Andritz AG

VSE:ANDR

Earnings Call Transcript 2024-Q1

[Joachim Schönbeck, executive]

Good morning, ladies and gentlemen. Thank you very much for attending our call on the Q1 results for 2024. Before we go to the details of the numbers, I would like to introduce our new Head of Investor Relations, Mr. Matthias Pfeifenberger, who joined our team 2 weeks ago. We are very happy to have him on board, and I would like to pass over to him because he will host this session immediately.

[Matthias Pfeifenberger, executive]

Thanks, Dr. Schönbeck, for the intro and the nice words, and also to the whole management team of ANDRITZ for the trust in my team and me. I'm really delighted to have joined ANDRITZ and be able to share and shape the equity story and to enhance the company's perception as a real climate tech leader.

So good morning to all of you. I'm excited to meet you in person in one-on-ones and conference meetings. And with that, I hand back to the CEO, Dr. Schönbeck for an overview of the business on the Q1 '24 results.

[Joachim Schönbeck, executive]

Thank you very much, Matthias, and let's move on to the numbers, but my remote control is working. Very good. So in overall, I think we can report, and you won't be surprised, that we are not really in an investment climate at the moment. We see generally weak markets. As usually in Q1, we had Chinese New Year, which definitely slowed down the business in Asia.

We have, I would say, maybe a hiccup or a delay in the EV strategy of the automakers that definitely postponed and halted some investment decisions. We have interest rates prospects, which were definitely higher than what we had anticipated at the end of last year. And I think we -- you all have recognized the increased geopolitical tensions, not only in the Middle East, but also in the Russian world.

So that all what we have seen from that in our markets were project delays, we believe that the underlying trends and demands are still solid and proven. So the green transition movement to sustainable and renewable energy, demand in pulp, I think all this will continue but for sure, there is delay.

We see that in our overall figures we had a significant decline in order intake. I would say considering the weak markets, we are quite satisfied with what we could collect. What we saw is an increase for the green technologies, which is a good sign that we are on the right track. With our priorities, we can report stable revenues, profitability and stable net income.

So on the order intake, as I reported, we have a drop of 19% compared with last year's first quarter. The revenue is a bit below the EUR 2 billion of last year, so at EUR 1.9 billion. Still -- as the book-to-bill was above 1, we still have a solid backlog of EUR 10 billion. EBITA dropped together with the revenue by 4% to EUR 152 million, and the margin remained stable at 8.1%. The net income increased a bit to EUR 104 million or 5.5%.

ESG goals, this is the status, end of 2023. I think that's -- we are well on track there. On environment, all traffic lights are on green. We are good on track. We are -- have made good improvement on our turnover rate. The fluctuation on excellent frequency rate and share of women in the workforce is still a work in progress, and we have to stretch to reach our 2025 targets.

On governance, all traffic lights are on green. Supply chain is in good shape, no compliance cases and no profit warnings. We are happy to announce -- or we were happy to announce 2 weeks ago our investment in HydrogenPro. We acquired 13.8% of the stake in this -- our Norwegian partner for the hydrogen technology.

I think this is a confirmation of an already existing partnership we have with them, definitely strengthening our technological position in that market, but also strengthening HydrogenPro because a major partner is now more engaged. And we believe that this definitely will put us in a better position to work as a turnkey supplier to that evolving industry.

So looking to the details in the performance of Q1. As I said, the order intake were satisfactory, considering the market conditions in general. You could see huge drops in Pulp & Paper and in Metals, and we could see a very favorable development in Hydropower and Environment & Energy. The underlying reasons I already reported, for sure, major projects, major capital investments at the moment have been postponed. We did not see that projects have been terminated.

So therefore, I would say, the midterm view remains stable together with that. On the order intake, you see a huge increase on the service part of the business compared to the capital. It is driving up. And that's, for sure, it's a good sign. Asset utilization in our industry is higher and the prospects that this will remain is good, and this is when our customers spend on service and on spare and wear parts.

