Andritz AG

VSE:ANDR

Earnings Call Transcript 2019-Q1

[Operator]

Dear ladies and gentlemen, welcome to the conference call of Andritz AG regarding the presentation of the Q1 2019 results. At our customer's request, this conference will be recorded. [Operator Instructions]

May I now hand you over to Dr. Wolfgang Leitner, who will lead you through this conference. Please go ahead.

[Wolfgang Leitner, executive]

Good morning, everybody. Thank you for joining us for our quarterly update. Yes, to conclude, overall business development in the first quarter in our view has been reasonably satisfactory and, more or less, in line with our expectations, I would say.

If we move on to -- for a start with Page 3, I think we can simply say that we are satisfied with the -- for the intake of more than EUR 1.6 billion. Very positive development we saw or continue to see in Pulp & Paper, sales, earnings and also the intake are up with the -- with order intake showing even a strong increase of more than 30%. Both capital and the service business developed favorably in Pulp & Paper. And services sales here already amount to close to 60% -- 57%.

Speaking of the service business. Overall, the service of the shared service sales for the whole group increased to now approximately 40%, which obviously, has always been our goal and should provide a lot of stability in the future.

The weak spots and they clearly were the weak spot, was Metals, which strongly suffered from the weak market environment in the automotive industry, and as a consequence from underutilization and absorption predominantly Metals Forming, but also indirectly in the Metals Processing because of the low cost for parts to the Tier 1 and Tier 2 suppliers to the automotive industry, which in turn are customers of

Andritz.

To be honest, we expect this slow market environment to continue. And therefore, we are evaluating the requirements, the scale of adjustment of our capacities of our cost structures through these market conditions. We are in the process of analyzing that. And as soon as we have a clear plan, obviously, we will inform immediately.

IFRS 16 standard had [indiscernible] sizable impact, so our total assets went up at EUR 220 million and EBITDA increased by EUR 12 million. And since depreciation increased by EUR 11 million, so the impact on EBITDA was practically 0.

Cash flow was positive, I will come back to that. Net working capital, unfortunately, continued to increase, but we're still optimistic that we can show some results, some development in the opposite direction in the next several quarters.

If we now move on into the details on Slide 5. To start with the order intake is that our order intake is up at EUR 1.658 billion, up from EUR 1.533 billion, plus 8% of that. Most part comes from the first-time consolidation, especially in Xerium, [ a little about the other the ] smaller acquisitions also, which contributed combined EUR 158 million to the order intake. And if we split this into organic and externals, organic growth minus 2%, external plus 10%.

By business area on the right side, Hydro very low order intake, EUR 314 million. Corresponds to minus 28% of our Q1 2018. It's included a large order. But clearly, EUR 314 million for the quarter is very low order intake. We think this will increase somewhat as we proceed towards the end of the year. But we also think that the market stays as slowed -- as low as we have seen it last year.

Pulp & Paper continues to thrive, EUR 800 million, sensational order intake, up from EUR 460 million and driven by pulp, by power boilers, biomass boilers, so continuing very good development.

The weak spot, Metals, EUR 348 million, very low order intake also compared to Q1 2018, minus 26%. And Separation continues to -- its positive development step-by-step. So also here, we see an increase in order intake by 9%.

Next page, Slide 6. You see the quarterly order intake. I think we don't need to -- I don't need to comment on that. On the right side, it's order intake by region. Developed market 60%; emerging 40% with Asia, excluding China, having the larger share compared to China to a large [ production ] effect driven by Japan by biomass boilers that we continue to be able to sell into Japan; South America just 11%.

So I turn on sales, increased by 15%. And here we see 4 -- between 4% and 5% organic growth and 11% external. Xerium alone has contributed EUR 109 million. Combined first-time consolidation amounts to EUR 132 million.

By business area, very slight decline in Hydro and good growth in the other business areas. Obviously, this higher order intake in Pulp & Paper, also sales are following now with plus 31%. Metals still up, and Separations are up nicely to EUR 160 million.

