Dear ladies and gentlemen, welcome to the conference call of Andritz AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by the zero on your telephone for operator assistance. May I now hand over to Wolfgang Leitner, who will lead you through this conference. Please go ahead.
Thank you very much for the introduction. Welcome to our third quarter 2021 conference call. I hope you are all safe and well. First of all, I have to apologize for having this conference call not at our usual early morning time at 8:30 AM. I'm in Brazil, and I was traveling and therefore the question was, should somebody else do the conference call the usual time or I should do it? We decided I should do it, and therefore this unusual time. If you have problems understanding me, and I'm sure Michael will check it also, please make yourself immediately heard, but I think it should work out well.
I'm here for meetings, but obviously also for the official opening ceremony for the Bracell pulp mill for which we supplied two complete fiber lines plus recovery boiler, one of the biggest lines in the world. It has been a good project and is running and there will be a ceremony today to celebrate it also. You probably have also read yesterday our ad hoc release that we received another very sizable order which still is confidential. I think that underlines the strength of our pulp and paper business. As usual, let me give now some general remarks on the overall situation and our financial development during this third quarter. Outside influence reasonably good.
I think continuing good project activity, global economy doing reasonably well, and also in our markets. We continue to be quite optimistic on the short term economic activity globally. Obviously the pandemic situation, I think all of us are following, especially in several countries in Europe, including Austria, by the way, where we see a very substantial increase of infections. So far, not yet in hospitalizations or intensive care unit occupancy. Obviously, if that would you know continue to accelerate, that obviously could have, like I said, ultimately a negative impact on the global economy.
What we are struggling with are these well-known bottlenecks in the supply chain, combined with high raw material prices, energy prices and above all, extremely high and nearly unavailable freight rates or freight for ships from China. That's definitely the complication. Let's see how long that will last. So far, we have been able to work around that reasonably well. That definitely is a shadow on the sky, I would say, looking forward. Given this environment, I think Andritz achieved a solid financial result in the third quarter. In spite of the lack of large orders, we achieved an order intake of almost EUR 1.5 billion, with good developments across all four business areas.
As you will remember, we had a very good order intake in the first half of the year, and we continue to be optimistic that we also should see if not as good as second half, but definitely another good half in terms of order intake. As we have said, we expect this recent very large order in the high three-digit millions also will come into force this year. I think it's not overly optimistic that overall we should have a very good order intake for all of 2021. Revenue was lower compared to the third quarter of last year due to Pulp & Paper Capital, where the large projects have been nearing completion. The lower revenues were contributing to the overall revenues.
Despite this lower revenue, earnings developed very favorably. We were able to digest this mentioned raw material price increases, transportation price increases, et cetera, to a large extent, and to progress on all our major construction sites, more or less as planned, with certain limited delays obviously, and also within the expected cost frames. Overall, all business areas were able to improve their profitability. Pulp & Paper and Separation recorded again very good earnings and profitability. Schuler continued its positive earnings trend from the first half, confirming its path to a sustained turnaround. I think Hydro has the not the strongest of all quarters profitability-wise, but I think these are regular fluctuations, so regular volatility, the profitability that you have become used to with the Hydro business, depending on finalization of certain large contracts. Okay.
If we start to go through the presentation. I would like to start with page 2, where you see a summary of Q3 main numbers. Group order intake, they did nearly EUR 1.5 billion, lower than comparable quarter last year, lower in Pulp & Paper capital. We have to keep in mind that we had booked large orders in last year, so comparability is not fully given, I would say. Revenues EUR 1.5 billion, lower capital. Revenues in Pulp & Paper have been mentioned. Similarly, Metals and Hydro revenues are also slightly down. Separation is practically unchanged. EBITA, I think the highlight, EUR 127 million.
EBITA margin at 8.4%, significantly up to comparable, to the comparable quarter, and a very favorable development across all four business areas. We go into the details in a few minutes. On slide five, some more details on the order intake. On the left side, the quarter, on the right side, year-to-date nine. The split in the bars is capital and service. You see overall the decline compared to Q3 last year was 14%. However, if you look at the EUR 1.7 billion last year, it shows that it has been a quite high order intake for the quarter.