Revenue, we can report stable. Pulp & Paper, minus 6%; Metals, plus 4%; Environment & Energy, plus 5%. What is standing out might be a bit of concern is the is the drop in Hydropower, which is a bit against the trend of -- which we saw in Hydropower over the last 4 quarters. We had some delays in specific projects due to project work out of our scope. So this is, I would say, more a reporting topic and not a sustainable drop. So we are confident that we will recover that over the year.

Order backlog, as I said, remains rather stable. Still 2/3 of the backlog comes from Pulp & Paper, and Hydropower, majority for sure comes from the capital projects. Nothing extraordinary to report here. Earnings and profitability, as I said, very stable. The EBITA reported dropped from EUR 158 million to EUR 152 million, and the comparable dropped EUR 160 million to EUR 154 million. So basically, the EBITA margin remained stable, 8.1%.

If we look to the business areas, also here, we have only small changes, Metals. Pulp & Paper stayed on a higher level, dropping along with the sales volume; and Metals, we could see an increase, 8.9%, from EUR 19.2 million to EUR 20.9 million. On Hydropower, it dropped because of the delays and the decrease on the sales volume, but also on the execution of particularly low margin orders, which we had reported already at the -- with the year-end figures. Last year -- and for Environment & Energy, it's a nice increase in the EBITA for the first quarter.

If we look at the margins, Pulp & Paper stable at 10%; Metals increasing a bit to 4.8%; Hydropower, as I already said, dropped to 5.5%. We see this as a as a topic related to the first quarter only, and we have good hope to recover that. Environment & Energy also very stable, solid at 10.1%.

So I'd like to hand over to my colleague, Norbert to go -- he goes with you further to the financial details.

[Norbert Nettesheim, executive]

Yes. Good morning to all of you who are in the call. As always, I go now into the details of the P&L, cash flow and liquidity. But let me also start with a very warm welcome to Matthias. I'm very happy to have him now on board. And certainly in future calls, one-on-one, which we have, he will give you an additional view on our business from a much more capital market-oriented person, as I was in the last year. So very happy to have him now on board. Welcome, Matthias.

[Matthias Pfeifenberger, executive]

Thank you.

[Norbert Nettesheim, executive]

So now to the numbers. Dr. Schönbeck already explained EBITA. Let me start there. Amortization is a normal picture. As you have seen in previous quarters also, nothing to report. The financial result, you see now there is no red bar anymore. The financial result is now 0 in the first quarter, an EUR 8 million improvement compared to last first quarter.

Most effects come from simply the interest situation where we are in. I assume that over the year, we will see continuous improvements in this area, and also, for the full year, I expect that we have there a positive number, a good positive number in total. So good developments, certainly driven by the tailwind, which we have currently from the interest situation, which here is positive. Generally, certainly, it's more negative.

Tax rate is our planned tax rate of 25.5%, which we consider this year to be the rate for the year, leads then to the EUR 104 million net income, which is in the [indiscernible], an increase in the first quarter net income, where we also can be proud on the -- looking to the general environment where we are in at the moment. So 5.5% in the first quarter.

And you know the arithmetic over the year with, let's say, maybe slightly increasing numbers in the next quarters, we are sure that we also will here stay on the continuous path as we were in the past quarters. So nothing really serious to see here. Equity portion with this net income rose -- or came to 24.2%. You don't see it on the slide. We paid the dividend, and this is the reason why it came a little bit down despite this favorable development in net income.

If we go to the next page, here is the bridge in the cash flow, and this is also, this quarter, a nice picture. You see the EUR 104.1 million as net income. [ You see ] the corrections for the noncash elements in the income, which are also in the usual range as we saw them in the past. And then this quarter, you see a very positive tailwind from working capital, just the opposite as we have seen last year.

Reasons are the normal cycle in execution of projects. We are getting now into the final phase of significant large projects, which then leads also to cash inflow at the end of the projects. And this year, you see in the numbers which we have shown there in detail, so it's more or less the decrease in the accounts receivables where we really cashed in and the decrease in the contract as well as the work in progress from the big POC projects.

So taking this, taking the other elements, which are very normal in the range as we saw them in the past, we come to an operating cash flow of EUR 285 million in the first quarter. Taking off the capital expenditures, gives us a free cash flow, very favorable free cash flow, of EUR 245 million in the first quarter.