Quarterly overview on Page 8, does not need any specific comment, I would say. Slide 9, service sales continue to increase. And as I have said on the lower bottom -- lower right-hand side, you see that over the last 5 years, our percentage of service sales -- of total sales went up from 29% to 40%. Compound annual growth rate of 7% per year.

Slide 10. Order backlog continues to increase. From a low of EUR 6.4 billion, we are now at EUR 7.3 billion year later. And as always, Hydro and Pulp & Paper account for the majority with Metals now also having a sizable order backlog.

Slide 11. EBITDA went up from 27 -- EUR 71.7 million to EUR 82.8 million, plus 15% driven by Pulp & Paper. EBITDA margin with 5.6% remained unchanged. Metals is the low point. And here it's the profitability of Metals is impacted on the one side by lower margin orders, as of order intake already, but also some cost overruns. And in the case of Schuler, also quite substantial underutilization of capacities driven by the low order intake, obviously, but also aggravated by suspensions of orders or delayed order execution requested by some of the very large automotive OEMs that have started to reconsider the location of a new line or have come to the conclusion they don't need a new line this year or next year, but only a year after, which, obviously, has a substantial effect on our sales -- or in Schuler sales, not of group sales not -- but on Schuler sales and as a consequence also on profitability.

And as we've said before, we're looking to adjusting these capacities, we definitely will do something. Scope and timing will be announced as soon as we have a clear plan. Hydro profitability is unchanged and stable. And Separation, [ from here, ] continues its step-by-step improvement of profitability.

On Slide 12, you see the 4 business areas. Hydro, as I said stable at 6.1%. Pulp & Paper up from 7.5% to 8.7%, EUR 34 million to EUR 52 million. And Metals down from EUR 10 million to EUR 1.5 million, 2.8% to 0.4%. And Separation up from 4.6% to 5.2%.

And Slide 13, net working capital up from EUR 160 million to EUR 183 million. You see increase in Hydro and in Metals, and decrease in Pulp & Paper and Separation. Increase in Hydro basically caused by a decrease in POC payables, about EUR 30 million and increase of POC receivables of EUR 13 million, by [ and ] large, Hydro.

So much the operating capital on Slide 14. Cash flow, see the calculation of the [ group ] cash flow. Gross cash flow 8 -- EUR 98 million. And then from operating activities down to EUR 56 million, predominantly driven by income taxes. Yes, if we look at depreciation maybe a detail, EUR 44 million depreciation there of EUR 9 million from the newly acquired companies and EUR 11 million from this IFRS 16 leasing accounting method, and EUR 25 million amortization of intangibles, and thereof EUR 18 million from newly acquired companies, mainly Xerium. We also have a EUR 4.5 million impairment of goodwill in Metals.

Slide 15, summary. I think we have covered basically everything. Maybe net income development decrease is caused obviously by increased depreciation and amortization. And the lower financial result is a consequence of lower average net maturity, the issuance of our Schuldscheindarlehen, or bonds so to say, and also lower interest rates in several countries where we are and have been cash positive. Increase in capital expenditure mostly driven by first-time consolidation.

Then to some more detail on the business areas. Hydro, unchanged market conditions, a few larger project around. Another large project continues to be delayed, postponed or reconsidered, so we do not expect any substantial change in the environment. We certainly are still reasonably comfortable that we will win one of the other larger order also this year but we do not expect any substantial change in market environment. And we continue as planned with our step-by-step capacity adjustments. No substantial extraordinary cost expected compared to last year. And we think that by the end of this year, beginning of next year, we should have achieved the capacity and cost structure in Hydro that is fully adjusted to this smaller market size or lower marketing -- or slower market environment.

On Slide 18, the numbers. Order intake, we have covered. Order backlog declined by 8%. Sales are EUR 338 million, slightly below Q1 2018. EBITDA slightly up. And EBITA practically the same. And EBITA margin identical. Order intake by region, developed markets 43% and the emerging markets 57%.

