Andritz AG

VSE:ANDR

Earnings Call Transcript 2018-Q3

[Operator]

[Audio Gap]

Welcome to the conference call of Andritz AG regarding the presentation for Q3 results. At our customer's request, this conference will be recorded. [Operator Instructions]

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

[Wolfgang Leitner, executive]

Good morning, everybody. Thank you for joining us for the report on the third quarter. Overall, I think we see this summer quarter of 2018 as an average quarter and the average between light and shadow, I would say. And quite different development in our business areas. Pulp & Paper, overall continued with a very positive development. And Metals, positive development with regard to order intake. But profitability-wise obviously not satisfactory. We see -- or we saw cost overruns and also execution of relatively lower-margin orders so that our profitability there definitely is not satisfactory.

In Hydro, in spite of a large contract, it has been [indiscernible] in the third quarter. Still is facing a quite low market and therefore had not a overly high order intake in this third quarter. Overall, order intake for the group with about EUR 1.5 billion was good. And so the -- let's say, the relatively weak order intake in Hydro could be compensated by the increases in the other business areas. We had in the last 4 quarters about EUR 6.2 billion order intake, and I'm confident that when we add the fourth quarter of this year, that the full year order intake should be above this EUR 6.2 billion level that we showed for -- on this rolling 4 quarter order intake.

For the year, the sales increase in Q3. We could -- with this, we could compensate the decline in the first half year. And yes, I think everything else in more detail when we start with the presentation on Page 3. So here you will see the overall numbers. Order intake, I said, EUR 1.5 billion, attractive in Pulp & Paper and also Metals, and lower in Hydro. Sales increased to EUR 1.4 billion. All business areas saw an increase compared to last year, so reference period of Q3 2017.

Decrease of EBITA in Q3 despite the sales increase practically only due to Metals or overwhelmingly due to Metals, due to cost overruns in Metals Processing as well as in executing some lower margin orders in the -- on the Schuler side and also some decline in Hydro. And the Xerium acquisition has been closed successfully in October, end of October, and will be -- we will call it in the future combined with our existing activities in this field, ANDRITZ Fabrics and Rolls, so Xerium will, over time, will disappear.

On Slide 6 (sic) [ Slide 5 ], we will see the development of the order intake. It seems Q1 2015 and also the red line shows the rolling 4 quarter order intake. So good development since the first quarter of this year. As discussed currently, 4 quarters -- rolling 4 quarters at EUR 6.2 billion. Geographic split more or less was stable, 37% Europe, 16% North America, so developed markets combine slightly above 50%. Asia, excluding China 17%. China 19%, so combined to Asia quite active. South America low with 5%. Please keep in mind that the big order we received from Arauco for the Chilean project is -- has not been booked in Q3, but will be booked in Q4. So overall, on the rolling 4 quarter basis, an increase of 10% in order intake.

On Slide 6, sales development, increase of 3% on the 4 quarter basis to EUR 926 million, and aggregate 4 quarters EUR 3.9 billion. If we -- sorry, this was the capital sales. It was a split in sales in 2018 rolling intake. And then capital sales increased by 3%. And then Slide 7, the service business increased by 9% in sales and both in absolute and in relative terms. As a percentage of total sales, we now have 35% of sales in service. Obviously, the acquisition of Xerium will -- which is 100% aftermarket sales, will increase this percentage and provide more stable basis going forward in terms of both order intake sales and also hopefully profitability.

On Slide 8, order backlog increased by 8%. As always, more than -- the biggest order backlog is in Hydro with 39% of our total backlog of EUR 6.9 billion. Pulp & Paper 31%. Again will increase with the -- when we book the large order from Arauco. Metal was 23%.

Slide 9. Earnings, so in Q3 on the left side, you'll see EBITA went down from EUR 99 million to EUR 86 million, minus 13%. Metals basically mostly responsible, and Hydro also to a certain extent responsible from a higher or from a very high level in last year's Q3.

