Andritz AG

VSE:ANDR

Earnings Call Transcript 2021-Q2

[Operator]

Dear, ladies and gentlemen, welcome to the conference call of ANDRITZ AG. At our customers' request, this conference will be recorded. [Operator Instructions]

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

[Wolfgang Leitner, executive]

Good morning, everybody. Welcome to our midyear analyst conference call. We -- let's just start with some general remarks. I have -- we have communicated today a change in our personnel and on our Executive Board, and that is -- excuse me, I need to sort out here something. Here it is. Yes. We have communicated some changes in the Executive Board. I think we have found a very good combination of continuity and innovation and new blood for the Executive Board. As you've heard, I will retire from the Executive Board with the annual shareholder meeting next year and hope to be elected, appointed to the Supervisory Board from then on. It is possible according to the rules of the Austrian Stock Exchange against the -- with this Corporation Act.

And with regard to the succession, continuity is provided by Joachim Schönbeck, who has been with the ANDRITZ Executive Board since 2014. He's been responsible for Pulp & Paper together with Humbert Köfler and will take over as Head of the Executive Board from April 2022 onwards. His responsibilities for the Metals business area, the Metals P business area will be taken over by Domenico Iacovelli, who has been with ANDRITZ since 2011.

He has -- we have acquired him with a small company in Switzerland, that, in the following years, he has developed extremely successfully with -- to a really high tech company, serving the automotive industry, by the way. And then he's taken over as CEO of Schuler. And in Schuler, he has gained experience in 2 directions: number one, restructuring. As you are aware, we have done a very serious, very far-reaching restructuring in -- especially in Germany. And at the same time, and extremely important, he has succeeded or is on the way to succeed, to be a little more cautious, also on repositioning Schuler, broadening its market and making sure that Schuler, hopefully, has a very good future. So that's the changes in the Executive Board.

If I move on to some general remarks on the half year results. Obviously, we had a good development, order intake with EUR 1.9 billion is -- in Q2 is very good, driven by actually all business areas. And it's also very positive that services picked up quite nicely since we are increasingly gaining access to the respective deal size. Revenues as a consequence of last year's limited order intake is somewhat down or slightly down. And therefore, I think it's quite remarkable that we have succeeded in increasing the EBITA. And I think we also have reached quite a nice profitability, quite a nice margin.

If we move to the presentation, I think on Page 3, we have covered everything on Page 5, the summary of the numbers. So EBITA, it's EUR 127 million and the margin was 8.3% significantly up, continued favorable development in Pulp & Paper and Separation. Metals continued its positive earnings development. I would say we are continuing the turnaround. We are making progress on the turnaround. Obviously, I would not say we have turned around completely and permanently. I think to be able to say that, we need to wait for a few more quarterly results that, hopefully, are going into the same direction as we have seen over the last 2 quarters to develop.

On Page 7, the order intake on the left side, Q2 comparison 2020 to '21, on the right side, first half year comparisons. And as I said, EUR 1.86 billion order intake, very good, up substantially. If you look at the middle, so you see that all 4 business areas have added order intake compared to the admittedly quite low Q2 2020, obviously, which was heavily impacted by COVID. So I think it's -- we need to be cautious that the percentages may appear to be very high as the starting point has been rather low apparently.

Half year results. Half year order intake, plus 18%, and both Capital and Service are largely up. Keep in mind that we have some first-time consolidations, especially Laroche -- basically Laroche. Laroche has contributed about EUR 22 million to the order intake in Q2.

On the next page, 8, the quarterly development over the last several years. You see the good trend the last 3 quarters. And you see, especially on the lower right side, that Service has gone up from EUR 5.3 million -- from EUR 530 million to EUR 744 million now at Q2 2021. Service accounts now for 40% -- accounted now for 40% and Capital for 60%. Service slightly lower because of good Capital order intake.

