Dear ladies and gentlemen, welcome to the results fiscal year 2018 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 0 on your telephone keypad for operator assistance. May I now hand you over to Wolfgang Leitner, CEO, who will lead you through this conference. Please go ahead, sir.
Thank you very much. Good morning, everybody. Welcome to our 2018 results. When looking at the figures, we are definitely not dissatisfied with the development and the results of Andritz in 2018. Profitability, adjusted for extraordinary items, and we had 2 extraordinary items in different directions between 2017 and 2018, were practically unchanged compared to 2017. Obviously, it could always be better. Within these profit numbers, there are several very bright sides, but also some, I would not say dark sides, but sides that are not as bright as we would have wished. Let me start with the good developments. Clearly, the order intake has developed extremely positively. We have reached a very substantial organic growth of around 16% compared to 2017, both Pulp and Paper, Metals processing, but also Hydro and Separation developed favorably.
We significantly expanded our aftermarket business by some very promising acquisitions in Pulp and Paper and in metals again, Xerium and ASKO. In our biggest business area, which is Pulp and Paper, we had a record profitability of close to 10% EBITDA of sales. With the positive development, clearly, there are negative developments, things that we would have hoped to develop differently, and that is in metals. Both metals processing, the old Andritz metals part and metals forging, developed clearly below expectations, and I will come back to that in a minute. Also on the net working capital, we saw some sizable consumption of net working capital, which definitely needs to be addressed in the coming quarters. Much the introduction. Let me start now with the presentation. On slide three, you see again the summary. Group order intake was highest ever, EUR 6.6 billion.
Sales are slightly up EUR 6.0 billion, obviously it's always tracking the order intake. Face value of EBITDA decreased to EUR 394 million from 7.5% to 6.5%. However, if we adjust it for positive extraordinary items in 2017 and negative extraordinary items in 2018, earnings and profitability have practically stayed the same. In light of all that, our dividend proposal will be to pay an unchanged dividend of EUR 1.55, which represents a payout ratio of 70%. We now go into the detail on slide five. Order intake from EUR 5.6 billion to EUR 6.6 billion. From that, only EUR 147 million come from first-time consolidation, mainly Xerium. 16 percentage points are organic, you see on the right side, all four business areas developed very favorably with regards to the order intake, which means also obviously we have a good order backlog for going into 2019. On slide six is the order intake per quarter.
You see a continuing increase. We had a very good fourth quarter with EUR 1.9 billion, supported by a large order in the range of EUR 300 million from Arauco in Chile for a substantial part of a new pulp line, actually, and that is a brownfield. First-time consolidation of Xerium, which started in October, on October 1st in the fourth quarter, contributed to this approximately EUR 100 million. By region, on the right side, you see approximately one-third Europe, North America, 17%, Asia without China, 15%, with China or China alone, 18%, and other emerging markets, about 10%, meaning South America, mostly, and Africa and Australia. Overall, emerging markets are 48%. On slide seven, sales. Very small growth, 2% from EUR 5.9 billion to EUR 6 billion. Again, about EUR 150 million comes from first-time consolidation. It's a slight decline in Hydro. Good growth in paper, however, supported by Fibre Excellence Saint-Gaudens' first-time consolidation. Metals stable.
Separation increased by 7%. We look at the sales figures split into capital and service on slide eight. Capital sales, its last four quarters, it's increasing. Overall, it's a slight decrease we had in 2016, coincidentally several large orders for projects, especially in the Pulp and Paper area. That was certainly substantial. We got very high above-average order intake. If you take the last four quarters, capital order intake was EUR 3.9 billion. On slide nine, the continuing increase in service business, which is definitely our goal, from EUR 1.7 billion to EUR 2.2 billion in 2018. In rounded figures, compound annual growth rate of 17%. On the right side, share of service business of total business is now about 36%. Obviously, Xerium full year consolidation will further increase the service sales quite substantially.