On the right side, the first 3 quarters at EUR 252 million, down from EUR 306 million. If we exclude the one effect -- onetime effect of EUR 25 million, mostly due to this sale of the Schuler Technical Center in Tianjin, then the decline is 11%. Still disappointing and we certainly are not happy with that. So it -- in the first 9 months of this year, our EBITA profitability went up from 6.8% on the comparable basis to 6.0%.

Slide 10, the split of profitability between the business areas. Hydro went down from 6.8% in the first 3 quarters to 6.0%. Pulp & Paper continuing very effective profitability, slight increase from 8.8% to 9.0%. Metals, on a comparable basis, 5.1% down to 2.6%. On face value, 7.1% last year to 2.6%. And Separation, stable profitability 4.7% -- 4.6%.

Slide 11. Overall, the figures we see some highlighted comments. Financial result went down slightly from minus 0.8% to minus 5.8% in the first 3 quarters due to lower average net liquidity and lower interest rates in Brazil, as well as the higher increased costs for the bonds for Schuldscheindarlehen we've issued in June last year and August of this year.

Cash flow decreased mainly due to lower earnings as well as change in net working capital both sides, higher POC receivables and lower POC payables. Net liquidity declines as a consequence of payments for acquisitions. And obviously, cost overruns also play a role. But basically it's a question of a change in net working capital, increase in receivables and decrease of payables both project related.

If we then move on to the business areas, Slide 13. Hydro basically unchanged given the market environment. They are projects that tend to be -- as always if when the market is not booming, then you wait for the project and you notice strong -- more strongly that project tend to be shifted and postponed, and not be decided, we hope they are decided. I think this is what we continue to see. Pumps, overall good development. Competition in Hydro, I would say is stable. We obviously in a smaller or a lower market competition is tough, but I would not say that it is getting tougher or that the prices are under more pressure than they had been over the last actually few years already.

On Slide 14, the numbers. In Q3, we booked EUR 303 million, which is down from EUR 425 million last year. It was a good quarter last year, but EUR 300 million obviously is not a very high order intake. In the aggregate, we are now at EUR 1.06 billion, up from last year, but the first 3 quarters last year had been extremely low. So it is still relatively low order intake. It basically follows our, I would say, defensive scenario where we have always said that we will adjust our capacities to this level and would not wait and hope to see a substantial uptick in order intake.

Sales are slightly up in Q3. Practically the same for the first 3 quarters. And EBITA with EUR 65 million for the first 3 quarters, down from EUR 73 million. And Q3 last year has been very good EBITA. It's a -- yes, it's a consequence of developments in the execution of the Hydro order backlog. I think the regional split is -- does not deserve any special comments.

On Slide 15, Pulp & Paper, good development. As I have said, this Arauco order for more than EUR 300 million will be booked in October or in Q4 of this year. Overall, continuing good activity. The overlay in Pulp & Paper, so we continue to be optimistic and that we can see a continuation of both high project activity and also continuation of the good profitability or excellent profitability that we have achieved.

It is also supported by high activity in the power generating boilers, biomass boilers, where we continue to be successful in Asia, both in China and in Japan. And from a competitive standpoint, I think on the pulp side, we are in a good position, we have developed good technologies and therefore also it's another reason to continue to be confident with regard to the future development of this business area.

On Slide 16, the numbers. Q3 order intake EUR 545 million, up 28% first 3 quarters, up 11% to EUR 1.7 billion. Sales up 6% for the quarter and 3% for the first 9 months. Service sales increased nicely also. And EBITA with EUR 136 million in the first 9 months at 9%, very attractive for the quarter, slightly lower but this is on a very high level. So this is just, let's say, volatility of the capital sales and sales execution. Yes, I think that's Pulp & Paper.

