Andritz AG

VSE:ANDR

Earnings Call Analysis

Andritz Group Achieves Solid Year-on-Year Growth

Andritz Group presented a strong performance in Q4 2023, continuing the trend with order intake increasing by 12% to EUR 2 billion, and revenues rising 5% to EUR 2.4 billion. The year concluded with a revenue jump of 15% to EUR 8.7 billion across all business sectors and a notable net income hike to EUR 504 million, up 5.8%. The EBITDA grew to a record EUR 742 million, an 8.6% margin, with a proposal to boost dividends from EUR 2.1 to EUR 2.5 per share. Andritz maintained a solid order backlog at nearly EUR 10 billion and sustained its ESG commitments and growth strategy, including strategic acquisitions like Dan-Web Machinery and SciTech Service.

Andritz Group Achieves Notable Growth Amid Reporting Structure Changes

The year 2023 was marked by robust growth for Andritz Group, with a 12% increase in order intake and a stable order backlog at the end of the year. The company successfully navigated a transitional phase of changing its reporting structure, which will take full effect in the first quarter of 2024.

Financial Highlights Reveal Strong Performances Across Segments

All four business areas of Andritz Group experienced revenue growth, resulting in a total revenue increase of 15% to EUR 8.7 billion. EBITDA reached a record high of EUR 742 million, and net income also saw an impressive climb to EUR 504 million, up 13% compared to the previous year.

Executives Confident in ESG Goals and Strategic Acquisitions

The Group is reportedly on track with its environment goals and has overachieved its water consumption and waste volume targets. Although experiencing some lag in workforce diversity and accident rate reduction targets, the company is hopeful about future performance. Additionally, strategic acquisitions in Pulp & Paper and digitalization highlight Andritz's ambition for technological expansion and strengthened service offerings.

Detailed Financials Show Resilience and Room for Strategic Moves

Despite fluctuations in operating working capital due to the nature of their large project business, Andritz Group managed a net liquidity of EUR 918 million, down slightly from the previous year, but still providing significant room for future acquisitions and other strategic initiatives. Earnings per share hit an all-time high of EUR 5.15, and the equity ratio settled at a satisfying 25.4%, suggesting a strong balance sheet.

Company Exceeds Three-Year Roadmap Goals and Looks Ahead to Further Growth

Andritz Group exceeded its three-year roadmap goals in order intake, revenue, and EBITDA margin. With an EBITDA margin of 8.6% and a net income margin of 5.8%, the company not only met but surpassed its targets. Eleven acquisitions were made to support growth in technology and service sectors, and ESG targets are on course with 'mission accomplished' for the roadmap period.

Optimism for Steady Profitability and Stable Service Development

Andritz is focused on increasing profitability, particularly in areas such as Hydro with longer project lead times. The Division of Separation continues to show a strong and stable development, with an EBITDA nearing 12%. The company looks forward to stable margins and slight increases in revenue and earnings, indicating controlled growth and steady progress.

Textile Recycling and Pulp Demand Seen as Opportunities for Diversification

Activities in textile recycling are expected to rise owing to its potential in the EU market. Andritz has inaugurated an automated textile sorting plant, signaling a bullish stance on this emerging sector. Pulp demand is also anticipated to grow steadily, as pulp serves as a key component in replacing plastics in various applications, offering new business opportunities alongside the traditional segments.

Hydro Backlog Indicates Future Revenue Growth Yet Slowed by Execution Timelines

Andritz is poised to realize revenue from its Hydro backlog, but extended project execution timelines mean financial gains will be gradual. The company is confident in its ability to adapt to market changes and has plans for reducing gross debt by EUR 300 million in 2024, without relying on external financial sources.

Earnings Call Transcript 2023-Q4

[Susan Trast, executive]

Good morning, everyone, and welcome to our investor webcast. My name is Susan Trast, and I'm the Head of Group Communications and Marketing. It's my pleasure to be your host today. Today's topic is our full year results 2023 of Andritz Group. And the results will be presented by our CEO, Joachim Schönbeck; and CFO, Norbert Nettesheim. In the end or after the presentations, in the end of the webcast, we will have a Q&A session, and we will open the lines for your questions.

Before we start, I would like to remind you about our disclaimer. As we will be making forward-looking statements, please refer to the disclaimer. And now I would like to hand over to Joachim. Please.