Page -- Slide 9. Revenue, slightly down in the quarter, minus 5% -- or minus 8%, and the half year, minus 5%. Pulp & Paper down from a quite high level. The reason predominantly that these large orders that are under execution are approaching the final stages. And therefore, the invoices declined somewhat, and that has caused a decline in revenues for Pulp & Paper. Other business areas, depending on quarter or half year are up or slightly down for the half year. Here, Laroche contributed marginally with only EUR 3 million in Q2 in revenues.

On next page, development of Service percentages. Again, Pulp & Paper down from a peak of 51% to 43% now. Sounds negative, can be negative. In this case, it is not negative because the reason for the lower percentage in -- of Service is that Capital has developed very nicely. Metals 25%, very stable; Hydro 38%; and Separation, slightly increasing from 45% gradually to 50% in spite of quite good revenues.

On Slide 11, order backlog. Picking up from Q4 2020 onwards now at EUR 7.4 billion, quite high order intake, as always dominated by Pulp & Paper, large projects, large orders and by Hydro, a combination of large projects and rather long execution times.

Yes, on Slide 12. Earnings Q2 on the left side, EUR 127 million, up 22% from last -- the second quarter of last year and half year, up 36% from EUR 174 million to EUR 238 million. Profitability, again, 8.3% in Q2, up from 6.3% and, for the half year, 7.9%, up from 5.5%. What happens, I think a combination of reasonable -- reasonably good revenues, reasonably good margins in the projects and the consequences of relatively strict cost containment starting middle of last year, we had the goal to get into shape by the end of last year, meaning to adjust our capacities where we felt it would be necessary midterm, long term. That was done across the board but, obviously, predominantly in a market that -- where we would not expect substantial growth in the future, which is basically European market, where the number of employees went down by more than 1,000 for the last 12 months and overall by about 10% over the last 2 years. Obviously, limitations on traveling, et cetera, contributed to the overall profitability -- maintaining the good profitability.

If you look on the next Page 13, the EBITA margins by business area, both Q2 and first half year. So you see Pulp & Paper is continuing the good development to double-digit EBITA percentages. As you will remember, we have increased the guidance for the Pulp & Paper profitability, and I think we are on a good way in this regard.

Metals, small numbers, unfortunately still, but above the borderline, 2.4% in half year, 2% in Q2. As I said, good progress, again, driven by very substantial cost reductions but also driven by a pickup in order intake and in increasing -- or decreasing under-absorption in manufacturing, in engineering as a consequence of the restructuring activities. Still a long way to go, to be honest, to get it up to the average profitability that we want to have in the group. But I think we will see some increasing or continuing effects of continuing reductions in workforce. The majority has been achieved by the middle of this year but some minor activities are going on. So we expect to see some additional cost savings in the next several quarters also rather limited. We hope -- obviously, we hope to now from here, not only to stabilize this level but to see a positive trend which will not explode but should gradually get us up to the 5% and 7% EBITA levels.

Hydro, 6.6% in the half year and 7.2% in Q2, I think, is good development compared to last year. But obviously, last year has been impacted by under-absorption of capacities, which by now have been taken out again. Hydro has done quite substantial restructuring and hopefully, has now the cost structure that enables it to provide good profitability in a market that we do not expect to grow substantially.

Very positive Separation. Excellent profitability. Good to have. Our doubts, your doubts whether we should -- whether we can turn it around, whether can -- we can increase profitability, whether it fits into the ANDRITZ' portfolio, hopefully, are somewhat reduced, and we see it definitely as a long-term promising business area that we think can be developed further, both on the top line and hopefully, also a little bit on the bottom line.

If I now may pass on to Norbert Nettesheim, our CFO, to take you through the detailed source of change analysis regarding EBITA and other numbers. Norbert, if you take over.

[Norbert Nettesheim, executive]

Yes. Thank you, Dr. Leitner for passing the mic on to me. Good morning to all of you who are on the call. As in the last calls, I'll take a few minutes to explain everything what is below operational profit in our P&L, and I'll give you a short view on the cash flow and on our liquidity situation.

