Andritz Ag Graz Akt

Good morning. A warm welcome to the capital markets from Andritz. I'm here with our CEO, Dr. Schönbeck, and our CFO, Mr. Nettesheim. Let me quickly run you through the agenda for today. We'll start with the overview of the financial performance by Dr. Schönbeck, then switch to the financials, and then finish up with an overview on the segments and the outlook, followed by the Q&A. For the Q&A, I would like to ask you to register with your full name so you can ask questions. And now I'd like to hand over to Dr. Schönbeck for his opening remarks.

Good morning, ladies and gentlemen. Thank you very much for attending our webcast for our half-year's results and your interest in our company. I would say the message we want to deliver today is basically that we have a stable development despite a quite challenging economic environment. We can confirm the guidance for 2024. But let's go to the details. If you look at the numbers, the order intake dropped in the first half year compared to the last year. However, we cannot say that we are unhappy with the order intake that we could collect. looking where the markets have been in the first half year and what the general trend in the economy was. We had a continuing absence of large capital investments both in pulp and paper and in metals. But on the other side, we could see a very good development on our green products. which led to a significant increase in order intake revenue and EBITDA in our business area, environment, and energy. We had a solid growth on the service business, and the Q2 order intake was approximately the same level as Q1, supported by a significant pickup in pulp and paper. We had a slight decrease in revenue resulting out of the low order intake in the previous quarters. We can report a stable earning, stable EBITDA, slight increase in profitability. This comes from the improved mix with a higher share of service in green products and based on a solid project execution. Net income is stable and slight increase in net income margin. We, 2018, we have established a... Startup joint venture called Otorio in Israel. And so we developed it with the task to develop OT cybersecurity because we were missing competitive products in that area. And we needed solutions to go for our customers. I would say, lighthouse project of autonomous mills we wanted to deliver to our customers. So we met with specialists in Israel. We developed that joint venture. Now we had last quarter the first financing round brought in new co-investors, and we believe through that providing additional growth, additional capital for the growth. The guidance for 2024 is confirmed. We have still quite a large order backlog. We see a growth continuing in service and green products, and the project activity has picked up in several markets. If you look to the half-year KPIs, in total an order intake of €3.8 billion, The revenue is at 4 billion euros, so book-to-bill slightly below 1. Order backlog dropped. to 9.7 billion, still quite solid. EBITDA at 333, same number as in 2023 first half. The EBITDA margin improved to 8.4%, up from 8.1%, and the net income at 224 million euro. The quarter two, 1.9 billion euro order intake, revenue 2.1 billion euro, the margin and EBITDA net income apparently in line with a half year. We made a very important acquisition complementing our investment. automation and digitalization business, we acquired the Finnish company Procemex. They are the global leader in integrated web monitoring and web inspection solutions that helps our customers with their paper machines, first to ensure the product quality and second to minimize costly downtimes as it reduces web breaks in the machine. It helps us to deliver the autonomous mills we think about, and it definitely helps our customers to work more efficiently. So we are happy to welcome them on board and looking forward to a good business inside Andretz. On the ESG, we are on track. These are the numbers from end of 2023, so nothing new from our last call, and we can continue to the performance in detail. Having a closer look to the business areas, we can see on the order intake, the drop 18% to 3.8 billion euro. And you could see that if we look to the first half, we have a decline in pulp and paper metals and in hydropower. And in environment and energy, we grew the order intake in the first half by 38% in the... in the second quarter even by 46% to 447%, which is quite a good number. Second half in pulp and paper is not that bad. It is above second quarter 2023 and it is significantly above the first quarter 2024. which gives us hope that the trough in that market is gone. And that also resonates well with the up-picking. project activities. If you look at the order intake in hydropower, it looks pretty bad. But we have to consider that in the second quarter of 2023, we booked this large project in Laos, Luang Prabang, a mid-triple-digit order. So therefore, I would say The situation there does not look quite good, and we see a continuing increase in market activity in hydropower. The revenue basically follows, I would say, the moderate order intake of the last quarters. For the first half, it's down by 9% in pulp and paper. It's stable at metals. In hydropower, it's a bit down in the first half by 7%, and environment and energy growing strongly, 16% in the first half and 27%. in the second quarter, so quite a good dynamics in the growth. And you can also see that hydropower picked up in the second quarter by 2% the sales. And we reported in the first quarter that I would say the low sales in hydropower is related to some slowdowns in project execution. This is now behind us, and we can see stronger growth in the quarters to come. On the earnings side, it's a very stable development. We have exactly the same EBITDA delivered as last year, €333 million. The margin slightly increased 8.1% to 8.4%. And if we take out the non-operative items, we were stable at 8.2% compared to last year. The order backlog, I would say, is dropped by 3%. It's still on a good level. It went up in hydropower and in environment and energy. It dropped in pulp and paper and metals, and I think this is well in line with the market and order intake development. that I reported beforehand. Now I hand over to Norbert, who guides you through the details of the financials.