[Joachim Schönbeck, executive]

Thank you, Susan, and good morning from my side, everybody, ladies and gentlemen. Thank you very much for spending your time with us. We appreciate your interest in Andritz.

Before we start, and we wanted to give you just a very small heads up. This is regarding the reporting logic. As many of you have been visiting our Capital Markets Day 4 weeks ago, we reported on a new reporting structure from business year [ 2024 ] onward, but everything we present to you today is in the old figures. And as you know, the 4 business areas as they have been during the business year 2023. That's only for your information. And with the Q1 results of 2024, we will change to the new format, and then you will have all historical figures also translated into the new structure for comparability. That's just as a heads up.

If we look now to the first quarter -- sorry, for the first quarter last year at a glance, it's, I would say, very satisfactory. Last quarter four 2023 was a year-on-year growth in order intake, revenue and earnings. So order intake was up 12% to EUR 2 billion compared to 2024. The revenue slight increase by 5% to EUR 2.4 billion. Order backlog at the end of the year at almost EUR 10 billion, stable compared with 2022. The EBITDA in the quarter was EUR 233 million at an EBITDA margin of 9.5%. That's exactly on the level we had in the last quarter in 2022. The net income was almost EUR 160 million at 6.5%, up 13% compared with the last year.

If we have a look to the full year, we can see a satisfactory order intake and a significant growth in revenue and in earnings. Order intake at EUR 6.8 billion, down by 8%. That's mainly driven by a market drop in Pulp & Paper, all other business areas, as you will later see have -- could increase their order intake compared with the previous year. Revenue up in all business areas in total by 15% to EUR 8.7 billion. So you can see book-to-bill almost till 1, which is good.

Reported EBITDA at 8.6%, EUR 742 million, record high value of EUR 400 million, same for the net income with EUR 504 million at 5.8%. The net liquidity dropped a bit compared to last year to EUR 913 million. And the dividends per share, we propose to the general assembly to increase them from EUR 2.1 per share to EUR 2.5 per share. That is an up of 19%.

On the ESG goals, we are -- I would say we are well on track. On environment, we are fully on track in reaching our 2025 targets. In water consumption and waste volume, we already overachieved the targets we have set for 2025. The other [ goals ] we are on a good track. On excellent frequency, rate reduction and share of women workforce, we are lagging behind. Our targets, [ why ] in the yearly fluctuation, we are well on track. The same is for our governance in the supply chain as well as no infringements and no profit warnings for the complete year 2023.

We continued our acquisition strategy. We concentrated on our major strategic initiatives. Acquired Dan-Web Machinery and SciTech Service in Finland to complement our technology breadths. In digitalization, we acquired a services platform for our -- software platform, sorry, for our digital twins. In the strong service business, we expect from the acquisition of NAF. That's a leading process control brand in the Pulp & Paper industry with 125-year heritage and the corresponding large installed base, and we could acquire data in the U.S.A. to further expand our business for dryers and of operators with particular focus to the U.S.A.

Looking to the performance in detail, order intake, as I said, a significant drop in order intake for the full year for Pulp & Paper, down 27%. All other business areas, nicely up. Metals by 6%, Hydro by 17%, and Separation by 4%. I would say both Pulp & Paper and Hydro is definitely market-driven. Pulp & Paper, very, I would say, diminished investment activities. And in Hydro, we saw that the market is really picking up, and we expect that for the next years to come. While Metals and Separation in a rather stable environment. You could see what I also said about the market drop in Pulp & Paper.

If you look to the split of capital versus service that the service nicely grew from 36% to 40% in order intake, and that is a clear sign of this large project impacts. Here you can see -- sorry, I was too quick. Here, you can see the impact on these very large projects. They represent, in total, basically 10% to 15% or around 15% on top of what we say, the service business and the stable midsize business. And as a good rough estimate, you can assume that our base capacity is designed to do the business below the large projects that we are able to do the projects when they come, but not to depend on them in our structural setup.

Revenue development had a nice growth in all business areas throughout the year and in each quarter. That's a very good sign. Biggest increase in Pulp & Paper and Hydro, the growth was 17% and 16%, respectively, but also Metals and Separation grew on double-digit basis. So we would say, very solid and balanced development for the group.

The service is continuously rising over, I would say, long term. And if you can see that over the past few years, the growth rate even increased a bit, and it's our target to drive that further. The -- as the business stabilizes, the service stabilizes our business in total. We have the clear target to increase the share of service in each of our business areas. You can see separation, very nicely developed increased their service share in the previously [ adhere ] from 47% to 50%. That's where we are targeting to the largest gap we still have in Metals, where it's still only 25%, but we have plans underway to increase that.