As you see on Slide 14, starting with EUR 237 million, which Dr. Leitner explained in detail, EBITA, 7.9% in the first half year, significantly improved compared to last year first half year. Then, let's say, not very breathtaking changes in the other elements of the P&L. IFRS amortization, regular amortization out of our acquisitions in the past, EUR 30.3 million, including a slight number from the new acquisition, Laroche, normal development, will decrease further on in the future as long as we don't make large additional investments. So this will be a contributor to the constant improvement of our net income, then it stays normal.

With regard to extraordinary issues, in terms of goodwill, we do the regular testing every quarter, and this half year, slight adjustments in the COMPACT HYDRO goodwill that is not very important, only EUR 3.3 million, let's say, a pure housekeeping measure, nothing really important.

Financial results, EUR 18.2 million. Here, we have a hidden improvement that you can see in our direct interest results. Interest expense and interest income improved to minus EUR 8 million from minus EUR 15 million in the year before due to ongoing improvement in our financing structures. We had an extraordinary effect here of about EUR 7 million for payments out of -- to a former minority shareholder, which has to be accounted as financial cost and according to IFRS, it's EUR 18.2 million but including a favorable development in the interest area.

Taxes, 20 point -- 27.5%. This is purely the outcome of our ongoing initiatives to improve our tax structure, especially in Europe, so that we are able to use losses carryforwards more intensively and our, let's say, year tax rate of 27% for the near future periods, which we considered also in the first half year, leads us to EUR 134.8 million or 4.5% net income, which is, yes, significant improvement compared to last year, where we had a 2.8% in the first half year. And we are very proud that we go our way up to the 5% net income, which we target to achieve in future periods. Also a slight remark, which you don't see on the slide, OCI, plus [ 43 ] in the first half year due to exchange rate development leads us to an equity portion of -- equity quota of 18.6% in the first half year.

So next topic is cash flow on Page 15. Starting with the numbers. You see already net income, adding back the taxes results and considering now in the first half year EUR 28.3 million from release of provisions, which is included in the results, but not included in the cash flow. This is simply from the restructurings, which we are doing. We accrued all these things in the former periods. And now we have to spend some of the severance payments and also the layoffs of people. And then this will be a slight burden on the cash flow in this quarter -- in this half year and also in the next half year in these ranges, EUR 30 million, so that we come to a gross cash flow, which is despite the improved net income in the range of last year's because of the higher taxes and the higher -- sorry, because of the higher spending for the severance payments.

Going down from cash flow -- from gross cash flow to cash flow from operating activities. A major topic, you see the increase in working capital, which is lower than in last year's first half but still EUR 53 million, mostly driven out of normal increase in work in progress from completed contract orders and more or less a typical development that, in the first half year, we, let's say, increase the work in progress and then in the second half year comes invoicing. So this will hopefully turn in the next half year.

And also maybe worth to mention EUR 74 million taxes paid. This is simply a temporary effect. We will see in the second half less cash payments for taxes. This is purely because of the prepayment of taxes were adjusted to the higher profitability level, which we expect. So in total, it's EUR 153 million operational cash flow, which is a significant increase compared to last year's first half cash flow of EUR 100 million.

Coming then to the total financial position. The cash flow of EUR 153 million deducted then by EUR 60 million investment spend, EUR 100 million dividend and EUR 50 million for acquisitions and earn-outs, leads to a slight decrease in the net liquidity of EUR 36 million or a decrease of EUR 48 million in the cost liquidity because we paid back a slight amount for loans. But overall, let's say, for the first half year, also a very satisfying picture. The second half year, we will not have these higher spends for dividends, and also the investment level will stay on the level as it was in the first half.

So we expect in the second half the typical increase certainly to a level, which, hopefully, will be -- with respect to EUR 1.8 billion gross liquidity level. And this gives us the opportunity to do something in our financing structure, as I said. So we have planned to pay back some of the loans in the second half. So EUR 120 million is announced to the banks to be paid back, which will bring the cost liquidity a little bit down then again, but we maintain the level we have currently, and we consider it as highly sufficient for our business where we are in.