We therefore think that Xerium is a very good fit as an acquisition and will substantially contribute to continuing our growth on the service side, which is a very stable business. On slide 10, order backlog. It's clear we booked more than we booked in revenues. Therefore, it's increasing by 11% compared to a year ago. On the right side, you see that the share of hydropower in the backlog is declining. We're now at 38% and Pulp and Paper is growing to 34%. Also metals quite substantial. Slide 11, the analysis of the profitability. On the left side, you see the adjusted figures. In 2017, we had a favorable EUR 25 million from the sale of the technical center and some other assets. We take that out, it would have been EUR 420 million.
In 2018, we add back the EUR 21 million provision for restructurings, it would go up to EUR 415 million, so -1%, and profitability would slightly decline from 7.1%-6.9%. Obviously, the face value figures are important, profitability, EBITA, on the right side declines from EUR 444 million to EUR 394 million by 11%. The EBITA bridge between EBITDA and net income on slide 12, starting with an EBITDA of 8.3% corresponding to EUR 498 million. Deduct depreciation, EUR 104 million, we get this unadjusted EBITA of EUR 394 million. We have EUR 53 million IFRS amortization. Of that, approximately EUR 12 million from first-time consolidation of Xerium. Going forward, Xerium will show an amortization of about EUR 32 million this year and a little bit more this year and next year and the following years than EUR 32 million, roughly.
Metals impairment, a small impairment and impairment overall of EUR 16 million in predominantly Pulp and Paper. Some smaller adjustments of previous acquisitions over the last five years gives us an EBIT of EUR 322 million. Financial result is minus EUR 17. Lower net cash, lower interest rate, especially in Brazil, and additional interest costs from our short-term borrowing similar to a bond that we issued last year. Gives an EBIT of EUR 304. Tax rate was quite low, 27.8%, due to some extraordinary or one-time events. We are not expecting this low tax rate to continue. Brings us to the net income of EUR 220 million or 3.6%. Coming back on slide 13 on the net working capital, which swung from EUR 121 million negative to EUR 161 million positive, by approximately EUR 280 million.
First-time consolidation, again, predominantly Xerium, added EUR 105 million. This will be permanent because that's the basis of Xerium's business. They don't have down payments. They don't have progress payments. It's a regular aftermarket business with some level of inventory and some level of receivables. The next two need to be addressed. We added EUR 100 million in Hydro and EUR 66 million in Pulp and Paper. Here we are working intensively. It will take some time until we see clear changes, but we will put more emphasis on working capital since we have spent a lot of money on the acquisitions last year. This has become more important. Just as a quick explanation, why have we not done it before? In large projects, we had the choice to offer favorable finance or payment terms or reduce the price. Our customers typically, obviously, make these kind of cash flow calculations.
For them, payment terms during the construction phase, only during the construction phase, play a role in comparing competitive offers. In a situation where we have a substantial amount of net cash, receive practically no interest on that, it made sense to offer more favorable payment terms without incurring any risk of actually receiving the payment. We always insisted on getting full confirmation for collateral for the outstanding payments or similar things. It made sense to rather maintain the price and offer payment terms. In the future, we certainly will put more emphasis also on the payment terms. Again, I think this will take time until we really can see that with execution times of two years and more on these large projects. We are addressing it in all aspects and hope to report some step-by-step process as we proceed from here.
Much to the net working capital change. On slide 14, cash flow. Earnings before tax, EUR 304 million. Interest result, tax depreciation, impairment tax, changes in provisions. These are typical project provisions. We still have very substantial. This does not mean that we, let's say, realized all the reserves we have. It's just that if we finish the last project and all requirements have been fulfilled and the customer has confirmed it, we have to release provisions that we didn't end up needing. Therefore, this EUR 106 million is as we go, is typical for our business. Will not come every year, I think one way or the other, definitely will come every year. This goes to gross cash flow of EUR 405 million and the change in the working capital as discussed, EUR 279 million. Interest paid, some small things.
Income taxes paid gives the cash flow from operating activities of EUR 8 million. The main issue, also the cash flow, obviously, is this increase in the net working capital of EUR 218 million. Slide 15, the summary again. I think we have covered the adjusted and non-adjusted EBITA because capital expenditure and normal development, EUR 137 million increase also caused by the acquisition of one manufacturing site in Brazil in the context of a larger agreement in connection with separating finally from a joint venture partner that we had taken over with acquisition of GE's hydropower business. Net liquidity is obviously heavily impacted by the acquisitions, which cost approximately EUR 770 million of that EUR 700 million Xerium by redeeming their 9.5% bond, which has been the plan from the beginning when we acquired them, and net working capital we have covered. On page 16, dividend.