Then Pulp & Paper on Slide 19. As I said, very good activity. Also looking forward, we expect continuing good activity. It's, I would say, an unusually high number of large projects in discussion and has been communicated by our customers. And we certainly see slight differences in timing and, let's say, in our assessment also probability of what will go ahead or not this year. But there are several large projects that we definitely have to and can take serious. So we expect, over the next 3 quarters, sizable activity in this field and, hopefully, can maintain and grab our market share in this Pulp projects. Power boiler continuing very good order intake. At some point, we will reach our capacity, engineered capacity, ceilings and -- but let's see how things develop there. And yes, I think nothing negative to say on Pulp & Paper.

Page 20, is the numbers. Order intake over EUR 800 million, excellent order intake. Sales EUR 600 million, also up 30%. And EBITDA margin 11.9%. I keep saying the numbers of Pulp & Paper are sensational, but I still think they're really very good. And yes, it's a pleasure to communicate its numbers. Employees obviously have gone up substantially to a large extent due to Xerium, which we have not that -- have not consolidated in Q1 2018.

Now coming from the high point to the low points on Page 21, Metals. Very slow market. Automotive industry is, I would say, in turmoil. And I have been at Schuler at our supervisory board meeting on Tuesday this week. Talked to some -- also some [indiscernible] metal union representatives and they are very concerned about the situation of this industry in [indiscernible], whether that's a temporary thing driven by -- or aggravated by this fuel consumption -- this new fuel consumption measurement rules [indiscernible] I think its called and -- or whether it's something more longer term remains to be seen. We've seen the same effect in China. If rates circulate, China car production is -- consumption has come down substantially last year not so much for the foreign joint ventures, but for the rest, which, obviously is also not reassuring. What we see in China is that our smaller customers that -- to whom we deliver forming prices, for example, from our subsidiary at [ Omni China ] they are -- they lack orders. They -- their workshops are definitely running substantially below capacity. So it's clearly a slow market -- very slow market. And it's unclear whether this will improve in the second half of this year or whether that will continue.

In Metals Processing, productivity is still reasonable, although also reduced. And there are certain projects, but much the number is definitely substantially below last year. But we still think we have a good chance to achieve in Metals Processing, a reasonably good order intake. As a consequence, obviously, competition and competitive pricing has not improved.

Page 22, numbers. We have covered order intake. We have covered sales, EBITDA margin is 3.3%, down from 4.8%. And the EBITA margin is close to 0, unfortunately.

Then on Page 23, Separation. Yes, overall, reasonably good development, reasonably strong markets, industrial markets, feed and biomass and also municipal markets. And we continue on our path towards some growth and better profitability.

On Page 24, you see order intake, EUR 189 million, up 10%. Sales up 19% to EUR 160 million and EBITDA margin 7.3%. EBITA margin 5.2%, up from 4.6%. As you may remember, Separation clearly has above -- how should you say, an irregular quarterly developments or their first quarter is always quite low and the fourth quarter is always quite high. So we certainly are confident that if you compare to pro rata and would multiply it by 4 results of Q1 that the results should be better by year-end.

Now coming to the outlook. Basically, prospects unchanged, somewhat reduced, I would say. We continue to expect significant -- on Slide 26, a significant increase in sales compared to 2018 due to the higher order backlog and also for the first-time consolidation of the companies we have acquired in 2018.

The operating profitability, that is the EBITDA margin, excluding or before extraordinary costs, should now reach under the level of 2018. Before, we had hoped that it could improve somewhat, that means this EBITDA margin of about 6.9%. Because we are somewhat more pessimistic on Metals Forming, we had plans to improve performance there quite substantially. This turned out to be -- or perhaps being too optimistic, too ambitious in light of these market conditions. And we also would currently not want to bet on continuing extraordinary high profitability of Pulp & Paper, so that may be slightly -- very slightly lower than compared to last year, but let's see how that looks by year-end.

So much my summary, my presentation. [ indiscernible ] I might say, I look forward to your questions.

[Operator]

[Operator Instructions] We have received the first question. It is from Andre Finke of HSBC.