So this is for net liquidity and then a summary slide, Slide #17. I will not go to individual numbers, simple interpretation of the overall view. Everything better than last year despite the small decrease in revenues and a little bit of unfavorable development of capital employed. But this will turn certainly to the better in the second half. And when we look into profit, cash and liquidity, everything has significantly improved double-digit numbers. See the 86.9% improvement of the net liquidity or the 60% improvement of net income. So I would say a very favorable first half year 2021.

That's from my side, and I want to pass back to Dr. Leitner.

[Wolfgang Leitner, executive]

Thank you very much, Norbert. We now continue briefly through the 4 respective business areas, starting with Pulp & Paper on Slide 19. So overall, very good development, EUR 1.7 billion order intake in the first half year as -- if you compare it. So this is really a very good level. Also driven by continuing very high order intake or project activity in our nonwoven division, which, as you may remember, has shown dramatic flexibility last -- in the spring of last year by converting a pilot line into a mask -- COVID mask production line, then selling, I think, more than 30 lines of this mask production globally. And now also benefiting very substantially from the overall trend to nonwoven which is an important raw material for many hygienic applications but also other applications. So that last year accounted for nearly EUR 500 million order intake within this Pulp & Paper business area. And this year, we are on a very good track. If that continues, then could be another year on the same -- similar level as last year in order intake.

Looking at the margins, they improved in spite of some decline in revenue. I explained this with late phase order execution. And I think nothing special by the regions. And also looking forward, I think, it's good activity, and we are happy with the performance of this business area.

On the next page, Metals. So order intake significantly up also from a low level in those areas of parts. Revenues decreased slightly as a consequence of the low order intake in last year, and earnings and profitability improved as a consequence of lower costs, especially on the Metals Forming side. [indiscernible] so much to Metals, again, we are in the late phase of the restructuring, and the realization of the cost containment, certain things are still going on, maybe some very minor adjustments happening in the balance of this year. Some long-term retirements that have been agreed on 1 or 2 years ago will go into next year, but the vast majority should be done by the end of this year.

Hydro, on Page 21, solid business development. Order intake up. I'm not promising any very large orders for the second half also. There is hope. So you will smile when I continue saying that, but at least we had -- in Q2, we had kits in order with about EUR 75 million roughly order intake has been booked. And yes, there are some projects that should be either decided or one or the other only needs to come into force in the next few quarters. But again, we see this as stable. We do not expect a dramatic pickup and also stable profitability.

More dynamic is in the next page, Separation, 22, very favorable business development. Order intake, up 7%. Revenue, up 8% and a very nice EBITA margin of 9.7%, big step from 6.5%, 9.7%, maybe very high level, but we are confident that we can maintain an above-average profitability compared to the overall group profitability level.

Then coming to the outlook. The Pulp & Paper, good project activity in pulp predominantly. So we are optimistic that some large orders will be -- larger projects will be decided in the balance of this year. And if everything goes well, I think we should see -- can expect another year of good order intake in Pulp & Paper. Metals Forming, metals traditional, Metals P part, continuing good investment activity, also quite competitive. And on the Schuler side, it's obviously still dominated by the automotive industry, which is pondering investments. How much of that we will really go through remains to be seen. But overall, we hope that Schuler will have a reasonably good order intake for all of 2021. Obviously, high steel prices on the Metals P division benefits more from high steel prices than Schuler. Hydro, I think we have covered and Separation, we have covered.

So to conclude, once again, regarding the change in the Executive Board. I think with Joachim Schönbeck and Domenico Iacovelli, we have established a very good succession to me. Both have come from the outside, by the way, have been with ANDRITZ now 5, 8 years something and represent also a good combination of age with Domenico being in the mid-40s, obviously important for good diversity, so to say -- age diversity on our Executive Board we thought we achieved. Unfortunately, we have not yet achieved other forms of diversity on our Executive Board.