Here I give you the sequence of the dividends. Last several years, we were rather on the lower range of what we have indicated as a payout ratio. This year, for 2018, we decided to go up to maintain dividend stability because we didn't see any reason to cut the dividend. We move on to the business areas. Again, quite different developments. I think Hydro is doing quite well. They have succeeded in increasing their order intake. They have continued to reduce their capacities around the globe where it was necessary, which they will continue also this year. Market activity has been basically unchanged. I think we had a quite good market share during the last year, which shows that we are competitive. Overall, I would say a lower level than in the top years, but improved compared to last year.
Profitability-wise, on slide 19, you see that if we adjust for restructuring measures, profitability was practically unchanged, 7.8%-7.9%. After these restructuring costs, it went slightly down from 7.8%-7.5%. Stable profit of business. We are happy to have it. Pulp and Paper on slide 20 is developing extremely well, which obviously is now by far our biggest business area. If we show full-year sales for Xerium, more than 40% of our total sales will be Pulp and Paper. With a good market environment that we see there, both for pulp and also for power-generating boilers, biomass boilers in Asia, we are very happy that we are very profitable there. On slide 21, you see the EBITDA margin now 9.9%. I think order intake went up again. Xerium contributed a little bit more than EUR 100 million to that. Very good organic growth.
Also really quite good market outlook, I would say. There are several large projects on the pulp side, also on the boiler side. I think on the, let's say, not so promising side, we have seen an increase in pulp inventories beyond 60 days of consumption, which definitely is too high. South American producers have, especially Suzano, being the market leader by far, have indicated they will cut production to bring inventory down again. That may impact slightly the prospects for the pulp market. On the other hand, we see several clearly serious projects in this field. As always, you cannot say when they really will proceed. Definitely not all of them will proceed this year, but definitely all of them will proceed over the next three years, I would say.
There we continue to be optimistic, we clearly have a good position, especially on the pulp side, also on the biomass boiler side. With the service sales now growing very substantially with Xerium, I think we see some good leverage, both on the cost side, but also on the sales and the top-line growth that should help to continue to develop that favorably. Service percentage of Pulp and Paper sales is now approaching.
40%
40% overall. Coming back to the not-so-bright side, 22, metals. The market is very volatile. I think when we had our last quarterly result call, probably I said it looks quite promising. Last summer, last September, we even saw our first stainless steel project to build new capacity in stainless steel. Clearly, the mood has changed towards the end of last year and also beginning of this year, driven by customs-related discussions between China and the U.S., and also, obviously, the automotive industry volatility, especially in Europe, but also in China. Which meant that in the extreme, when we delivered presses in China to suppliers of parts that were supplying these parts to producers of small pieces of equipment that used to be exported, among others, to the U.S., they were practically empty in January, for example. That clearly was concerning.
As you have certainly followed, the Bank of China has decided to provide much more liquidity to the market some 10 days ago, I think it is now, which again changed the atmosphere, I would say, quickly. Shanghai Composite Index went up more than 5%. Obviously, it remains to be seen whether it's sustainable, whether it really creates new investments, or whether it's just a short blip. Coming back to 2018, we had a good market situation overall in metals processing, but it was impacted by these automotive industry concerns or hiccups, especially in Europe, but also in China. On slide 23, excuse me. Clearly, profitability was unsatisfactory. We show some adjusted EBITDA margin of only 2.5%. Schuler Metals Forming did substantially better, but also not to the level that we look for at Schuler, and metals processing was negative. Negative due to cost overruns.
The good side is that the cost overruns were with projects that were first-time deliveries. First-time deliveries into the aluminum industry, technology first times in the galvanizing lines to the leading producer globally. We tend to consider it partially as an investment in development, but clearly it was unplanned, and we hope that we are very close to finishing these projects. Formally, we have not closed them. The expectation is that the impact for this year should not be very high. But we think we need to get final confirmation that we have achieved all the performance guarantees. Schuler, as I said, reasonably profitable, but not to the level that we want. Automotive industry is one factor and the high capacity in Europe, meaning Germany, is a second factor. The first factor we cannot change.