[Joerg-Andre Finke, analyst]

The first one relates to your full year guidance in terms of the margin outlook. And as you also mentioned, the pending [indiscernible] restructuring at Schuler. So to which extent did you bag one-off restructuring costs in that guidance already?

[Wolfgang Leitner, executive]

In the first -- as I've said, we are working on a plan. We have not included anything for Schuler in the Q1.

[Joerg-Andre Finke, analyst]

Okay. And the outlook for the full year, does also not reflect restructuring cost yet.

[Wolfgang Leitner, executive]

Yes. So the operating EBITDA margin before extraordinary costs for restructuring yet.

[Joerg-Andre Finke, analyst]

Yes. Understood. And then maybe you can -- I mean, in the last -- for the full year call, you commented quite in detail on working capital management you are implementing. Maybe you can give us a follow-up on that, how that has developed and whether we should expect more improvements coming throughout the year.

[Wolfgang Leitner, executive]

We definitely plan to show improvements, absent any special developments with regard to large projects, which may have temporary impact on this net working capital. But as I said in the presentation, yes, the operating net working capital -- or net working capital has increased another EUR 20 million compared to end of last year, which, obviously, is not what we are going for. We have clear programs in place that we work with our suppliers, for example. First of all, in payment terms, [ queues our ] customers, but that still have on the midterm effect. But we work with our suppliers to find ways to make -- to create win-win situations where we pay our suppliers somewhat later without having them to pay any substantial or negative complications. So from this project and programs, we expect improvements in the mid-double digits, maybe higher double-digit millions of net working capital. And we still think that we should see some first small effect in Q2 and then the larger effects in Q3 and Q4.

[Operator]

The next question is from Sebastian Growe of Commerzbank.

[Sebastian Growe, analyst]

Two [ aerosol ] questions, the first one would be on Metals and the -- particularly on Schuler. Would be interested in some more commentary on what you regard as a quite substantial underutilization. So maybe you can just help us with understanding what the volume impact this. I.e. how much of revenue gap you currently see towards your capacity would imply. And along those lines, could you also indicate and provide rough order volume that you think is realistic for 2019 in the Metal Forming business, i.e. at Schuler? And then I suggest from the commentary you made that it's not only a German problem, so to speak, with the plans for Schuler in Germany, but also that unused. You specifically mentioned has some issues in terms of capacity, well, it's really the current demand side. So could you just give us an idea where you would see the greatest necessity to do something about the footprint? And then also related to Metals, one question on the lower margin orders that you had in the quarter 1. Can you give us any idea what the size? Volume was behind these very orders. And also comment on the order backlog. And how much of really low-margin project you still would see sitting in the backlog for the rest of the year?

[Wolfgang Leitner, executive]

Okay. Starting with capacity, our underutilization at Schuler, the problem is to 90%, 95% in Germany. And it's not only that. It's also, I would say, aggravated by the fact that we obviously, with the slower markets, prices become more competitive. We have gone into this purely domestic local suppliers in Asia with the press lines at lower prices, which requires us obviously to mitigate that by manufacturing in local countries, especially China, but also in Brazil, for example. And this -- all that has a negative capacity utilization impact on Germany. So Schuler's problems are 90% in Germany. And there, we need to adjust capacity. And we -- as I said, we are currently analyzing it. It will be sizable certainly. And -- but that is -- will not be only an adjustment to the current markets and condition, but also enabling us to produce at lower costs closer to the markets in the future. The order intake should be for Metals and then in the Schuler part will be Metals. We still hope that we see some higher order intake in the next 3 quarters compared to the Q1. And whether that will be the case, and I'm not sure. Obviously, it's too early to say. Yadon sees a slower market, but still has a reasonably good market -- good order intake in Q1. It's -- they are impacted by what I have described is smaller parts manufacturers in China that deliver their parts to companies that produce a huge range of products, which typically are exported to a large extent, among that obviously to the U.S. And that has already come down due to the existing customs tariffs. And there is clearly concern. There is hope that the [ that relations ] of both U.S. and China that they will come to a mutually acceptable solution by the end of May. I think, it was beginning of March, it's beginning of June should be the next 90-day period. But nobody has guarantees, and everybody is waiting. So that's speaking of China. And yet on low margin orders, nothing from that. I think it's -- on the Schuler side, it's this first time orders into domestic Asian -- car OEMs -- automotive OEMs that, yes, revenue has hopes to improve margins or reduce the cost as we execute the orders, so it's not obviously successful. Sometimes yes, sometimes no. And some other in Metals Processing also, some smaller issues with a few millions here and there, nothing dramatic, nothing that has come up as a big problem looking forward.