The good news is that service business continues to grow, and capital, as mentioned, also has certain volatility, but really based on we expect good order intake for this year should see also increasing sales, starting from next year and into 2023. The split of the business areas you see in the middle, for the quarter and then at the lower, the year-to-date nine months. Results of Pulp & Paper with EUR 2.3 billion, so that's 4% below last year's nine months. Metals is substantially up from EUR 840 million to EUR 1.2 billion. Very good development in both, Metals, regular Metals business and, Schuler. Hydro is practically stable at EUR 975 million, and Separation, continuing growth at about 6%.
On the right side, you see the nine months figures for order intake capital +1% and service +16% to EUR 2 billion. On slide six, you see the quarterly order intake. I think this covers basically everything. You see that after two very strong orders in Q1 and Q2, Q3 is somewhat lower than the preceding two quarters. Service side on the right side, at +12%. Slide seven, revenues. Again, left quarter, right side, first nine months. Revenues down by 9%, capital down by 18%, and service up 7%. Similar picture for year-to-date nine. Capital down 12%, service up 4%, overall minus 6%. No real surprises on this page.
Share of service business on the next slide, basically very stable. Pulp & Paper, 44%. A little bit down from the peaks in 2018, 2019, but it's a good thing because capital has gone up, and therefore the share of services have gone down a little bit. Hydro 40%, Separation 50%, and Metals 26%. Slide nine, order backlog, very stable at sum of about EUR 7.3 billion. Typically split, major backlogs are in Pulp & Paper and Hydro, and the rest is relatively low. Seven point three billion overall obviously is a good order backlog securing good absorption of fixed costs and good utilization rates. Slide 10, earnings and profitability. This is now the reported profitability after NOEs, before adjustments.
On the left side, the quarter up from EUR 104 million to EUR 127 million, +22%. Profitability 6.2%-8.4%, sorry. In our opinion, excellent development and similarly a very good development for the nine months, EUR 278 million to EUR 365 million, up one-third, and profitability up from 5.8% to 8% in spite of a lower, somewhat lower sales as I shown before. Schuler continued its positive earnings development, as I said, for the first two quarters, and I think shows good progress on their turnaround. You see it also on the next page, 11. Metals, first nine months up from -2.2% to +2.5%.
If you look at the other business areas, Pulp & Paper with 11% in Q3, now 10.6% for the nine months compared to 9.4%. Hydro at 6.4% in Q3 and nine months 6.5% up from 4%. In Separation, another good quarter, 10.6%, and year to date 10.0%. If you look at the effect of non-operating income and expenses, slide 12, you see the effect that on an adjusted basis the quarter is slightly down in absolute numbers from EUR 130 million to EUR 123 million. However, profitability is up from 6.2% to 8.4%.
For the year to date, profitability is, EBITDA are up from EUR 313 million to EUR 368 million, and profitability from 5.8% to 8%. No real sizable changes in Q3. You see approximately EUR 5 million resulting from a positive property sale. Obviously in 2020 we had very substantial restructuring expenses in Q3 alone of EUR 26 million. On slide 13, the adjusted margins again, Pulp & Paper 10.9%, Metals 2.3%, Hydro 6.3%, and Separation 10.0%. In all of them, positive developments, obviously still quite a way to go on the Metals side.
We see that certainly as by far not yet finished and are in the middle of the budgeting process, and we'll see what we can expect for next year. On slide 14, I hand over now for the next few slides to Norbert Nettesheim, our CFO, to take you through these charts. Norbert, can you take over?
Yes, thank you for handing over and good afternoon to all of you who are on the call. As in the last calls, I will quickly continue with presentation of our results down to net income and cash flow and liquidity, and do a quick summary of all the major KPIs as my last slide. Starting with slide number 14, the bridge between EBITDA and net income, nothing really spectacular. We start with a 10.7% EBITDA, as already heard from the presentation of Dr. Leitner. The regular depreciation of EUR 120, which is a little bit lower than last year's depreciation, simply due to the capital investments which we did so far in the last year. Then, 8% EBITA, also a little bit up.
Last year we had 7.9 at the time. Then, the other provisions down to net income, not very significantly changed compared to what you have heard in the second quarter in the half year report. We have the regular IFRS3 amortizations, which are a little bit lower than last year because of the regular end of the depreciation of intangibles from very old acquisitions. We have the EUR 3.3 million impairment, which we did in Compact Hydro, which is absolutely not very significant, simply housekeeping measure. Then, end up at 6.9% EBIT, or EUR 315 million. Financial result, EUR -25.3 million. This might be a little bit surprising that that's negative.