The second factor we need to change, we need to reduce capacities in Germany, need to continue to reduce capacities in Germany, and that will be one of the focus projects for this year. 2024 separation, I think good development. Order intake-wise, as we hoped for on slide 25 now, and if you remember, we got a good sizable order for the wastewater treatment plant in Shanghai for sewage sludge drying. Profitability is slightly increased, but clearly our goal is 6%, the medium step and then further on to a range of 8%. We are disappointed about the small progress we've made on the EBITA margin. It remains to be achieved now this year. Coming to the outlook on slide 27, as I said, we have a good order backlog, which nevertheless requires continuing order intake as we go forward.
We will continue to invest in optimization of our structure, of our organization, of our capacities, which will continue, especially in metals, and to a certain extent, also in Hydro. We need to integrate these newly acquired companies. Integration of the Xerium is going very well. I think customers like that Xerium is now part of us, is a stable supplier. We see synergies. We have realized the substantially better part of the cost reduction opportunities that we were planning have been realized or are in the process of being realized. Now Xerium needs to continue to perform, and we need to realize also the moderate top-line growth that we are planning and have planned in the acquisition. We need to improve the net working capital by various measures. We will continue to report on that as we go forward. There will be ups and downs.
Obviously, there will not be a huge step short term, but we clearly commit to improve that step by step in the next quarters and probably two years. The outlook, obviously, we expect a significant increase in sales compared to 2018, because of the order backlog and first-time consolidation, which has only been partially consolidated last year. Net income and profitability, EBITA margin should also increase compared to the previous year. Much the report on 2018 and some guidance, and I'm sure you will have some questions on both topics. Thank you very much.
Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, 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 are using speaker equipment today, please lift the handset before making your selections. One moment please for the first question. The first question we received is from Andreas Willi from J.P. Morgan. Your line is now open.
Wolfgang Leitner, good morning, everybody. First question I have is on the provision release you shown in the slides. Maybe you could talk a little bit more about this in terms. Is this EUR 106 million a net provision release for the year and therefore the earnings that you delivered are basically overstated by that, and we should take that into account when we look at 2019? You also guide to further margin improvement. Maybe you could just talk a little bit about this change in provision and what to expect going forward. The second question is on Xerium, the contribution in the quarter in the EBITA. Maybe you could give us some more details around that and whether there was any one-off costs or first-time consolidation costs in the EBITA in the Q4. The third one on the cash.
You explained earlier the trade-off between basically getting good terms on cash and getting good terms on profitability. Now that you're focusing more on cash, what is basically the benefit if you could quantify or at least qualify that on margins historically from that strategy that we need to take into account if you focus more on cash going forward?
Okay. If I start with the Xerium, EBITA impact has been zero. One-time expenses has been somewhat above EUR 10 million, roughly. The payment terms, I don't think that overall it will have any impact on the profitability or on the margins. I think we are just more with less cash. We just have more focus that we want, and also looking at the development, that we just want to reduce this working capital, which in turn should end up on the cash side as we can show. I think it's just a change of focus, which needs to be communicated to all our salespeople, at least to these larger project-based people. Do I think that we will get dramatically better payment terms? No. Will it be marginal? Do I think that we can do better on going after our receivables? Yes.
Do I think we can do better with regard to our POC payables to our suppliers? Yes, I think there is room. If you combine all that, I think we have reason to believe that we can improve it step by step. Obviously, we are locked into the backlog of the orders we are executing. We have identified several tasks and have distributed them in the group. From that, I expect to see some positive development on the net working capital side without assuming or expecting any negative side on the margin. The first question was?
Release of the provision.
Release of provision. Yeah. I think beyond, I think the operating cash flow was nearly zero. Actually, Mike thought of bringing this bridge. This is regular business. This is nothing very special. It's probably, I would say EUR 20 million to EUR 30 million higher than it usually is.