[Sebastian Growe, analyst]

Okay. That is helpful. If I just may ask one follow-up on the order intake development. Would it be fair assumption that of the rather low orders that we did see in the first quarter in Metals of the EUR 350 million, that about EUR 150 million or so was from Metals Processing, i.e. only about EUR 200 million from the Metals Forming part, would that make sense?

[Wolfgang Leitner, executive]

A little bit more for forming.

[Sebastian Growe, analyst]

Okay. But run rate-wise, we are talking definitely below EUR 1 billion of total volume for the full year, so call it EUR 900 million or whatever.

[Wolfgang Leitner, executive]

A little bit more than that -- a little bit about EUR 900 million, yes. On that 4x Q1 calculation, yes.

[Sebastian Growe, analyst]

Yes. All right. And if I may, just really as the last question and ask on the EBITA impact from Xerium because you split out the numbers from the order intake and sales contribution from that. Not the ideal but can you also give us a rough sense what Xerium might have added to EBITA at Pulp & Paper in quarter 1?

[Wolfgang Leitner, executive]

The EBITA of Xerium was in approximately EUR 16 million or between 14% and 15%.

[Sebastian Growe, analyst]

Okay. That sounds good. And then -- and in terms of really what is happening on...

[Wolfgang Leitner, executive]

[indiscernible].

[Sebastian Growe, analyst]

Okay. But that must be more or less purely organic, right? So I think the integration has just started. And obviously, there is more to come in terms of what you did expect on this deal when making the deal in terms of sales, revenue synergies and also some cost synergies. I think that you quantified at about 15...

[Wolfgang Leitner, executive]

Yes. Cost synergies are underway, yes.

[Operator]

The next question is from Sven Weier of UBS. Your line is now open, please go ahead.

[Sven Weier, analyst]

Maybe we can take them also one by one. The first one is also coming back to Schuler. I mean we've been seeing a bit of an underperformance of Schuler relative to the other auto CapEx suppliers for sometime. And I guess it's probably been the same again in Q1. So do you see that's -- really that this Metals Forming parts in automotive is underperforming? Or is it Schuler? Or is Metals Formings just structurally something where you see underinvestment of the car makers? What's your strategic take on that? That would be the first one.

[Wolfgang Leitner, executive]

I'm not sure I understood the question. Metals Forming is Schuler in Andritz.

[Sven Weier, analyst]

When you look at the Schuler order intake, basically, since you acquired the company, right? And if I compare that with other companies in the sector that do other things, like paint shops or whatever, right, that's -- you see quite a bit of an underperformance of Schuler. And I was just wondering, do you think it's really the Metals Forming part of a car plant where there is relatively less investment in the last couple of years? Or is it Schuler that is underperforming a factor? Or what's your take on that?

[Wolfgang Leitner, executive]

That's a good question, not so easy to answer. Number one, when we acquired Schuler, it has been the year of highest sales ever and highest profitability ever. And when we position to purchase price at that point, at that time, we said it appears to be a low price. It's 4.2 -- I think 4.2x EBITDA. Let's keep in mind, and we certainly have [indiscernible] that it was an absolutely big year of Schuler. We had expected this to go down rather soon. As it turns out, it kept up for a few years, for 5 years, I would say, nearly 4, 5 years. And -- so if you could say, Schuler performed better than we expected at the time of acquisition and that may have been reason that these investments in press lines of the automotive producers have been early in the cycle have been before others follow. Now having said that, it's not everything is good that Schuler has been doing and clearly the -- their -- the dependence on the business with the Central European or, you can say, German premium car manufacturers and -- has been a problem. It has created a lot of our workload. But it has prevented decisive actions to developing products for the medium market. We have succeeded in selling the first lines last year but at low margins -- very low margins. We still need to work on reducing the cost. Part of that is a shift of manufacturing into lower-cost countries, and that, has a consequence, that the capacity utilization in Germany is under pressure not only because of the market, but also because of this need to reduce manufacturing costs.

