who I remember phoning his children from around the world to give them help with their maths homework".

Leitner has less time these days, mostly due to the global acquisition spree that has seen the major Andritz shareholder charter his eight-seat Cessna Citation Excel private jet to snap up companies in Bangalore, Singapore and Oslo.

"In all planning meetings, all budgeting conferences, we are fixed on companies that interest us, with whom we would like to speak," he says. "Projects often have a lead time of five years or more. Initially, the family may not want to sell, but I will knock once a year, and we'll eat together. Or a managing partner will say he's interested, but he's at an age where he can only put in another three years. Then, we will look to find a solution."

The Andritz chief believes China is back following "a little sputtering engine in some emerging markets" such as India. Leitner and his wife, Graz Regional Court judge Maria Cattina Soravia, seem more concerned that it is "not easy" for their two children - Maria-Christina and Nicholas - to take inspiration from the "hungry and ambitious" attitude of his youth, to create better circumstances for themselves.

Leitner admits he is "a rational investor, and, for an investor, there is always a price at which he will sell", but also that he remains "very emotionally connected with the company".

Wolfgang Leither joined Andritz in 1987 as CFO, and has served as president and CEO since 1994. Leitner has been a member of the managing board of Agiv, founder and president of Genericon Pharma, management consultant at Mckinsey & Company and a research chemist at Vianova/Hoechst.