Yeah, good morning. Also from my side, as good practice, I take over the details on the group P&L and on cash flow and liquidity. As in the last presentations, pretty same pictures all the time. 333, it happened to be the same number, which is a very, very good development, declining sales and having operating results at the same level as before. We are satisfied with that. Depreciation a little bit higher than in last quarter. We had a Extraordinary effect of 6 million for some housekeeping issues where we devaluated assets, which certainly in future restructuring programs also lead to reduction of people. So this we took already into this quarter. That's the reason why we have this 90 million depreciation included in the 333 million EBITDA, which 10.6% on the normal and good and high level as EBITDA. In previous periods, 10.1 we had in the first half of 2023. So here we see also a relative improvement. Going to the right, amortization, nothing new to report. Financial results this quarter and this half year, negative. You remember maybe that we were in first quarter at zero, expected some increase from the real interest side. This interest effect we had, but it was in this quarter. compensated by a valuation effect. You already mentioned already this topic, Otorio, where we took an investor in, which maybe then went down to 41%, had to deconsolidate it, and following this move, which is a successful move, because we now have for Otorio further investors in who help us to market this company and to develop it further. Following this change in the consolidation of Otorio, we had to do some valuations, which at the end ended up in the financial result and brought it below the zero line. In the next quarters, we will see there the positive effects from the real interest, and for the full year, I expect to get it back significantly above the zero line. 300.6 million EBT, 7.5%, is an increase of 20 base points compared to last year. And also on the tax side, we have a positive development with a reduced tax rate, 25.5. Last year, we had effects on GDP. let's say, one-time payments for previous periods. So also this was a kind of a tailwind in the first half, which led then to this 5.6% net income margin. And as you see, we are well on our track to the 6% target, which we communicated in January as a net income target for the future. So overall, let's say I and we are satisfied with the net income and with the total groups P and L. And this also is reflected in the cash flow. So it's not only profit what is good, it's also the cash which we produce, which is good. You see here that based on this net income of 223, we were able to manage to get a cash flow of 308 million in the first half year. It's a pretty normal development. The only issue to mention is effects from net working capital in the half year, full half year, slightly negative, so a slight increase in working capital on the half year. Half year in the first quarter reported there 146 million tailwinds by reduction of working capital. Second half it turned into, let's say, an increase in working capital. But you remember now from last meetings we had that this is, from our point of view, a very normal development in the business where we are in with fluctuating working capital of 100, 150 million from quarter to quarter. So nothing really serious. Everything in the normal range of the business, what we are doing. The income tax is paid much more positive than in the last first half year of last year. I mentioned it already also visible in the tax ratio. So and investments, CapEx increased significantly. This is a pure effect from the gross investments which we do in several regions, building service centers, let's say developing new businesses. And this at the end also ends up in higher spendings for CapEx, which is in the first half year 107. despite 93 in the last year. So overall, nothing really important to report. Here you have for completeness once these quarterly effects on working capital. But let's look to the right side. In average and over several periods, we produce constantly above 500 million cash with the business where we are in. So, and last but not least, the financial positions at the very right side from 23, end of 23 to end of the first half here, you see a reduction of 389. And the gross liquidity reduction is highly influenced by a repayment of a larger loan. 300 million we were able to pay back out of our gross liquidity. And we are currently not planning to refinance it in a way as we did in the past. So we will not take additional debt on the balance sheets for the time being. 1.4 billion and the cash flow of the second half is certainly enough to do everything what we need to do and what we can do and we are further on well equipped with cash to enter also into short-term and quick acquisitions or in major other investments the other effects are shown in the right part of this dividend cash flow capex so this is a bridge to the a net income of 831 – sorry, the net liquidity of 831 million, which is still sufficient and, well, a good basis, as I mentioned before. I usually take here is the summary of the group's numbers before we dig further into business areas. I can summarize what Joachim and I have said. It's order intake slightly declining, but still the very good development in service and green technologies. The stable revenue out of the good backlog and the very, very stable service business what we have. profitability stable, most likely driven due to these mixed effects and due to the margin improvements which we have with, let's say, worse orders, bad orders phasing out of our execution. And then this leads to a very stable development in net income and a strong cash generation. So overall, despite the one or the other minus number on this page, we are still very satisfied and are sure that we will continue this also in the next half years. So far on the group numbers. I'll pass back to Joachim.