And you know that I'm starting to educate, but maybe this time's the last time, I added this slide again to show you the huge fluctuations which we have in the quarterly operating working capital due to the big business, as I have several times explained. This time, it's positive. Last year, it was negative.

So let's look in the future more on rolling here the average cash flow development. And as you see on the right chart, we are now on rolling numbers significantly above the EUR 500 million. So cash conversion of 1 is what we currently see. So most of the net income, we bring also into the treasure box.

And here is the treasure box. This is the liquidity as we -- as you know it, mostly from the past, and this positive cash flow in the first quarter made it possible that we increased the net liquidity to now EUR 990 million. Seems that the EUR 1 billion is in reach in the next quarter. And the effects of this positive net working capital development also compensated the dividend payments in the first quarter. We paid out EUR 202. Part of it will be paid in Q2. This is the tax part. And so in total, we see here also a continuity of the very positive development of ANDRITZ with regard to profitability and cash.

The numbers are, let's say, on this page, all on one page as a summary. I would -- will not repeat what has been said. You see it, order intake down; revenue okay, I would say, depending on the revenue decrease, also an absolute decrease in the results, at least in the operational results; net income increased; and very positive cash flow leading to a good liquidity. That's the story for Q1 from my side.

One short remark still on these issues of effects from changing in the reporting structure. We have added here, just for completeness, a slide which answers the question, what was the influence of this organizational change which we now did and which became effective in the Q1. And it's not much, because in the first quarter, it was more or less order intake in the Clean Air Technologies, and it was, unfortunately, no order intake and no revenues in Green Hydrogen, so that the total effect of -- is more or less EUR 25 million order intake and EUR 20 million revenues moving from former Pulp & Paper to Environment & Energy, just for completeness. More details we will publish on the website.

So that's it from my side. I'll pass back to Joachim Schönbeck who will lead you now through the business areas.

[Joachim Schönbeck, executive]

Thank you very much, Norbert, for the explanation. Quick fly through the business areas, Pulp & Paper. For sure, the order intake, very disappointing, with a minus 34%. But as you know, we cannot create projects on the capital side. We can do that partially on the service side, but definitely not -- on the investment side. The market is weak. Underlying demand remains high. We take these weak markets, now we are working on our costs to increase our competitiveness be ready once the markets will be back. And that, for sure, will come.

On the revenue side, we are -- we are rather stable working on the large projects we are working on. Also, the service business is running quite stable. Utilization of the assets came up. You also have recognized that pulp prices went up, which usually is a good sign, and if our customers earn money, then usually the appetite for investment is also increasing. Also the utilization of the -- on the Paper side, the bought machines, especially in Europe, picked up over the last couple months. So that is the general environment we are working in. Profitability, stable at 10%, as already reported.

A bit similar is the situation in the -- on the Metals side. Also here, you see a significant drop in the order intake. For sure, it is disappointing, but as said before, the projects are as they are, and like in Pulp & Paper, it is not that we lost a significant amount of a proportional amount of projects, it's just that the markets are very low. What we -- on the revenue side, we are working on the backlog. So we are stable there. And the EBITA remained stable, I would say slightly growing, definitely in the right direction, 4.8%.

But for sure, that's not where we want to be, and we will further work on that. Also here, we will take the time of the weak markets to work on our costs, product costs as well as our structural costs. Looking forward, we could see that on the steel side, we probably see a bit earlier recovery than on the automotive side. I would say the adjustments of the EV strategies with the large -- with our large customers, the carmakers, might take a bit longer before major investments will be kicked off.

On the Hydropower, we are happy that we can report a strong increase, increase in order intake, that basically proves what we have told you for the last half year, that we see a fundamental, a general upside trend for hydropower worldwide as the demand for renewable energy is there, and especially for renewable energy that is available 24/7. We have a significant decrease in revenue, and I told you that there are a few orders that have been delayed because of delay on the civil side in these projects. And the profitability declined because we were working. We have a particularly high amount of low-margin orders going through the sales of the first quarter.