The order backlog has on a year-to-year basis remains on the same level. It's about -- it's almost EUR 10 billion. So we have a good backlog looking forward to maybe a bit uncertain at challenging times. You can see 80% of the backlog can be attributed to the capital business and almost 70% of our total backlog comes from Pulp & Paper and Hydro, where we have the largest projects with the longest delivery times.

We have record earnings on a basically stable profitability. Reported EBITDA increased from EUR 649 million to EUR 742 million. If you look to the comparable EBITDA, if we take one-offs out like sale of property and extraordinary other items, we could increase the operative EBITDA margin from 8.5% to 8.7%. So that is a good development. And in total, the comparable EBITDA increased by 17.5% compared to the previous year to EUR 757 million.

We have an increase in EBITDA in all 4 business areas, which is very important. The growth is a bit different, but you can see we have a stable increase in all areas. While the profitability is a bit mixed, we have a very nice increase in Metals from 3.8% to 4.9%. So we would say we are on the right track to bring Metals to the EBITDA margins that we intend. We have also a good increase in Hydro from 5.5% to 5.8%.

In Pulp & Paper, it's a small drop that's basically based on the product mix between capital and service. And I would say, basically, it's -- we can report a stable profitability there. And it's only the same applies for Separation with 11.9% EBITDA on a very, very good level.

I pass on to Norbert, who will explain you the details of our financial results.

[Norbert Nettesheim, executive]

Yes. Good morning, ladies and gentlemen, also from my side. As always, it's my task now to dig a little bit more into detail in the group P&L into cash flow and liquidity. And as you see already on the screen, starting with the EUR 742 million, which I have explained in detail, we come to a net income of EUR 504 million, which is for the group record high as well as in absolute terms as always -- as also in relative terms. The bridge between EBITDA and net income is similar to what we have presented in the former quarters. We are, let's say, now at a little bit reduced level of IFRS fee amortizations, had the chance now to do also a little bit of housekeeping activities there.

EUR 7 million is included for some write-offs of old brands. It gives us EUR 557 million amortization a little bit better than last year. Impairments of goodwill, we didn't have this year, fortunately, due to the good development of all the acquisitions we made in the past. It gives an [ EBIT ] of 7.9%, which is 0.3 percentage points better than last year, where we had a 7.6%.

Financial result looks very nice. First time now positive with EUR 3 million. Certainly, driven by the -- or mostly driven by the change in the interest environment. We were able to generate EUR 20 million positive interest income this year by reasonably and carefully investing our cost debt in good financial investments. So this led, in total, to the EUR 3 million positive financial results.

And then we have the taxes this year also a little bit higher than in the last year, driven by some extraordinary tax effects from cash repatriation China to Europe and also some accruals for tax audits, which might come in the future. The EUR 504 million leads to an earnings per share of EUR 5.15, which is also a record high in Andritz's history.

Quickly, verbally, the bridge to the equity. OCI is not very spectacular of EUR 9.3 million, gives the EUR 513 million total result. And adding that to the equity we started with at the beginning of the period and taking off the dividends, which we paid on some minor items, leads to an equity of EUR 2.17 billion, which gives an equity portion of [ 25.4% ], which, for a company like ours, is a very satisfying and a very good equity ratio, which gives us a room for a lot of things which we can do then in the future.

So far on the P&L, the cash flow is a little bit of water into the wine, as you see, starting with the EUR 504 million net income. We made only EUR 375 million operating cash flow. The explanation has been given by me several times in several quarterly presentations and also in the CMD. Andritz is a big projects company with huge fluctuations in operating working capital.

After, let's say, positive effects we had in the last year, where we decreased the working capital by EUR 150 million, we have this year increased working capital, and this is mostly driven by the big payments, down payments, progress payments in the big project business, where we had last year -- a year which more new orders, which more prepayments in the early phase of the project. Now we are in the middle of the execution of the large projects, which means cash consumption in the course of the project execution.

And this then led to an increase in working capital of EUR 337 million, which, at the end then, was the main driver, why the cash conversion in 2023 is significantly below 1. But as I also have told you already several times, it would be reasonable and good to look at this at a 3-year average view. And at the left side of this graph, you see the 3 years rolling average of EBITDA. At the right side, you see the 3 years rolling average of operating cash flow. And you see here that the numbers are much closer together and that we are able to transfer most of our profits then also into the treasure box and to the cash flow.