Thank you very much, Norbert. For the details, let's have a deeper look to the business areas. starting with pulp and paper. Profitability is at a high level. Share of service revenue increased in half, one to 49%. It has grown, but it's mainly coming out of a decline in the capital business, which we are all aware about. We reported, I would say, a swing. We had, I would say, a satisfactory second quarter in order intake. We have been ordered an important order for our new products from China. Swedish pulp company Södra for a large lignin separation plant together with a sulfuric acid plant. These are two of the new products that we have developed under our side stream and circle to zero initiative. So we believe very important looking way forward. We, besides the higher service share, we, of course, entertain strict cost management, which also helps to protect the bottom line. EBITDA margin now at 10.2%, and the EBDA margin increased by one percentage point almost to 12.7%. So it's a good development. Last weekend, we could start up two large pulp mills, one for our customer Susano, the Cerrado plant finally went on stream, and one large pulp mill in China. So very good activity and performance by our pulp and paper team. In metals, severe decline in order intake, stable revenue, definitely based on the strong backlog. We can, on the bottom line, you might be a bit disappointed by the development of the EBITDA and the EBITDA margin dropping significantly. to 4.5% on the half year and 4.2% on the quarter. However, I would like to bring your attention to the... to the EBDA, where you could see that we have on the operational level, we definitely have improved the operations, but we also had to take some cost provisions for restructuring. We could see with the development in the automotive industry, and the regional settings, we could see that the volumes we were used to on the automotive side, in particular in Europe, they will not recover. We don't believe that these volumes will come back, and we will take the measures to adjust our capacities accordingly to be ready for a healthy business in the future. In hydropower, we could increase the profitability strongly. We went up to 6% EBITDA margin in the first half and 6.4 EBITDA margin in the second quarter. So that is definitely a very good development, and for sure it's a... strong improvement in order execution together with the phase out of some of the legacy projects and we believe that this trend can continue in the future in combination with the good development of the service business. We are confident that we can increase profitability here. Environment and energy gives a really good picture. I think it's a good message for everybody that the business area with the highest profitability at 11% EBITDA margin for the first half and 11.8% for the second quarter, that the business area with the highest profitability is the one that is growing fastest. I think that is very good and keeps us engaged. Strong demand across various industries, strong demand for our green products. So we believe that we are in good shape there. you see the service margin dropped, not the service margin, the service share dropped from 43% to 38%, which shows good resilience of the business in total. Coming to the outlook and the group targets, outlook guidance is confirmed. Market outlook, we do not expect a quick recovery of the market. However, we can see project activities are picking up across several industries and markets. We can confirm our guidance. We have a satisfactory performance in the first half. We have a strong growth in the service business. We see a growth in environment and energy. And based on the existing order backlog, we expect stable revenues for 2024. The group targets which we presented to you in the capital markets in January remain unchanged. We still want to grow to 2026 above 10 billion, want to increase the EBITDA margin above 9%, the net income above 6%. We continue with the M&A strategy, focus on service and digitalization as you have seen with what we did in Q2. and we want to overachieve our ESG targets.

That's for me, and I hand over to Matthias. Thank you, Dr. Schoenberg and Mr. Nettesheim, for your insightful presentations. I'd like to open up the Q&A session. As a reminder, please register for questions with the full name. And we take our first question from Akash Gupta from JP Morgan. Akash, go ahead. You're taking Sven Weiher. Good enough for me. Sven, please go ahead.