Environment & Energy, we have a very good development across all businesses we are entertaining there. We have a strong increase in order intake. However, we have to -- as you are aware, we -- the Dedert acquisition, which we closed last year, is now fully included in the first quarter. But beyond that, we saw good development across all these product groups.

Backlog increased; the revenue increased; EBITA could increase, and we were very stable on the EBITA margin, 10%. So we would say it's on -- we are in rather good shape there. And it also proves that our, I would say, strategic assumption that renewable energy and green technologies definitely can grow a bit against general market trends.

So if we look to the outlook and to the guidance, we -- I have to repeat, we have a satisfactory development in relatively weak markets. We have -- see a solid demand for green technologies, which definitely helping us, and we do not expect a quick recovery of the markets in the next months. So we -- based on that, we decided to lower our guidance, and we expect stable revenues and stable profitability on the EBITA level compared with last year.

Our group targets remain unchanged. As I told you, we believe the underlying trends and demands remain there. We believe we are prepared. We prepare now -- in the weaker markets, we can prepare ourselves even better to ensure that we are even more competitive next quarter than we have been in the last quarter.

Basically, that's all I have to say and happy to answer any questions if you have them. Thank you very much. I hand over to Matthias to entertain your questions.

[Matthias Pfeifenberger, executive]

Thanks, Dr. Schönbeck. We will start the Q&A session now. [Operator Instructions] And we will take the first question from Sven Weier, UBS.

[Sven Weier, analyst]

First one is on the service business. I was just wondering, we had a guidance upgrade from Valmet yesterday to a good outlook for service. I was just wondering on the momentum on your service business.

Now I know your service business has been doing quite fine actually in Pulp already. So does that mean there is no need for you to see a better outlook there? Or do you also sense that your service business is getting even better than it was? That's the first one.

[Joachim Schönbeck, executive]

As I said, we have a good development in service. That is what we see. We are happy that the utilization of the assets of our customers are higher, and that is definitely compensating to the steep decrease we could see on the capital side. The 30% downturn in order intake definitely has to be compensated somehow. And this is why we can we can forecast and guide for stable revenues and earnings.

[Sven Weier, analyst]

The other question I had was just on the guidance adjustment. I mean, does it mean that you no longer see a recovery in the big tickets on, let's say, mid and bigger tickets on the Pulp and Metals side this year? So do you think that has been pushed out maybe from earlier expectation second half into 2025? I still wonder about what has changed between now and the beginning of March that has led you to make that outlook adjustment.

[Joachim Schönbeck, executive]

What has changed is that we do not see that major projects will be decided timely in 2024 that we can still recognize revenues in 2024. We have -- in these projects, we usually have delivery times to full execution of, I would say, roughly 2 years. So the revenue recognition in the first months of the project is rather low. So anything that we book past June will not really impact.

So what we see is postponement. And as we see it, and we do not see this quick recovery, and this increasing tension in the Middle East definitely has not helped to anticipate decisions on that. We believe it's [ unfair ] to share with you our view for the rest of the year.

[Sven Weier, analyst]

So it is fair to say that the Pulp order intake and the Metals order intake should continue to be around the level for the time being that we had in Q1?

[Joachim Schönbeck, executive]

That's for sure would be a worst case scenario, yes. Yes. We always have hope.

[Matthias Pfeifenberger, executive]

Thank you, Sven. We'll take the next question from Daniel Lion from Erste Group.

[Daniel Lion, analyst]

Welcome, Matthias and also [ Daniel ], to the team. I would like also to focus a little bit on the weaker parts of the business for the moment. So the cost measures you announced now in Metals, is this anything more sizable? Or is it just an optimization of the current business setup? Maybe you can talk a little bit about this.

[Joachim Schönbeck, executive]

It's more of a housekeeping, and it is not of a measure that we will see a significant bottom line impact to that.

[Daniel Lion, analyst]

Okay. And second one, related also on follow-up maybe on the large tickets. Initially, we've been expecting a larger hydrogen order in the first quarter. This has obviously been somehow delayed. So has the postponement to later in the year of large tickets, does this also relates to this hydrogen order? And how do you see the markets developing there, now that you also acquired a minority stake in HydrogenPro?

