Dear ladies and gentlemen, welcome to the full year 2019 results 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 difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Dr. Wolfgang Leitner, CEO, who will lead you through this conference. Please go ahead, sir.
Good morning, everybody. Welcome to our full year result conference call. Before I start and go into details, let me quickly summarize how we see the year. Overall, we are satisfied with the development of 2019, obviously not the least, thanks to a very strong fourth quarter of 2019. Three of our four business areas, and I mean Pulp & Paper, Hydro, and Separation, have shown favorable developments in spite of a not so easy global economic environment. I'm not yet speaking of Corona, obviously. The record order intake that we have achieved confirms, I think, in numbers, the very good market position that we have in the market, especially in Pulp & Paper. It's very reassuring that Xerium, which we acquired in October of 2018, developed favorably and fully in line with assumptions that we had in our business plan when we acquired it.
As a result, our service and aftermarket share in Pulp & Paper and overall in the group continues to rise, which obviously is good for our profitability and good for reducing our vulnerability from the unavoidable vulnerability in our capital business. Obviously, Metals Forming Schuler but also the rest of Metals, has been difficult, but I'm very confident that we have laid the foundation for a positive earnings development in the future with the very far-reaching restructuring program that we have launched and which we have fully reserved in 2019. So far, things go as planned, and we expect, as we have also said, first tangible positive effects rather in 2021, maybe starting towards the end of 2020. Separation business continues to improve. So overall, we are happy with the development. Obviously, if we look at net capital, that has shown very positive results.
I should rather say very negative results, meaning turning it into negative again. As a result, our net cash position has turned into positive again. Also on the pure financial side, I think we are quite happy with what we have achieved in 2019. Now let me go to the presentation and into more details. On page three, you find the key numbers. Group order intake, new record high at EUR 7.3 billion, driven by Pulp & Paper, which booked several large greenfield pulp mill orders, but also saw a very good activity on the boiler side, both recovery, but also pure biomass power boilers. Order backlog EUR 7.8 billion, reassuring for the future. Sales increased to over EUR 6.6 billion, also a new record high. EBITDA obviously is impacted substantially by the restructuring measures, which accounts in total of EUR 113 million. Approximately three-quarters of that is for Schuler.
Profitability, EBITDA margin, adjusted by these extraordinary items, is 6.8%, basically or practically the same level as 2018 with 6.9%. On page five, you see the order intake plus 10%. Of that, three percentage points organic and the rest as a result of acquisitions of full year, accounting for the acquisitions, predominantly Xerium, obviously. If we look at the order intake by business area, Pulp & Paper, excellent development. Metals, continued weakness. Hydro, slightly lower than last year. Separation, plus 3%, which we feel is very good because, if you remember in 2018, Separation received a very large order for the wastewater treatment plant of Shanghai. Obviously in 2019, this was not the case, and they could not only maintain the order intake levels but also even increase it slightly. On page six, the quarterly intake after two very strong quarters.
Obviously Q4 with EUR 1.5 billion was not as high. We have booked, as I said, several large orders for pulp mills and on the Hydro side, some of the biggest order has been this pumped-storage hydropower plant in Dubai. On the right side, order intake by region. Interesting to see the share of China, 11.7% is the 11% compared to 18% in 2018. It's basically minus one third, and this also is reflected in the absolute numbers after EUR 1.2 billion order intake in 2018 from China. 2019 was EUR 769 million only, which also is a confirmation of the relative weak status of the Chinese economy in 2019. On slide seven, the sales development, similar picture, plus 8%-11%. Again, plus three percentage points of that organic growth. The rest are M&A related. By business area, repetition of the order intake. Pulp & Paper, strongly up.
Metals in this case, stable. Hydro, -3%. Separation, +8%. Slide eight. Service share in millions of sales. Up from EUR 671 million in the first quarter to EUR 757 million. For the full year, up by 8%. In the longer-term development, we see a compound annual growth rate of 10%, and as a percentage of total sales, 40% after 36% in 2018. With the share of Xerium, maybe of interest, on a quarterly basis, approximately EUR 110 million sales volume comes from Xerium, for a total of about EUR 450 million for the full year. On page 10, the share of service business by business area. Pulp & Paper is now 50% or 51% aftermarket related. This is very reassuring, very good.