On the next page, Metals. Metal Forming, overall reasonable project activity. We are a little bit concerned that there's a very special situation in Germany where the large car manufacturers OEMs driving with the new permitting of their models with regard to emissions. This has led to substantial reductions in production and this could result in postponements of one or the other expansion project. Not long term, but could mean that this moves from planned Q4 decision into Q1 or Q2 2019 decisions. So therefore, we are little bit more cautious on new order intake on the Metal Forming side in Germany.

Regarding German car manufacturers and China continues to be -- to look good and active. Metals Processing looks very good, very active. There we expect a good project activity. Also in the U.S., I think we start seeing activities related to the change in the U.S. trade policy that there is an incentive to produce certain steels, for example being supplied to the automotive industry in the U.S. that could result in one or the other investment project in the U.S. Price level is still very competitive, but volume-wise, I think we are somewhat more optimistic on the Metals Processing side than we have been recently.

Slide 18, the numbers. Order intake substantially up in the quarter, up 39% to EUR 456 million, and the first 9 months up 23% to EUR 1.4 billion. Sales are in the quarter slightly up, in the first 9 months slightly down. And EBITA we have discussed already. Cost overruns, to quantify, I would say in a very low double-digit numbers, in cost overruns on projects and also execution of some lower margin products for a project, for example, also the Schuler project serving now the domestic -- fully domestic car industry in China, but also in Vietnam for example. So profitability is clearly unsatisfactory.

Slide 19, Separation. Reasonable good project activity. Municipal are active, especially China continuing to be active. Also industrial quite active. Mining industry quite active, for example, South America specifically Chile. And feed and biomass also satisfactory. Price-wise, as usual, I would say.

Slide 20, the numbers. Slight increase, very slight increase in Q3, up 2% and the first 9 months up 15% to EUR 550 million. Sales are up by 14% for the quarter, 9% in first 9 months. EBITDA margin practically unchanged.

And then to conclude with the outlook for 2018, we continue to forecast the flat sales and a solid profitability excluding the one-offs. And we -- overall, earnings and profitability will be significantly lower due to provisions of well above EUR 20 million that we will make for capacity adjustments in Metal Forming, Schuler, and the remaining adjustments in Hydro. But predominantly, it will be Schuler. Excluding this onetime effects, our profitability should reach almost the level of 2017, excluding the extraordinary effects which was 7.1% compared to reported 7.5%.

So overall, a stable environment, nothing to complain about. We have to work on our profitability in the -- especially in the Metals area, both Metals Processing and Schuler. And we expect -- we do not expect a dramatic change, a dramatic pick up in Hydro. So we will continuing and completing actually our adjustments in -- on the Hydro side to adjust for this lower market size, while maintaining and regaining the old profitability in the Hydro area.

So much my presentation and now your questions are welcome.

[Operator]

[Operator Instructions] We've received the first question. It comes from Andreas Willi of JP Morgan.

[Andreas Willi, analyst]

I have 3 questions, please. The first one on cash generation, which has remained relatively weak as you said on the project working capital. Given that the orders have started to pick up a bit, I would have expected that you start leveling out in terms of cash conversion. Can you confirm that there is no underlying deterioration in payment terms? And this is just a question of timing of prepayments and so on that, the cash conversion still hasn't improved much. Second question on Xerium, if you could just tell us which date you will consolidate that from the 1st of October or 1st of November and what the impact on the financials will be when you first consolidate it in terms of acquisition costs that you may book or also then the amortization of the purchase price going forward? And the last question on the mid-market strategy in Schuler, if you could give us a bit of an update on that, how that's going in terms of new sales that you achieved outside the traditional high end German automotive market?