[Joachim Schönbeck, executive]

Yes. We still believe that we have -- there will be a solid demand, for sure. The -- I would say, the general pessimistic view in the investment climate also accounts for the projects related to Green Hydrogen. As energy prices are high, fundings, public fundings, are usually under discussion.

So all of that, I would say, relates that also these projects getting postponed. We believe there is demand. We believe that our partnership with HydrogenPro will improve our position. So in general, we would be -- we are optimistic on the market. We are not too optimistic on the very near-term timing.

[Daniel Lion, analyst]

And maybe a last one going forward, maybe difficult to answer currently, but still [ peers ] currently, they definitely do not focus on business development in '24. It's rather what we should be expecting in '25, especially first half year '25 is the risk of a big drop that won't be able to get compensated throughout '25 given the slower order intake, especially currently in Pulp & Paper, but maybe also Metals. How do you assess the situation and the risks going into '25 in terms of seasonality, if you want to call it like that.

[Joachim Schönbeck, executive]

Frankly speaking, I'm quite confident that we will not see a further drop in Pulp & Paper and Metals compared to what we saw in the first quarter of '24. So if you ask me, the '25 would be -- would definitely be on a higher expectation from our side, as investments need to be taken and the postponement, the delays that we see, they cannot hold on forever. So from that point of view, but for sure, what we will see is that the low order intake, we will see in the sales for 2025. And this is why we are now taking the measures necessary to accommodate that.

[Matthias Pfeifenberger, executive]

Thank you, Daniel. We take the next question from Lars Vom-Cleff from Deutsche Bank. [Operator Instructions]

[Lars Vom Cleff, analyst]

Two quick ones, the first one referring to the questions that were already just asked. By when do orders have to come in at the latest, especially larger orders, in order to not endanger your medium-term guidance?

[Joachim Schönbeck, executive]

So revenue recognition is the specialty of my colleague, Norbert.

[Norbert Nettesheim, executive]

Yes. We in depth explained in the Capital Market Day that all our target achievements, which we communicated this time, is a little bit back-end loaded and that most of the part of this growth is coming from these new business fields. I would say if we don't see major orders in '25, then the target can get in danger. But so far, we are still relaxed with the '26 targets.

As Dr. Schönbeck said, there will be a change in the investment climate in the near future. The question is in what quarter and in what half year it comes, but currently, we are not seeing the things significantly in danger.

[Lars Vom Cleff, analyst]

Okay. Perfect. And then the second quick one, I mean your net liquidity position is more than sufficient currently, with EUR 900 million or up, close to EUR 1 billion, and even deducting the EUR 300 million repayment that is upcoming. Seeing acquisitions -- like investments in stakes like HydrogenPro, we should also expect for further bolt-on acquisitions continuing despite you becoming a bit more conservative with regards to this year's outlook.

[Norbert Nettesheim, executive]

Yes. Maybe I'll take this. It's the same thing as you have heard several times, we are very active trying to find strategic adjustments to our business. This business is also not completely in our hands. It's also depending on what the target's thinking and what values they have in mind to get paid for. You will see certainly a similar activity as you have seen in the past.

[Matthias Pfeifenberger, executive]

Thank you, Lars. We take the next question from Akash Gupta from JPMorgan.

[Akash Gupta, analyst]

Yes. I have a few as well. The first one is on the guidance. And you are talking about addressing cost base in both Pulp and Metals segment, and your EBITA guidance is after restructuring costs. So I'm wondering if you can comment about what level of restructuring cost in absolute we could see. And when it comes to EBITA and adjusted EBITA margins, could there be any difference between the 2, given the cost to adjust -- doing the need to adjust the cost base? That's the first one.

[Norbert Nettesheim, executive]

Yes. I take this also. Thank you, Akash, for the question. As Dr. Schönbeck said, these, what we are currently planning is housekeeping and some adjustments in the workshops where we have underutilization. We don't see adjustment necessities as we have seen them in the past, for example, in Schuler. So I'm pretty confident that the effect from these restructuring measures will not destroy our topic.

Currently, we are working on the details. There is a lot what we can do, for example, in the Nordics on short work weeks which doesn't cost us any extraordinary cost. So a short answer is currently, we don't see a major hit in the reported EBITA from restructuring expenses.