Separation is second with 45%, then Hydro, 32%, and Metals, historical and traditionally the lowest share of aftermarket sales with EUR 27 million, also quite sizably up from the previous years by some acquisitions, but also by organic growth. Page 11, order backlog. Slightly lower than Q3, overall very good development. As always, approximately 75% of the order backlog comes from Hydro and Pulp & Paper. Pulp & Paper now having surpassed Hydro in terms of share of order backlog. On slide 13, EBITDA chart. After extraordinary expenses, minus 13%. Prior to extraordinary expenses, plus 10%. Profitability-wise, 6.5% down to 5.1%, or before extraordinary items, 6.9% to 6.8%. If you take the restructuring expenses overall of EUR 113 million, as I said, approximately 75% or slightly more, EUR 82 million, is in Metals and smaller amounts for Hydro, Pulp & Paper, and also Separation. Slide 14, profitability by business area.
Pulp & Paper continues very good profitability, 9.8% or respectively 9.4%. Metals, black zero plus 0.5% before and minus 4.5% after restructuring. Hydro 8.1% versus 7.2%. Continued very good profitability in Separation, 6.6% versus 5.8%. A clear continuation of the last several years with an increase in profitability. Now I am getting really confident that we have turned around Separation. Slide 15, rather complicated chart, but trying to fulfill all your expectations with regards to details. The bridge from EBITDA to net income. Let me briefly go through. From EBITDA, we take out the depreciation, EUR 194 million. Of that, EUR 46 million is IFRS 16 related. EUR 35 million comes from new acquisitions.
We have EUR 19 million of certain impairment losses. In Metals we took out the pilot plant we have at Schuler, for one of the pilot plants we have at Schuler, and Hydro also had to take down some manufacturing assets. IFRS 3 amortization, EUR 76 million. Of that, EUR 49 million comes from newly acquired companies, predominantly Xerium. EUR 29 million impairment of goodwill. EUR 20 million, all of that comes from Schuler. EUR 29 million, of that, Yadon, the Chinese acquisition, we reduced the goodwill by EUR 20 million. On the pooling side, AVEVA, we had to reduce the goodwill to, I think, by this time zero by EUR 9 million. Takes it to EBIT of EUR 238 million. We have the financial result -EUR 57. Increase in interest expenses with short-term loans replacing the bond. Refinancing of financial liabilities to zero.
This is FX hedge, foreign exchange hedging of about EUR 16 million. Internal hedging and leasing IFRS 16 obviously also has approximately EUR 5 million impact on financial results. We have a relatively high tax rate of 32% because of certain adjustments and deferred tax assets. Slide 16. My favorite slide, obviously. The cash flow from operating activities is up at EUR 822 million. How come? Obviously, depreciation, change in provisions, other changes is standard, I would say. Change in net working capital, that's a very good thing. We have EUR 330 million positive effect after EUR 279 million negative effect in 2018. All the numbers go into the right direction. Contract liabilities have a favorably effect of EUR 152 million. Increase in liabilities, EUR 85 million favorable. Decrease in contract assets, EUR 70 million. Decrease in trade receivables, EUR 27 million. Advance payments, EUR 33 million. EUR 18 million decrease in inventory.
Part of that is driven by water intake, obviously, which has an effect on that. As you see from each of these contributions, we have concentrated a lot on net working capital, and what we see now is the effect of this concentration and these efforts. Slide 17. Again, the summary of all the figures. I don't think I have to go into any details. Maybe capital expenditure, EUR 857 million. Liquid funds up from EUR 1.28 billion- EUR 1.6 billion and net cash from minus EUR 100 million to plus EUR 245 million. Predominantly, this change in net working capital comes from Pulp & Paper. We mentioned that also. Dividend, as we have said, we want to pay dividends in amount of 50% to 60% of net income. The EUR 0.70 per share for approximately 55% of payout ratio. The proposal is EUR 0.70 per share, which obviously is substantially less than 2018.