This is basically the quarterly business. Once we have really finished all the performance guarantees, we have been released from all obligations to our customers, then we have to release these provisions. We cannot justify them to our auditors and do not want to justify them. This is not pulling out all the reserves or any reserves we have. It's probably, as I said, maybe EUR 20 million, EUR 30 million higher than it usually is, but this is basically standard business.
On the working capital, in terms of the progress, is progress for you basically that from now on we get stability and then improvement, so the absolute working capital starts to come down? Is this just about slowing of the build of working capital?
I would not commit that from now on you see a decline, but it's obviously the goal is to reduce it. Yeah.
Thank you.
The next question here is Jack O'Brien from Goldman Sachs. Your line is now open, sir.
Yeah, good morning. Just want to come back to that net working capital point, if I may. I thought the explanation on the Hydro terms was very interesting. I note that for Pulp and Paper, you also saw a EUR 66 million working capital outflow. I was hoping you could expand on that given how strong order intake was and you would assume a degree of prepayments which would come with that order intake. That's my first question.
As I said, it's always three factors. Payment terms have not really changed to any sizable amount. One or the other progress payments may have been maybe three months later than it used to be. Not delayed, just from a contractual payment terms. Again, I think it also a question of focus. It sounds easy and we still need to deliver. POC receivables, overdue POC receivables, and especially also POC payables, maybe we need to focus on that more and I think we can see some results if we do that.
Thank you. Just one more on working capital. Given the proportion of your business from service revenues is increasing, has that also had an impact?
Yes. Sure. I mean, the first-time consolidation, it's anyway added this EUR 100 million, which I said will stay. There's nothing wrong about it, nothing special about it, and nothing to. Generally, we can always optimize it, and we'll also have an eye on that. The room there is extremely limited. Clearly, with any percentage point of higher service share, it will go slightly up, yes.
Okay, thanks. Just.
Aftermarket has inventory, aftermarket has receivables. Payables are more or less the same probably, these two things inevitably come with the aftermarket and therefore also our profitability goals assume higher costs for capital in the service side.
Thank you. Just moving on to the pulp side. Obviously, you won that good Arauco order in the fourth quarter. Do orders where both yourselves and Valmet are working on them sort of impacts the profitability? Obviously, there's a very good pipeline of potential orders over the next two, three years as you described. What are the profitability terms like when you co-work on these projects?
They are unfortunately not different from if we get it alone or maybe they even, as usually if a customer typically have a high interest in making sure the projects where they invest EUR 1.5 billion, EUR 2 billion goes on track and finishes on schedule. For them to have to split the order between two sometimes makes sense for them in their eyes because they think they don't bet only on one and maybe the one may be overloaded or whatever. They feel more comfortably on the other hand or in addition, they have some technical preferences that may contribute to the decision to split the order.
It's a competition until the end for each and any of these packages, usually six or seven parts in the pulp mill. Sometimes we have obviously hypothesis what the customer prefers technically, and there we probably have a fair chance to maybe add one or two percentage points to our calculation. You never really know in which direction it goes. Sometimes if a customer is only price sensitive he just makes the calculations. What is the price if you get one package? What is it if you get two? What if you get three? And so on. Then he makes his homework and decides what to buy from whom. Which is always the case to a certain extent, but I would say it's very rare that the customer doesn't have any technical preference.
The limits that he can pay more for the technically preferred solution are quite small.
Thank you. Just one final question on metals. The profitability in that division is still fairly weak. Order intake for 2018 was strong. Where would you expect EBITA margins to get to in 2019? What is the consideration given emerging markets was 41% of your order intake? I think you've talked in the past about margins being somewhat lower in some of these markets like China. How should we think about margin evolution through 2019?
I think metals is clearly there are two different situations. Metals processing, I think, in the past has been struggling with very low order intake, very low volume and low prices because of that. I think they have succeeded in increasing slightly the quality of the prices and they need to finish these first-time projects that I've mentioned before in aluminum and also in galvanizing. On the forming side, on the Schuler side, we are definitely impacted by this volatile automotive market. Just to add one aspect to that. One of the large OEMs has just suspended the execution of a large order for more than a year. It's not canceled it's just that I don't need it so quickly. Why don't you stop the execution? We pay the storage and so on, but we only need it one year or more than one year later.