[Wolfgang Leitner, executive]

Yes. Thank you. With regard to cash generation, obviously we are watching it very closely. We are watching also very closely the development of our net working capital. There is no large or significant change in payment terms, I can clearly confirm that. But what we have been seeing is, as I said before, an increase in POC receivables for various reasons. It's a number of projects. There is one Russian project that is suspended, but which we expect to be restarted if not this year, then very early next year, which would result in a sizeable amount of payment. There is no risk of -- that this will not be paid, but question is when can we realize the sales -- when can we realize or continue with the execution and with that the payment would be due. And the other increases in POC receivables and also payables have declined, and partially because of profit realizations but partially also because of -- yes, payments that have been made to suppliers. So there is no -- with regards to payment terms being agreed in our orders, in our projects, there is no change other than the regular variations within the project that have always been the case. And it's basically driven by project specific execution issues. Then the second question was Xerium. We will consolidate Xerium from October 1 onwards. We expect for Q4 2018 sales of close to EUR 100 million. Most likely EBITDA will be practically 0 because of the EBITA -- operating EBITA would be balanced by acquisition cost that will be booked in Q4. Also for 2019, we expect sales of Xerium in the range of EUR 400 million and EBITDA in the range of EUR 60 million -- up to EUR 60 million. Amortization will be in the range of EUR 30 million. There will be some tax advantages; Xerium has tax loss carry-forwards. We expect to be able to use part of it, so there may be some moderate positive impact on the tax rate. So much to Xerium. And then your question to Schuler mid-market, we are continuing to work on that. There's not been any larger orders in this field, but we are making good progress on adjusting our products to the needs of this mid-market. And therefore, we expand also to make sure that the orders we have booked in this field are executed at or below the cost that we have forecasted. So basically good progress, no sensational new orders in this field.

[Operator]

Then we have a next question, it comes from Andre Finke of HSBC.

[Joerg-Andre Finke, analyst]

First one would be a follow-up to Andreas' question on the working capital side. Can you remind us when looking -- we look at the last project like the one from Arauco, for example, in the fourth quarter, how the working capital and cash profile will look throughout the project? So what kind of prepayments will you get at the beginning? What kind of life from cash payments will occur? That had unchanged relative to larger projects a couple of years ago. The second question is also relates on Pulp, maybe you could give us an update on your view on the pipeline of larger projects going into 2019. And then on the capacity adjustments in Metals and Hydro where you can -- you already set the majorities in Metals, but can you be a bit more specific what exactly you are doing in Hydro and whether we should expect more to occur potentially beyond Q4 in terms of structuring?

[Wolfgang Leitner, executive]

And probably we will have to ask you for the third question because you were very -- well, I couldn't understand it completely. So #1, on the payment terms, obviously, I'm not going into specifics of the Arauco order, but typically we get a down payment in the range of 5%, 10%, up to 15% because I would say in a range of 10%, then we get the progress payments as we execute the order which in case of, let's say, a [ 2 pulp ] mill or half a pulp mill, execution takes about 2 years. And it starts with some minor payments for the engineering phase as we begin shipments which typically start, I would say, 9 months after the booking of the order and continue until a few months before startup. These are progress payments as these shipments are made. Typically up to 80%, 90%, 95% of the order value, the rest being then paid at startup -- after startup, after preliminary acceptance. And typically a small amount, a few percent is kept back until final acceptance which typically can be released against the bank guarantee. So the cash flow in the beginning is first few months typically is slightly positive -- is positive. During execution, continues to be in a good case, slightly positive, in a not so good case, slightly negative. And at some point changes, if it's profitable or into the positive side. Now there can be -- depending on payments to sub-suppliers and so on, it can be obviously can be months where it's substantially positive. Or towards the end, it can also be a time where this becomes negative. That's the question of the large Pulp project. Then project pipeline, in Pulp, continues to look positive. If you look at the announcements that have been made, we have seen acquisitions of 2 companies in Brazil. The acquirers of both companies have signaled they want to proceed with a large expansion. Now on one -- in one case, it's unclear who is the owner, who will end up as majority owner. So that may be delayed. The other one is committed to proceeds rather quickly. I think there is still in the market need the pulp mill that UPM is planning to build at some point of time in Uruguay again. There are some projects in Russia, projects also in other areas. So we are quite confident that next year should see -- not all of these projects will be actually started or decided next year, I think that would be too optimistic. But there are so many announcements and tangible projects on the table that I'm very confident that the activity in pulp investments next year should be at least on the same level as this year. Now will we get all that remains to be seen, but with our good position technically, there I think we can be also optimistic that we get our fair share of these -- or we'll get our fair share of these investments next year. And the third question, I did not understand what it was.