Excuse me. I come to the business areas. A lot has been said already. Pulp & Paper, very good project activity, both in pulp and also in dissolving pulp, in viscose pulp. On the power side also, the biomass activities in China continue. Competitive environment unchanged. Tough, but I would say as usual. Strong income, slide 22, strong increase in order intake. Increase in sales. Increase in EBITDA. EBITDA margin still very good. I think not more to be said. Metals. Also in Metals, slide 23. Both Metals Forming and processing, low demand. Obviously, as a consequence, fierce competition. Our restructuring program with Schuler is continuing on plan. On slide 25, profitability. As I said, black zero, pre-restructuring costs and negative after restructuring costs. Order intake is down somewhat, -18%, of that Schuler approximately -13%.
The restructuring costs, the provisions that we have taken is EUR 82 million for capacity adjustments and some other restructuring costs. Slide 26, Hydro. No change in market. The increasing discussion on climate change should have a positive effect. We are still, let's say, optimistic for the midterm future. We also see for this year some larger projects on the horizon. Basically, we have to assume for the time being that the market is what it is and will not increase substantially. On slide 27, very positive on the profitability side. The margins pre extraordinary expenses, 8.1%, still very good, and we will do our best to keep it in this range. Slide 28, Separation. As I said, very favorable order intake, slightly up compared to the high level of last year across the board. Municipal activity is good.
In certain industrial activities, in chemicals, in mining and in minerals are good. Feed and biomass is stable. Consideration of stabilization and gradual improvement through organic growth and in certain internal continuing restructurings. On 29, you see the result. Order intake plus 3%, sales plus 8%, and EBITA margin before extraordinary items from 4.8% to 6.6%, or after 4.8%- 5.8%. So much for the year. On slide 31, the outlook. I've only a cold, I've not Corona, to give you some reassurance. Obviously, Corona comes on top of already relatively shaky economic environment last year, especially in China. Corona obviously has a very strong impact on China. Where do we stand there? We as Andritz, with our 3,600 employees in China, we are to a large extent fully back to work. 90% plus of our employees are working.
We have done, I think, a very wise decision the beginning of Corona, where we have purchased through our purchasing departments globally, masks. We ended up buying 200,000 masks from five weeks ago, six, something like that, and sent them to our Chinese factories, which enabled our Chinese factories to offer masks to the workers when they came back, which was a requirement for them to start working, as we hear from several companies that they have problems because they cannot get the masks and therefore their workers cannot come into the factories. We are back to normal work, I would say. We expect the first shipments out of Chinese ports probably this week. I think from that standpoint, it looks quite good. Obviously, hundreds of orders we have are impacted because they have sub-suppliers from China.
We are working with all these sub-suppliers to make sure that we can get back to work, can try to start to catch up some of the delays. As you probably know, the rules in China are that people had to take vacations, had to reduce their overtime, or had to go into negative overtime and now need to recover that by working six days, maybe seven days a week. Chinese Government has also promised a substantial, how do I say, opening up of the loans to Chinese companies. We have obviously had to declare force majeure in for many of these orders, as have done many of our Chinese suppliers. I think all that is happening in a good spirit.
That means that our suppliers obviously want to catch up as much as possible, and we want to catch up as much as possible, and not just add whatever has been lost in terms of time now to the execution times. Inevitably, we have to consider February in China as a lost month, both in terms of production, but also in terms of consumption, which certainly will have an impact on the automotive industry especially, but also many other industries. Again, the question is how much can be caught up, and Xi Jinping has clearly declared that he expects everybody to catch up. What is happening in Europe and in the U.S., I would say I'm not giving any medical expertise because I don't have that.
Personally, I think people love to be afraid of, and you certainly could make an argument that some of the actions that are being taken are a little bit overdone if you compare it to many other similar pandemics like the flu and SARS and other things. I think we have to see and watch the development that will come over the next few weeks. I'm personally optimistic that we will see a disappearance of Corona, if not within the next four weeks, then certainly within the next six or eight weeks. Again, no guarantees. We'll see how things develop. Overall, as we have seen, the year has begun quite good. We had a large order for a new pulp mill in Uruguay from UPM. We expect good order intake for the first quarter.