Looking forward, clearly, COVID has continued to have an impact on our business in the first half year. I'm not going to repeat the countries where COVID still is raging, countries where we typically are quite strong in employees and order execution. I think you probably will agree that we cannot assume that this will go away immediately. We will have to continue to live with COVID, some ups and downs in activities and some lockdowns also again to be expected for the second half of the year, especially in the northern hemisphere, especially in Asia, for example. So -- but on the other hand, we have learned to live with COVID. And I think we have shown that we can maintain profitability in COVID times and, therefore, we are optimistic that we have the right setup.

Overall, economic activity is good. Commodities are expected to go up, which should result in some new projects. Again, the overall environment currently looks good. Also probably is, to a certain extent, volatile. And our main industry is steel, pulp, mining, others are, not to forget, nonwoven, are well positioned to benefit from, hopefully, continuous good economic activity.

As a consequence, we still expect a slight decline in group revenues, which would compare to the EUR 6.7 billion in 2020. We expect a significant increase in the reported EBITA compared to 2020 baseline there is EUR 392 million, and we expect the profitability to hover around the 8% level comparing to the reported EBITA margin in 2020 of 5.8%. And currently, we do not expect any substantial nonoperating expenses, extraordinary effects. There may be some smaller, but we do not expect that, that should have any substantial impact on the profitability.

So that's my presentation, and I look forward to your questions.

[Operator]

[Operator Instructions] The first question is by Sven Weier of UBS.

[Sven Weier, analyst]

It's 3, and I'll go one by one. The first question, Dr. Leitner, is on your decision to retire from the Executive Board. So congratulations on a great career and all of your achievements in the last 34 years, quite impressive, of course. And maybe the question is a bit more rhetoric, I guess, because I mean, I take that as a sign, the timing of the decision that you probably believe that's now all the, let's say, the turnaround that Schuler is clearly more sustainable. But also when I look at the implications in terms of your shareholding, to me, it always seems like a very long-term commitment. Also the foundation and the fact that you go on the Supervisory Board probably also implies that the strategic direction of the company will not change after you retire from the Executive Board. Is that the kind of right perception of the situation?

[Wolfgang Leitner, executive]

Partially, I would say. Regarding your -- the first part of your question, I took the last exit before turning 70. Yes. So I will be 69 next year when they have the shareholder meeting. And clearly, time to -- I was not -- I was waiting for a good year and could not have waited longer. To be honest, I stayed on for probably 2 years longer than I had intended to stay initially. But as you probably can understand, obviously, I like and I love what I do. But clearly, now it's time. And I look forward to work on the Supervisory Board, to be a regular member. According to the regulations for -- excuse me, legal regulations. I can now take over the chairmanship of the Supervisory Board, which is no problem whatsoever.

Regarding the shareholding, yes, it's a long-term shareholding. I have no plans whatsoever to reduce my stake in ANDRITZ. And because of that, I have really done everything possible to make sure that my successor and the overall -- the future Executive Board will not only be as successful as we have been in the past but hopefully been more successful. Yes, continuation is, I think, is an element that is good for the company. But innovation, new blood, new ideas is also very important. And my long term as CEO, obviously, it was not the first thing to happen for the company but in the long run is also a risk and a debenture. And therefore, definitely, I'm not expecting that everything continues as it has been in the past years, but we see new ideas and new directions and innovation. And being a large shareholder, the best thing that can happen is if my successors are much more successful than I have been. Does it answer your question?

[Sven Weier, analyst]

Yes, absolutely. I was just wondering according to the Austrian law, how long is the cooling off period until you could theoretically become the head of the Supervisory Board?

[Wolfgang Leitner, executive]

It's not my...

[Sven Weier, analyst]

A legal requirement there or?

[Wolfgang Leitner, executive]

It's not my most important plan, but I think it's 2 years, I'm not sure. Michael is it 2 years?

[Michael Buchbauer, executive]

Yes, yes, it's 2 years.

[Wolfgang Leitner, executive]

Okay.

[Sven Weier, analyst]

That's very clear. Second question, a bit of a more normal one, I guess, then on the pulp situation, right, you talked about how good the pipeline situation. I mean in terms of your own capacity to take on new projects, how is the situation there? Are you having enough capacity to take the projects that are coming? Or because on the recent Valmet call, they sounded a little bit more reserved, I guess, which is good for you. But just wondering about your stance on that.