Good morning. Thanks for taking my question. It's just referring to your statement on project activity. I was curious about that because I was wondering the message you want to convey to us here. Does it mean you have become more constructive on second half order intake recovery than you were in Q1? And especially, how do you feel about bigger pulp projects on the greenfield side? Obviously, there's quite a few in the pipeline in Brazil, obviously the famous Paracel one in addition to that. So really just wanted to find out if your confidence in the auto recovery overall has increased now against Q1 or, yeah, that's basically it. Thank you.

No, we have, as I said, and I don't mean anything different than what we have written. There is an increased project activities, which usually means that customers are considering investment seriously. They engage their teams. They engage us. When this will result into order intake is completely in the hands of our customers because they need to schedule their projects. But the level of activity has picked up, and usually this will also result then in some orders, and whether it will be in the third or fourth quarter this year or in the first quarter of the next year is a speculation I cannot take.

And when you say several markets, does it mean all the divisions except for metals? Is that a fair statement?

I would say it's even beyond. It's in pulp, it's in paper, it's in automotive, and it's in steel. So it's really, we can see it across, and there might have different times to ordering, but for sure we could see Let's say this reorientation in the automotive industry after, I would say, after the wake up on the future of the electric vehicles came to an end. I believe it looks like our customers now have a clearer idea. where and what to invest, and now the discussions are starting. So I would say that's basically all I can tell you, but usually it's a good sign.

And is it, I mean, when you speak to your clients, I mean, we hear it a lot that companies also say our pipeline is good. but conversion is still slow because interest rates are still high, political uncertainty, da-di-da-di-da. Is that the same you hear? Is that keeping customers still right now away from converting the pipeline or any other factors on top?

I would say what you mentioned is also what we hear, Erl. and I think it definitely would be not wise to neglect that. I would say adding to what you said is definitely subsidies, which are under negotiation, and a lot of the new technologies are eligible for subsidies, and definitely also that is... their certain certainty is needed. And all political changes have an impact there.

Very clear. Thank you, Dr. Schoenberg. Thank you, Sven.

Now, Akash, it's your turn. JP Morgan.

Yes, hi. Thank you. Thanks for your time. I have a follow-up to Sven's question, and it is also on demand. And clearly, you have mentioned that project activity is picking up. And I think the question we often get is on your 2026 targets. So if you look at the current run rate of orders, we are at 1.9 billion per quarter. And to get to 10 billion in revenues, we need to see a run rate of 2.5 billion at some stage. And then, of course, you have some lead times in different businesses where it could be six months, 12 months, or even more than 12 months. So the question I have for you is that when we look at these various businesses and the lead times, Can you tell us that by when you need to get to a run rate of 2.5 billion to meet your 2026 targets? Is it in the first half of 25 or is it also in second half of 25? So that's the first one to start with.

All right. That's your area of expertise. There's a very general question. As early as we get it, as most secure we are. And It's absolutely clear when we don't get the orders at the end, it will show up in sales. And with the normal lead times of a year, three quarter of a month to get these POC projects into full sales effectiveness, we should see in the second half of 2025 these kind of order intakes or in the full year of 2025 at least an order intake above 25%. the 9 billion to get securely to the 10. But I wouldn't take this 10 now as an absolute number out of everything. At the end, it's the results which pays the dividend and not the sales. And it could be that we maybe with a slightly lower sales, maybe 9 point something, or to deliver the absolute profitability we intend and try to deliver. So let's keep us a little bit relaxed on this number, and we will see. What we clearly do every day is working on the financial performance on the bottom line and on the EBITDA, and there are many levers which we can take, and this should be something where we focus on maybe more than on a an absolute sales number of 10 billion.

Thank you. And my follow-up question is on input costs. So, like, in 22, 23, we saw a big increase in input costs, and that was also leading to an increase in the pricing. And back then, customers, if they have to wait, they have to pay a higher price. And then we entered in a period when cost was largely stable, and I guess that may be reflective of delayed decision by customers because there is no additional cost if they come later to decide on their projects. So the question I have is that when we look at your input cost in the next six to 12 months, can you give us a picture? What do you see there? Is your price that you quote in tenders, does it need to go up? just so that if customers see that the prices are rising, then they may be forced to expedite some of their decision-making.