So that's about the cash flow logic and the cash flow of the current year and the consumption of cash by increase of working capital led in 2023 to a slight decrease of net liquidity. So we reduced from [ EUR 983 million to EUR 918 million ], but this decrease is, let's say, not very exciting. It's, I would say, absolutely normal that after this number of years with increasing net liquidity, we also can have a year with a slight decrease.

When you look to the gross liquidity, this is reduced more significantly, but this is mostly driven by the payback of a larger loan. So we paid EUR 165 million back in the current year, which makes our balance sheet also a little bit more efficient, carrying not too much debt which we currently don't use for operational measures. Just on the -- as mentioned here, January liquidity was already back way over the EUR 1 billion.

So in January, we were able to harvest more than -- to collect more than EUR 200 million cash by payments from our customers. So we start with a very good basis into the year. There we have a net liquidity of EUR 1.1 billion, which, as we always said, gives us a lot of room for acquisitions and for whatever comes to digest them.

All right. That's about the liquidity. Same story as so far. And the last slide -- or not the last, but the last message. In detail here, you have the dividend slide. Joachim mentioned already, EUR 2.5 we will propose to the general shareholder assembly in March to pay out. Maintains our average payout ratio above 50%. And it's a clear sign that we want to continue our strategy to pay constantly and to pay constantly growing dividends.

So that's it on the individual numbers. You have here the overview slide. I don't want to go through all the numbers. Let's say a good fourth quarter in order intake, again, EUR 2 billion is something you should, let's say, recognize in the quarterly numbers. And when you look to the full year numbers, it's record sales, record profits, everything you have significantly double-digit increases. The only negative thing, if you want to look and want to search for something, then it's the cash flow, but I'm sure that we have now changed the trend.

The fourth quarter was already the second quarter with let's say, a positive development in that area. So I'm very confident that we will also this now bring back to the level we saw in former times.

So that's it from my side. Thank you for listening, and I pass back to Joachim.

[Joachim Schönbeck, executive]

Thank you very much. So let's make a quick review on our last road map. For '21 to '23, we can happily report that we achieved all of our targets we have set on business volume. We are not only well above EUR 7 billion, we are well above EUR 8 billion in order intake and in revenue. EBITDA margin was 8.6%, definitely, I'll just call it [ 8% ]. Net income definitely above 5% with 5.8%. And we made -- in these 3 years, we made 11 acquisitions for further growth for new technologies and for more service business. The ESG targets, as I reported, are well on track. So we can report that we have mission accomplished.

If we spend few minutes on the update on the business areas, we -- we can see in Pulp and Paper. We had a market-driven drop in order intake, quite significant by EUR 1 billion. Backlog also dropped because we were able to execute the huge order backlog that we have, which is a good achievement considering the challenges, we have in the supply chain and the logistics and in the environment we are facing.

The EBITDA is at 10.3%. It's a slight drop on the reported EBITDA margin, but that is basically driven by the business split between capital and service. You can see that capital increased by 3 percentage points, while service dropped by that, respectively. We also increased in the emerging markets to 56% on the -- of the revenues, and that is driven by the large pulp projects we are executing in Asia and in South America.

In the middle of last year, we started up the largest pulp mill in the world, the largest single line pulp with 2.3 million tonnes capacity for UPM in Uruguay. It was almost perfect starter by the middle of the year, reaching to target capacity on a very fast pace. Just another proof that we can deliver on these large projects in a really good manner.

Looking to metals. I would say the key message for sure is that, I would say, the restructuring is done, and we look forward to a much more positive business and more healthy margins. So we could drive the EBITDA margin up to -- from 3.8% to 4.9%, which is the right direction, and we are confident that we can grow and increase from there. We have the order intake on a record high for company history. That includes also very new -- a lot of new technologies. The first green hydrogen plant that we are designing and building for [Stattegger ] steel. In Germany, helping them on their way towards green steel, but also several orders for innovative technologies for e-mobility battery plants, for all solid-state batteries as well as for lithium-ion batteries.

Hydro, we see a strong increase in order intake and in revenue. That is clearly market driven. And with a good market position we have, we can take our good share. What really is remarkable last year that not only the project activities, but also order intake for us increased a lot for pump storage. And we see that now. And many customers see the necessity of these pump storage capacities as they are needed to work on the fluctuations we have in the power generation coming from wind parks and from solar parks.