[Akash Gupta, analyst]

And then the second one is a follow-up on HydrogenPro partnership. So I wanted to ask if this is something exclusive from your end, which is locking yourself with the projects where HydrogenPro is involved, or let's say if there is any other electrolyzer manufacturer, could you also help them providing balance-of-plant for those guys as well?

[Joachim Schönbeck, executive]

Sorry, I don't -- I have not fully -- I have not -- can you repeat? Can you speak up a bit? You are very low.

[Akash Gupta, analyst]

I'm sorry, I'll try to repeat again. Can you hear me well now?

[Joachim Schönbeck, executive]

Better, yes. Thank you.

[Akash Gupta, analyst]

Yes. So my question was on HydrogenPro partnership that is this something which is exclusive, which means that you cannot supply your balance-of-plant offering to any other electrolyzer manufacturers? Or can you still provide your offering to other electrolyzer manufacturers other than HydrogenPro? So that was I wanted to ask, if this is something which is exclusive that locks you in their projects, or can you go and benefit from projects of their competitors as well?

[Joachim Schönbeck, executive]

No. This partnership is nonexclusive on both sides. And -- but on the -- if we look to the marketplace, we can see, and this is the development over the past 12 months, that basically we are leading the projects, and we are in a position also to select technologies for certain projects. But we also selected HydrogenPro as a partner. And we believe they have a good technology. This is why we invested in, and we also have to make sure that we can secure the supply chain for a large project. And so we believe it's a good fit for both.

[Akash Gupta, analyst]

And my final one is on textile recycling business activity. Anything you have seen in terms of pick up? Or is this something that you're expecting higher activity as we go along into the '24?

[Joachim Schönbeck, executive]

I would say we see a moderate pickup. It's -- on the first quarter, it is not very -- so we have -- we cannot report anything major, but we see definitely growing demand. And I talked to you about this textile sorting, this automated textile sorting facility, which we opened in France in November of last year. And at least I can report that this is very well booked by potential customers, so we believe the market is developing in the direction that we anticipated.

[Matthias Pfeifenberger, executive]

Thank you, Akash. We'll take the next question from Peter Rothenaicher from Baader Bank.

[Peter Rothenaicher, analyst]

Yes, gentlemen. One question on the Paracel project. So I've read recently that Paracel intends to open its plant in 2027, so this would mean that they cannot wait much more longer to place the order. So what can you comment on all of that?

[Joachim Schönbeck, executive]

I have the same information that you have. And so when they -- I can repeat what I told you for the last 18 months. We are committed. We have a firm commitment on both sides, and when they are ready to kick off, we will be ready to build it for them. If they want a startup in '27, for sure, they cannot wait much longer. Sure. But that's the way it is. And what I believe is when the financing is in place, the project will start.

[Peter Rothenaicher, analyst]

And what is your view on the general project pipeline currently for other Pulp projects?

[Joachim Schönbeck, executive]

As I said, the demand is there. Our proposal teams are very engaged. So there is -- there are projects ongoing. For sure, pulp price, interest rates, I would say also general investment climate definitely plays a role, but preparation work is ongoing as it's not only us, also our customer sees there is an underlying strong demand in pulp to come, and that need to be served from low-cost base. That usually means that the newest asset has the lowest cash cost, and that makes us basically, on the general midterm view, quite optimistic that there will be projects.

[Peter Rothenaicher, analyst]

And so it could even be a thing in the remainder of 2024?

[Joachim Schönbeck, executive]

It's really -- this is really a speculation, which I don't want to entertain myself with, and definitely not you with.

[Matthias Pfeifenberger, executive]

Thank you, Peter. And if there are no more additional questions, thanks for asking the questions. And I'd like to hand back to Dr. Schönbeck for any concluding remarks. Thanks a lot.

[Joachim Schönbeck, executive]

So thank you very much, Matthias. Thank you very much for attending the call. So we have reported on the quarter. We have reduced the guidance, be sure that we are very active in the markets, and we will participate in any upside the markets will see to the benefits of ANDRITZ. Thank you very much for attending.