Pure interest result within this number is EUR 17 million minus EUR 17 million interest expenses. We have EUR 10 million other financial result effects which are coming from a payment to a minority shareholder, an extraordinary minority dividend payment to a minority shareholder. This was the iTech topic, and EUR 3.5 million FX effects.
It also should be mentioned that in the interest result of EUR -17 million, we have about EUR 3.5 million special effects from extraordinary down payments or payback of a loan in the range of EUR 120 million, which cost us a little bit of one-time cost, but which will pay back very shortly and which will then show up in lower interest numbers in the next quarters. It was a kind of a prepayment of money for getting this loan paid back. Twenty-five million, and thereof EUR 3.5 million one-time effect. This leads to the 290 EBT, 6.4%.
Last year we had half-year was 6.1, so Q3 contributed positively to the overall year-to-date number. Then we apply at the moment the 27.5 theoretical tax rate, leading then to the EUR 210 million net income, which is also a little bit slight increase to 4.6%. We are approaching the target at 5%, in small steps, but we are confident that we are continuing out in the next quarters this way. Positive also was the other comprehensive income, that the total income will be at 250. Also an effect of nearly EUR 40 million from exchange rate effect on the translation of foreign equity.
Total equity quota after Q3 is then 19.7%, after 18.6% after Q2, and after 17.8% at the end of the last year. Also here, we are continuing our way to the at least 20% equity quota, which we communicated to you in the last time as our target. From my point of view, overall, nothing really breathtaking, but continuing our constant process of improvement also on net income. Next page, 15, also not very spectacular. Here's only one topic I like to mention. This is the significant increase in net working capital of EUR 127.2 million. Last year we had, after the third quarter, also a minus of EUR 108 million.
This is an effect which mostly is a temporary effect and which we don't consider sustainable. As Dr. Leitner explained, we had in the third quarter no real big projects in order entry. Otherwise, a high small order portion and a very high service portion, which leads naturally to a lack in down payments, and this then immediately had an influence on working capital. I said various times, in plant business as we are in, you have these typical fluctuations in these ranges. We expect that in the Q4 it will change with further larger orders which we are expecting.
It will also change a little bit in the area of our inventories, where we due to some logistics problems in Q3 also could not get all the stuff out of our house and then we certainly will also have a slight increase, a slight effect on this increase in inventories which then will turn in the other direction in Q4. We are very confident that in Q4 this will change and we can then report significantly a better picture also on cash flow in Q4. It should be on slide 15. 16 is a regular normal slide, you know, and about our liquidity development. Net liquidity is at EUR 377.
We expect for the Q4 also here a significant increase from positive cash flow. Gross liquidity is down by EUR 203 million, but out of this is more than EUR 150 million repayment of loans. As I said already before, we did in August a repayment of more than EUR 120 million extraordinary repayment simply to maintain our financial results a little bit by not having too much liquidity, which is currently not used. We have replaced it or we are in the process of replacing it by other instruments which keeps all our flexibility with regard to acquisitions and then spendings which are necessary. No need for worry.
This is intended to have this a little bit lower level as we had it before. This was net income and cash and liquidity. Then you have on page 17 the summary of all our financials for the full year for the whole group. Sorry, for the first three quarters for the full group. All positive except sales which was mentioned already due to the order entry last year, a little bit lower. The net liquidity topic and the cash flow topic which I mentioned before. All the others are positives and yeah, we are very confident that it will remain as we show it here. So far from my side, then I can give back the word to Wolfgang Leitner.
Thank you very much. Yeah. Going through the individual business areas on slide 19, Pulp & Paper. I think a lot has been said. The third quarter has been very good. EBITA margin of 11%.
At the high end of our target range of 10%-11%, as we have communicated during the Capital Markets Day. Everything good. Maybe just one word to this order intake. Obviously, what we have had to publish yesterday in ad hoc is a new large order. It is not at all reflected in the Q3 numbers, obviously. Year-to-date 9, 10.6% EBITDA. Very good result, good market position, good project activity. Execution of the large orders is running well. As I said, we have had the startup of this Brazil mill, which is a huge mill, and so far it is running very well. I think in Paper, we are really in good shape.