Our direct costs are covered, but obviously we have planned it in the capacity and then therefore that's a complication. It becomes a cost issue whether we can fill it with alternative projects. On the good side is Schuler succeeded in selling the first mid-market lines into Asia. Also, their customers are struggling with the situation in the automotive market. They have also cost delays in execution because they cannot fulfill their requirements. All that I think says that short term, I would say the market is not supporting, is not helping in improving the margins. Definitely not. It's the other way around. Midterm, I think we see continuing projects also on the most sophisticated market segments will not go ahead this year. I'm very skeptical. The ongoing challenge we have is to adjust our capacity in Germany. This will continue this year.
We are just in the process of working on that. We have started and implemented several, either, how do you say, terminations of small product groups. We're in the process of having discussions with selling one or the other small, very small product groups, which have been negative for us several years. We are looking at some other alternatives. I think we are working on the structure. That will certainly imply a further reduction of capacity in Germany and probably continuing build-up in the emerging markets. China also for these presses, as I described before, has been weak or very weak in beginning of this year. Remains to be seen how it will continue. Currently, it looks quite slow. That would mean that we will not expand in China. Do we expect substantial restructuring in China? No, that is not the case.
We expect some restructuring. I would not and cannot outline to which extent it will be in Germany, but we clearly need to continue to adjust our capacities in Germany.
Thank you very much.
The next question received is from Andre Finka from HSBC. Your line is now open, sir.
Yes. Many thanks for taking my questions. A couple of them have been asked already. Maybe just on your outlook statement. With regards to order intake, I know you're usually not guiding on order intakes, given the market outlook you provided on slide 28 was very good and covered up for pulp and separation, good for metals. Is it fair to assume that you expect not only sales to rise in 29th, but also order intake?
Sure. Order intake just from first time consolidations should grow somewhat, yeah.
I'm sorry, on an underlying basis, maybe excluding the Arauco project as well. Just if you look at the underlying trends in the fourth segment, do you expect-
What we cannot do is take out large projects because we depend on large projects, and that's part of our daily businesses, as is. Let's say, taking out the first time consolidations, we saw very good organic growth between 2017 and 2018. It definitely will not continue on this level. Do I hope that we can continue to grow organically on the service side? Yes. Capital will be volatile. It always comes in large chunks. Do I see currently sufficient number of larger projects to support at least the same level as last year yet? Can I guarantee it? No.
Thank you. Very helpful. The second question also on your outlook on the margin side, you are looking to improve profitability. Is that referring to the reported or to the adjusted EBITA margin?
We adjust for extraordinary items. Therefore, we cannot now forecast extraordinary items. There may be one or the other positives, but definitely, as I said, on the Schuler side, we certainly would expect some further restructuring expenses. How much will it be? We probably will be able in the next quarterly meeting or definitely mid-year to give you a better outline on that. Overall, the profitability, I think, we see promising developments on the Schuler side. We just need to adjust the cost structure and the capacities. Once that is done, we continue to see it as a very attractive addition to the Andritz Group and a promising good profitability.
Thank you very much.
The next question we receive is from Sebastian Growe from Commerzbank. Your line open, sir.
Good morning, everybody. The first one would be on the metals business and to the metals processing. You said that the overall impact that you are expecting from the cost overruns is eventually not too high for 2019. I would be interested in some more color really on the magnitude of the cost overruns that you had incurred in 2018. If you could also give us a sense on how big those projects are in terms of sales. That's the first question.
On this metals processing side, cost overruns was low double digits. Size of the orders is in the mid double digits, typically. Middle double digits with individual order size, low double-digit overrun is the aggregate of the overruns of these several orders. The second part of the question was?
That was exactly what-
That was. Okay, sorry.
If I just add back around, say, EUR 20 million, if that is the right analysis behind the low double-digit cost overruns, this will give you something like a 40 basis points or so tailwind on the margin for 2019. I would be interested in your thoughts around what you think is doable in this increase in the EBITA margin. You have some relief, hopefully, from the phase out of those cost overruns. I guess you would also see some operating leverage from the good order intake that you had at book to bill of 1.1. Can you just qualify what you think is realistic for 2019 to assume and also shed some more light on the overall trade-off that has been discussed before between more favorable working capital terms for the customers, but at the same time, decent margins for you in the execution part.