Good. On the material side, we currently see that these effects are now overcome. We have suppliers which are also lacking orders and where we also have some pricing power on the supply side. And the general trends in general base materials, you know, they are coming back to pre-COVID levels. slightly above pre-COVID levels. The pricing is cost plus. These are not the decisive topics at the moment for an end customer to decide whether he will buy or not.

Thank you.

Thank you, Akash. The next question comes from Daniel Leon from Erste Group. Daniel? We cannot hear you. Okay, then we maybe move to Peter Roteneicher from Baader Bank.

Yes, hello, gentlemen. One question on the message you published yesterday regarding the carbon capture plant. Can you comment a little bit about this? What is the technology behind? What is this project worth? Do you see here some technological risks? And how big do you see the opportunity here to get the final capital order?

So on what we have published the last days, I think this was you referring to the feed study we're doing for Kristinenstadt. And that is a feed study for the carbon capture plant and not an order that can potentially end in an order. But that will be definitely then awarded in 2025. It's the same project where we conducted the feed study for the green hydrogen plant. So therefore now this is the second, and their target is to produce synthetic fuels from that. So that is going on. I'm afraid I cannot tell you the technology we are using, but we can provide it later.

Then regarding metals processing. So what is your view here? Do you see here also some bigger orders coming up as this customer restraint now gradually being overcome? What can we expect here?

Yeah, we expect, we see an increase in project activities, and we see that across the regions. It's in Europe, it's in North America, it's in Asia. So a lot of that is driven by e-mobility, so grain-oriented, non-grain-oriented, silicon steel. Many projects are going on, and I think we have good technology proposals there. Adding to that, you know the steel industry is driven a lot by utilization and wear. So if there is a period of very low investment, customers need to recover because they need to update their plants. So we are... We look at a quite positive market development there for the second half.

And regarding hydropower, we have seen in the first half relatively low order intake. On the other hand, you mentioned that project activity is strong. So do you expect here then for the second half of the year also some bigger orders to be booked?

Hydropower. We have an order intake. Order intake in the first half, almost 800. If we look over the historical development, I would say it's not on peak, but it's definitely on a good level. In the absence of large order, we expect to see a stronger second half, yes.

Okay, thank you very much.

You're welcome. Thanks, Peter. We try again with Daniel from Erste Group.

Good morning. I hope it works now. Yeah, I would like to focus a little bit on your strong dynamics on the environment and energy. segment. Do you see any kind of capacity limitations and how do you expect this segment to continue, especially also reflecting on scalability, economies of scale? um are your current margin targets still uh realistic or does it is there a good chance that we might see increases here actually when we when we look at your shifts they uh they seem to to to to somehow bring down profitability a little bit But on the other hand, when you look at peers, much higher profitability levels could be definitely justified. So what is your take on these two aspects?

So the – We see capacity. We are building up capacity cautiously but steadily, as long as what we see in the market development. And we do not see the risk that we will run into capacity constraints over the next month or this year or next year. On the profitability, I mean, you see a drop, 11.2% to 11% for the first half here, yes. But on the other side, you have to see that the service share... dropped from 43% to 38%. So I would say we are not unhappy with the profitability there. Do we have higher profitability targets? Yes. And we have been communicating that. And for sure, everybody has to carry his share to reach these targets, yes.

Okay, thanks. And then I would like to look a little bit on M&A, on the M&A side. Do you see maybe more targets popping up currently, or how is the M&A side developing in your view?

We have, I would say, no significant change. We have targets. We are currently looking into, and you will be among the first ones. We will tell you when there is something to report. And we continue. Our focus is service, is digitalization, and for sure complementary technology in particular for these new areas that we have opened regarding the green transformation.

Okay, and then lastly, especially also related to this green transformation, you state 45% of revenues to be green. I guess this is taxonomy based. What potential do you see going forward? Which part of the revenues that is currently not classified as taxonomy eligible or not proven based on the taxonomy regulations, how much of revenue would you, from your side, classify as green overall and potentially even setting the target for the revenue share to be classified as green going forward?