Beyond that, we are not very pessimistic, but we are cautious and I think the attitude is let's wait and see and adjust to whatever will become then the real situation. Obviously, for the steel and for the motive industry, Corona is not the best development because they have already been in a rather difficult situation, so clearly there are no signs, especially no signs for recovery. At worst, maybe still an increase in the troubles that they have. As I said, Hydro definitely looks stable, maybe slightly better than last year with some of larger projects coming up for decision. What are our goals? Obviously, we will need to execute the high order backlog, especially in Pulp & Paper. These are some very large orders.
We need to continue on with our plan for the restructuring, especially in Metals Forming, also with some minor adjustments in other business areas. Our guidance for 2020 is a slight to moderate increase in group sales and group EBITA to reach the adjusted EBITA of 2019. Much our report in 2019 and our outlook for 2020. Thank you, and I hope for some questions.
Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speaker, please dial zero 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 is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making a selection. One moment please for the first question. The first question we received is from Jörg-André Fregien from HSBC. Your line is now open, sir. Please go ahead.
Yes, good morning. Thanks for taking my questions. I maybe take them one by one. The first question relates to your sales outlook for 2020. You mentioned a slight or moderate sales increase, I think, in November when you first came out with the outlook for 2020. The word slight was not mentioned, and I think also in the annual report it was not mentioned. Is this a reflection to some extent of what we've seen in February and then some precaution regarding Corona? Is there any underlying change to the assessment?
No dramatic relevance if there was a change. No dramatic relevance to that. I think the guidance we give now is pre-Corona, I would say. On the sales side, we don't expect a dramatic effect. I think a lot depends on what can be caught up in the next few months. If China goes back to normal and if Europe does not fall into a huge Corona crisis, we would think that the effect could be very moderate. Obviously, if there's any effect, it would be a rather negative effect. The sales increase has always been not dramatic. Definitely in the, let's say, mid single digits at best. We decided to use this slight to moderate increase in sales, but no dramatic change in guidance on that.
Very good. Maybe on the operating cash flows side, then, you mentioned that the working capital improvement is mainly related to Pulp & Paper and is probably to a large extent project related. Should we expect to see some sort of reversal in 2020, or given the ongoing strong order inflow we've seen, we should stabilize?
Short term, I would not want to give a guidance until the end of the year, but short term, we should see a stabilization, yes. Not a massive effect. It's not only the order intake as we have seen. I mean, we have a favorable development on actually all factors that are influencing net working capital. It's certainly something that we expect not to disappear completely.
Okay, very good. My last question is regarding the dividend cut. I mean, you had a very strong cash flow development and also the relatively weak share price performance. Why didn't you consider to keep the dividend stable in that context?
We didn't want to change our guidance that we want to have a payout ratio of 50%-60%, or above 60% that we have maintained, and we didn't see a reason why we should change that.
Okay, fair enough. Thank you. Recover well and speak soon.
Thank you. Don't be too concerned.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press 01 on the telephone keypad now. The next question received is from Andreas Billy from JPMorgan. Your line is now open, so please go ahead.
Good morning, Dr. Leitner. My question is on Schuler and the outlook here into 2021 when the savings comes through. If you assume a case where the market remains relatively unchanged and therefore your sales levels don't change much, what's the net savings you expect to drop to the bottom line in 2021 in terms of the cost restructuring, the factory closure that should start to benefit you as we go to the year-end? The second one on cash flow, just wanted to follow up on the earlier question on the working capital. If I understood you correctly, that after the big negative swing and then the big positive swing in 2019, that going forward, the working net capital ratios should be roughly similar as they are now. Thank you.
Second question, the answer is yes. We will see SR higher, but negative, but it's not a one-time effect, and we expect a stabilization around this level. With regard to the savings for the Schuler restructuring program, we have never achieved a substantial contribution from growth from top line. We still think that the current level is sustainable, obviously absent a huge crisis in the automotive industry. The savings we expect, overall, we expected approximately EUR 40 million, and of that, probably half should be visible in 2021, roughly.