On the order backlog, would you say that the overall margin level is better than what you incurred in 2018?
For the metals processing part, yes, should be. It clearly should be. As I said, we had a loss for various reasons. One of them were these cost overruns last year. Assuming that we don't see any further cost overruns on these few orders, metals processing should be back to profitability in the low to mid teens EBITA. Schuler, the main question there is restructuring. Maybe also these lower first-time mid-market price lines for the automotive industry in Asia will have an impact continued. Clearly should be at least as good as the metals processing figure that I've said.
For the remaining businesses, this is really the last question. Especially in Paper, and you mentioned the very good margin that you have been able to generate there. Do you see any change to the overall gross margin levels that you have in the order backlog compared to 2018 execution?
No. As I said, this release of order-specific provisions may have been EUR 20 million, EUR 30 million more than it usually is. Therefore, profitability is maybe somewhat higher than it. I feel confident will continue on. Clearly, we continue to see and expect good profitability, a very good profitability on the Paper side.
Okay. Thank you very much.
The next question here is Sven Weier from UBS. Your line is open, sir.
Yeah. Good morning, Wolfgang Leitner. Two questions, please.
Morning.
Morning. The first one is on the GL&V acquisition of Valmet. If I look at the deal, it was priced like at a mid-single-digit EBIT multiple. I was just wondering, it would have not been a very sizable acquisition for you guys. Why you haven't participated in this, and if the multiple they paid tells us it's not a good business? That would be the first question. The second question would be just on separation. I mean, that business has been below your expectations for some time, so how will the margins improve there? Is that something also where you have to take some restructuring steps, or is it simply coming from a better load, better mix in 2019? Thank you.
GL&V, we have not been invited, and therefore we don't think it would have been an attractive acquisition. No. We have not participated. I think GL&V's business in all respects is, in this case, has been a legacy business of an old installed base, where certainly can make good money. I hope the best for Valmet, but I would be surprised if they would have a very aggressive growth plan for that business. I think with our Xerium acquisition, we see, I mean, it wasn't an either/or situation, but clearly Xerium is, as you said, it's also not serving an area with substantial growth, but it's high tech and the type of this business is much more promising than this legacy business. We have looked in the last, I don't know, 10 years, more from time to time on some parts of GL&V's business.
We always have said that we would not be interested in that. Again, we have not been invited, so therefore it wasn't our decision, but the decision of the seller.
Okay.
Separation.
Separation, the question, yes. I would hope to add two percentage points to profitability this year. It's a brave forecast, but I think we need to continue to improve it. It will not require restructuring. Nothing sizable. Maybe some one or the other very small thing, but this is not the main lever. It's continuing to grow and looking at the margin and the prices. That is the key to continue to improve the EBITDA margin and also the gross margin, obviously.
I understood you correctly to one of the previous questions that the official goal for the guidance is to improve the adjusted EBIT margin because you can't control what's coming below. Did I understand that correctly?
We can control it, but we don't know what we decide to do.
Yeah. Of course.
Yeah.
Okay. Thank you.
The next question we received is from Daniel Lion, Erste Group. Your line is now open, sir. Mr. Lion? Your line is now open for your questions.
Yeah. Hello. Sorry, I was muted. Good morning. I would like to focus on Xerium a little bit. Maybe could you give us a feeling of how you consolidated the order backlog of Xerium in the fourth quarter, and how you plan to do so going forward? Maybe also related to Xerium, would you expect further implementation costs now, maybe in the first half year in 2019 or even beyond that? Your thoughts would be interesting.
No further implementation costs. Very small order backlog because they typically have a very small backlog. We had an order backlog of EUR 100 something million, very small. Basically one quarter.
Okay.
Not because they were empty, because that's the character of the business.
It was for 1 backlog, basically 1 quarter. Most of this, I guess is recurring business as well?