Thank you for that question. So we have a target. We want to be above 50% in 2025. That is next year. And we for sure will not stop there. We will increase that. Our idea and our plan is to reach these 50% from growing markets. the green revenue and from growing the new products that we have developed rather than reclassifying revenue we have. So that's the underlying operating model and we are quite positive and, for example, this order from Södra tells us that there is a clear demand for these new technologies But for sure, it can delay half a year, it can delay a year. But using more efficiently the resources we have and investments into recycling and circular economy for sure will come. And we know that we are readily prepared with good technologies.

And how would you break it down on division level? Is it just to bluntly adding environmental energy and hydropower to arrive at the 50%? Or is it more complex to arrive at this 50%?

It's more complex. But, I mean, all of our businesses are working with the customers. But we have on the metal side, electromobility is working in that area. On the pulp and paper side, these side streams and circuit to zeros, this lignin separation. sulfuric acid generation, textile recycling. So I would say it's spread out in various business areas.

Okay, understood. Thanks a lot.

Thank you. The next question comes from Lars from Kleff from Deutsche Bank. Lars, please go ahead.

Yes, thank you very much. Good morning. Two quick ones, two quick questions remaining. I mean, if I do a back of the envelope calculation, you will now need a 3% revenue growth in the second half of this year to reach your full year target showing flat revenue. Where do you expect this growth to come from? Is it mainly environment and energy? Is it the recovery in hydropower or more service business? That would be my first question.

It's more or less a spread over all business areas. It's clearly out of the order backlog which we are executing. It's the service business which is contributing where we have a lot of business which doesn't really go to the order backlog. And don't forget there is a second half of the year where we also will get the one or the other order, I hope. And also these new orders which we get in the second half will contribute to sales. And when you look in the past, we have usually the second half higher sales and it's not specific in one business area which we expect to grow more or less. It's simply the seasonality of the business and the year. So we are still confident to get this $4.6 billion into our sales books in the second half.

Okay, perfect. And sending your optimism, I guess the answer for my second question will be relatively comparable. I mean, are you starting to get worried about being able to show revenue growth in 25, leaving aside your 26 targets, given how the order backlog and the order intake currently develop or have developed here today?

Yeah, it will depend. It will depend on when the big orders will come as early as better. Joachim explained project activities are picking up. So we are pretty confident that the things will not, let's say, postpone further into the future. It will rather be earlier and then we are ready. When we get by the end of the year or in the first month of the next year, when we get these larger orders in, then we are confident that we, next year, will do the next step in the direction of growth of revenues also.

Excellent. Thank you very much. That's all from my side.

Thank you, Lars. We have a follow-up from Akash from JP Morgan. Please go ahead.

Yes, hi. Thanks for the follow-up. I wanted to get a bit more color on this Kraft lignin production solution that you have sold to Sodra, but not to this order, but in general, if you can talk about what could be the addressable market for this solution, what could be value of a typical solution? Is it in double-digit or triple-digit? And also, when we look at payback period for customers, can you also elaborate on what sort of payback periods are for customers to consider such an investment. Thank you.

So unfortunately, the payback time of our customers is not available to us, but you can refer to the information they provide. If we talk about Lingnan separation, I would say we typically talk about a middle to high double-digit order. It's a highly valuable raw material, this lignin. It has a high energy content and it can be used as a base material for many chemical applications and it can be used for many e-fuel applications. That for sure depends, I would say, on payback periods and the economical viability, definitely. depends on the market prices for, for example, for e-fuels or for sustainable chemicals. But we see a market developing there. We see it, I would say, developing a bit slower than what has been estimated five to ten years ago. But that huge investment by Södra definitely proves there is an economy behind and there is trust in the technology.

Thank you. And maybe just a quick follow-up. Is this technology solution specific to Android, or do you have other competitors that are offering similar solution as well?

I believe we have been in competition for that, but I think our solution for sure is proprietary, and it's based on our own technology. So it's not an off-the-shelf commodity technology.

Thank you.

Okay. Thank you, Akash. If there are no further questions, this concludes our Q&A. And I'd like to hand back to Dr. Schönberg for any concluding remarks.

So I thank you very much for attending the call. And I hope for your good wishes that the markets will develop in a favorable way for hundreds. Thank you very much.