[Wolfgang Leitner, executive]

We are open for business very clearly, no problem to take orders. Obviously, we -- there is a level of overheating but we definitely are -- have not reached that. And we just now we -- I think it's also some of the large projects that are approaching, as I said, final stages of the execution. So we have experienced people that are eager to move to the next project. So no problem with limited capacity.

[Sven Weier, analyst]

And you said it's at least one that could still come this year? Or could it be even more than one?

[Wolfgang Leitner, executive]

It could be more than one. No, I'm not forecasting a super boom, but obviously, there is quite a good probability that one large will be decided and will go ahead. But there are 1 or 2 others that definitely are mature enough to be really started. Let's see what really is happening then.

[Sven Weier, analyst]

Okay. Understood. And the last question is on Hydro. You announced this [indiscernible] on hydrogen. I was -- just generally, maybe you could give us some more color about the prospects of that very cooperation but also if you already see more momentum in the pipeline you have driven by, of course, demand for more green energy. Does that do anything already to the progress? Or is that more a long-term option?

[Wolfgang Leitner, executive]

We look at -- if I may start with the hydrogen market, we look at it as a real opportunity for various parts of the ANDRITZ universe, so to say. On the one side, it hopefully has a positive impact on future capacity increases in hydropower because, clearly, that makes, for example, remote hydropower locations feasible. If you can transport, let's say, high-value fuel in the form of hydrogen to locations where that is needed, it's not as expensive as having to build larger electric lines.

It's also an opportunity for our Metals business area. And here, both for Schuler, they are in production processes and products to produce, what we call lamella for these fuel cells. And we are -- on the Metals P side, we're also looking into certain production technologies for hydrogen. I mean, we have been building electrogalvanizing lines for many, many years to electrogalvanize steel coils going into the automotive industry, the high quality and still are. And that opens also -- or creates a basis for electrolysis technologies. There, we are also looking into that. So we consider this complex sort of hydrogen together with our Hydro business area and our Metals business area as one of the, let's say, innovation opportunities, growth opportunities, will not show up next quarter but the next 2, 3, 4 years, I think that could create some -- an interesting growth island for us.

[Sven Weier, analyst]

And on the general Hydro pipeline? I mean, any kind of stimulus from all the climate change discussions there already? Or is that something you look on more in the outer years?

[Wolfgang Leitner, executive]

A lot of talk and -- a lot of talk on the basis of a stable business. We'll see now really dramatic and tangible pickup in demand. Not really. I think it's -- I am not concerned about any decline. So I think it's -- there's definitely much more upside than downside from -- starting from the current level. But growth I think there's many quarters to -- announcing that next few quarters, we show some large orders. They are still not -- they are not lost, but they are still delayed. So I'm getting cautious. I'm learning.

[Operator]

Next question is by Sebastian Growe of Commerzbank.

[Sebastian Growe, analyst]

Three questions from my side. The first one is the -- on the Service part. We've seen obviously a strong uptick since the fourth quarter of 2020 after the hit in the second and third quarter last year. So my question here would be what are the key drivers and measures? Are there any particular areas that are worth mentioning and in this regard, can you eventually also comment on how Xerium has performed since the acquisition? Or if there's any really particular area that sticks out? The question is sort of going into the direction that we have seen with other companies if there's a certain plateauing eventually on the more short cycle part of the business. So I would be interested in getting also on P and then I would continue on Metals part of it.

[Wolfgang Leitner, executive]

Yes. Obviously, the quite strong growth over the last 4 quarters cannot be extrapolated indefinitely. That's clear. Do I see it plateau? Currently no, because there has been, as I said, a demand that has accumulated over the last at least 4 quarters. And so I think that still has not been removed completely. And so therefore, I think it's -- I would -- yes, I would rather see a normalization. So going back to a reasonable growth to what we have seen in the last years prior to 2020, I would say. No -- but no particular, I would say, individual trends where we can say, okay, this is something that has popped up and will disappear. Nothing in this regard. I think I would say back to normal business, which means back to normal growth rates.