Thank you very much.
The next question received is from Sebastian Growe of Commerzbank. Your line is now open, sir. Please go ahead.
Yes, good morning. Thanks for taking my questions. It's three, actually. The first one would be around the EBITA guidance. We talked about sales already, but it seems that things have been going materially better at Separation. I think your indications that you provided earlier would also suggest that this should continue into 2020. I would also say that Hydro looks pretty decent for what it's doing on the top line. The high-level thought is just, has there been any positive change in a way regarding mix, et cetera? Is this sort of soft guidance when it comes to the EBITA outlook for 2020 is solely a reflection still of Pulp & Paper and the mix deviation that's turning to a slightly less favorable situation eventually in 2020 compared to 2019. Second question is on restructuring.
You had obviously pretty high charges of more than EUR 110 million in fiscal 2019. Would you regard that all businesses are now right-sized and fully addressed to the extent that is needed? Is there anything coming eventually along the way in 2020 that I know that you would have to build a provision if it's already very clear, but I think the background of the question. The last question is around M&A after the massive sell-off we have seen, especially on the public equity markets. Can you just give us a sense if your appetite for M&A, because there's eventually just more interesting opportunities now than was the case three months back or so from here, but this has changed your policy in this regard. Thank you.
Yeah. Thank you. Your first question, EBITA. Obviously, we have also said that Pulp and Paper has a sizable amount of large orders where we obviously have, on a percentage basis, somewhat lower margins of capital has played a larger role than in previous years. That is on a profitability side, obviously has a moderating effect, and therefore the guidance is what it is. We are, let's say, realistically cautious. I'm not saying that we definitely think this is a conservative guidance, so the guidance is what it is. As you said, there are some positive effects, but there are also some moderating effects on relative profitability. Do we have the right size? Currently, I think we will continue to take advantage of restructuring opportunities if and when we identify them.
Already in the end of last year, our outlook for the economy was not dramatically different from where the economy was 2019, so we were rather cautious. We encouraged our companies, our divisions, to think about their capacity, to think about opportunities to take out some costs. We will continue with that. As I said, we are confident that Schuler, the actions that have been taken with regards to reducing capacity, reducing personnel in Germany, are sufficiently provided for. Currently, we don't see any larger additional restructuring opportunities. I would not say needs, I would merely say opportunities. I'm not excluding that we see some continuing moderate downsizing across all four business areas, maybe not a level Separation. It's not in Pulp & Paper, maybe in certain islands also of Pulp & Paper.
Our M&A, we have said after the acquisition of Xerium a little bit more than a year ago, that we want to first concentrate on maintaining the very good cash flow from Xerium and use it to earn back some of the relatively high purchase price, not high in multiples, but high in absolute numbers. I think we still see us in that position. We see 2020 still as a year where we would not very aggressively look for large acquisitions. We have always continued to look at some smaller acquisitions and do I believe that opportunities will come up very quickly? Not really. If so, maybe in areas that we are not very interested, like on the multi-supplier side, that certainly we could see some problems or companies having problems and therefore being open for discussions.
We are going to see our strategic direction. We continue to focus on aftermarket, on automation, on services. On the capital side, we have some ideas, but I would say they are focused on very few areas. If that would become available, yes, we would look into that. We currently do not see a dramatic increase in activity on this side.
All right. Thank you so much.
Ladies and gentlemen, again, as a reminder, if you would like to ask a question, please press zero one on your telephone keypad now. We receive the follow-up question of Andreas Billy from JPMorgan. Your line's now open, please go ahead.
Yep, thanks for the time. I just wanted to follow up on the tax rate. Obviously, you mentioned 2019 had some unusual components. What should we assume is a normalized tax rate for 2020?
As a normalized what?
Tax rate.
Tax rate. I think around 30%.
Thank you.
As there are no further questions, I hand back to Dr. Leitner for some closing remarks.
Thank you very much for participating with your questions. I look forward, first of all to your reports, and secondly to our next conference call in about three months. Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.