So that is a trend. And we are quite confident that the good market trend in hydro will continue. And that will also help us to slightly -- not slightly, that continuously and slowly increase the profitability in that business that takes a bit longer as the project lead times are much longer than in other business areas, which takes then also some years for us to work out the old backlog.

On the Separation, we are very happy that very positive business development continued. We have a stable development. We have a good development in service. And then the revenue from year-to-year is significantly up. We are now at 11.9%, almost 12% EBITDA, very stable compared to the previous year. And some of you might look back to the many years of discussions we had where separation was struggling. I think we can happily see that restructuring was successful, and we are confident to keep the business on that track looking forward.

Coming to the outlooks. To repeat the group targets, the road map for the next years, which we presented in the Capital Market Day. We want to grow the revenues above the EUR 10 billion, want to increase the EBITDA margin above the 9% and the net income above 6%. M&A strategy should focus on service and digitalization, and we want to overachieve our ESG targets. That's in a nutshell, and we will work hard for that.

The near-term market outlook, we would say, in general, we see satisfactory market activities. We see good markets for hydro in general and other green products. And in North America, the economical and geopolitical challenges are closely monitored. And you could see from the last years that if we say closely monitoring, we mean closely monitoring that we are, I would say, in a good position to cope with the unforeseeable to come. Financial guidance for this year, we expect a slight increase in revenue and earnings.

That was it from our side. Thank you very much, and we are now ready for questions, if there are any.

[Susan Trast, executive]

Yes. Thank you, Joachim and Norbert for your insights and remarks. As said, the line is open. [Operator Instructions] We have the first question coming and that is one from Sven Weier. Please, Sven.

[Joachim Schönbeck, executive]

We cannot hear anything.

[Susan Trast, executive]

[Operator Instructions] Yes. Very good. Now we can hear you.

[Sven Weier, analyst]

The first one is with regard -- maybe just following Dr. Schönbeck up on the latest comments you made on the guidance. I was just wondering, when you say you expect a slight increase in revenue and earnings on the earnings slide that also applied to the adjusted EBITDA, and how should we think about margins? Should we think stable margin? Or yes, that's the first one.

[Joachim Schönbeck, executive]

Yes, you should. It's what we guidance is on reported figures. And I mean, we have -- if you look back now to 2023, we have a book-to-bill of about 1. We have a good backlog of EUR 10 billion. So we could see a slight increase, and I would say, stable margins.

[Sven Weier, analyst]

Understood. And then maybe just a follow-up on the Metals and Pulp & Paper order intake situation. I was just wondering how you see the Pulp & Paper pipeline from here? Do you think that in the coming quarters, the order intake is going to remain at this level and only improve later this year? And the same for Metals. We saw some softness compared against the previous quarter. Do you think that's just lumpiness? Or is that also maybe are in a more cautious approach by the auto clients.

[Joachim Schönbeck, executive]

If we start from the back, I would say, in the Metals, there is definitely cautiousness in investment, and that is for automotive industry as well as for the steel industry. On the other side, we see investment necessities. But I would say, the global uncertainties and also political uncertainties in many areas of the world, I would say, hold back the investments a bit.

So therefore, we saw a slowdown in the last 2 quarters, and we see this, I would say this tendency to continue. There is a better look for the second half of the year. If you look to Pulp and Paper, we could see that the market situation for our customers improved on a general level. And that accounts for pulp, as well as for many paper grades. So utilization rates and paper mills increased a bit to the beginning of the year. So we can see -- we would see a slightly positive development there. If we look for the major capacity expansions in pulp, we do not see major projects in this year.

[Sven Weier, analyst]

And I mean this kind of pipeline, I guess, also means that because I think last year, you spoke about the load in the pulp business, it gets a bit more critical in the second half of this year. If you don't see an improvement in order intake, I would assume that this is then also reflected in the guidance because, I guess, when you -- if you were seeing a more positive order outlook for pulp, you would probably even have a higher guidance than this. Is that fair to assume that the guidance takes somewhat lower loading in pulp in?

[Joachim Schönbeck, executive]

That's a fair statement. But even if we would have a major pulp investments this year that would not add signification to the revenue, yes? So -- but that's, for sure, a fair statement. On, let's say, on our operational side, we are prepared for that. So we are not caught by surprise. And we are adjusting our capacities accordingly because that is, I would say, quite a natural reason for us that we have a good adaptability to the changes in these markets.