[Sven Weier, analyst]

And because I actually said, you don't see kind of a medium-term big improvement either, right, so it's -- it doesn't seem just a purely cyclical issue that was aggravated maybe by WLTP and China, but if you say that's not really a big medium-term improvement, then it really seems like a small structural issue.

[Wolfgang Leitner, executive]

It definitely is a structural issue. I think we still see some, I'd say, hope for some larger projects to be ordered and to be obtained by Schuler this year. But clearly, we don't -- our position is not that we just need [ three more order ] and everything will seem in order. So we clearly need to address the structure and make sure that we're competitive and bring them closer to the markets of the future.

[Sven Weier, analyst]

Okay. Yes, that makes a lot of sense. Second one is on your parts statement and you already said you see a lot of activity over the next 3 quarters. 2 questions on that. First of all, do you see that because Valmet has just upgraded their part outlook. And they've seen a greater likelihood of something happening near term. So the first question would be, would you see like an equal distribution between the next 3 quarters or really back-end loaded? And the other question was also, you always talk about just greenfields, where, I guess, there is a lot of activity, but do you also see substantial investments more on the brownfield side?

[Wolfgang Leitner, executive]

We think there will be decisions to be made in Q2 and Q3. Obviously, it's something that will probably remain for Q4, but it is not that we think everything will be decided in Q4, that's certainly not. But we rather think Q3 should be the peak of these decisions. And greenfield, brownfield, I mean, the question is the definition. When we say if completely new outline with 2 million tons capacity is built in an existing location, you can argue whether it's greenfield or brownfield. From our standpoint it's basically, as long as there's enough space in this location, a new line for us that's the best -- the most attractive project because a lot of infrastructure is available and that makes the project somewhat [indiscernible] provided there is enough space. If it's very narrow, then it certainly could complicate things. So there are parts of this project are -- is -- this type of green, brownfields are completely new line with a large capacity added to an existing location. Two of them are clearly greenfield. One would be clearly greenfield one. And there are also some large expansions under discussion.

[Sven Weier, analyst]

And the decisions, do you expect in the next 2 quarters, is that mostly South America then? Or...

[Wolfgang Leitner, executive]

Yes, yes.

[Sven Weier, analyst]

And then just finally, I was a bit surprised by your -- the change of tone on the Pulp & Paper margin guidance because there were obviously -- we have some accretion also from Xerium are quite substantial accretion. But on the other hand, I would not expect that this is also reflecting a tougher pricing environment given how good the Pulp CapEx environment is, so it's probably more that last year was so exceptional. And I think you also had some provisional releases. Is it really nothing to do with the pricing, I guess?

[Wolfgang Leitner, executive]

Yes, yes. And there -- if I would have to come to -- to bet on one upside, then I probably would see -- compared to our guidance, I would see it on the Pulp side, yes.

[Operator]

The next question is from Daniel Lion of Erste Group.

[Daniel Lion, analyst]

I would like to follow up on -- can you hear me?

[Wolfgang Leitner, executive]

Yes.

[Daniel Lion, analyst]

I would like to follow up on the automotive Schuler side. What do you see in terms of dynamics in the last month or so and during the second quarter? Is there's any changes? Is it getting weaker? Or is it rather stable on a low level? Just a little bit of color on that.

[Wolfgang Leitner, executive]

I would say stable.

[Daniel Lion, analyst]

Stable on the low level, okay. Understand. And then also following up on the margin question raised by Sven in the last question. Why should it -- given really that Pulp & Paper would decrease in profitability, despite the consolidation of Xerium, is it without Xerium...