The market as we see it looks quite good also into the let's say first half of next year. We are quite optimistic that this project activity will continue. Obviously not with these super sized projects, they will not come every quarter. In Metals, slide 20, the EBITDA margin in Q3 has been 2.8%, year-to-date 9, 2.5%. Order intake overall in the quarter very good. And 1.0 and year-to-date EUR 9.2 billion compared to EUR 840 million in 2020. In Metals Processing, we had a very high order intake, very interesting orders, and expect also towards the end of the year continuation of that trend.
Forming is slightly down because large orders have been booked in Q3 2020, but overall also good order intake. Revenues obviously slightly lower, as we said before. Earnings good. Schuler continues to be positive and is making progress on their turnaround. Metals P is, as always, from time to time struggling with one or the other project. There was a small hiccup, which probably will have a slight impact on the second and on the fourth quarter, but not at all sizable. Might slightly decrease the progress that Schuler is making. Separation very favorable business, good relevant order intake.
We are also both for the quarter and for the nine months with an EBITDA margin of 10.6%, also nicely in the range that we have defined. Year-to-date, 9-10%. Good activity across the various industry customer segments that Separation is active in. Also good development of new products in good shape and really becoming a valuable member of the AMAG Group compared to what we had to defend in a few years ago. To conclude, slide 24, outlook.
Again, we expect no dramatic change, having in mind that COVID can have an impact and having in mind that a complication is transportation and supply chain issues are a complication, but so far have not had any sizable effect, neither on the order intake nor on the execution. Financial guidance, we confirm, the revenues will show a slight decline compared to 2020, where it was EUR 6.7 billion. We expect a significant increase in reported EBITDA compared to the level of EUR 392 million from 2020, and a profitability of around 8% compared to the EBITDA margin last year of 5.8%. With that, I can conclude and expect your questions.
Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question has been asked before it's your turn to speak, you can dial zero and two to cancel your question. If you're using speakerphone today, please lift the handset before making your selection. One moment please for the first question. We have the first question. It's from Andreas Willi, JP Morgan. The line is now open for you.
Good afternoon, everybody, and thanks for the time. The first question I have is on the margin development. Normally, we see Q4 higher than Q2, Q3 in terms of the seasonality of your business.
Is there a specific reason this year that should be different, compared to prior years? That's my first question.
No.
Okay. That's a clear answer. Second question. In terms of the pulp outlook, 'cause you already commented on that, given you're now in Brazil as well. Are there other larger orders out there of a material scale, or is your comment about a continued good environment more like in terms of a continued good activity level for kind of mid-sized orders and rebuilds and kind of the base business?
I think it's, I would say, risky to, you know, to have hypothesis on this large orders that come in these double-digit million orders. I see one or the other on the horizon also for next year, yes.
Yeah. My last question on Hydro in terms of the order outlook there. You had earlier commented that maybe we can get back towards EUR 1.5 billion at some point. We haven't seen it kind of yet in Q2, Q3. Are there projects out there with a reasonable chance of being approved for the next few quarters that we could move back towards that level?
I know that I'm exhausting my credibility with you, but yes, there are projects around. I think there's a good chance to approach this EUR 1.5 billion.
Thank you very much.
The next question is by William Turner, Goldman Sachs. The line is now also open for you.
Hi there. Looking at the project that you announced yesterday. You know, obviously this is a very large order. I mean, must be one of the largest Andritz has ever had, if not the largest. How can you just share a little bit more about the timeline and on which it's supposed to be delivered? I think the large producer from whom it came doesn't expect ramp up to be until 2024. Is it a similar profitability? Because I know that some of these larger orders can sometimes be more competitive in the bidding process.
Finally, in the first quarter, would it be fair to say that did this have any impact on distracting maybe some of your sales force who are concentrating on winning this large order rather than some of the maybe small to medium ones? Did that have an impact on the 3Q?
I need to come back to this last question. I'm not sure I understood it. First of all, this very large order has a usual profit. It has a profitability usual and customary to these large orders. Clearly, it's a capital order. It's not a service order. Clearly, it's a very large order, so there are different profitabilities, but it is not unusually. I would assume that you are concerned about whether it's unusually low. It's neither unusually low nor unusually high. I think it's a good project with a competent customer. We're extremely happy that we have been trusted with this order. We expect it to come into force fully in this month.
The execution will take two and a half years, roughly, maybe a little bit more. Don't expect any sizable revenues from that for the at least first half, first nine months from the next year. The main impact on revenues will be 2023. Obviously, we start in 2022 already. Your concern relate to the sales force? I did not understand, to be honest. Sorry for that.