[Susan Trast, executive]

And then we have questions from Akash Gupta from JPMorgan.

[Akash Gupta, analyst]

It's Akash from JPMorgan. And I have a few quick questions as well. And the first one is on Pulp & Paper as well. I mean, as we have seen a correlation between share price and pulp prices. And quite some time, we basically debate whether that is right or that is not right.

I mean the question I have is that can you help us understand a bit, has there been any financial impact in 2023 financials from the pulp prices decline that we saw in the first half of the year? And then maybe if you can also give us some figure that when we look at 2023 revenues, roughly how much of revenues are coming from large pulp projects in financial year '23? So that's the first one to start with.

[Joachim Schönbeck, executive]

So on the -- I would say, in our financials, there is no impact on the pulp price. I think we can fully exclude that because that is not on our balance sheet. And the amount of pulp that we are purchasing is so small, only for our test facilities, that it has no impact. On the one slide, we are showing you the large projects, the relevance of the large projects on the order intake in hundreds.

And you could see that roughly on a yearly average, we have about EUR 1.2 billion order intake over the last 5 years on large projects. So that represents a revenue share of around 15%, and that's the number -- that's basically what we can say there. So 15%, I would say, goes to large projects. I cannot distinguish now between the pulp, paper and the rest.

[Akash Gupta, analyst]

And the second one is on also Pulp & Paper. I mean we have this deadline in the EU for textile recycling. Can you talk about how are you seeing the business activity for recycling of textile? And could that basically help offset some of the weaknesses in large pulp and order award, so to speak?

[Joachim Schönbeck, executive]

So on textile recycling, I would say, technically, we are quite bullish. It's exciting new market. I think we have a strong position there. There was about 12 million tonnes of textile, waste every year in the EU. We have inaugurated -- in November last year, we have inaugurated an automated textile sorting plant.

That's the first of its kind where you put garment and other textiles in and they sort to a high degree, above 85% cleanliness on color and on material. I think that is a huge step. It draws a lot of interest in that industry. And we believe we are in the beginning of a development where textile recycling supply chain is going to be developed and quite the same, what we have seen in the '70s developing around paper. So we see a strong parallel there, and we are prepared for that.

How much it can replace pulp markets? I'm -- I cannot say. And I also would not say that, that is needed because we see on the midterm, there is a strong demand, and there will be a strong growth in pulp, in pulp demand worldwide as we still see that pulp is one of the major building blocks to replace plastics in many applications like packaging and in other ways. So we see it as an additional business, but the volumes, it's growing and it's slowly growing because it has a lot of regulations to be looked for.

[Akash Gupta, analyst]

And my final one is for Mr. Nettesheim is on balance sheet efficiency. I see you repaid EUR 165 million of gross debt in '23 and have reduced your long-term debt, but your short-term debt has gone up versus last year. So do you have any further plans to reduce gross debt in 2024? And if yes, then what could be the approximate amount?

[Norbert Nettesheim, executive]

Yes, it's a clear plan that we reduce further. We will repay [ EUR 300 million ] in 2024, and we are currently not having the plan to refinancing it with effect on the balance sheet. Maybe we do something in the lines. But on the balance sheet, we will not take further debt from external financing sources.

[Susan Trast, executive]

Okay. Then we have our next caller from Austria. But unfortunately we don't know the name of the caller. So, you, who recognizes yourself from this description, so please, the line is yours.

[Daniel Lion, analyst]

This is Daniel Lion from Erste Group. I would also like to follow-up some how on the trends just to get it right. When moving towards the end of '24 and into '25, how would you see the business somehow evolving given the current weakness in Pulp & Paper?

Would you expect when going into '25 that we'll have some order intake that will support the business -- overall business in '25? Or would you rather expect that the strong Hydro and other business products could compensate to some extent for some time in '25 in order to keep up the current business volume and moving towards the '26 guidance?

[Joachim Schönbeck, executive]

Yes, as I said, we expect the pulp market to grow midterm and to grow steadily as the large pulp projects they add spot-on capacity of above EUR 2 billion per new plant. They come at a spot so there is no continuous movement. Our expectation is that looking to the project pipeline, we rather expect expansion decisions made in 2025 than in 2024. So from that point of view, we are prepared, and we are working on that already.