[Sebastian Growe, analyst]

And for Xerium, any update?

[Wolfgang Leitner, executive]

Xerium, we had -- sorry, it's developing as expected, good profitability. We are investing quite substantially in China to expand capacities there, where we have been totally limited and have not been able to fulfill the demand or have had to ship it from Europe, which in certain cases is not really economic. So we continue to be happy with Xerium. No clouds on the sky.

[Sebastian Growe, analyst]

Okay. That is helpful. Then moving on to the Metals segment. And well, it's a bit picky, quite frankly. But nonetheless, the margin has been down sequentially. That's more just for clarification. Is there any sort of mix-related issue in a way here or any other aspects that would be worth mentioning? And the other part around Metals that comes to mind is simply with the, yes, all-time high steel price that we currently see, will be interested in your thoughts around the pricing quality, especially in the legacy part of the business when it comes to the recent orders that you have taken. And clearly, the question goes into the direction that the business has historically been operating at rather low margin. So could there be any sort of windfall gains because of that very, very strong steel price rate we have seen.

[Wolfgang Leitner, executive]

To start with the last one, I would not expect too much of that. I mean, obviously, with the pickup in project activity and with all the capacity reductions that we have made and others have made, obviously, there the pressure -- the price pressure was not extraordinary, but I mean companies still have their older projects, the things have been discussed before. You cannot increase the price by 10% just because it's now you feel that your customer has a lot of money in the bank. So if you look at the guidance we gave for the 4 business areas, Metals continues to be on the lower side. I think we have to live with that and need to be realistic.

Coming to this quarter-to-quarter difference in Q2 versus Q1, I would -- first of all, I would not overinterpret that. But secondly, clearly, the situation is fragile. We -- I'm waiting quarter-to-quarter to see a continuation in the confirmation of the trend. And therefore, I think we are making progress in the turnaround. But I have not used the perfect that we have achieved the turnaround. That would be too early. And why was the first quarter more profitable? If I remember correctly, I think there was a small release of some small provisions we had, which have not been needed. So again, I would not overinterpret this 10s of percentages from quarter-to-quarter. We have made progress, substantial progress, compared to last year, but we are not yet there, and we have not yet a fully stable situation.

[Sebastian Growe, analyst]

Okay. Makes sense. And the last one is around Separation. And clearly, very strong momentum now for the last quarters, especially on the margin side but also now with more than EUR 200 million of orders in the segment. I'm just curious what is behind this. So is there any kind of change in the offering that gives you kind of a much better traction there with the market? Then how should we think about this business going forward, which has been hovering around EUR 600 million, plus/minus in terms of revenues? Can that be an EUR 800 million business? Any thoughts here would be appreciated.

[Wolfgang Leitner, executive]

I think that's the beauty of the business that there is no simple straightforward explanation. They are active in so many different segments. I mean, clearly, what we see is that both -- as you probably remember, we have this Separation -- part of Separation that goes into environmental industry, into mining, into food industry -- feed -- and then we have the feed division within this Separation, which produces equipment to produce animal feed, fish feed, other feeds -- other animal feeds. And both are doing well. I think that's more the result of overall good economic activity.

Again, demand has been not fully fulfilled in the last year, and therefore, now the life becomes more active. But no -- I cannot say that we have become much more competitive. For that, we have now introduced this fantastic new product. It's really -- it's the aggregate of many, many small orders, which, as I said, is a beauty because it provides stability, it provides good margins, it provides a low-risk profile, and therefore, we are happy to have it.

Can there be an EUR 800 million business? For sure, there can be. The question is whether we can make it an EUR 800 million business. We have hopes for that. We have some plans to continue to grow the business, both organically but also by acquiring one of the other small or midsized company. But we need to be successful and we need to demonstrate that we can develop the business. Clearly, it's -- it makes only sense long term to have this division if we can create both growth and above-average profitability. The high percentage of Service, and this is approaching 50% of aftermarket service content of total volume, obviously, helps and, again, makes it an attractive business to be in.