[Joerg-Andre Finke, analyst]

Just to repeat them. It was -- you [ extended ] the hydro restructuring where you got if -- I think you said most of the -- your restructuring costs will be occurring in Metals, but you also referred to Hydro in the report. I just was interested what kind of measures you are taking and whether that could be continuing into 2019, i.e. should we probably expect more restructuring costs in Hydro next year?

[Wolfgang Leitner, executive]

Yes. No, we have done the vast majority of the capacity -- it's capacity adjustments, yes. It's across the board, so reduction in basically manpower, combining centers of excellence, et cetera, just adjusting to a lower market. The majority of what has to be done and what has to be paid is behind us, so this year it will be definitely in the single digits. It may continue next year in the single digits, but nothing dramatic to be expected.

[Joerg-Andre Finke, analyst]

And maybe I -- as a last follow-up on your underlying margin guidance with regard to almost up to 7.1% you've seen in 2017, would still imply a very or reasonably strong fourth quarter profitability-wise on an underlying basis excluding the restructuring costs. Is there any special positive impact we should factor in for the fourth quarter here?

[Wolfgang Leitner, executive]

No, it should -- it's just typically our sales are higher. Also obviously, we look at the orders execution where we can release certain provisions. So obviously there's no guarantee for the result, but we would not give the guidance if we would not be confident that there is a good chance we can achieve that.

[Operator]

We have a next question. It comes from Sven Weier of UBS.

[Sven Weier, analyst]

Three questions from my side. Maybe we can go through them one by one. The first question would be on Hydro and the project pipeline. Is there an impact also from the term all that we've seen in some of these emerging market currencies? Is that also leading to delays or do you see other factors that had an impact on the project decision-making? That would be the first question.

[Wolfgang Leitner, executive]

Not to a large extent, I would say. I mean, we continue to be or the Hydro market continues to be impacted by the situation in Brazil. Now let's see how that will develop with the elections behind us, and the new President continues in Turkey. Also there, maybe there is some improvement in the spirit -- in the business spirit in Turkey. But both countries definitely are -- continue to be impacted by the respective situation. And overall, it continues to be impacted by solar and to a less extent by wind capacity additions. So I would not see any new trend or new impact in the last quarter or last several months.

[Sven Weier, analyst]

The second question is on Q3, specifically on EBIT. I think you said that the cost overruns in Metals amounted to low double-digit amount. I was just wondering is that for Q3 specifically? And then, I also saw on your cash flow statement that you had a kind of a EUR 7 million disposal gain. I was just wondering which division that was? So that would be on Q3.

[Wolfgang Leitner, executive]

This was -- it was -- I can confirm it was a very low double-digit cost overruns, was specifically in Q3, yes, in specific projects. And the onetime disposal gain, Michael, this I pass on to you, what was that?

[Michael Buchbauer, executive]

I think it refers to the Metals business area.

[Sven Weier, analyst]

And then just lastly maybe a follow-up on Joerg-Andre's question regarding the full year guidance, because obviously also your guidance does now include the pro-rata contribution from Xerium where you said there is going to be kind of 0 EBIT impact of -- I mean on the back of the envelope I get to an implied Q4 margin of 9.5% to reach the guidance, which is something you never had before. Is there any division that sticks out positively in terms of margin delivery for Q4 or do you see that really across the board?

[Wolfgang Leitner, executive]

It's -- obviously it would have to be on the Metals side and probably also on the Hydro side to a certain extent, yes.