Because in the third quarter, the order intake was somewhat lower than in Pulp & Paper, somewhat lower than last couple of quarters. They want to take large orders. Has that been because the sales force has been prioritizing on this particular order and therefore, you know-
No. No, no.
Also lost amount of attention. Okay.
No, no.
I don't-
I mean, we try to organize that we always pay the appropriate attention to each and any project.
That's clear. On the working capital, could you just elaborate a little bit more color on why you expect it to reverse in the fourth quarter? It seems to me it looks like you're holding more inventories, and that's quite common among a number of companies at the moment, given the supply chain issues and the issues in shipping some final finished goods. Why do you expect it to reverse into the fourth quarter? Can you just provide a bit more color on that, please?
Obviously, it's a question of down payments to when they are received, but I'm curious how Norbert plans to achieve this challenging forecast. Norbert?
Yeah. It certainly we have in the part of inventories we have a little bit reserve from material which we stocked up at least it will not go up further because we see here also a little bit of makeup from the pretty low inventories in 2020 after the COVID period. We also decreased a little bit our inventory. EUR 131
Effects from increasing inventories. We certainly, by the end of the year, will not show up this number because we will not pile up further on our material and we have very many activities running now to bring this a little bit more down. We will get here in the fourth quarter a little bit of a tailwind. As we said already, the specific orders we're expecting also significant down payments which will contribute mostly to the recovery in the fourth quarter. As always.
Can I imply from that are you expecting to receive your prepayment for the order that you announced yesterday in the fourth quarter, or at least start receiving them?
We expect several checks in the fourth quarter, down payment on this one and also from several other ones.
Okay. Thanks.
The next question is by Richard from HSBC. The line is now open for you.
Yes, thank you. Good afternoon, gentlemen. One question I have concerning the logistic costs you mentioned as an extraordinary high and quite obviously unexpected burden here. So far I understood that you were obviously able to manage this and also to pass on this additional cost to customers. Or is there a certain portion which you have to swallow in your accounts? And could you give us an idea what this might add up for the full year on the bill? Thanks.
Norbert, do you want to give a qualified estimate? Otherwise, I would give an unqualified estimate. After this introduction, I cannot do different than saying something. We have done some rough estimations on that, and the numbers which we see here are in the lower one-digit EUR millions. These are within the regular change of costs. We will not see, say, an impact on profitability out of this logistics cost element. We also have usually a contingency of a project, so it's all covered by this. We don't see any major profit impact out of this, which go over the regular contingencies which we have in the project in 2021.
Really we are, to a certain extent, caught in the middle, obviously, when we have a fixed price and suddenly, I mean, we have escalation, typically inflation, and also contingencies and all of it. What is currently happening, especially on the transportation side, is very difficult. I know that even our customers can't get the ships to transport the goods they produce. That's clearly a very unique situation. Obviously, when this has become visible, we have clearly changed, you know, the Incoterms. We have made sure that we have open book on that.
We have introduced many different protections, but there remains a certain part where it's too late to do anything and you depend on getting a ship now and not in two months. But again, this does not cause us to change any guidance or, you know, say warn that this may have a visible sizable impact on our profitability.
Okay. Thank you very much. Maybe one other question on Metals and here, especially on Schuler. I think you have also mentioned earlier in last presentation, the CMD that you have a lot of projects here from the EV segment and customers which are active in this area. We have now seen one company looking into this business and cleaning up its order backlog because they say, you know, some of these EV companies, especially in China, well, might not start the projects they have indicated as planned because of the current disruption in the market. And they have their order backlog risk as well, that there are some customers which might delay projects or even cancel projects in light of the current turmoil in the sector.
We have had similar experiences, and this is included in our statements over the last quarters and also last year. We are cautious when we book an order. Yes, we have seen it also. Do we see a substantial risk on our side? No. I mean, we would be typically fully protected regarding the costs we've incurred. Obviously, it could cause some expected revenues, but that we would not see any substantial risk from that for Schuler.
Okay. Thank you very much.
As a reminder, if you want to ask a question, please press zero and one on your telephone. For the moment, there are no further questions, and so I hand back to Mr. Leitner.
Thank you very much for your participation. Excuse me. If you have questions, contact Michael or me, and we look forward to talk to you in, excuse me, for the full year. Thank you very much.
Thank you for your attendance. This call has been concluded. You may disconnect.