[Sebastian Growe, analyst]

Yes, that makes sense. Okay. Yes, to just conclude, I can only echo Sven's comments with regard to a very impressive career. So congratulations on that. And I wish you all the best for your future. Thank you very much for all.

[Wolfgang Leitner, executive]

Don't forget, we will see each other for the full year also. So don't give me that too soon yet.

[Operator]

The last question is by Daniel Lion of Erste Group.

[Daniel Lion, analyst]

I would like to focus a little bit on the profitability trends. You've mentioned this already during your presentation, of course. But starting maybe top-down, seeing a profitability level of actually close to 8% already in the first half year, and having the strong order intake, order backlog in all the divisions, your restructuring in place, it rather seems that -- and historically, this is anyway the case that the second half year is stronger than the first one. But it rather seems that, of course, you would be -- especially in Metals and maybe Hydro, improving profitability going forward, yes, based on the economies of scale. So it seems overall guidance for this year is rather conservative. And actually, we should start thinking of a new midterm guidance that could eventually be communicated sooner or later here. What are your thoughts in this direction?

[Wolfgang Leitner, executive]

Well, my thoughts and our combined thoughts have been expressed in our guidance. So the guidance is what it is. Is it overly conservative? No. Is there some upside? Yes. Is there some downside? Yes. I think it would be dangerous to extrapolate some short-term trends indefinitely or for several quarters. Again, the guidance is what it is, and the guidance is our best guess. It's in the middle of the range that we foresee, and we could easily give you some scenarios where -- that -- it looks much more difficult in the second half of this year. Just to mention COVID, I mean if that deteriorates substantially, if the lockups, if again, the mills shut, that's worst to outside vendors to outside service providers, things can change very quickly. I think we need to keep our feet on the ground, and we'll not become too optimistic.

[Daniel Lion, analyst]

Yes. Okay. With regards to Metals also, now given the order intake, what you see, on the one hand, on the demand side going forward, how would you expect, especially the automotive now to pick up maybe orders? Further, what's going on there? And relates to the profitability trend, is it only a question of scale that will help improving profitability now going forward? Or is it also a question of the sales mix? How are the relations here?

[Wolfgang Leitner, executive]

I mean it is not only a question of scale of revenue volume, we need to develop the nonautomotive markets. I'm not here to explain the automotive industry but just one sentence. In my opinion, we should not mix up the very good profitability of the automotive companies. This is not predominantly not volume-driven. It's certainly also a consequence of them being limited in chips. And therefore, probably, I would assume that the discounts they have to give from the new cars probably are much smaller than they used to be last year, which doesn't help us, obviously. We live on volume and on new models and obviously also electric mobility. But electric will continue. Do I expect a dramatic explosion on the automotive side for us? No, I don't.

On the steel side, regular steel industry, yes, the prices are now very good. So again, we will see, in our opinion, a few more quarters of good project activity. But the steel industry is the steel industry. It will remain the steel industry, meaning that it is very competitive, and there are more bad years for our customers there than good years, and I guess that will probably also continue. So there, if we -- and that's what I've explained before with regard to our activities in hydrogen, et cetera, we need to find some growth segments, some innovative segments within the steel industry or adjacent to the steel industry or using the technologies we have developed for the steel industry to create some sustainable growth for this business area, independent from the steel -- from the general state of the steel industry. Obviously, we cannot depend on the boom years only.

[Michael Buchbauer, executive]

We have to step out to another meeting. I would like just one final question, if you have, Daniel. Otherwise, I think we should step out of the meeting and go to another one.

[Daniel Lion, analyst]

Yes. I just wanted to thank you.

[Michael Buchbauer, executive]

Okay. Perfect timing. Thank you so much.

[Wolfgang Leitner, executive]

Thank you. Thank you.

[Michael Buchbauer, executive]

Thank you, and bye-bye. Thank you for participating. Thank you. Bye-bye. Bye-bye.

[Operator]

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