[Wolfgang Leitner, executive]

Yes. Maybe this is with -- sorry, go ahead.

[Daniel Lion, analyst]

Yes, that's basically the question. How to understand the announcement that it would go lower year-on-year. So I think only -- actually, from the outside now not expected -- it's excluding the Xerium consolidation. Otherwise it will be difficult to understand.

[Wolfgang Leitner, executive]

We still continue to see -- we expect a very good profitability in Pulp & Paper. That comment we have made in this guidance is that it's purely driven by the fact that we had last year some really sizable onetime effects, release of provisions because we have made all the performance guarantees and so on. And we did not want to commit continuing extremely high profitability as we have shown last year. It's -- as you know, it's also substantially above Valmet. And it was just basically to make you aware that we will do our best. We've seen the market very good. We see the volume -- continue to see the volume very good. We think the prices are reasonably good. So -- but we do not want to create the impression that the Pulp & Paper is now going to be a 10% EBITA business forever.

[Daniel Lion, analyst]

Yes, yes, of course. But on the other end, when comparing the provisions released last year and the addition of -- the expected addition of Xerium this year, which would be some, lets say, mid-double-digit euro million amount, is this somehow comparable in size? Or is the restructuring releases last year is lower than this mid-double-digits million amount? Just to put it in relation just to know what we are talking about actually and to put it -- yes, to understand how you guide.

[Wolfgang Leitner, executive]

It is also [indiscernible] for the rate on the total sales. And yes, I think it's our -- I take notice that you're so skeptical on this guidance. Let's see how Q2 and Q3 develop, whether we maintain it or not. But again, we -- I just don't want to give the impression that we think we can continue long term on this high level. I don't -- I'm not saying it will be substantially below, but what we said is what we said. There might be a slight decline in revenue profitability in Pulp & Paper. If it's -- if we be more confident as we go into the next 2 quarters, we certainly can rediscuss it in our next phone call.

[Daniel Lion, analyst]

Okay. And then one last one. Regarding IFRS 16, you mentioned EUR 12 million EBITDA impact. Does this relate to Q1 only? So do we really have a mid-double-digits EBITDA impact from IFRS 16 on EBITDA?

[Wolfgang Leitner, executive]

Its -- for the full year, it will be approximately EUR 40 million, EUR 45 million. That's not [indiscernible].

[Operator]

The next question we've received is from [indiscernible] of Danske Bank.

[Unknown Analyst]

But I'm looking at the Pulp & Paper margin comment. And I would like to understand what is driving this. Is this because you see already a project overrun you have taken in? Or is it that when the Pulp market is now coming in strongly, you see a negative margin impact from the change in mix, your business mix because of strong Pulp, please?

[Wolfgang Leitner, executive]

Very politely, neither/nor. It's exclusively that we had some sizable onetime effects last year. Yes, I agree that Xerium should add some overproportion of profitability. And as I have said before, maybe a little bit cautious on this guidance, but the guidance is as it is. But it's not -- we don't see any cost from overruns yet. And we don't see any negative developments on the Pulp & Paper market. But we just do not expect the same level of one-time releases this year as we had last year.

[Unknown Analyst]

Okay. And then if I may continue, if I look at Q1, which you have reported this morning, if I remove Xerium, which you give the sales impact. And in the call, you also gave the EBITA impact. If I exclude Xerium, I can see that the margin was down already slightly in Q1. What caused that margin decline, please?

[Wolfgang Leitner, executive]

Very good question. Very good analysis. We had a few mathematic, but a few millions of cost overruns on -- actually on the Paper & Pulp side.

[Operator]

As there are no further questions, I would hand back to you, Mr. Leitner, for some closing remarks.

[Wolfgang Leitner, executive]

Thank you very much for your questions. And we will take your concerns, especially with regard to Pulp & Paper, Xerium and see what we can do as we move on into the next quarters. Look forward to talking to you midyear. Thanks, everybody. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.