[Daniel Lion, analyst]

I understand, of course, the market will recover at some point. But of course, given the lead times you have, of course, with the large-scale projects, is there -- do you see any risks to have then some kind of a dip of the business in early '25 before it starts to increase again? Or do you think this will flatten out given the demand trends in the other business areas?

[Joachim Schönbeck, executive]

There is, for sure, this -- this period of lower activities. And as I said, adapting our organization to these trends and changes is basically one of the key feature of our business model, and we are not afraid of taking that. And I mean, on the -- if we are moving to a renewable and sustainable resources, investment in pulp requires supply of natural fibers. They have to grow. So we are in a cycle that is given. And this is why we can see there will be investments to be decided in 2025.

[Daniel Lion, analyst]

Yes. Okay. Got it. Do you have any updates for us regarding your hydrogen contract that's supposed to be fully signed in the -- during the first quarter this year? How is this evolving?

[Joachim Schönbeck, executive]

Yes. As we reported last year, we have received the FEED contract, forward engineering and design for this Koppö Energia project in Finland. So that isn't evolving quite well. Engineering is on track. Financing has worked on in the background. We still expect supplier decision by second half of this year. So that would be something very tangible, and we believe we have a good -- it's a good opportunity for us. There are other projects in the market, which are currently under negotiation. So I would say we have definitely a very good, a good market activity, yes.

[Daniel Lion, analyst]

Okay. And last one, regarding your -- the positive trends we are seeing now in hydro. Backlog is building up. We are now, finally [ above ] EUR 3 billion, again. By when would you expect this to translate into revenues and also profitability? Is this already expected maybe in the second half of this year? Or will this take longer?

[Joachim Schönbeck, executive]

It's slowly -- it will slowly move into this year into revenue, but the lead time in the hydro projects are typically longer. So we are not talking about 2 to 4 years than 1 to 2 years. And the backlog, the significant backlog we still have from so-called older orders also need to be worked out. Therefore, the recovery on the financial side will take some time, but we are confident to steadily grow it in that direction.

[Susan Trast, executive]

We would still have some time for questions, so if there's anything you would like to ask Joachim and Norbert, so please use this opportunity. [Operator Instructions] Yes, please, Akash. You would like to continue with additional questions, please.

[Akash Gupta, analyst]

Can you hear me?

[Joachim Schönbeck, executive]

We can hear you.

[Akash Gupta, analyst]

Yes. So I have a follow-up question on the earlier remarks during the presentation made by Dr. Schönbeck when you said that the decline in backlog in Pulp & Paper is not a bad news given the pressure on the supply chain. Maybe if you can elaborate on where do we stand on the supply chain in the Pulp & Paper side? And what are the areas, where you still need to see some improvement or the situation is still somewhat tight, which is why you think that the decline in backlog may not be a bad news for Andritz?

[Joachim Schönbeck, executive]

Well, the -- maybe I was not clear enough. Sorry for that. The decline in backlog, we see is a good news because it showed that our organization was able to deliver the large projects on time. And that is what the -- what our customers expect. That's what we are being contracted for.

So -- but giving the uncertainties, I would say, the increase in material prices, the struggles on the supply chain, shipping rates, Houthi attacks on the sea, with all these disturbances, that is what made us quite proud what the organization and the project team achieved, yes, that we still could deliver all projects on time. That was the background of my comment.

[Akash Gupta, analyst]

Sorry. I misunderstood that one. And then my final one is on book-to-bill expectations for 2024. I mean you have not commented directly, but you have given a lot of indirect comments and by segment. So if we add everything together, do you think we could see a stable 1x book-to-bill for 2024?

[Joachim Schönbeck, executive]

Yes. That would be -- that could be a fair statement.

[Susan Trast, executive]

The next question comes from Christoph Dolleschal from HSBC.

[Christoph Dolleschal, analyst]

Yes. As usual, the Pulp & Paper questions keep on coming. So I'm going to add to that. You said the business may see a bit of a dip in 2024. I said may, we don't know. But what measures would you have available to up your capacities if that was needed? That's the first one. The second is whether Paracel had just for planting trees, so the project is still on. So it's currently assume to come online in 2026, '27, would you agree to that?

[Joachim Schönbeck, executive]

Yes, I'm not the right person to ask on the -- coming into first of Paracel. I think there are -- you know as much. You probably know more than me because it's basically in the hands of the bank. Our contracts are signed. We are ready to start. What we are waiting for is the financing. So I cannot -- I can really not speculate on that, but the owners -- the owners probably know more. We are ready. We are preparing. And what we know is that the owners are preparing the site and they are continuing to plant trees to supply the pulp mill.