[Sven Weier, analyst]

And Pulp just remains on a very good level?

[Wolfgang Leitner, executive]

And overall, it's also sales should be higher obviously that which will also would help in general which would apply to all four most likely.

[Operator]

The next question is from Daniel Leon of AXA Group.

[Daniel Leon, analyst]

Actually, there is one left for me which would be Xerium again. Could you maybe talk a little bit about synergy potentials when consolidating Xerium going forward? What would you expect in both term -- in both related to revenues and the market as well as cost-wise?

[Wolfgang Leitner, executive]

Yes. We see obviously it's -- we are confident it's a very good fit because it's aftermarket, it's serving the -- mostly the paper industry. It comes with 28 locations serving the paper industry, which will improve our presence in this market very substantially. And now keep in mind that approximately half of Xerium sales are in fabrics and the other half is in Rolls service. On the Fabric side, we have already a small company [indiscernible] in several many years actually in the range of somewhat towards EUR 40 million sales, EUR 30 million to EUR 40 million sales. On the sales side, there may be some overlapping customers that could result in slightly probably single digit loss of sales. But on the other hand, there should be synergies on the sales side because of the improved presence, so that an improved presence in the mills, where we expect a general positive impact on our aftermarket sales in all the area, in -- for all products serving are going into the paper industry. We see cost synergies or cost reduction opportunities on one side. Xerium so far has been a public -- independent public company at New York Stock Exchange. Obviously, there are costs that will not have to be continued and that should go directly into the bottom line of Xerium. And by combining the Xerium activities with our existing activities in the Fabric side, obviously there should also be cost -- will be cost synergies in all the areas like sales, like product development, product manufacturing, et cetera. So then overall, we expect to definitely be able to improve the profitability of the combined activities.

[Operator]

The next question is from Jack O'Brien of Goldman Sachs.

[Jack O'Brien, analyst]

So just want to ask another on Metals. Profitability through the first 3 quarters at 2.6% from 5.1% last year. Can you just help give me some color on these cost overruns? How long we are expecting those to continue the impacts they've had through the year? And then secondly -- actually let's start there.

[Wolfgang Leitner, executive]

Yes. It's the same project that we have already discussed in the half year. It's -- there are few others -- and it's generally due to the competitive situation in general metals market, not in the forming market, obviously the price levels have been quite low that they had to book the orders last several years. Nothing has changed there, rather prices are starting to improve somewhat going forward I would say due to the increased activity. So -- but on the backlog, margins have been low and therefore already minor cost deviations obviously become visible also in -- immediately in the gross margins that we can realize when we execute these orders and convert them into sales. Beyond that, it's -- on the Metals Processing side, there are no other -- no special large projects or anything that is a big risk or big schedule going forward. So these are minor deviations, no, nothing dramatic. And as far as we see it, well under control and nothing where we see as substantial risk going forward. On the Forming side, we saw especially low sales on the service and the aftermarket side combined with low prices or low margin that we knowingly accepted to get into this mid-market in Asia, a combination of the 2 plus some minor cost overruns, again caused by increased visibility due to overall slightly lower price levels caused this decline in the overall profitability for the Metals business area.

[Jack O'Brien, analyst]

And given the lower margin quality of the order backlog, would we expect these somewhat lower margins to persist through 2019?

[Wolfgang Leitner, executive]

On the Metals Processing side, I would be optimistic that we should be able to see a slight increase because as I have said already last time I think also price quality has slightly improved. And on the Forming side, I think this remains to be seen. As we have said, we are there with a new CEO and we are in the process of resizing again Schuler. We make several organizational changes combining divisions, et cetera. So I would -- we are adjusting the budgeting process, so I would not want to give guidance on Schuler right now.

[Jack O'Brien, analyst]

And just one final question then on Hydro. This year, we've seen sales slightly up and also slightly up in the third quarter, and obviously the margin has come down. So despite a high proportion of service sales, so again is this about the -- really the margin quality of the backlog? I notice that employee numbers is largely flat year-on-year, so I guess this isn't predominantly a utilization issue. So is this about really the backlog quality?