Yes. It's the fabrics. As you remember, it's fabrics and roll service. Fabrics is definitely recurring business. Obviously, you can lose it if you want to win 1 or the other, but the large extent is recurring. Roll service is also recurring, but not on a regular basis. It depends on when the roll needs a new cover or needs to be otherwise refurbished.
Okay, thanks. Then 1 on your working capital or maybe net debts level. What would be a level here that you would feel comfortable with given the current interest rate environment? Is there any fixed targets that you want to share for 2019 already?
For the debt or for what?
For both working capital sales or maybe net-
Net working capital is in absolute figures. Adjusting for this first-time consolidation, but in absolute figures to bring it down step by step. As I said, will take some time. On the debt side, from a cost standpoint, we have now fixed interest rates of, let's say, weighted seven years in a range of 1.5%-1.6%. We are not concerned. Obviously, it adds interest payment, and we want to maintain a good liquidity, but we don't see that as a limiting factor. Clearly, I think we have been lucky last year with the M&A opportunities we had, and we have been successful in taking advantage of these opportunities.
We have spent a sizable amount of money, and now we need to concentrate on making sure that the cash flow is coming back and that we can also see the success of these acquisitions financially in our income statement.
Okay, perfect. Thank you very much.
The next question here is Graham Phillips from Jefferies. Your line is open, sir.
Unmute.
Mr. Phillips, your line is now open.
Hello.
Maybe you are on mute.
Yep. Sorry. Same problem. Okay. Yes, sorry. Just on the provision release, was EUR 54 million alone just in the fourth quarter. How much was Hydro and how much was Paper and Pulp?
We will need to get back to you on that.
Okay. On Xerium, can you give us a bit of a feel of how the organic growth of the business itself performed on a comparable basis? Obviously, you didn't have it for the whole period, but on a comparable basis, and how the profitability, on a, again, comparable basis, is performing?
Profitability was good according to plan and according to the previous quarters. There was some growth, about low single digits, 3%, 4%. Keep in mind that our business plan does not assume a substantially growing market for the fabrics, at least, because we see a shrinking market on the white paper side and a growing market on the brown paper and board side, which probably will balance each other more or less. We see more synergies on the service side. I think that's the basis of our business plan. For that, we plan to improve very short-term the profitability from the cost savings, which I've said we are nearly complete with regard to that, and then some very moderate growth going forward. Coming back, Michael Buchbauer has figured out the split in this provision, we have EUR 50 million.
It was EUR 40 million Hydro and EUR 10 million Pulp and Paper in the fourth quarter. Rough figures.
Okay. Thank you. Just on service, if we strip out Xerium, the service growth barely grew in sales terms. It's obviously mainly Hydro and Paper and Pulp. How should we think that that business should perform in terms of growth? What are the competitive environments like? What should we expect in terms of contribution going forward from service in Hydro and Paper and Pulp?
Yeah. I'm not sure what you're referring to. Typically, our service sales are growing at least a little single digits, maybe 6%, 7% per year organically. I think that is the goal we have. Again, in these service sales from time to time, there can also be a EUR 20 million refurbishment order for some line, whatever. That could cause a peak in one year and on a comparable basis then in the following year, a drop. All our business plans for all service divisions are including, I would say, at least in a range of a 5% growth rate per year.
Okay. Yeah, that maybe explains the lumpiness. Okay. Just on metals. This is obviously a business which fundamentally doesn't have as much in terms of service. Can you contrast a little bit between the processing side and the forming side? Are there any opportunities in that area? Because clearly, the lumpiness of the business and low profitability means you haven't got a buffer of service to fall back on and makes it fundamentally less attractive than the Hydro and Paper and Pulp businesses.
I need to qualify a little bit what you said. On the metals processing side, we have acquired a company, a pure service company for the beam industry producing knives in the EUR 30 million-EUR 40 million sales range last year, ASKO. On the metals forming side, which will provide some more stability, obviously. On the metals forming side, service is very important. Service is about 25% roughly of the sales of metals forming in that range. There we see good growth opportunities.
Okay. All right. Thank you very much.
Thank you. As far as there are no further questions, I hand back to Wolfgang Leitner.
Thank you very much for your questions, and I look forward to seeing you or hearing you again in about three months. Thank you.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.