Then on the capacity adjustments, we -- as I said, we consider ourselves quite experienced in adopting our capacities according to the project needs as we know that these projects are fluctuating and unfortunately, increasing globalization made all the cycles the same. So everybody wants a new mill at the same time and does not want to have a mill at the same time. So cycles are more steep. We can handle that. And we do not see significant reportable financial impact on the balance sheet of Andritz.

[Christoph Dolleschal, analyst]

Okay. So -- but when we talk about adopting capacities, what does that mean? Does it mean reducing part-time workers? Or like what are the measures that one can take there in high fixed cost business?

[Joachim Schönbeck, executive]

You can take part time. We have extended work ventures for engineering work that are cut off. We have temporary workers on that are -- that can be easily cut off. We have growth areas like the green hydrogen, like battery, where you can move engineers and project managers back and forth. So same applies for hydro. So these are all the measures, and we are quite confident that we can take these measures.

[Susan Trast, executive]

The next question comes from Peter Rothenaicher from Baader Bank AG.

[Peter Rothenaicher, analyst]

One question on Metals, you mentioned a more challenging environment. Do you see this lasting somewhat longer? And might this have some impact on pricing for the project? And do you see here the risk perhaps of underutilization, let's say, in 2025 or so?

[Joachim Schönbeck, executive]

Now if the market is slow, there is a risk of underutilization. And then I would refer to what I just told on the capacity adjustment in Pulp & Paper. So we are running the same procedures in all business areas, and we also exchanged between the business areas to the extent possible and necessary.

And for sure, we have to be -- we have to be cautious and careful looking forward because we are depending on the investments of our customers. And you can read the papers that in the automotive industry that the challenges for our customers are multiple. They're forecasting on how much e-mobility will be -- will be in this year and next year, how much internal combustion, how is the distribution between Asia, Europe, North America. These are uncertainties, they come down to us. And I think we are in a close dialogue with the customers to cope with that.

[Peter Rothenaicher, analyst]

But you feel comfortable that you will not see such a pricing situation as in the past as we have seen that many projects were not making profit. How is your policy there?

[Joachim Schönbeck, executive]

No, we are -- as I said, our clear target is to improve the profitability of the Metals area. And there are many ways to do that. And one way definitely is not to entertain ourselves in nonprofitable projects.

[Peter Rothenaicher, analyst]

Then more on the financial side. Mr. Nettesheim, you mentioned that you're still planning to pay back gross debt. What would be a fair assumption for possible financial results in 2024?

[Norbert Nettesheim, executive]

Yes. I can only tell you what you can read in the newspapers. We will expect a slight decrease in interest rates, which will also then have a very, very small effect on our interest income. The financial -- the financial investments volume will go a little bit down by paying it back. So I would not add too steep increase into these numbers, if I were on your side.

[Susan Trast, executive]

Then the next question goes to Lars Vom-Cleff from Deutsche Bank.

[Lars Vom Cleff, analyst]

Two quick ones, if I may. I mean we already spoke about the volatility of order intake, when it comes to the large orders. Based on what you know and what you see for '24 already, is it fair to assume that the order intake service as well as the order intake for smaller projects should at least be stable year-on-year, if not slightly rising?

[Joachim Schönbeck, executive]

I mean you know that we do not make forward-looking statements on order intake. Therefore, it's -- I would not like to comment on that.

[Lars Vom Cleff, analyst]

It's always worth trying. And then the Paracel, it sounds that you are in close contact, yes, that you explicitly know what's going on. Do you have a binding letter of understanding with Paracel? Or is there a risk that all of a sudden a competitor appears on the scene that then gets the order?

[Joachim Schönbeck, executive]

So there is always a risk that a competitor appears, and they appear on a daily basis, you can't be sure about that. It's like in your business, but we have a signed contract. And so that's a binding agreement with a clear termination period or expiration period. It already passed 2 of these expiring dates, and we found good terms with the customer to extend that.

And that is needed if you want to go into a project financing because the financing side of the banks, they need a strong commitment from a contractor to make the project happen. So that's the status. And we are in continuous and good communication with the customer.

[Susan Trast, executive]

So it looks like that the times is up, and it's time to say thank you for joining us today. Enjoy the rest of your day, and we look forward to meeting you again on April 25th, when we have our quarter 1 result release. Bye for now from [ Vietnam ].