[Wolfgang Leitner, executive]

It is a backlog quality and you should not rely or not conclude too much of the employee number because they are correct but they're distorted by hirings and terminations for specific construction sites where we do the installation. And Hydro typically does not hire sub-suppliers but employs the respective people which can be several 100 on a specific construction site. So that -- you should not put too much emphasis on the employee number. The permanent employee numbers aside from construction sites is going down quite substantially, but it's not visible due to this construction or site-specific activities.

[Operator]

Then we have a last question. It comes from Graham Phillips of Jefferies.

[Graham Phillips, analyst]

It's Graham Phillips from Jeffries. Yes, I was going to also ask about the margin in Hydro given the strong service. If you could just expand a bit more about that? But also in Paper & Pulp, we had a very strong service and yet the margin was down. So can you talk a little bit about what's happening to the margin in Paper & Pulp?

[Wolfgang Leitner, executive]

Let's start with Paper & Pulp. I think there the slightly lower margin in Pulp & Paper is, I would say, typical volatility depending on sales realization. So there's no -- so far, currently we do not see any negative impact in Pulp & Paper. Obviously, there is a mix of orders in execution and a mix of margins in these orders, but there is no special event that would justify to say that something is worse than it used to be last quarter or last year in the same time.

[Graham Phillips, analyst]

So there was no major provision of any significance to mention in the quarter in Paper & Pulp?

[Wolfgang Leitner, executive]

No, no. Nothing, no, no.

[Graham Phillips, analyst]

And in Hydro service, is there not increased competition in Hydro service given that obviously the equipment orders are very weak?

[Wolfgang Leitner, executive]

No. I mean obviously yes, there are companies that may have not been as active as we have always been in the aftermarket in the service market. Small hydropower plants market has become more active there, but that has happened already a few years ago. We are -- I mean it remains to be seen when our competitors are publishing the numbers, but as far as we know, I do not think that we have lost market share in this quarter and this year. So in this respect, I think as a consequence of that, that the competition, the price competition, the service has intensified, I don't think so, no. I would say it's more driven by what can we do to reduce our cost base in this area. And we have several activities going on there. And we always -- I would say our main competitors in the aftermarket are not the big ones, big competitors but are the smaller local competitors. And this is unchanged basically.

[Graham Phillips, analyst]

And just finally, of the EUR 20 million. Well, it's going to be more than EUR 20 million. I don't know if you can give us an idea how much bigger than EUR 20 million the restructuring charge may be? And how much will go into Hydro? And will this put Hydro back into its margin corridor next year once you've done the restructuring in Hydro?

[Wolfgang Leitner, executive]

Yes, it will not be much above EUR 20 million. The majority would go into Metals. And we hope that Hydro, we can bring back up to the old levels. We are putting much more emphasis on the quality of order execution in Hydro also because as the prices will come back to be more competitive. The room to make -- the room to absorb cost overruns, certain limited cost overruns has decreased. And therefore, we must increase the accuracy of our order execution. And there clearly, I think there need to be certain action to be taken which are we are in the way of -- to take them. And so I'm confident we can bring it up. I think it will take a few quarters. It will not take years, but it will take a few quarters.

[Graham Phillips, analyst]

And the old margin you mean the 8.5% to 9% target?

[Wolfgang Leitner, executive]

Yes. To the margin to start with an 8% would be I think is our next goal, yes.

[Operator]

Thank you. As there are no further questions, I would hand back to you, Dr. Leitner.

[Wolfgang Leitner, executive]

Thank you very much. And we will do our best to fulfill the challenges of the fourth quarter to which we are aware that we need to achieve a lot to come back beginning of next year with an actual result in line with our forecast or guidance. Thank you very much.

[Operator]

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